Passing along information regarding US equity markets - specifically Nasdaq

This information came from an old colleague of mine that I have known for the greater majority of my life on this rock. Unfortunately, I cannot copy the same exact charts because it has his firms digital watermark(s), but I was able to recreate it almost exactly sans some unrelated items.

I originally came to this website for other purposes, but recently have had some *interesting* conversations relating to the world economy so I decided I should pass this on.

Here is an almost verbatim copy of what is contained in the E-Mail, without names or profanity.

Monthly candle chart. Massive continuation pennant has made its 5 leg in addition to the retest of the breakout. When confirmation comes through and nullifies the previous 3 year high I suggest you drop all hedges. First stop is 75, will reevaluate then.

I took some information out, but still tried to keep the important contents. Here is what he is saying, and after looking over this a few times and drawing the charts myself I tend to fully agree.

1. What is a pennant?
   
   This is a pennant
   
   This is a much better description than I could likely give you. What we are looking for though is a wedge pattern that forms with two things most importantly.
   
   1. Lower Highs
   
   2. Higher Lows
   
   It comes from the theory that security prices act and react in some form like a coil. Compression leads to large moves in the marketplace. It really all boils down to psychology if you ask me, but I gave up this part of my life a long while ago. I fully claim to be no expert.
   
   
   
2. Why is this formation important?
   
   When this pattern forms after a move upwards, it signals a continuation pattern. Sometimes this pattern will occur in a negative environment (fewer occurrences). This is strictly a positive momentum phenomena relating to this occurrence as it is preceded by a large move upwards. A quick internet search will yield many more instances I am guessing if you don't want to take my word for it.
   
   
   
3. What will the results be?
   
   Impossible to know for sure. There are no such things in life as a "lock". Statistically in an infinite world anything and everything is always possible. When he says "75" without talking to him in further detail I am guessing he means the completion of the inverse head and shoulders pattern that is about to be validated (possibly). If you ask me it is going to be quite a bit more than that over time if this pennant is legit. Again, I make no judgments, I am just passing along information.
   
   

This is my best world macro view synopsis of what we have seen since 1990 relating to what you are seeing in these charts.

The technology boom was just that, a boom. Things became much overvalued for a couple of reasons. But mainly it was because no one knew what valuation this new technology really should have or how exactly it would impact us.

Once this shift occurred and once things could be evaluated correctly the world economy fluctuated back to some sort of equilibrium level. This was IMO 2002 -> present day. Technology now will only exponentially grow and mature, but one thing is much different. We know how to better value technology and its impact on the world down the line.

Think about it like this. Did anyone really know what you could do with a computer in even 1995? How many of you knew how to even turn a computer on in the early 90's? Hell, I still had a problem replacing my hard drive recently. The market doesn't see it like this though, it sees it in future valuations and this is the most important part.

I know this websites composite as a whole really isn't interested in these things, but I am sure it will at least be something of interest to a few. By the way, no, I am not selling anything. I am hoping someone will interpret these charts differently than I because it would be nice to catch him off guard with a left-hook. Although, from all my dealings with him previous, he rarely makes mistakes. Nor did he get to where he is currently by being wrong. But it would be nice to 1-up him for a change.

/*/*/*/

Here is what we are looking at.

The first image is a long term chart of QQQQ (proxy for Nasdaq, an ETF) since the early 1990's. Remember, the data is represented as 1 month per bar of information and it is also in logarithmic format. This is just a fancy word representing everything is presented with equal weighting for percentages.

The second image is a close-up of the past 3-4 years, and it is also represented in the first chart. There were a couple of things I couldn't draw correctly such as retracement levels, but that is deviating from the original message anyway.

Hope this helps.


[atsimg]http://files.abovetopsecret.com/images/member/2075c771d7af.png[/atsimg]




[atsimg]http://files.abovetopsecret.com/images/member/09f5c01274eb.png[/atsimg]

Its hard to be bullish with all the doom and gloom especially concerning the European soverign debt crisis. But the Federal Reserve will not let the asset class deflate and with all the free POMO money to the primary dealers its hard to see stocks going anywhere but higher in the short term.

Although we are at a critical junction on the SPX500 again, the 61.8% retracement from the October 2007 highs is being tested again. If the market can rally and close above 1227 Im pretty sure we will see a nice rally into Christmas....




For the record though it wouldn't take alot for risk sentiment to turn very bearish very quickly if another bank or country looked like failing. Its only a matter of time before spreads on Portugal and Spanish bonds get ridicolous and the crisis in Europe worsens though in my opinion.

Regards
TankWolf

reply to post by TankWolf


This is definitely where you either turn into a huge bear or bull. A lot of things going on here.

I really doubt this market goes anywhere south though with 0% Fed Funds Rate. In fact, I would have to give it slim to none chance with unlimited leverage on the cheap.

The more I think about it the more I have to believe most everything is priced in minus other possible world events (NK Nuclear ---> ∞).

I try not to think about these things too much as the stress is what took me out of this a long while back.

Currently though it does seem that R2k and Nasdaq, if indeed still being leading indicators, are showing us where we are headed in SPX and DJ.

Good luck to you.

I have received some clarification on these topics.

75 / Share was indeed the target estimate for the breakout, but he also believes that this will lead to a retest of the exact same levels we are at currently after this happens. This will be the shakeout of all "weak" long-term buy and hold strategists in the marketplace. Potentially the next best buying opportunity of the decade after this occurs.

His target though for 10 years is incredibly high though. Anything is possible, but IMO he is probably overshooting these estimates by 2020. But I am not a professional.

Good luck to you all.


[atsimg]http://files.abovetopsecret.com/images/member/c38816fa2f3c.png[/atsimg]

i trade on the thinkorswim platform...the devaluation of the dollar, along with the rise in precious metals, and the fact that businesses are hoarding capital has something to do with the rise. historic record profits are being realized while at the same time capital spending is at one of lowest points in history, is also contributing to the upward surge.

reply to post by jimmyx


You probably are not that far off with your analysis, or at least I am sure that piece fits somewhere into the big puzzle.

Although if he is correct in his analysis I would have to guess metals will go south as the equity markets turn higher. But that currently isn't the trend now. Although has been for the past couple of decades. * edit * In addition to bonds turning back the other way as well.

Impossible to time the market though, that is unless you are selling subscriptions to your chat room, haha.

Good luck to us both.

Precious metals is the key to all of this, and Iron ore is one as well. There is a bull run in play with all of this right now, I know I am in this up to my eye balls right now things are just starting to take of so if all falls into place we should see a good run for the next 2 years or less. The teck market would play nicely into the next rally of stock to go bull istic as you know all hard ware requires precious metals and steal so they go hand in hand, we may all so see two bull market at the same time now that would be a first but who knows it can happen.

Just my op

good luck and thanks for showing that.

reply to post by jsettica


Anything can happen.

I don't doubt that one bit. I do find it hard to fathom gold (any precious metal) to continually move higher along with equity markets at the same pace as currently displayed. But no doubt could happen, for sure.

I think the best bet would be short 30 Year Bond, long Equity Markets. Depending on which macro situation is worse among Europe, USA, Australia, Japan going forward will tell you what to do with the US Dollar. Impossible to know for sure though. Really is.