The Bears

George Soros has doubled down on his bet that the S&P 500 is headed for a fall.

Marc Faber is another investor that's prepared for a market collapse, " ..... I am hoping for the market to drop 40% .... "

To read more, click 'Soros and Faber Are Betting On A Market Collapse'.

A 40% drop for Dow is a 6,630 points pullback from its 31st December 2013's peak of 16,576 level to about 9,950 level as shown. That is the mega wave 2 of the super wave VII.

Many investors and analysts believe that we are currently in the midst of a stock bubble. And of course there are also other experts such as Joel Kurtzman that have different opinions.

That is also basically how a market can exist, you always need a seller and a buyer for a transaction.

I am a strong believer that we are in the midst of a stock bubble that will burst ultimately. But I have no idea when the bubble will burst or whether it has already burst after setting its historical high of 16,576 on the last day of 2013.

 

At this moment, after 2 hours of trading, Dow continues to move higher by another 150 points (+1%) to 16,253 level, whereas Nasdaq is currently trading in record territory at 4,305 level, 33 points higher than its previous historical high of 4,272 recorded last week on Tuesday. The market sentiment at this moment is generally positive but don't forget that the positive sentiment can turn negative with two or three days of sharp losses.

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Dow and FBMKLCI

Dow - No crash scenario
Dow is forming the wave c of major wave (6). Possible low at 15,000 level.

Dow - The assets bubble has burst
Dow is forming the sub-wave iii of wave (i) of major wave (1) of mega wave 2. The historical closing high of 16,576 on 31st December 2013 marked the end of the bull-run.

FBMKLCI - Moved in tandem with Dow (no crash)
Forming the major wave 4 with about 15% pullback to 1600 level.

FBMKLCI - The assets bubble has burst
The index will form a smaller major wave 4 with a failure major wave 5.

Watch out for the 'Head and Shoulders' reversal pattern

If the index started to move lower from its current level, watch out for the 'Head and Shoulders' reversal pattern. The neckline is at 1780 level.


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Will the stock market crash ?

A friend forwarded the following article to me.

Will the stock market crash? - Koon Yew Yin

Author: Koon Yew Yin   |   Publish date: Tue, 18 Feb 11:02

 

This is an extract of Joel Kurtzman’s interview :

 

Much has been written about the decline of the U.S. as a world leader since the financial crisis. But despite relatively high unemployment and a widening income gap between the rich and everyone else, growth is accelerating, debt is declining and the banking sector is relatively healthy.

 

Economist Joel Kurtzman, who is also a senior fellow at the Milken Institute, says America is not in decline and actually on the verge of resurgence.

 

The author of the new book Unleashing the Second American Century: Four Forces for Economic Dominance, Kurtzman cites "four transformational forces" that will lead that to resurgence: tremendous creativity--"we produce more new ideas ... than any other country" -- tremendous energy reserves, reserves of capital and a re-shoring of manufacturing.

Myth #1: America is broke

America's private sector is in better shape than it's been in years, and the American consumer is healthier than she or he has been in the past 35 years, says Kurtzman. "On the private side of the balance sheet America is doing just fine," says Kurtzman. The public side is another story, but it's improving. The money America uses to pay its debt has been declining as a portion of GDP every year, "and it's very manageable," says Kurtzman.

Myth #2: High unemployment rates are here to stay

Kurtzman says the high jobless rate is concentrated in people without a college education and those under 25. The unemployment rate for someone over 25 who's college educated has held steady at around 4%.

Myth #3: China is ascending while America is declining

"China is coming of age at probably the worst time in history for a country that wants to be a manufacturing power," says Kurtzman. China's strategy involves having 200 million people a decade  working in manufacturing, says Kurtzman. "They can't accommodate that," says Kurtzman. The U.S., meanwhile, has moved from a manufacturing-centric economy to a service-focused one--a transition that China will eventually have to make, says Kurtzman. "That will be very difficult for them."

Myth #4: America is a spent power

Kurtzman says the U.S. is in a great position for growth because it remains the world's leading military and manufacturing power, has trillions of dollars in capital to deploy and is now less dependent on imported oil given the development of its own energy reserves.

Myth #5: America doesn't make anything anymore

This is simply not true, says Kurtzman. America is the dominant manufacturing power in the world if you include what we make overseas. But if you just look at just what we make in America, we make 20% of everything produced. That's about the same as China but China makes low value-added products such as towels and clothing. We make airplanes, radar, turbines -- the big expensive stuff.

 

Conclusion: As you know the KLCI has recently broke the all time high record and like most investors, I too have the fear that the market might crash soon. After you have read the above extract, you must come to the conclusion that the US stock market will not crash so soon and our stock market will also not crash so soon.

 

I hope I have given you more confidence to invest and play the game.

 

 

Get this book if you wanted to learn more from Joel Kurtzman, a Senior Fellow at the Milken Institute, a non-profit non-partisan think tank.

 

 

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Weekend Update - Dow, PJ Dev. Latitude Tree and MK Land

My two likely options for Dow remained the same.

For major wave (6) formation, wave b is about there. For zig-zag a-b-c formation, wave b cannot go too high.

But for sub-wave ii of the pessimistic mega-wave 2 formation, the current rebound can go for a 100% retracement to Dow's historical high of 16,576 level to form a double-top reversal pattern. Watch out for the double-top.

PJ Development (Rm 1.49)

Refer to my article on 16th November, 2013, after the 2 sens breakout above the 1.20 level on 15th November, the stock moved higher and then it dropped back to retest the 1.20 level before moving higher to complete its sub-wave iii.

 

On Friday, it gained another 6 sens with high volume to close above sub-wave iii. If the magnitude of sub-wave v is the same as that of sub-wave iii, sub-wave v and possibly wave (v) can end at 1.65 level.

PJ Development Warrant C closed at 65.5 sens on Friday, doubled its price of 33 sens in November. If the mother share were to add on another 25 sens, Warrant C might reach 90 sens. The fifth wave sometimes is quite unpredictable.

 

Latitude Tree (Rm2.66).

This is another stock that pulled away from its previous high with high volume.

It has to be the starting of mini-wave 3. Its wave (i) added 100%, and its wave (iii) added 150%. Can its wave (v) add on another 100%?

 

MK Land (Rm 0.435)

Another stock that has a break-out on Friday is MK Land. 

 

That is the sub-wave iii of wave (i) of its major wave 2.

Perception (Rm2.00)

Nancy Shukri, "Recently when I had tea in Kuching, there were 6 of us and it was only Rm12, is that expensive ?"

Well, 6 cups of tea at a Kopitiam (cannot be Starbucks or equivalent right?) for RM12, if you said it is not expensive, then it is not expensive loh. But for me that used to pay Rm1.50 for a cup of barley ice, at Rm2 that is another 33% increase in price. And if Nancy said that is 'sub sub sui', then it is 'sub sub sui' loh.

I have been shopping around, comparing prices, looking for value buy since I started working in 1975 and now ministers are teaching me how to compare prices and look for value buy. Sigh!

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Dow - Next is wave c ? or sub-wave iii ?

In its January down-trend movement, Dow has completed 5 mini-waves, the low at around 15,400 level can either be the wave a of its major wave (6)

Or the low is the sub-wave i of wave (i) of major wave (1) of its mega wave 2.

The current rebound, whether it is the wave b of major wave (6) or it is the sub-wave ii of wave (i), the magnitude is about there.

The next down-trend can either be the wave c of major wave (6) or it is the sub-wave iii of wave (i). If Dow moves down with steep gradient with high volume, than it is likely to be the sub-wave iii. However, if it moves lower at a slower pace with lower volume, then it is more likely to be the wave c of its major wave (6).



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Dow - Can forget about wave (x)

With last Friday's strong rebound, the magnitude is too big to be considered as mini-wave 6, we can forget about the wave (x) scenario.

We are left with 2 possibilities, a more optimistic major wave (6) formation with a 10% correction as shown below, to 14,750 level.

Or the pessimistic mega wave 2 formation as shown below.

With this pessimistic option, The worst that can happen is for the mega wave 2 to go all the way to 6,547 level for a 100% retracement within the next 24 months.

 

 Mega wave 2 of the super wave VII.

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Dow - The same 3 possibilities.

Optimistic Scenario

The correction is about to finish. Dow is about to complete its wave (x) at around 15,400 level. The next up will be its wave (xi).

A Higher Degree Correction
Mega wave 1 has more than 5 major wave. Dow has completed the wave a of its major wave (6). Next up is the wave b. Wave c will go to around 14,750 level.

Worst Scenario - The bubble has burst
Dow has completed its mega wave 1 and is currently forming its mega wave 2.

The worst that can happen is a 100% retracement. Mega wave 2 will go all the way to the starting point of mega wave 1, the 6,547 level, to form a double bottom reversal pattern.

Less damaging is a 35% pullback to 10,655 level.


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Dow - Correction not over yet

Dow closed the week at 15,698 level. It dropped 878 points or 5.3% for the first month of 2014. The 3 possibilities for Dow that I have mentioned previously remained the same.

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