Hamilton's E-Wave Analysis

DJIA update

djia nov19 2012

The Dow did not even hesitate to go through the lower trend line, like a hot knife through butter. Total drop was 1068 points or 7.8%. Unfortunately I cannot get detailed tick charts but if you look carefully you can see that the drop can be counted as a completed 5 wave sequence, but by the same token it can also be viewed as a 1-2, 1-2, 3 and now 4 with 5 and 4-5 still to go. We simple do not know. In any event a bounce back to the trend line is possible; that is around 13000 to 13100 depending on how long it takes.

The so called fiscal cliff is now to blame. This is a red herring if ever there was one. The fiscal cliff is self imposed temporary torture as politicians play in their respective sand boxes. The actual outcome is already known. The US is spending 1 trillion a year too much (relative to a balanced budget), so either spending must come down or taxation must go up, either way the economy will be stimulated to a much lesser degree than it was the last 4 years. That is an inconvertible fact, cliff or no cliff. The only questions is how fast they will do it. 600 bln. seems to be the right number for the moment. That is a lot of stimulus gone and it differs from the Fed’s QEs in that the money is actually spent, not lent out to the banks.