Just as things look to become clear they do not work out as expected. That would not be so bad if it was not for the annoying fact that this up and down has now been going on for a full five months. Again we can only work with our understanding of the pragmatic tenets of EW. It is possible that we are in wave 2 of 3, the triangle mentioned previously would have been a little b wave in an a-b-c wave 2 that should now be near completion given that we already have more than 62% retracement. Alternatively we have a large triangle B-wave covering the entire period of 5 months. Either way the next big move should be down and down a lot.

All the good stuff is on the menu. We have a president that seems to have adopted Machiavelli’s dictum of keeping your friends close and your enemies closer. In the mean time the British government seems to be falling apart. NATO is meeting and Helsinki will be the next focal point of two man summits. Maybe nothing will come of any of this but how much longer can this continue?

We may have been a little ahead of ourselves in our previous blog on the Dow. It appears that the index is tracing out a fairly decent triangle which would imply that the first wave of wave 3 down was not yet complete. If correct the Dow should drop any moment now to challenge the intraday lows of the past five months only to rebound back to the present levels. Then wave 3 of 3 should start.

Perhaps Trump will try to pull out of  NATO and join the Warsaw pact instead.

This is the count that should be preferred. I understand that even the gurus in Gainsville have come around to this view. Not sure that that adds confidence.

So we just completed wave 2 of 3 and are now entering wave 3 of 3. That is usually where things start moving a little more rapidly which is about time since we are not even at the lows set in February. After 3 of 3 we would still need 4of 3 and 5 of 3 just to complete this third wave. Then another 4 and 5 to complete wave 1. By that time we should be well under 20000.

This is Trump economics at its best. Economics 101 will teach you, as mentioned in this blog before, that if a country’s government runs a budget deficit (that is pay for things with money created out of thin air) then in an open economy the excess purchasing power has to be satisfied from offshore sources. This is the economic equivalent of the gravitational forces on water, which always flows downhill. Larry Kudlow is not there yet and, more surprisingly, nor is Peter Navarro. They were probable AWOL for this lecture. The recent tax-bill basically guarantees larger trade deficits.

If you are living in the States, you should buy your Mercedes, Audi, Rolls Royce now rather than waiting because these cars will cost so much more. This itself will trigger a J-curve effect which simple states that things almost certainly get worse before they might get better.

Costco is ready to turn and both Intel and Boeing are already down appreciable. This is just the start.

This is the same chart as in the previous blog using the futures. Nowadays they trade more or less around the clock and around the World. They are easier to manipulate as trading can get rather thin at certain hours of the day or night. Having said that , both charts present essentially the same picture and that is a picture of an initial wave 1 down followed by an a-b-c correction that corrects roughly 60-65% at the end. That the c wave is unable to exceed the high of the a wave does not bode well.

All the ingredients for a rough economic time ahead are present. Interest rates have been ridiculously  low for some twenty odd years which more or less dictates that they can only go up and this is indeed the stated policy by the Fed. and other central bankers. Employment at 3.8% can hardly go lower. Government spending in one form or another is virtually out of control everywhere while at the same time the discretionary portion of budgets is getting smaller and smaller. Military spending is going up in many parts of the World. Etc, Etc. In short we have never had it so good for so long, which , paradoxically, is the problem.

If this is in fact wave 3, then one should expect a drop of at least 4800 to 7800 points given that wave 1 was about 3000 points.