See our earlier comments concerning this particular index. A few months ago our target was roughly 1050 and we thought it might take a month or so. The timing is off by quite a bit as seems to always be the case nowadays; the move was not a straight line but an up/down kind of thing that took much longer, perhaps because the various chefs in the Fed. kitchen could not agree on the right ingredients, taper, or should that be tamper, one day and none the next. In any event we are now within spitting distance of a potential peak. A sell now!

See also our previous blogs. A month (almost) ago we suggested that this one could peak at about 1050. It has reached 1008 and we wonder if this is it. It is the big “are we there yet?” question. This is a near perfect expanding diagonal triangle 3-3-3-3-3 structure which ONLY occurs as a 5th wave, that is at the end of the ride. They invariable break down to the base and do so rather rapidly. By the way, legs 1. 3 and 5 correspond quite nicely with Fed. action. 1 in anticipation of the Y2K problems that never materialized, 2 in response to the market lows of the tech wreck of 2003, and 3 in response to the “great recession”.

P.S For those that would argue that wave 5 is disproportionately large relative to the entire 5 wave sequence for the larger degree wave 5, we point out that wave 3 goes from 100 to 500, a factor of 5x . Wave 5 goes from 300 to 1000 a factor of 3x so wave 5 is much smaller than 3. It is roughly 60%. A semi-log chart (see previous blogs) would show this better.

Further to the previous blog of the Russell 2000, we have added a semi-log chart simple because it shows the relative proportions of each leg much better and as a result makes the notion of an expanding triangle all the more palatable  and/or convincing. For comparison purposes we have added the DAX below, also on a semi-log scale. As mentioned before, the Dax is a total return index and therefore should not be compared directly with indices that are not also constructed on a total return basis. Nevertheless it is interesting that the DAX sports the exact same diagonal but instead of expanding it contracts. (the time scales are different!).

See our previous blogs on the Russell 2000. This is a small cap index that is reconstituted every year in order to stay “representative”. We show this structure not because we are confident that it is correct, but simple because it does suggest that we are at or near a peak of sorts. Theoretically we fully understand that the sky is literally the limit for any asset if you reduce interest rates to zero permanently. But this is reducing the argument to absurd levels as practically it is impossible to reduce interest rates forever to zero, if not would not everyone have used this all the time long before Bernanke (and Greenspan) adopted it as the official state policy. The Roman Empire would still exist and Britain would still rule the waves.

What we have in the above charts is a very clear example of an expanding diagonal triangle. That is a mouthful but what it means is that we are at the end of the ride as these structures are 5th waves. They follow the 3-3-3-3-3 format and have overlap which is normally not encountered in impuls waves. They usually retrace right back to their base, in this case 300. Normally the upper trend-line is reached, or briefly exceeded in a throw-over. The very nice characteristic about this chart is that there is absolutely no ambiguity whatsoever the way there is with the Dow or S&P. Presently we are ten ticks away from an even 1000 (up 3X+ in 4 years!.) The p/e is supposedly about 18 which is high. The chart is moving up at a rate of about 50 ticks a month, with the line at about 1050 this should be done in a month or so at the most. Also if the 2000 tech bubble was a bubble, and the 2007 bubble was a bubble what would you call 2013. And yes we are perfectly aware that one can only recognize a bubble after the fact, that is if you work at the Fed.