The market can go down: What now?

It was four days after I wrote in this space that I anticipated a serious event happening in the stock market.

Conditions started deteriorating rapidly as the transports joined the wreck this week. By Thursday it was game on for the bears, finally. Even Australian markets joined in, and I have to tell you if there were any market traded in a vacuum that wanted to go up, it was the ASX.

Our major hypothesis for this pullback is an inversion into the 618-week window off the bottom of the NASDAQ (CME:NDU4) bubble coming up in the middle of the month. We are coming to week 617 now so the window starts on Monday and runs through the week after next (see chart below). We could have a low at any time hypothetically and rally into the big window in October. What I mean by hypothetically is in terms of cycle work, the market has now met the minimum requirements for a low based on the time function. That doesn’t mean it’s going to find a bottom tomorrow as price has to line up. We could be very close to a change of direction as conditions are already oversold.

Do you want to know why the market is selling? It’s really very simple. Too many people thought they could predict with certainty it would continue going up. This isn’t rocket science. How many of these programmers we’ve discussed anticipated the market going down? I’ve been around the block a few times and here’s what I really think. Do you remember 1999 and all of the day trading rooms? Do you remember reasonable people who had careers in many different walks of life quit their jobs to become traders in these rooms? How do you think it worked out for them?

By 2001 most of those trading rooms were gone. Most of the people who believe they can predict (or whatever you want to call it) the next move within 24 hours probably won’t be in this business anymore in a couple of years. Folks, we’ve seen this script before. Prechter says each new cycle isn’t exactly like the prior but the concept is the same. He’s exactly right. We don’t have day trading rooms anymore. We have people who put all their trust, a counterfeit trust in computers.

Going across the board the charts in Europe look atrocious and what you should know is the FTSE which topped back in May from the earlier time window and my proprietary 2.62 points per day looks like it has already put in the high for the year. If you go back to 2007 you’ll see various sectors put in the long term highs way before October and the Russell peaked right in July, the anniversary being a couple of days off where we peaked a little over a week ago.

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