Subject: TT Market Letter 1-7-08

Monday, January 7, 2008

Bear Market Perspective

Starting with the typical 5 wave bull market progression we showed you last time, you see Waves 2 and 4 are corrections. All corrections as you see have a middle counter- trend move. Since a Bear Market is no more than a correction at a high degree of trend, a b of a high degree trend is also a Bear Market Rally. In the chart below the b wave serves that purpose. Notice that in wave 4 it also exceeds the previous high in wave 3, like the current October peak exceeded the March 2000 high.

Since the Market is composed of fractals, meaning the whole is contained in its parts, as we see below: If you go back to the top chart you will see that the whole is contained in wave 1,3 and 5 waves. These are monthly charts, meaning each candle represents one month, but the fractal goes down to the tick chart, always with the same pattern.

Every correction has a counter-trend b wave, like every Bear Market has a Bear Market Rally

If we examine wave 4 in the top chart, we can that it contains the entire first leg of the Great Bear Market. In the chart below we have simply magnified wave 4 above. If 3 is the bull market top, a is analogously the 2003 low, and b the bear market rally to October 2007….this time however, the ensuing b’ will Spike will be higher still. That’s all that’s left to this bear market rally, about 9 months. Like a projectile flung into the atmosphere, the higher the Spike climbs, the harder it will subsequently drop, the downside is only limited by zero on the index, although in the past, the drop as its been ~90% from the high.   A 90% drop in the value of stocks always spells Depression, and is part of the self-correcting mechanism best described by the Austrian School of Economics.

In the actual Dow monthly chart we see that so far, we must complete the circled B with the Spike. There is a marked resemblance in the two. Well since the C wave is a third wave it’s the longest and strongest on the way down, still ahead. The Diag II’s in the A circled wave tell us that this will be a long correction. Seven years and we have not even peaked in the first Bear Market Rally. The most common relationship between waves A and C is C= 1.618 A . Wave A lasted approx 3 years, so wave C should last approx 4.8 years.

Below you see the entire Grand Supercycle Waves I – IV. This was arrived at by patching the British Stock market with that of the colonies, as the colonies were a continuation of the previous economic cycles. Wave II was a simple 60-year Bear market between 1720 and 1780. This one should last at least 60 years, and possibly longer. Note that once we bottom, following leg (B) comes another 3-wave bear market rally, with an intervening down wave, the opposite of the way down and likely lasting 12±1 years. Any questions feel free to ask. That was a simple (A)-(B)-(C) correction, so we know this one will be complex, the most common wave IV correction is a triangle, either expanding or contracting as shown, which we won’t know until the (B) wave peaks, about 17-18 years from now.

In Summary

We have been in a Bear Market since March 2000 and only will complete the B wave 9 months out… then we still have the C wave, longest of all bottoming some 5 years hence. This first A-B-C will in aggregate form (A) Before it’s over there must be 5 of these, alternating up and down, each lasting 12-15 years.

In this piece we show you the most likely path of the Great Bear Market, which kicked off in March 2000. Why we are completing the intervening Bear Market Rally, rather than starting a new bull market. Why the Big Bear will last 60 years or more, with about 4-5 years left until we bottom. The final Spike will be heralded as the new bull market, the result of recession having been averted….on the contrary Depression will only have been postponed. Until the Spike peaks some 9 months from now, US stocks and the US Dollar are the place to be.(since the Dollar is undervalued, so are most goods priced in dollars) The most attractive vehicles remain the Financials, Emerging Markets, the Dow and the NASDAQ 100. For specific recommendations, that should beat the pants off these, you might consider subscribing. I submitted a second piece on Tuesday which is more relevant to tomorrow’s market click here to see it.

Eduardo Mirahyes 

Exceptional-Bear.com

“Opportunistically timed investments that maximize wealth”