Time for an Iggy Call

It's that time boys and girls... time for Iggy to make a prediction....

The markets have had 3 very good weeks in a row. Positive weeks which hasn't been seen in quite some time. The party is going to take a break though. Another up day Monday, possibly carrying into Tuesday, but end of month (also the end of the quarter) marks the end of the party for now. Keeping in line with the 2 steps forward 1 step back, it's time for the step back.

The S&P will peak around 835-850 and then approximately a 15% pullback that'll take a couple or few weeks to take place. That will take us back to around the 710-730 area (very approximate target). The drop will be enough to scare people into thinking we're headed to new lows, but it shouldn't actually happen.

Then we're off to the races. The "bull market" will begin. There will be dancing in the streets, cheerleaders on CNBC predicting the worst is over, the world is happy again. I know I keep repeating myself but please don't fall in love with it. It'll look wonderful, it'll feel great to get some of your money back. But we won't come close to where we were in October 2007.

Hope for the best but prepare for the worst is all I'm saying. Be prudent, be a bit skeptical, be nimble, pay attention to the data, not the cheerleaders. By playing it safe and smart from here on, you can be ahead of the game.

When I say pay attention to the data, I mean read the news. The real news, not the cheerleading news. Here is an example. Sure, some things are speculation, but once you find some sources of information that have been proven accurate (such as Meredith Whitney), listen to what they have to say and make your own assessments.

http://seekingalpha.com/article/127937-credit-card-crunch-creating-a-new-generation-of-subprime

And lastly, a chart of the "Four Bad Bears"... the worst 4 bear markets in history.

http://dshort.com/charts/bears/four-bears-large.gif

My Blog List

I've added three of the blogs I follow over there on the left side of the screen. These guys are good with Elliott Wave Theory. If you're interested in some detail as to what I'm talking about with the primary and subwave stuff take a look. Daneric in particular does an excellent job with charts and describing what he sees.

I'm Becoming Bi-Polar

Another very strong move up today on Wall Street... 2%, 3%, 4% depending on which index. The 1/3 of my retirement was in the small caps, so I caught 4% today. And seeing this strong move and the fact that I'm up 11% in just 4 trading days, I got out. Yep, I bailed. I hadn't planned on moving back out, but 11% in 4 days was tough to pass up.

If today wasn't a near term peak, it's close. A normal pullback is expected (remember, two steps forward, one step back). This step back should take the S&P back down to around 750 from it's current level of 830. Right around 10%. When we get there I'll get back in. Again. This time with all of the retirement.

If it works out as I've described, I will have gotten in at the equivalent of near the bottom.

I'm keeping in mind that my first move in and out was with 1/2 of my total portfolio and this recent move in and out was with 1/3 of my total. I made 5% the first time and 11% this time. As a percentage of my total portfolio, I'm up about 6%. In the grand scheme of things, I'm up 6% since August 2007. I can live with that. :-)

I don't want to swing trade like this, but until the primary wave 2 is solid I don't trust it. I'd rather be skittish than complacent right now.

I hope this pullback to 750 is the last one I have to worry about. I'll stay in until we hit 1000 or so.

I'm Becoming A Believer

A couple of the guru's I follow are still holding out hope of another plunge down and even though I was leaning that way I'm starting to feel the hype and the hope of the sustained rally that I've been calling for.

The low was 666 intraday... close to the 650 target folks were looking for.

I have 1/3 of my retirement in. I do expect one last retracement of about 5% or so in the next few days or week and that's when I'll put the rest of the big money in. This rally will last a few months. It'll be the usual two steps forward, one step back. Nothing goes straight up. But I'll be looking to get out when the Dow approaches the 10,000 area.

A little bit of background on the 10,000 number. Not only is it a psychological line in the sand but the fibonacci numbers (which play a big roll in stock technical analysis) line up with that line in the sand too.

Generally speaking, the high in Oct 2007 on the Dow was 14,165. The low a week or so ago was 6,440. The difference between the two is 7725. Retracement moves are usually 50% of the move. Half of 7725 is 3862. Add that to 6440 and you come up with 10,320. That's the target.

Recap: Primary Wave 1 was the move from the Oct 2007 peak, to the recent bottom. It lasted 17 months and was about a 60% move down from peak to trough. Primary Wave 2 has just begun and should last 4-6 months peaking around 10,300. Primary Wave 3 will be UGLY. Wave 3's are usually the ugliest, longest and most devastating.

I'm a believer of the Elliot Wave theory. It's not perfect and it doesn't predict exact moves in advance, but it's amazingly accurate in the grand scheme of things. It's proven itself to me and I want to help you preserve your money.

I'm ready for us to start moving up for a while. Let's make some money.

Holy Moly!!

How about 6 or 7 percent in a day! Very impressive! Tim Geithner broke his streak of disappointing Wall Street. We broke thru some major resistance lines today on the way up. I'm glad I at least put a little of the retirement money back in on Friday.

This is looking like it's for real but lets keep a level head. The last half dozen or so times that the gov't has announced a magic pill to fix everything, there has been dancing in the streets for a day but then reality set in. I'm in no rush to put the rest of my money back in. Every bounce and rally has it's limits and we'll trade in a range for a little while.

It'll be nice to stop dropping for a change. We haven't had a single positive month since August. We're overdue. Let's enjoy it if it lasts thru to the 31st.

Ta Da! - The Latest Rabbit

Our Treasury Secretary is ready to make an announcement early next week, probably on Monday. The big question is will there be details this time. Rumors are out and there isn't enough confirmed information yet to know if the new plan will be of benefit or not. We'll have to wait and see. So far I'm not reading much excitement.

With this big question mark hanging over the markets I don't have a clue what to expect next week or for the next month. As I said in yesterdays post, something just doesn't feel right. I've seen several charts showing weakness rather than strength. My gut says we're headed down. How low, I'm not sure. I don't think we'll hit new lows but we may get close. If that's the case, we'll be establishing a base by which we can truly rally.

I'm ready for that time to come. We need a little run up to ease the overall doom and gloom. Unfortunately it won't last long. We still have a lot of deleveraging to get through and there are still a lot of skeletons in the closets of the big banks and companies like AIG.

We also have a problem with housing prices, unemployment, commercial real estate to get through. This is going to take time and there's no way to rush it.

I'm ready to play the market on the upside. I hereby request the bottom be put in within the next 3 weeks. Of course after one last drop so I can get back in. I'd appreciate it.

Something Just Doesn't Feel Right

I'm just not convinced. Something doesn't feel right. There are a couple of the guru's that I follow that haven't given up on primary wave 1 being done. The rally we saw that took the S&P from 666 to 800 was impressive, 20%, but it just didn't have the feel of a rally that had any oomph to it.

I do know that the big boys weren't jumping in and that's a big issue. If the institutional buyers aren't biting, then it was just a relief rally.

I'm at a personal crossroads. We've come down from 800 to 765 (as I'm typing this). I had posted before that I was looking for this pullback and would move all of my retirement back in at 750. So, do I do it? Do I pull the trigger? Do I maybe just put 50% in and then if we drop back to 700 or lower I can put the rest in?

I hate that I missed out on a chunk of this recent rally but I don't want to make a mistake by not taking advantage of this pull back.

A big chunk of the recent rally was from gov't shenanigans (buying of treasuries).

I have 90 minutes to decide what to do... Hmmmmm

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Alright, I split the difference... I just placed the order to put 1/3 of my overall retirement back in at the end of the day today. If we continue down I'll do another 1/3 and then the final 1/3. If we head back up and it feels for real I'll do the same thing on the way up.

Totally on the fence as to where we are in the grand scheme.

So Far So Good

Well, I'm up 12 hundreths of a percent so far! :-) Seriously, the markets did drop on Friday, the S&P hit 666 and rallied in the afternoon to close barely positive. However... there is still another wave down to come and it may be where we get to 650 or possibly even below. In any case, that's when I'll put the rest of my retirement back in.

It's kind of funny, a friend of mine and I are emailing back and forth with links to articles that talk about "the other shoe to drop" and so far I think we have a dozen pair of shoes accounted for... commercial real estate, credit cards, reduced wages, etc, etc.

It really is a bit scary if you read it all. But sticking your head in the sand isn't a good choice either. Just be aware of whats going on and make wise decisions. Buy and hold is no longer the way to invest. You'll have to actively manage your money now and be willing to make changes, trades, swings. Otherwise you may see your investments go sideways at best.

The S&P is down over 50% from it's peak. That means you have to double your money to get back to break even. At 8% a year compounded, it'll take 11 years. I have news for you, we won't be averaging 8% a year for a while. I'll try to alert you to the swings so you can make money on the way up and not lose any on the way down. The waves are your friend. You won't hit things exactly at their peaks up or down, but even if you're close it'll save you some serious money.

Well, I have a ton of errands and tasks to get done today so let me get at 'em.

I Did It... Well Half Of It

I put my right foot in and I'm shaking it all about... yep, I put 1/2 of my retirement back into the market. We got down to the 680 range on the S&P and if my target of 650 is accurate, this is close enough. When a bottom does happen, there will be a sharp upward move during that day and since my retirement money goes in at the end of the day I figured I'd just go for it. If I were smart I'd have waited for that big bottoming and upswing day, but nobody ever said I was smart.

I'm also expecting the gov't to come up with another rabbit and figured I'd beat them to the punch. They're going to review and discuss the mark to market rule on the 12th. I don't think they'll do anything but they could feel enough pressure by then to change the rule for a period of time.

How about Citigroup selling for a buck a share now. Amazing. It was $55 at it's peak, one of if not the largest conglomerate banking institution in the world and it's on the verge of disappearing. General Motors can be had for under two bucks along with Ford. So many stocks selling for under $10 or even $5. Four or five of them part of the Dow 30.

I did save 1/2 of my retirement in case I was way off the mark. I'm comfortable if I hit the low withing 10%. I got out at the high within 7%.

Keep in mind, this is only a "temporary" bottom. The rally we get will last a few months and will take us up near 10,000 on the Dow, but then it'll be time to pull out and watch from the sidelines.

I hope I didn't mis-time this in a big way. I don't see the S&P going below 600 during this set of waves. But quite honestly I don't see anything to turn things around at this point. I'm hoping for bargain hunters. The big boys are all waiting for 650. That's another reason I got in at 680. As soon as everyone has the same target, it tends to not quite get there.

Here's How It'll Play Out

As we get closer to the end of major wave 1 the picture is getting a little clearer.

Down to 650 on the S&P within the next 3 weeks will mark the end of major wave 1.

A rally to the 900-975 range will take place over the next couple of months as hope and wishful thinking that the end of the economic mess is getting close.

Then reality sinks in that we're far from cleaning up the giant mess we've been building the past 20 years. S&P down to 400.

(rough Dow translation: Down to 6300, up to near 10,000 (possibly go over 10,000 by a little bit to suck folks in), drop to 4000))

If I'm correct about the near term bottom and the rally, please heed my advice when we approach 950 on the S&P and I say to GET OUT NOW...

We will not see Dow 14,000 any time in the next decade or more so accept the fact that Dow 10,000 will be as close as we get in order to get out.

We still have a number of shoes to drop... credit card debt, commercial real estate, local and state gov't budget deficits, pension plan problems, corporate bankruptcies...

It'll be easy to get into the mindset that all is well during the upcoming rally and it'll be very difficult to hear that things are not as they appear. I just hope you're willing to take the chance that I'm right when the time comes. You may miss out on a 10% rise if I'm wrong, but you risk losing over 50% of what you have left.

A lot to watch and see, but it's exciting.