“We are convinced that a crash is approaching” says Longwave

Posted by Ian Gordon - Longwave Group

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Technical Tips
Source: Ian Gordon, Longwave Group  06/13/2010

We wrote the following a couple of weeks ago, while we were taking a break in Scottsdale. But we thought that what we wrote then might still be of interest at this time.

May 24, 2010: Stock Markets around the world are in a precarious position. Many appear to be setting up for a crash in prices. This is true of US markets, despite the efforts of the ‘Plunge Protection Team’, which has been very active in trying to hold back the deluge. “S & P Demand Power fell  10 points to 380, while supply pressure rose 22 points to 465, telling us the decline was powerful, with deep pockets intervention buying markets with all ten fingers and toes working hard to prevent an all out crash.” –  Robert McHugh, Daily Market Newsletter, Thursday May 29th, 2010.

There was an equivalent of the Plunge Protection Team around during the 1929 October stock market crash. It was formed by the big banks under the leadership of JP Morgan. On one of the crash days this syndicate purchased large amounts of key stocks at prices well above well above the offering price in an effort to halt the collapse. And they were successful, at least on that day. But the crash resumed the following day and the bankers stepped aside, realizing that they were simply throwing good money after bad. The ‘Plunge Protection Team’ of today is much more powerful than its banking counterparts of the late 1920s, because it comprises the Federal Reserve, the SEC and the US Treasury. This entity has the wherewithal to throw huge amounts of money into the market. But the stock markets are governed by natural law and under the circumstances no amount of money can turn a bear into a bull. 

This bear market is a parallel to the 1929 to 1932 bear market and likely bigger in magnitude than that experienced between 1929 and 1932, when the Dow lost 90% of its value. Why? Well, for one very good reason the 1982 2000 autumn stock bull market was 2 ½  times bigger than its predecessor autumn stock bull market of 1921 1929 and a bear market is always a virtual mirror image of the bull market that it follows, as in the old rugby adage ‘the bigger they are the harder they fall’.

The Dow Jones Industrial Average

Richard Russell, the venerable writer of Dow Theory Letters recently wrote that if the DJIA closed below 10,388 and the Transports closed below 4,298, each average would confirm the resumption of the bear market. Both these averages are below the numbers specified by Mr. Russell, which confirms the resumption of the bear market.

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