Ricks Picks

Echoes from the Summer of 1929

EST

Our forecast for the Dow Industrials calls for a blowoff top at 16810, about 1,700 points above Friday’s settlement price.  Using proprietary technical tools, we have identified this “Hidden Pivot” target as one to keep firmly in mind — not only as a major rally target, but as a place to lay out shorts aggressively ahead of a possible avalanche.  As noted here earlier, however, despite the bullish prediction, we’re keeping one foot on the fire escape, since the risk of a historical collapse at any time seems inordinate. If and when it comes, conceivably from a level that has fallen shy of our target, it is almost certain to occur with such devastating speed that even those who believe they are ready for it will have no time to escape. More likely is that the financial collapse that ushers in the Second Great Depression will begin in Asia and Europe, and that it will be a fait accompli by the time New York traders arrive at their desks.

For those who believe themselves prepared for this eventuality, Friday’s events should have been more than a little unsettling. In an unaccustomed display of weakness, the Dow fell 208.96 points to close out an otherwise strong month. However, it is not the decline per se that we should find troubling, but subsequent commentary that sought to explain it away. By and large, the selloff was ascribed mainly to “technical factors.”  A typical analysis noted that “traders pinned the sharp selloff in the final minutes as technical in nature, rather than related to any particular news or change in views.”  Other commentators noted that, even with Friday’s decline, May marked the seventh straight month in which the broad averages had achieved a gain. A further explanation was that end-of-quarter selling – absent for nearly a year — had simply taken its toll.  The most ominous quote we could find came from one Alan Gayle, chief strategist at RidgeWorth Investments. He saw the market’s gyrations in recent weeks as a sign that investors have been taking a breather. “You don’t have to have a significant pullback for the consolidation process to be completed, and that might frustrate a lot of the ‘buy the dip’ investors,” he said.

Babson’s Break

Anyone who does not hear an echo of the Summer of 1929 in all of this should bone up on Babson’s Break, the 3% plunge in the Dow that occurred on September 5, 1929. That same day, Roger Ward Babson, a well-known entrepreneur and economic theorist, had given a speech in which he asserted that “sooner or later a crash is coming, and it may be terrific.” Although Friday’s selloff fell well short of the 500 points required to have equaled Babson’s Break in percentage terms, the round number “500” should be kept in mind by market-watchers as the summer wears on. Any such swoon would probably be dismissed as readily as Friday’s was, especially if, as in 1929, the break were to be quickly recouped.

Comments on this entry are closed.

gary leibowitz June 4, 2013, 8:49 pm

Will I be able to put another post in? Now that is the question.

&&&&&

No, you will not be able to put another post in, at least not on this topic. I deleted the rest of this one because, for the umpteenth time, it repeated the falsehood that “[those in this forum] missed the last four years.” Anyway, I want to do everything I can to encourage you to spend your time more productively. Instead of posting the same tired arguments in here — again and again and again and again — take a day off and pull some weeds. Or if the wind is up, fly a kite. Teach your kids how to whittle a neckerchief slide. Take the missus to the botanical gardens. Practice tying useful knots, like bowlines, hitches and mastheads. RA

Andrew Gutterman June 4, 2013, 1:58 pm

Stockcharts provided me with an explanation of P&F charting. I’ll have to study on this.

Andy

mava June 4, 2013, 5:54 am

gary,

“No time to get out? Never happened and never will. All pre-crash markets telegraphs the event. Ignoring the signs is not the same as not being able to exit in time.”

I think that R.A. is giving us that same warning you’re talking about.

Rich June 3, 2013, 9:37 pm
Andrew Gutterman June 4, 2013, 1:38 pm

Interesting. I plugged in $GOLD into the same chart setup and ran it. I’ve been predicting gold to drop to ~$1150, and this chart (which I don’t begin to understand) says the Bearish Price Objective (Revised) is $1151.85

http://stockcharts.com/def/servlet/SC.pnf?chart=$GOLD,PLAADANRBO%5BP%5D%5BD%5D%5BF1!3!1.0!!2!20]&pref=G

Can someone please explain this to me? A long time ago I studied P&F but have long since forgotten it all.

Thanks,

Andy

Freddie June 3, 2013, 9:14 pm

Rick, just as an aside, is Gary a subscriber and Hidden Pivot course student, or just a freebie poster? The reason I ask, if he has such profitable trades I will beg him to post him in the Chat Room on your site so we can participate in real time and make some money, vs. these giant Facebook style postings. Gary, if you are profiting, could you please in the chat room and post them for the community —- much appreciated !!

&&&&&

As a market timer posting in the forum, Gary’s track record has been quite good. But no, he is not a subscriber. RA

gary leibowitz June 3, 2013, 4:34 pm

No time to get out? Never happened and never will. All pre-crash markets telegraphs the event. Ignoring the signs is not the same as not being able to exit in time. In fact had a person already made 20 percent on his investments these last few years it is down right impossible to get caught. What market event in the past didn’t allow you to exit? Are you really saying that the individual is not more nimble than the institutions? In 80 percent of major tops there is an initial drop followed by a reactionary impulsive move back up. In 1929 wasn’t the die already cast the week before the crash? Just because the news and euphoria was such that the cheerleaders were in force, doesn’t mean an individual using common sense can’t exit in time.

An example: Given your current assumption of another 1,700 DOW points higher (blow off top), wouldn’t the obvious fact that we have had a 5 year bull with a steep last wave in itself be warning? In my view the current market is already in a warning state because of its spectacular 4 year run. With defined stop/losses you will most likely never get caught on the crash day. It’s when human emotion ignores a prudent approach that gets us in trouble. I currently view 1595 on the SPX as a line that should not b crossed. Are you saying that it will hit and break below that number and not allow me to exit in time?

Your argument can be made for any investment asset. Real Estate, Commodities, Bonds, Foreign Exchange. All of life is a gamble. The conservative investor takes smaller risks than others.

&&&&&&

It was SO nice to have had a week’s hiatus from your posts. And now you’re back, eager as ever to say something, anything just for the sake of disagreement. Your post above is egregious even for you, since it ignores a growing flash-crash dynamic that we have already witnessed several times. It also disdains the fact that the global financial system is an illusion sustained solely by lies that should not have fooled even the village idiot for one moment.
RA

redwilldanaher June 3, 2013, 6:17 pm

The man is quite possibly the most myopic poster in Internet forum history.

gary leibowitz June 3, 2013, 7:09 pm

Never saw a flash crash that “was” the top. In fact doesn’t a flash crash happen as a pre-cursor to an eventual major top, but not “the” top.

Please give me dates where a crash created an inability to cash in. Your argument to stay away from the market has proven costly. I have followed the market on a daily basis for close to 30 years, and if you are a cautious player the odds of getting caught off guard is small. The 87 crash had pre-warnings. So much so that I got completely out and persuaded my parents to do so also weeks before the debacle.

As a technician you should know there are always signs to look out for. In fact you yourself present them all the time. Not being able to place sell orders even on the day of the crash seems to go against all odds and past history. Do you really see a 20 percent drop in one day followed by a continued drop thereafter with no ability to exit? Has that ever happened before? Do markets really react so swiftly? Which ones did, and how much would have been lost if you missed the early warning signs? Anyone with a profit margin of 20 percent surely can’t lose. How long did the 2008 drop take? One day debacle? No early volatile trading swings before the event?

I deal in facts, history, and odds. has this ever happened before?

&&&&

You deal mostly in misstatements, distortions and made-up facts, Gary. Furthermore, you know nothing of my technical methods, and your assertion that I’ve “stayed away from the market” ignores the fact that I’ve always traded it from both sides. You also appear to be unaware of the bullish vertical spreads my subscribers currently hold in Goldman — with $16000 of profit potential and ZERO downside risk.
RA

gary leibowitz June 3, 2013, 7:39 pm

Red, Myopic? Really? Which one of us made a good profit by not being scared every moment for the last few years? Which one had triggered stop/losses. Which one of us will be able to ride a big wave up, and has?

The notion that all is an illusion, even if true, will never pop in one day. Everyone will “see” the light at the exact same moment? There is “always” technical signs before a major trend change. In the current market there are defined support levels. Without a man-made crisis (war/terrorist attack) the odds of everything falling at the same moment is strikingly small.

I find it peculiar that I have to defend my position even as it has been proven to be true. Please don’t give me “this time is different” argument. The static thinker looks for a person to miss the whole up move and decide to enter the market at the exact moment it will crash. That is the only plausible scenario where you can be right. How about someone that has already seen a 20 percent rise, as opposed to sitting on the sidelines? That proposal would be more accurate. A 20 percent one day event where you could not exit your position would put you back at square one. Myopic? You bet. You assume the absolute worse case scenario that odds makers would put at 1,000 to 1.

You have already lost on your assumptions from years ago. Had anyone blindly bet the indexes they would still be better off even if they get caught in the crash. Having a bear cycle of major proportions going down 80 percent without ever acknowledging this trend is a person that should never play the market. Take emotions out of the equation and develop a risk/reward system you can tolerate. Most important is to stick with it, and not allow emotions back in.

&&&&&&

Your last post for today, lest the forum revert to its wonted Gary-ization. I don’t write these commentaries with the goal of helping you while away the hours. RA

Redwilldanaher June 4, 2013, 5:42 am

More mischaracterizations and as Rick termed them “distortions”. You are one helluva strawman fabricator Gary. I think you lose track as to whom you are arguing with and just opt for the shotgun approach hoping you will hit something. Try to remember our long held positions before you make the same intentional mistake for the umpteenth time tomorrow.

Cam Fitzgerald June 4, 2013, 8:02 am

“Please don’t give me “this time is different” argument”. Gary
————-

But it is different this time Gary. Normally that would not be the case but when you look at how the stock market is structured, who (and what) are making the majority of the trades and the lack of individuals participating there is a distinct possibility setting up for crash conditions that are almost entirely computer driven. Why I say that is that under historical market conditions there were always the variables of personalities and people involved that gave even large corrections some structure. The element of timing itself generally meant you had opportunity to think through the event as is happened. Not so when executions are done in milliseconds though. Individuals might ordinarily bid in a falling market on the basis of beliefs and past knowledge plus the prospect of opportunity. Today we are overwhelmed by synthetic code that is for the most part running the same algos based upon a similar set of control functions that determine what and when to buy and sell. Because computers will stick to pre-programmed methods, the potential exists for a situation to arise in a steeply falling market where there are virtually no bids whatsoever. We should all know that everyone cannot sell at once though. A thinly traded market and one that lacks real public participation makes this setup all the more dangerous. Presuming you were holding at the moment of enlightenment, how would you get out in such a case where no offers come forth and the system is swamped by sells? How so in an environment where the vast majority of trades are computer generated and they are simultaneously executing those orders against a backdrop of conditions that guarantee a cascade of near instantaneous exits? We have already experienced numerous “flash” events of varying degrees and most have come as a complete surprise to the humans who still trade the old fashioned way. One stock pick at a time. I think it should be obvious that there is significant instability built into the system as it now exists and should a sudden event occur we cannot be assured that there would be a quick reversal allowing the unwary to recover losses. Even stop losses offer little protection in a no-bid situation. In practicality you could be wiped out as the shorts scoop 4 years worth of gains in a matter of minutes, days or hours. It is indeed different this time Gary. And it is because the program technology is inherently flawed and lacks the variabilities of personality and random decision making that used to make a market what it was that it has become so much more dangerous. All the trades can indeed end up on the lee side of the boat whereas in the past that was virtually unheard of. The advent of lightning speed means humans cannot hope to keep up with the event either (especially if you are in bed when it happens!). So that is the whole point of the discussion here and it seems most people who come to this site recognize the tremendous risks and don’t want to be left holding the bag if the market takes a tumble out of the blue. For what it is worth, I think we are getting a warm up call from events in Asian markets and more particularly, Japan right now. It has been so long since we had any meaningful correction in US equities that most have become complacent and now just assume none is coming.

Isn’t that how the real trouble always begins?

redwilldanaher June 4, 2013, 5:15 pm

Bill Gross, like all of them, talks his book but since he isn’t as reliably sanguine as Gary, this might interest some, from ZH:

“It’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%. Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution. Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system. Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution.”

Sorry, Gary, there’s not a lot to love and aside from you and a few other OPM zombies, most market watchers acknowledge that this is entirely the most artificial construct of them all and not for lack of competition.

John Jay June 3, 2013, 6:35 am

Well, now Turkey is experiencing civil unrest, and Russia is making noise about Syria, not to mention all the other countries in that neck of the woods.
The Central Bank of Japan is boldly going where no CB has gone before, QE Trek!
And we all know what the “Prime Directive” is for the CB Federation.
But S Korea is none too happy about Japan’s financial scheme, more dis-harmony to our advantage!
China’s non stop growth seems to be faltering.

It all looks good to keep scared money flowing our way!
Our economic system has become a one trick pony.
Namely, sow chaos globally, and reap the whirlwind.
That could work!
Thanks Langley!

bc June 3, 2013, 5:51 am

As esprit de corp fades…

Troll June 3, 2013, 1:35 am

I can’t comment on the Dow, but didn’t the ES just bounce a quarter of a point off its target?

http://oi40.tinypic.com/2m43xqx.jpg



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