Saturday, April 6, 2008

Huge rally to kick off by the end of the week, until then down

Intermediate-term the worst is over. Since the beginning of February we have been building a base from which to catapult the final thrust.  The last down leg within that base should bottom by the end of the week. The next leg up is a powerful, long move that will seem to rise like a rocket. Until then, however it is likely we drop hard; the darkest night comes just before sunrise.

The Fed's has extended the party one last time, well into 2009. Make no mistake; the next year and a half in the Market will be profitable beyond your wildest dreams.  With optimal positioning you could easily exceed your gains of the last three years combined. Make sure you are fully invested from the start; this move will catch most players off-guard!

In the Dow Daily chart below a Diag II in the (a) wave, on the far left tells us this will be a long wave (c) up, likely peaking in September 2009, rather than peaking this year, as I had previously forecast. In trying to prevent recession, Bernanke is Fed is repeating Greenspan is blunders. The result of Greenspan is folly is today is Housing Bubble, and the destabilizing of financial system worldwide. Meanwhile the Market is addicted to the Fed is rate cuts. For now they keep the party going, but at a great cost to the future. This time the bubble will alternate back to stocks. What this all means is we are about to begin the biggest and fastest rally in history.

Wave 1 begins a major move to all-time new high. Wave 2 in process is a correction of wave 1. The next move is down to c to likely complete the correction and begin wave 3, the longest and strongest. Do not let it catch you by surprise, Once we bottom get fully invested.

Next we see the Financials Daily chart. While the Dow has not yet peaked, Financials have irrevocably started down, however a correction of wave (1) should complete above it not below it. Here again we have a Diag II in the (a) wave, indicating a long wave (c). Looking to the far right you can see that we are in a-b wave, which should drop near the area of 390 before turning up again. Wave (c) = (2) has a likely upside of 560-570.

Next we have the big picture DHI representing the Homebuilders where you can see a complex wave IV of a Diag II* near completion. A Diag II of this size means the start of a long move. DHI has the largest Diag II of all the homebuilders. All other things being equal, the upside is proportional the size of the Diag.

Bottom Line: The recent trading range is ideal for my skills. After overcoming some serious problems with a hacker by switching to a Mac, we fine-tuned some procedures that have made a dramatic improvement on our returns. Since early March, we have been fortunate to catch every turn of this zig-zag, and our results reflect them.

For the next two days I will leave up the timertrac returns with no lag, so that you can see our performance tracking to date. We are currently concentrated in Financials and Homebuilders using 7-8 individual stocks and indices. We utilize the inverse real estate ETF as a proxy for short homebuilders in retirement accounts, which cannot short. Of all sectors, these were beaten down the hardest, and therefore have the most upside as indicated by the Diagonal II. To the downside they have been equally volatile, but timed opportunistically in both directions, they ca not be beat. Should you wish to subscribe, clicking on Exceptional Bear in green will take you directly to the subscribers page, from there you can navigate the rest of the site.

Best regards,

Eduardo Mirahyes

Exceptional-Bear.com

*For those not familiar with my work, it relies heavily on Elliott structures called Diagonal Triangles. Diagonal II depicted in red, indicate the beginning of a long move. While Diagonal Triangles (Diag >), indicate dramatic reversal, or end of a move, once the structure completes. To my mind there is no better timing tool.