Below is a repost of Friday's chart, there's no changes at this time and look for a reversal in the target area. If we end up closing below 1320 on the cash, there may be need for some re-evaluation and the near term outlook could become significantly more bearish.
Friday's Chart;
For this weekends update, I'd like to talk a bit about where we might be going long term.
Dr. Robert McHugh of technicaltradingindex.com, most of you know who he is or have heard of him. He recently changed his long term outlook from the market having topped a very long term supercycle wave (that started after the great depression) and us being in the middle of that correction with one major wave down left, to a forecast in which we have not yet topped that wave and we have been a topping process since 2000. He theorizes that we actually are topping a Grand Supercycle wave, which is theory because while supercycle waves can be historically tracked, a single grand supercycle lasts hundreds of years, so the start of that wave occurred sometime around the signing of the declaration of independence. Topping a grand supercycle wave would be a very very dire forecast, as correcting a wave that is hundreds of years long would most definitely result in the stock market going to zero.
This is Dr. McHugh's recent view of the Dow Jones Industrials. This is a 24 year chart and shows a broadening bearish megaphone top that has been forming since 2000. We would be in the final E wave inside of that megaphone. This pattern would allow for the market to either finish and collapse at any time, or go as far as new highs before the break down hits. This is the pattern that allows for the possibility of new highs, but it is also the most dangerous pattern to confirm for the long term. Targets of confirming this pattern and breaking down out of it are in fact targets of Zero. My guess is either a breakdown of global fiat monetary systems or a global depression caused by the end result of all this debt in the global system would be necessary to cause such an outcome.
Chart of potential industrials megaphone top;
I don't really share this view with Dr. McHugh, although I must concede that it is possible. I think it is more likely that we have in fact topped the Supercycle wave and have been in the process of correcting it. In this scenario, we have completed 5 supercycle waves, and we have finished the A and B part of an ABC correction.
Chart of what is IMO the more likely path and was Dr. McHugh's original thesis;
That thesis also meshes well with the very long term trendlines of the market;
This all gives us a long term target of about 475-500 on the S&P 500 and 4000-4500 on the DOW. A tremendous decline that would practically wipe out quite a bit of middle class retirement accounts and would probably bankrupt quite a few pension funds. It would be ugly.
But as ugly as it would be, it would not be nearly as ugly as what Dr. McHugh is now predicting.
If you look around the globe, it's not hard to see where all this damage is going to come from. It's going to come from massive debt loads at the government level that is world wide and we have central banks around the world attempting to continually bail out and hide all of it. When practically every country in the G20 has the same problem, they are all currently in a race of who can devalue their currency the fastest.
There's one problem with this solution. You CANNOT fix a debt problem with more debt. This is like you putting your mortgage on your credit card. That works until the bank says you can't put any more money on your credit card or until the interest on all the debt exceeds your income. This is the state of the US, England, Europe and Japan.
The technicals say what is obvious. This ponzi scheme we currently are running to fund our tremendous deficit spending is unsustainable and the hangover from our over indulgence is going to be quite painful and potentially disasterous. Hopefully we just take our pain medicine soon and move on. If we continue to bury our heads in the sand the debt only gets bigger and the outcome worse.
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