KITCHEN SINK GONE, BABY AND BATHWATER (and multi-month low) IMMINENT!

WEEKLY SURF CONDITIONS:  High probability of a Dow dip below 8000 coming soon.  Our “moderately aggressive” model strategy will be to get long on the downside, by buying 100 shares of DDM at each of the following points:  Dow 7500, Dow 7000 and Dow 6500.  Given the higher volatility of the NDX and the Russell, more aggressive investors may get greater bang for their buck using the QLD or the UWM versus our DDM play.  More choices below:

BIG BETS TO THE UPSIDE (known as getting “long”) WITH 2:1 LEVERAGE:
Dow = DDM, S&P = SSO, NDX = QLD, Russell 2000 = UWM, Euro = URR, Financials = UYG, Real Estate = URE, Semiconductors = USD, Gold Bullion = DGP, Crude = DXO

BIG BETS TO THE DOWNSIDE (known as getting short) WITH 2:1 LEVERAGE:
Dow = DXD, S&P = SDE, NDX = QID, Russell 2000 = TWM, Euro = DRR, Financials = SKF, Real Estate = SRS, Semiconductors = SSG, Gold Bullion = DZZ, Crude = DTO.

Here are the DDM entry prices that correspond to the Dow entry levels above:

Dow Marker	DDM Entry Range
8000	26.75 - 27.75
7500	23.50 - 24.50
7000	20 - 21

NOW:  As we have shown time and time again, the predictive power of our decision support system, heavily based upon the Elliott Wave Theory (EWT), is uncanny in looking below the surface of “what is being said” to see “what is happening”. While the “talking heads” were heralding the coming of the Obamas as the savior of the markets and economies worldwide, we showed that the EWT was forecasting the winner of the 2008 election might not last the entire term.  The day following the election, the rally not only fading, but taking out the lows of previous days.  Earlier this past week, when the Dow retested 8000 and reversed strongly to close 900 points higher at 8900, we again used our decision support system to comment that this violent rally was “TOO EASY TO BE THE FINAL LOW” that we have been looking for in this time frame, and general price level.  That comment came out Thursday evening, Nov. 13th.  Within hours, global market, including ours in America, began weakening, and by the opening Friday morning, the market had given back 20% of the Thursday move.  In fact, by the Friday close, almost the entire rally from Thursday was reversed, after a 425 point slide in the final 30 minutes of trading.

Part of the reasoning we gave Thursday for not believing THE low had arrived, was the looming liquidation notices that were due from hedge fund clients that wanted their money returned to them by December 31 (the deadline being Nov. 15th).  We said that despite the protests by CNBC guests that this would “not be a big deal”, in fact it could be a big deal in the coming days to weeks, thus making the retest of 8000 an unlikely final low.  In addition, but not mentioned in that comment, this weekend is the first meeting of the new G-20.  This enclave being set up to get the financial powers of the world to coordinate a rescue plan for the snowballing financial disaster that has spread across the planet at alarming speed.  In the past year, not one “interventionist” action by single or multiple governments has helped the slide in stock prices.  In fact, within hours of each attempt, the “insiders” have used the momentary uptick in prices to sell into, leading to repeated cascades of lower and lower prices.

Since this meeting, being called the Meltdown Summit, is the biggest, broadest inclusionary meeting to date of twenty nations, it fits perfectly into the developing wave count that a sharp decline will follow.  The EWT has been pushing our decision support system to look for a plunge lower from the past months’ sideways range of 7900-9800 (the upper end having been tested twice, the lower end four times).  With the wave measurement to the downside approaching 1500-2000 points, we have been targeting 6500-7500 for the past several weeks, but we can now update that target range a bit to 7100-7400 +/- 300 Dow points.  From this low, the best rally in months should follow, at least beating the three-day, 1900 point wonder of Oct. 10, 13, and 14th, and perhaps a bit more.

NEXT:  It’s one thing to have an idea of what to do, and a whole other thing to know how to do it.  Unfortunately, we’re only human as well, so perfection is not an option.  However, the past 23 years of blood and guts experience has taught us some lessons for situations like these.  Some of them are: 1. there is always another day, so surviving to play again is the prime directive; 2. never put all your eggs into one basket, which for us means don’t enter all your money allocated for a particular stock at the same price; 3. hope for the best, but plan for the worst, which to us means plan on being wrong a couple times before you are right; 4.

The old game of the past 34 years, since 1974 which was the last Big Low, has been to BUY THE DIPS and BUY AND HOLD!  This worked pretty well, if you had enough time to wait, up until the 1999/2000 peak.  Few if any of us that bought near that high ever recouped our wealth to breakeven, even though the Dow made it to new highs.  Since most of us held more Nasdaq-like stocks, we were lucky to get halfway back by the Oct. ‘07 peak.  Now, our portfolios look really bad and getting worse.  What is the new game?

The new game is SELL THE RALLIES and CASH IS KING!  Worry about the return OF your capital, rather than the return ON your capital.  Thinking of hiding in Municipal Bonds?  Think again!  The market is currently pricing muni’s with twice the risk of default they had in the early 1990’s.  This can be seen if you look at the yield on 10 year muni’s as a percentage of 10 year treasuries.  Currently, this ratio is nearly 140% vs. 75% in the earlier period mentioned.  So, if you bought muni bonds in the past 10 years, they are not worth what you paid, nor could you sell them for near your purchase price.  And muni’s are supposed to be safe.  Safe from what is the question?

So, with the game changing, what should the average Joe be doing with their money?  Here are some ideas. Since in the near term, the pro’s are the only ones that have a chance of winning, due to the exploding volatility, we commoners should probably shy away from individual stocks and lean toward ETF’s.  These Electronically Traded Funds allow bets to be placed on individual market sectors, rather than individual stocks.  This spreads your risk tremendously, which is good right now.  Who would have ever thought we’d be seeing Citigroup, GE, MSFT, SBUX, INTC, JWN, and many others at their current levels.  Our point being that since most of us aren’t stock or market analysts, and most analysts aren’t any good, taking the whole issue of corporate analysis off the table is a step in the right direction.  We’ll show you how.  First, let’s meet the players.  This is a quick overview of ways to bet up or down on popular market sectors, but not an exhaustive list.  Please check your own risk tolerance prior to taking action.

BIG BETS TO THE UPSIDE (known as getting “long”) WITH 2:1 LEVERAGE:
Dow = DDM, S&P = SSO, NDX = QLD, Russell 2000 = UWM, Euro = URR, Financials = UYG, Real Estate = URE, Semiconductors = USD, Gold Bullion = DGP, Crude = DXO

BIG BETS TO THE DOWNSIDE (known as getting short) WITH 2:1 LEVERAGE:
Dow = DXD, S&P = SDE, NDX = QID, Russell 2000 = TWM, Euro = DRR, Financials = SKF, Real Estate = SRS, Semiconductors = SSG, Gold Bullion = DZZ, Crude = DTO.

These are what the big boys use to flood into or out of the markets, and ofter cause the massive prices swings that we have seen lately, specifically Friday (425 point decline in the Dow in last 30 minutes).

So, if you want to bet big to the upside or downside in these various sectors, the symbols to the right of the “=” sign would be your vehicle.  If you check the financial pages of your local paper or the Wall Street Journal or New York Times, you’ll see a more thorough listing, including vehicles that are unleveraged.

Example:  If we showed you a scenario that forecasted a drop in the Dow of 850 points (or 10% of the current price), you could buy DXD, and if correct, while the actual Dow fell 10%, your play would increase in value 20%.  On the other side of the coin, if you thought the S&P 500 was going to rise 10%, you could buy SDE.  If you were wrong and the index actually lost 5%, your play would have lost 10%.

ACTION:  Our system is forecasting an imminent decline toward the 7100-7400 +/- 300 range prior to a multi month rally.  From the Dow’s close Friday near 8500, that could be nearly 15%.  So, aggressive traders could buy vehicles from the Short list above and benefit from the decline.  Less aggressive traders could take the potential decline of 8500 to 7000, or 1500 points, and buy vehicles from the Long list above at three equally spaced levels like 8000, 7500, and 7000.  This would take much of the anxiety out of buying into a falling market, which is what the insiders actually do!  Conservative traders could wait until the 7100-7400 range is visited and buy vehicles from Long list above.

So, to summarize, there is a high probability of a “thrust” under Dow 8000 coming soon.  This move can be played many ways, including getting short for the ride and benefitting by the decline, getting long by stepping into the decline and buying regularly on the way down to the expected support target range, or waiting to get long until the support target range is visited.  The markets are groping for a bottom in this time frame and price range.  The coming rally should be at least 1900 Dow points or at least 28%, assuming the 7000 area holds.  Otherwise, an even larger percentage gain should be available from whatever lower level contains the slide.

Our portfolio will be using the multiple entry strategy to get long on the downside into the support target range.  We will track our entries and exits for our members to follow.

For what it’s worth,

Ken