Monday, October 04, 2010

Ominous Dow Jones Chart Pattern Setting Up

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I don't have a stock pick this week as I normally do, but to say I have a short bias. The market near term looks like it might break out to the upside possibly. If it does I suggest the breakout won't stick, and this would be an excellent time to initiate new low-risk high-reward short sell positions.

In the meantime, review this below to get ready for a very possible large market sell-off in my opinion.

Don't Be the Mark in an Age-Old Confidence Game – How Long Until It's Exposed?

As always, wave 2 will exhaust the "last vestiges of self-destructive hope." But, says Robert Prechter, it can also last longer than most bears can hold out.

In his just-published September 2010 Elliott Wave Theorist, Robert Prechter delivers this essential message to his readers:

Stay Vigilant

As wave 2 continues to percolate optimism back into the market, Elliott-minded investors – even those nimble enough to trade the high-risk countertrend moves – anticipate the coming powerful reversal.

In chapter 2 of the classic reference book Elliott Wave Principle – Key to Market Behavior, authors Prechter and Frost lay out the personalities of each wave in the 5-3, impulse-to-correction sequence. The description for wave 2 is as follows (inversed for a bear market):

Second waves often retrace so much of wave one that most of the [losses accrued] up to that time are [regained] by the time it ends. ... At this point, investors are thoroughly convinced that the [bull] market is back to stay. Second waves often end on very low volume and volatility, indicating a drying up of [buying] pressure.

In other words, if wave 2 was a crook, his method is not to smash-and-grab; instead he's the authentic "confidence man" who gets you to open the door yourself. He appeals to your emotions. He convinces you that only he can solve your problem. But just when he has your trust, he alerts his accomplice (wave 3 down) to strike. He's gone with your wealth before you even realize that your trusted confidant is really a con.

Back in February 2009, when a true contrarian case could be made for a strong countertrend rally, Prechter proclaimed his bullish case on TV. Today, when sentiment is opposite that of early 2009, he sends a crystal-clear warning about the deceptions of the wave 2 rally.

This issue will help protect your wealth from one of the oldest scams in history: the confidence game. Read Prechter's latest Theorist to find out how far along the cunning wave 2 has progressed and how much longer it could be until it reverses.

Inside the September 2010 issue, you will discover:

* What 9 key measures of sentiment (including put/call ratio, bull-bear spread, VIX, dividend yield and others) say about today's market environment. You could research dozens of sentiment measures yourself to find out which are most important today, or you could read Prechter's thorough analysis right now.

* Atlanta's property market, and how it serves as a case study for the recovery prospects of U.S. real estate.

* What one money manager subscriber means when he tells us, "I feel like I'm in an elevator with a madman at the switch."

* An interesting new way to opt out of governments' disastrous fiat-money system.

* A candid assessment of Prechter's outlook on gold and silver.

* Why the so-called bond market bubble is not an investment bubble; it's a whole other category.

* And much more, including a short list of Prechter's recommended reading.

Click here for a Free Trial of the Theorist