Las Vegas is Welcomed at the Door of Pension Fund Management.

“Make It All Back by Doubling Down.”

Right.

Make a photocopy of your next pension check.  Then frame it, put it in a safe place, and be ready to retrieve it and hang it on the wall as a memento of days gone by.

The lead story in The New York Times today (March 9, 2010) informs us that pension funds which are operated by certain States and companies have begun to move their investments out of domestic stocks and into riskier investments such as offshore stocks (presumably, some of those are stocks based in “emerging economies”), junk bonds, commodity futures, and securities which are backed by questionable mortgages.  However, it is inaccurate to label these devices as “investments.”  This process ought to be called by its correct name: “gambling.”  It is emblematic of the perennial search for “yield.”

There are least two reasons for the shift in attention: 1) pension funds were badly hurt by the falloff in the stock market from October 2007 to early March 2009; and have not fully recovered during the Great Rally of 2009; 2) the funds’ assumptions of the return which would flow from their portfolio is wildly optimistic in the real world, and has been so for decades.

Therein lies a Great Lie, and a Great Cover-Up.  Pension funds are desperate to avoid having to (or being forced to) lower their assumptions of portfolio return, for to do that would necessitate massive infusions of Cash into the funds’ trust accounts in order to bring their future payout obligations into line with reality – and many pension funds, especially those which are operated by the States, simply do not have the money, or any prospect of acquiring it.

States, in particular, are particularly adept at lying to their own people.

The recession is far from over.  We are staring into the face of a full-blown Depression, more severe than the Depression of the 1930’s.  This entire edifice of lies, deception, and desperate risk-taking will inevitably collapse when these so-called “investments” fall into the gutter, as they surely will.  We can look forward to short-changed pension checks, to be followed by civic unrest including strikes by present and future government retirees from the ranks of the teachers, police, firemen, other professionals, and office workers.  What had been thought to be unbreakable contracts as absolute guarantees of security will turn out to be fictions.

There is no easy way out.  There may not be any way out at all, easy or otherwise.  The money is not there, and will not be there, to make up the deficit in promised future obligations, even under present assumptions of portfolio return on investment; and the money is not there, and will not be there, to make up the shortfall which would result from bringing those assumptions into line with reality.

This is a ticking time bomb which can only result in disaster.  Frame a copy of your next pension check.  You will able to look upon it and say “Those were the days.”  If you’re not receiving a pension check as yet, plan ahead on the basis that you may never receive the first one.

William Kurtz

March 9, 2010

http://www.candlewave.com

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You know that I pay a lot of attention to Reversals of Trend and to Retracements.  Reversals are easy enough to understand and to see on a chart; they occur when prices which have been trending either up or down suddenly stop going in that direction and do a fast turnaround and go in the other direction.  Everything we do at CandleWave is based on estimating likely points of reversal and then scouting them out, even before they emerge.  Most investors are very interested in knowing the point at which a reversal is likely to occur, because it can be safer and more rewarding to get aboard a train just as it is about to leave the station than it is to try to jump aboard when the train is already moving fast down the tracks.

Now, what are “Retracements?”  Simply stated, they are countertrend corrective moves which occur following a Reversal.  It is important to have some idea of the extent to which they may move before they peter out, at which time prices will reverse again, this time in the direction of the operative trend.  That “extent” is expressed as a percentage of the size of the previous move.

Luckily for us, nature has put in place a series of particular percentages which very often prove to be accurate targets for calculating where a corrective move might end.  Four of them come to mind.  They’re easy to remember, with a little practice.  They are the .382 (the “three eighty-two”), the .500 (the “fifty”), the .618 (the “six eighteen”), and the .786 (the “seven eighty-six”).  The first wave down from a major, reversal-generating Top we call “Wave One Down.”  When it reverses and a corrective upmove follows, we call that upmove “Wave Two Up.”

The really interesting thing is that Wave Two Up most often retraces somewhere between 50% and 78.6% of Wave One Down, and usually spends time hovering around the six eighteen before giving up the ghost.

Let me show that to you in real life.  Please look first at the accompanying chart of the Dow Industrials.

At the top of the chart, note that January 19 marked a top at 10729.80.  This was the end of the Great Rally of 2009, which began last March.  “Wave One Down” followed, and bottomed on February 5.  At that point, Wave One Down ended, prices reversed upward, and Wave Two Up was underway.  You can see that Wave Two Up ended on February 19.

I have marked that top end of Wave Two Up by a horizontal green line.

Now, rather than having to measure by hand the percentage extent of Wave Two Up’s retracement of Wave One Down, the computer does it for us.  The computer has measured the price distance between the upper horizontal blue line at January 19 and the lower horizontal blue line at February 5.  The numbers within the small red squares above and below the green line show us that the .618 (being 61.8 per cent, of course) level of retracement was at 10381.22 on the Dow, and that the .786 level of retracement was at 10533.86.  Note that prices reached a High between the .618 and the .786 on February 19 (the green line), and then retreated.  They have pretty much focused on the area between the .5 and the .618 ever since, and closed smack in between the .5 and the .618 on Friday.

.,.,.,.

Now please look again at the chart, because there’s more to see.  Now the computer has made a second calculation.  It has measured the price distance between the High on February 19 and the low of last Thursday (February 25), so that we can know the percentage of retracement of the downwave from February 19 through February 25.  Prices zoomed way down early on Thursday before ending up back in the territory between this newly-calculated “fifty” and “six eighteen” again.  Aha! Look where prices closed on Friday! Right between the newly-calculated “fifty” and “six eighteen,” as those numbers are shown in the rectangular red box.

So, the Closing price on Friday is right smack between the “fifty” and the “six eighteen” ON TWO SEPARATE SCALES OF MEASUREMENT – one on the downwave from January 19 and one on the downwave from February 19.  Effectively, prices have been stopped dead in their tracks, so far at least, by the “six eighteen” retracement level, twice in a row.

This knowledge, plus our accumulated knowledge that prices very often are repelled downward from this group of retracement levels, lead us to believe that prices should not top the high of February 19 AND that they should decline from approximately this point, in what is now Wave Three Down.

The accompanying NASDAQ Composite chart shows the same events.  The dates and the numbers are different, but the principle is identical.  The NASDAQ is sitting a little higher, just under the seven eighty-six measured from Thursday’s low.

.,,.,.,,.

William Kurtz

for CandleWave, LLC

February 28, 2010

email:  info@candlewave.com

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The price of Gold marked its all-time High of $1228 per ounce on December 3, 2009.  Since that time, Gold fell sharply, beginning on December 4, as depicted by a tall black candlestick bar for that day.  From a “Wave 1 Down” Low on December 22, Gold retraced just over 50% of its initial decline, and closed right on that 50% retracement line, leaving behind a bearish “Spinning Top” Reversal bar which could almost be characterized as a “Shooting Star,” which is also a recognized Reversal pattern.  The top of that initial retracement made possible the establishment of a down-sloping trendline, drawn from the top on December 3 to the top of the retracement on January 11.

The aforesaid “Spinning Top” Reversal pattern accurately forecast the strong decline which followed, and then another upmove which hit the down-sloping trendline on February 3 – which was sharply rejected downward by the trendline.  After the ensuing decline, prices were propelled upward again by a strong bullish “Hammer” Candlestick pattern on February 5, leading to a short advance to the point at which prices stand as of today: $1094.0, which is just below the down-sloping trendline and only about 5 dollars short of it.

Tomorrow, and the ensuing few days, will be “make or break” time for Gold.  If it can break upward through that trendline and then Close meaningfully above it, then the chances would be good that Gold will be off and running on a new advance.  On the other hand, if Gold tests the trendline and is rebuffed downward, then the chances would become truly excellent that Gold prices will be on their way down to $800 and below.

So long as prices remain below that trendline, they will continue to be “crowded” thereby, if only because the trendline is on a down-slope.  Every day that passes means that prices would be forced to attack it from lower and lower levels.

If there is to be a rejection of prices by the trendline, whether now or in later days, the characteristics of the Candlestick bar at the point of rejection will tell a good bit of the story which we anticipate will follow along.

William Kurtz

February 15, 2010

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A Candlestick “Hanging Man” bar formed in the Dow Industrials on January 8, 2010.  The
Hanging Man” is bearish, but requires a lower Closing the next day for confirmation.

Our Indicators, not shown on this chart, contain numerous other bearish signals.

We have been awaiting the top end of this Great Rally of 2009 for many weeks.  The Dow has fooled us many times into thinking that, perhaps, “this is the top.”

Nevertheless, we know that the Rally of 2009 has been an upside correction in an underlying bear trend which began in October 2007.  It is not a question of “whether” the Rally will end; the only question is “When.”

There is a chance that, this time, it’s the “real thing.”  We will be watching intently tomorrow to see whether the Dow does or does not close below last Friday’s Closing price.

.,.,,.

January 10, 2010

William Kurtz
For CandleWave, LLC

info@candlewave.com

http://www.candlewave.com

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The Candlestick “Hammer” is a bullish Reversal pattern.  On November 27, 2009, a classic “Hammer” pattern emerged in the Dollar/Yen pair.  We promptly issued a notice to our Subscribers, wherein we predicted a substantial rise in the Dollar.

The proof is in the pudding.  Or is it “in the eating?”

The attached chart shows the result.  As of this writing, the Dollar has advanced from its low of 84.80 on November 27 to 90.53, a rise of 6.75%.  The “Hammer” Candlestick Reversal Pattern was the tipoff.

William Kurtz

CandleWave, LLC

December 4, 2009

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The Candlestick “Hanging Man” pattern occurs at the top of a long price ascent.  It is marked by a price bar which has a small “real body” at the top of the period’s price range.  The pattern is considered to be bearish, but it requires a lower close in the next period for confirmation of the bearishness.

The “Island Top” is not a Candlestick formation per se.  It is defined as one or more price bars (almost always more than just one, which has a different name), a gap up at the first bar, and a gap down at the second bar.  The Island Top is considered to be bearish.

The attached chart is an example of the Hanging Man and the Island Top occurring at the same time.  Note the lower close (in the tall black candle) following the third bar of the Island Top, which was also the Hanging Man.

We think that these two bearish patterns, occurring together, are a predictor of lower prices to come.

William Kurtz

November 19, 2009

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We have been waiting a long time for a top in the Great Rally of 2009, which represents neither a “recovery” nor a resumption of the old bull market.  Rather, it has been an upside correction of the bear market which began in October 2007.  That correction began in March with a series of bullish Candlestick signals, including the “Tokyo Express” pattern which completed on March 10 in the Russell 2000 and in other Indexes as well.

The Rally, across most of the major Indexes, has been a big tease.  More than once we have thought that it had reached its top and had begun a decline, only to be proven wrong.  Even so, we have known from its beginning in early March 2009 that it was always a question of “when” it would come to a top end, never “whether” it would do so.

Now we are beginning to think that the top may really have been made, at the high of Monday, November 16.

Here are a few clues which lead us to think so:

1)    The Russell 2000 came close to testing the underside of the trend line drawn from the March and July lows, and then strongly did so on November 16 – and fell back.

2)    The Candlestick pattern which is now forming in the Russell 2000 is an incipient Candlestick “Evening Star,” which is bearish.

3)    The ADX Indicator is in a “Pinch” with the Stochastics, a condition which foretells a decline in prices.

4)    The Stochastics Custom has already crossed down below the Stoch K and is about to cross the Stoch D.

The Pinch between ADX and the Stochastics are especially telling.  A condition such as this cannot long persist.  The two Indicators repel each other when they are close, with the inevitable result that Stoch K falls away and prices do, too.

William Kurtz

November 18, 2009

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The Dow Industrials and the other major Indexes were up slightly today, including the NASDAQ Composite.  The Industrials appear to be faltering.  The Candlestick pattern in the NASDAQ causes us to stop and consider its implications.

This particular pattern is a “High-Wave Doji,” which we recognize as a Reversal pattern.  The Doji is characterized by an Opening price and a Closing price which are the same, or nearly so.  Today, they were only 53 hundredths of a point apart – so the pattern clearly qualifies as a real Doji.

We will be looking for a lower Close tomorrow.  If we do in fact see a lower Close tomorrow, we would consider that to be confirmation of the Doji’s bearish warning, and we can reasonably expect to see lower prices thereafter.

William Kurtz

November 11, 2009

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In a past century, a particular Mania came in the colors of the Tulip: red and yellow, primarily.  One of them came in the color of the South Seas.  In 1929, one arrived in the color of paper, in the form of Stock Certificates.  In 2000 and 2007, the key colors were those of Stock Certificates, again.  And now, in late 2009, three of them have appeared in the colors of Gold, of Silver, and of Green – that of the Dollar Bill.

Actually, the Dollar Bill Mania is a Mirror-Mania, in that investors have relentlessly driven its price down rather than up.  The Mirror-Mania is the inverse image of the Gold and Silver Manias, companions that they are, with Gold taking the lead position.  Imagine Gold as the Lone Ranger, and Silver as Tonto.  Interestingly, the Lone Ranger’s horse was named “Silver.”

The signs of a Gold Mania are all around us.  It has been bid up to prices never before seen, in a frenzy of buying by “investors” large and small.  We know that we are dealing with a Mania when the Government of India exchanges U.S. Dollars for Gold at precisely the wrong time; when Harrods offers physical Gold in various shapes and sizes “off the shelf;” when – irrationally and correlatively – the value of the Dollar Index has been driven to new Lows; when buying happens in anticipation of an inflation which is not here and is not coming for a while, because we have to deal with deflation first; when chatter is rampant to the effect that “Gold is the new currency” (i.e., in substitution for the Dollar); and when an agency of the United Nations talks about the necessity of establishing an alternate reserve currency to be based on a “basket” of currencies to be “managed” by the UN itself.

All Manias come to an end; and when they do, “the last state of that man is worse than the first.”

The Gold Mania is just about ready to break.  When it does, we can look forward to the price of Gold at well below $700 per ounce.

On the chart:

ADX is high and continues to rise;

Stoch K is high;

Bollinger Percent B is high and is beginning to fall off;

Chandelle 1 and Chandelle 2 are in a “Pinch.”

In combination, these factors present an excellent setup for a price decline.

William Kurtz

November 10, 2009

http://www.candlewave.com

http://www.candlewaveblog.com

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