Subject: 2-4-08

Monday, February 4, 2008

Brace yourselves for a Meteoric Rise in US Stocks

What happens when the expected recession fails to materialize? The fastest market ascent in history. A Spike is defined as an almost vertical ascent in prices, and this should be the biggest Spike on record. Two or more Diagonal II’s compound the force of the subsequent thrust. The pattern in the Dow contains three of these, while some of our stock picks contain many more. The V^th wave is a complex (a)-(b)-(c), the a-b transition into (c) has merely stretched out, telling us that the move just starting will surprise nearly everyone. To the right is a stylized graph showing were we are in the big picture, from this level the Dow could potnetially climb. 30% or more. The Spike from this Bear Market Rally can be expected to top out in September-early October. The purpose of this final Spike is to get everyone fully invested just before we Crash − it always works.

A closer look at the Dow shows wave 1 is nearly complete. Diagonal II means the beginning of a big move. Wave 2 will likely drop back to ~12,100, the 61.8% Fibonacci retracement and no more than ~11,650 where the move began.

Financials have begun a long-term descent, however we must first correct the initial drop to the upside. We are just beginning (c) of wave (2), which should take us back up to the level of ~560-570 . In the diagram to the right you see waves (1) and (2) approximating the pattern in financials. Wave b is a “correction within the correction”. Wave c is a third wave and is usually the longest and strongest of a-b-c and behaves just like a bull move, 5-wave sub-divisions included.  That’s why at a minimum we should retrace to ~560-570 level on the index, after dropping back in wave 2. Diagonal Triangle (Diag >) in the (b) wave below indicates dramatic reversal ahead.

If we take a closer look in the 30-min chart, we get a much clearer picture.  Here we see wave 1 of c nearly complete, with a likely less than 5 points upside left on the index. More importantly wave 1 contains three diagonal II’s, which in aggregate signal an explosive move. Wave 2 of c must drop back to at least to 433, where the first diagonal II began.  The downside is limited by ~398 where wave 1 began.  With the Diag II extensions, (wave 1 would have occurred at i without an extension) it is less likely that we drop much past the minimum target, which is coincides with the Fibonacci 61.8% retracement. Notice the RSI is verging on overbought.

Emerging Markets have a bit more upside likely one more day. After that they will drop to a new low for the move. Anyone holding long should sell early next week. Once we bottom, we will likely see diagonal II’s as wave (c) gets underway.

Meanwhile the US Dollar has definitely bottomed. Since wave ii exceeded the origin of wave i and wave i is a 5-wave structure,  there must be another diagonal II in process. We need to go up into iii and back down to iv.  It’s probably best to wait for wave iv to complete, since it can drop below the current level.

Although we missed some upside by selling early, and going short. The next drop will allow us to buy back near the bottom in all our stocks, in time to catch a much bigger move in waves 3. You should have no doubts about the explosive upside ahead. The dollar is taking on the same pattern as the broader indices likely indicating that the bull move will be localized in US stocks. As a foreigner you must first buy US Dollars, before you can buy US stocks.

Regards,

Eduardo Mirahyes

Exceptional-Bear.com