Professor Elam

In Prechter's report this month: "this week's closing high brings the index to a 53% retracement of wave 1, which is nearly the same percentage as the 52.3% registered by the countertrend rally following the crash of 1929. The Dow fell 85% over the next 27 months." 

Elliotwave.com 

Here is what this means in chart form.

I had to re configure this to an arithmetic instead of a log scale so that Prechter's point would be clear. We are now at about the same point we were in 1930. The waterfall drop is clear. Also note how much higher are now than then, ie, the potential for another drop that far is now arithmetically possible. 

 Then the market collapsed from its 294 recovery high to yes 41 by 1932.Could that happen again, well look at CITI symbol C. 

Let's see, 3.50 divided by 50 is, yep as Gary Cooper would say, 7%. So CITI has collapsed 93% from its high  a mere two years ago. The important point to note is that this is the result AFTER TARP funds, bailouts, fictional balance sheets, mortgage re purchases, etc. As the nursery rhyme goes

All the King's Horses and All the King's Men could not put Humpty Dumpty back together again.

In this case the King's man was Robert Rubin and the rest of the near universally admired graduates of Harvard, Yale et al. Overlay that with the fact that CITI is still one of the four largest banks in the country which collectively hold some 60% of all bank deposits and one can see the potential for trouble. 

But you say, the stock market is up and that must be a prediction of better times ahead. Well, we have a Wave 2 or B up from March 9 or however one wants to label it. Wave one down to 666 in the first graph called for correction and we now have it. We also have 24 straight months of declining employment despite TARP, unemployment , etc. As Mish   and just about every other blogger in the universe are noting, all the governments are conducting one giant Ponzi scheme. This weekend Governorator Arnold asked for more money from Washington to prop up California. 

We have detailed the horror story unfolding across America in states and cities. They are scrambling to make good on promises to both employees and retirees. The promises cannot be kept, liabilities dwarf present discounted cash flows, period. 

Businesses are laying off employees and or slashing payrolls by lowering salaries. Governments are not, an eighth grader can see where this is going. 

The stock market is up as the money the government has printed has simply been speculating on stocks instead of employing someone. And so stocks are up with an ever slowing rate of increase as the supply of money to do this winds down. Indeed we are up but a couple of hundred Dow points since September. 

Robert McHugh  reports that 80% of the gains since March 9, 2009 have been on Mondays. Gee could this mean the banks and brokers are betting long on calls on Friday and then cashing out on Monday. Take a look at the last four Mondays above, including today, gee amazing. And now the banks and brokers are paying record bonuses let's see,for investing our TARP money by gambling in the markets. 

Meanwhile the US just missed another terrorist attack which would have spread a plane and its passengers across Detroit. What would the reaction in the markets have been if that had happened? We have had an increase in real terrorism, Fort Hood, Afghanistan, other arrested in New York, and so it goes. 

Caution is warranted in the markets.