Linear Regression Charts

These are some updated charts of the S&P 500 Index and the Nasdaq 100 Index. Both indexes are shown in daily charts and 3-day charts.

S&P 500 Index 3 Day Chart (click to enlarge)


S&P 500 Index Daily Chart (click to enlarge)


In the first chart it is important to notice that the prices are starting to test the second standard deviation from the short term linear regression line(21 period). Any momentum above this level, could lead to a move up to the second standard deviation line from the medium term linear regression line(55 period). This is roughly the 970 area that was calculated in an earlier post.

This second daily chart shows a series of higher lows inside of the short term linear regression channel(21 day). At the same time prices are meeting resistance from the medium term linear regression upper channel line. If prices can stay above this channel(yellow line), it can act as support for a move up to the 940 area. There is still an overhang on the market, so any move higher should be scrutinized as to its volume and full participation across various other indexes. Commodities and Infrastructure related companies could be leaders in any move higher. It is still prudent to be skeptical and sell rallies.

Nasdaq 100 Index 3 Day Chart (click to enlarge)


Nasdaq 100 Index Daily Chart (click to enlarge)

Making Preparations and Taking Action in Today’s Deflationary Environment

December 12, 2008

Editor’s Note: The following article is adapted from Robert Prechter’s 2002 best-selling book, Conquer the Crash – You Can Survive and Prosper in a Deflationary Depression.

In addition to this article, visit Elliott Wave International to download the free 15-page report about how to protect yourself, you wealth and your family in this environment. It contains details about what you should do with your pension plan, valuable tips for business owners, insights on handling loans and debt and important warnings against trusting the government to protect you.

By Robert Prechter, CMT

The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you.
Many investment advisors speak as if making money by investing is easy. It’s not. What’s easy is losing money, which is exactly what most investors do. They might make money for a while, but they lose eventually. Just keeping what you have over a lifetime of investing can be an achievement. That’s what this my book, Conquer the Crash, is designed to help you do, in perhaps the single most difficult financial environment that exists.

Protecting your liquid wealth against a deflationary crash and depression is pretty easy once you know what to do. Protecting your other assets and ensuring your livelihood can be serious challenges. Knowing how to proceed used to be the most difficult part of your task because almost no one writes about the issue. My book remedies that situation.

Preparing To Take the Right Actions

In a crash and depression, we will see stocks going down 90 percent and more, mutual funds collapsing, massive layoffs, high unemployment, corporate and municipal bankruptcies, bank and insurance company failures and ultimately financial and political crises. The average person, who has no inkling of the risks in the financial system, will be shocked that such things could happen, despite the fact that they have happened repeatedly throughout history.

Being unprepared will leave you vulnerable to a major disruption in your life. Being prepared will allow you to make exceptional profits both in the crash and in the ensuing recovery. For now, you should focus on making sure that you do not become a zombie-eyed victim of the depression.

Taking the Right Actions

Countless advisors have touted “stocks only,” “gold only,” “diversification,” a “balanced portfolio” and other end-all solutions to the problem of attending to your investments. These approaches are usually delusions. As I try to make clear in Conquer the Crash, no investment strategy will provide stability forever. You will have to be nimble enough to see major trends coming and make changes accordingly.

The main goal of investing in a crash environment is safety. When deflation looms, almost every investment category becomes associated with immense risks. Most investors have no idea of these risks and will think you are a fool for taking precautions.
Many readers will object to taking certain prudent actions because of the presumed cost. For example: “I can’t take a profit; I’ll have to pay taxes!” My reply is, if you don’t want to pay taxes, well, you’ll get your wish; your profit will turn into a loss, and you won’t have to pay any taxes. Or they say, “I can’t sell my stocks for cash; interest rates are only 2 percent!” My reply is, if you can’t abide a 2 percent annual gain, well, you’ll get your wish there, too; you’ll have a 30 percent annual loss instead. Others say, “I can’t cash out my retirement plan; there’s a penalty!” I reply, take your money out before there is none to get. Then there is the venerable, “I can’t sell now; I’d be taking a loss!” I say no, you are recovering some capital that you can put to better use. My advice always is, make the right move, and the costs will take care of themselves.

If you are preoccupied with pedestrian concerns or blithely going along with mainstream opinions, you need to wake up now, while there is still time, and actively take charge of your personal finances. First you must make your capital, your person and your family safe. Then you can explore options for making money during the crash and especially after it’s over.
…………….

For more information, Prechter has made five full chapters from his book available for free download.
• What to do with your pension plan
• How to identify a safe haven (a safe place for your family)
• What should you do if you run a business
• Calling in loans and paying off debt
• Should you rely on the government to protect you?

Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

I.O.U.S.A.

The makers of I.O.U.S.A. have created a free 30 minute version of their movie that not only discusses how this crisis began, it also foreshadows the impending retirement crisis. I encourage you to invest thirty minutes of your time to watch this video and share it amongst friends and colleagues who are also struggling to find answers to some very complex questions we have all been asking ourselves.


30 Minute Video Link

The Government Doesn’t Want You to Read This Article About the Financial Crisis

Editor’s Note: This article has been excerpted from a free issue of Robert Prechter’s monthly market letter, The Elliott Wave Theorist.

The full 10-page market letter, Be One of the Few The Government Hasn’t Fooled, can be downloaded free from Elliott Wave International.

By Robert Prechter, CMT

“Who Will Benefit From The Housing Act?”

This question is an actual headline from a national daily paper. The real answer is: mortgage lending corporations, developers, real estate agents, speculators and politicians. The government is also pledging tax money to providers of “financial counseling” and grants for speculators who want to “buy and renovate foreclosed housing”; in other words, it will hand tax money to charlatans and unfunded wheeler-dealers. But a far better headline would have been, “Whom Will the Housing Act Hurt?” The answer to that question is: (1) prudent people, i.e. savers, earners, renters and people who have waited to buy a house at a reasonable price; and (2) innocent people, i.e. taxpayers.

Government action (unless it is aimed at destruction) always causes the opposite of its stated effect. If taxpayers ultimately have to shoulder the burden for all the bad mortgage debt, those who are on the edge of being able to make their mortgage payments will be forced over the edge, causing more missed mortgage payments and more foreclosures.

There is never any need for a law granting privilege except when the goal is to reward the undeserving and to punish the innocent. If the goal were otherwise, there would be no need for a statutory law, because the natural laws of economics, when unencumbered, serve to reward the deserving and punish the imprudent and the guilty. Populists loudly challenge this idea, but they are wrong.

I thought the Fed was created to “help manage the economy.”

After a secret meeting on Jekyll Island (GA), Congress and a handful of bankers created the Federal Reserve System for two purposes. The first one was to allow the government to counterfeit money, thereby letting it steal value from savers through inflation. The second was to allow bankers to make profits through debt creation, also at the expense of savers. Any other claim is a smokescreen.

So shouldn’t we blame the Fed for the country’s financial problems?

That’s like blaming the collapse of your house on the biggest termite. The Fed is only one of the monsters that Congress has created. In the financial realm, others include Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae, the FDIC, the FHA, the FHLBs and the income tax. But there are also a hundred other havoc-wreaking agencies of the federal government. Congress is to blame for ruining America. The Fed is only one of the mechanisms it created along the way. It’s a big one, and it’s fine to campaign against it, but to blame it for everything is to give its creator a free pass.

This is an important distinction, because many people seem to think that abolishing the Fed will cure America’s money woes. They seem to think that once the Fed is abolished, Congress will behave responsibly. One website even calls for abolishing the Fed in favor of giving money-printing power directly to the federal government! Abolishing the Fed is a worthy goal, but Congress will work tirelessly to create one disastrous institution after another, because that’s what campaign donors pay for.

For more information on the government’s role in the financial crisis, download Robert Prechter’s free 10-page market letter, Be One of the Few the Government Hasn’t Fooled.

Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.