Grizzly's Growlings Current Report

Market Update Wednesday 05/11/2000 5:00 a.m.

"The Crash of 2000?"

In last Thursday's (05/05/2000) Market Update, we said:

"... the Elliott Wave patterns are saying that a devastating "third of a third" wave is just around the corner. The risk of crash next week or in the coming weeks is extraordinarily high. Caveat Emptor!"

Today's 200 point mini-crash brings the NASDAQ Composite's losses for the first three trading days of this week to 11%. The Comp is now down over 34% from its high of 5132 exactly two months ago. And still the pundits question whether we're in a bear market. The bulls have a lot in common with Sears batteries, they both Die-Hard.

We believe we're no where near a solid, lasting bottom. The market technicals and the Elliott Wave patterns are unequivocal in saying a lot more selling is likely ahead, including the high probability of an historic crash. 

It appears that the major U.S. indices have entered the most concentrated movement of an Elliott Wave pattern, the long-awaited "third of a third." This devastating move may take a couple of weeks to fully play its hand, and it will likely include an historic one-day crash.

Don't be fooled by any short-term rallies. The rallies will be short in duration and potentially very sharp, but they will serve their purpose by relieving the short-term over-sold condition and clearing the way for the next leg down.

We cannot overemphasize our ongoing warning:

US STOCKS REMAIN ON FULL CRASH ALERT!

We see virtually no evidence that we've even approached a selling climax. No blood on the street of Wall. No panic on the street of Main. No capitulation or submission. They're not crying "Uncle!" Yet. The markets just keep on slipping, sliding, and now melting.

The dip-buyers are finally starting to question their modus operandi. We won't see a lasting bottom until losses are large enough to strike fear in the hearts of those who are still clinging to large paper profits.

Volume on the NYSE today was a fairly light 975 million shares, while the NASDAQ traded about 1.5 billion shares, about average of late. The selling climax, whenever it arrives, will bring record trading volumes, perhaps 2 billion NYSE shares and 3 billion on the NASDAQ. 

Wednesday's TRIN (TRading INdex, a.k.a. the ARMS index) was dead neutral at 1.01. The TRIN typically hits an extremely oversold level of 4.00 or so at major bottoms. One  such reading was on Friday, August 24, 1998, which was near the bottom that has held since then. The Dow Jones is likely to pierce through that level, 7800, later this month as the Crash of 2000 plays out.

As we publish this report early Thursday morning, the overnight trading is pointing to further heavy selling, at least at the opening. The NASDAQ 100 and DJIA futures are down nearly 50 points apiece, while the S&P 500 futures are down a more modest 4 points. However, the futures on all three indices are well below cash value, a rare, temporary, and usually bearish situation. Globex trading is typically thin and tentative, so the discount to cash may evaporate by the time trading opens in New York.

Not much help coming from overseas tonight, either. The Nikkei 225 average in Tokyo has plunged by 830 points, or 4.7%.

All eyes have been, and will continue to be, on our friend Sir Alan of Greenspan, secular saint and savior of the world financial system. Sir Alan & Co. are in the proverbial "damned if you do and damned if you don't" conundrum. 

The overwhelming consensus is now that Fed will raise rates  by 50 basis points (.5%) in yet another attempt to slow the U.S.'s potentially inflation-inducing economic growth.

Next week's rate increase is about as widely expected as the sinking of the Titanic (while you're watching the movie). The only question is by how much. 

One way or the other, next Tuesday's Fed meeting will spark an inferno of emotional reactions. If the Fed raises rates by only 25 basis points, the markets will be extremely disappointed. The expected 50 basis point increase may spark a short-lived "relief rally," but if as we believe a crash is likely, such a rally may present a beautiful shorting and put buying opportunity for those who can handle the risk. (Please read our disclaimer.)

As we noted back on October 5, 1998, the markets don't like to be disappointed by inadequate action by the Fed, either up or down. Then, the Fed disappointed the markets with "only" a 25 basis point rate cut, and the Dow Jones promptly responded with back-to-back 200+ point drops.

As we've been saying for the last two months:

"Loooook Oooouuuuuttttt Beeeeellloooooowwww!"

"October is one of the peculiarly dangerous months to speculate in stocks. The others are January, September, April, November, May, March, June, December, August, and, February."
                                              -- Mark Twain, 1894

grizzly@bearmarketcentral.com
Please read the disclaimer.