We Interrupt Winter to Bring You Spring

I woke up this morning to find out that it is suddenly Spring.

For example, Bloomberg is running a front-page article entitled “Stocks Rally Worldwide, S&P 500 Hits 1-Month High on Obama Plan

Markit’s Anousha Sakou writes that credit default swap markets are calming down in an article called “CDS report: All better again”.

And investment advisor Mike “Mish” Shedlock – as gloomy as anyone – writes “the [bear] fur suits are off, at least for a while . . .”

But I look out my window, and its still really cold and wintry.

The jobs forecasts are grim.

People are getting hit hard in every sector.

Even the new cheerleader-in-chief – Obama – says things will get much worse before they get better.

So what’s going on?

Well, if you’ve ever watched talking heads on financial shows such as CNBC or Bloomberg, and you see charts predicting what the stock market is going to do, then you’ve been exposed to Elliot Wave Theory. Elliot Wave says that markets go up and down in regular wave patterns, based on basic human psychology. In essence, Elliot Wave predits market prices based on alternating cycles of five waves followed by three waves. See this.

Does it sound like voodoo? Maybe. It might not work at all.

But a lot of the leading investment advisors, including PhD economist Marc Faber, follow Elliot Wave Theory. Faber has – for some time – been predicting a rally for the next couple of months based on Elliot Wave Theory. Similarly, Shedlock is today calling a “Wave 4 bounce“.

Does this mean that the financial crisis is over, and we’ve dodged a bullet?

Not at all. Elliot Wave Theorists are calling for a huge crash after this wave 4 bounce plays out in a couple of months. How big of a crash?

Well, some Elliot Wave theorists are predicting that we are ending a larger cycle which started in 1718, and that we could crash all the way back to that point.

So when the temporary Spring ends and winter resumes, it could get very cold indeed . . .

That’s why a lot of investors – including giant hedge funds – are waiting until the market bounces up enough to sell all of their stocks and hunker down with cash to ride out the coming crash.

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