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Gota crash to rally for elections

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August 25, 2010 – Comments (0) | RELATED TICKERS: F , BAC

Let’s assume there are people that want the market to rally for the Nov Senate elections. Let’s also assume the DJIA at 10500 is very shaky. There is a good chance the market will be 10400 in Nov. That is 15% below 15 times next years estimated earnings. (15 p/e ratio - 15%). A few weeks ago it was at 10700, chances are it would not be higher in November but actually much lower.

Now lets assume that the low volume of the stock market will eventually become a major problem to corporations. How do you bring up volume? The market has to be low enough during a time of “hope and promise” that the big money is willing to invest again.

But lets save that for the presidential elections, this is just the senate. All we need is a dive in the market to blame the republicans and a nice rally to take credit for the Democrats.

So how does the most powerful people in the world bring down a stock market? Look at who owes them money or relies on these powerful people. Could they influence a bank to delay a loan or two to slow housing for a month? Could a corporation make negative statements to put fear in the market? Could contracts be put on hold to major corporations?

How would you make the market rally: bring it down and then double up on every thing you held back the month before.

If you wanted the market to be at 10400 or better in November and you want to claim credit for it, first you need it to go down. So what day do you start the decline and when do you let it bottom?

You would start it buy letting it run way over the 10400, then as it corrects you could use that downward momentum.

For the bottom: it would half to be about 8 weeks before the elections of Nov 2.

You would need 6 weeks to have it rally and not look like a whipsaw. At the bottom of the August run down you need about 2 weeks to define the bottom (old school typical reverse head and shoulders or 2 to 3 stair steps up).

Nov 2, minus 8 weeks. That would be Sept 7. Labor day is Sept 6 (a good day to make a speech.)

How far should the dow go down? It depends on if you want to bring it down after the senate elections. If you breach the last two lows (9700 and 9600) then after the November run up you can bring it way down to the 8500 to 8800. This will allow your rich friends to finally get into the stock market at a cheap price (corporations can cash out by selling stocks in a busy market and they will have a good year.)

If you don’t breach the lows before Sept 7 then it would be harder to bring the market into the enticing range.

So I expect 9400 to 9700 on this slump and sooner or latter a bottom around 8800 to 8500. (12.75 12.25 pe of DJIA, this p/e is used for slow growth stocks)

If you look at today’s patter it is very typical, all sorts of bad news but we got a bounce at 10,000 (as I said we would in my earlier blog; Bounce at 10k 96k and 88k)

Just like June we are doing a typical pattern; drop then up 2 days and finish off with a drop equal to the first drop (get a chart of June to see what I mean). We have completed the first leg of the drop and today we did the traditional “hope for a bottom”. We should have two flat or up days so investors can contribute more funds to Wall Street. Then of course finish with the second drop.

On Labor day the President will make a great inspiring speech and talk about how is going to save the economy. When the market rallies that month he will take credit for it.

Disclaimer: I am not putting all my money short for this but I am hedging, B of A did hit my target I set months ago of $12.45 Ford is at my mid target and I bought some today at 10.97 (7.5% below the 15% target) after selling all at 12.54 (15% below target), but I give a 50% chance for lower. GE; I am waiting for better but hold a small amount.

I have an equal amount of short positions, I am short on stocks that peaked in trendy recognition during the boom. So far I am up 20% on my stocks for the year and made a bunch last year. I am lucky enough to be almost double from early 2007.

But lucky as I have been for the last few years this may be the first time my targets are off. Trying to set exact dates is difficult.

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