Sat 12/3/11. Come together.

"Come together, right now, over me." The technicals are coming together. When this week started, people were calling for a September 2008 analogy crash. When this week was ending, people were calling for an August 2010 QE2 analogy meltup.Can you say consolidation, confusion and confluence? They all start with con which describes the global financial system based on debt, leverage, ponzi, fraud, intervention and virtually zero accountability.

It doesn't take a rocket scientist to figure out where things are heading barring a nuclear war, alien invasion or miracle discovery...
1. The average investor is pulling out of the stock market. Why? Fear. It's too volatile with a fat finger crash here and a flash crash there, here a crash, there a crash, everywhere a downgrade crash. Why? Pain. It's returned nothing in 13 years. Why? Boomers. Simple demographics have old folks protecting and drawing down their funds.
2. Nothing is solved until the debt stops growing. We all know on a personal level that growing debt eats at you mentally and financially, limits your freedom on almost every life decision, eventually hits a wall and either ends in bankruptcy or a debt payment plan. Although governments have a few more tricks available to them than the average person, ultimately mathematics and the fact that organizations are made up of people produce the same outcome.
3. An aging population with reduced spending and investing combined with debt resolution IS deflationary.
4. Governments hate deflation for many reasons and love mild inflation mostly for manipulative purposes fitting the con described above.
5. All reasonable corporate and government tricks are well beyond their peak. The tricks are never ever completely exhausted, but the low hanging fruit has been picked. Corporations have reduced labor costs to a minimum through offshoring over the last 2 decades and through downsizing and cost efficiencies allowed by 11 years of economic malaise. That game is concluding as India and China labor costs have risen substantially and US labor costs have stagnated. China has pumped up their economy with empty cities, easy loans and maximum abuse of labor, environment and intellectual property. The US, Japan and half of the world's GDP is operating at bare minimum lending rates, and Europe only has a little more wiggle room. Banks have overtly received about as many bailouts as the populace can stand and have surreptitiously made trillions more off Fed auctions, repetitive asset repackaging, interest rate arbitrage and risk-free government backing of student loans and mortgages. US debt has reached an historically-important 100% of GDP with non-guaranteed unfunded liabilities like Social Security making it much worse than that. The Fed has racked up $2-3 trillion. Governments have made mark-to-fantasy accounting accepted practice. Published statistics are about as heavily biased to benefit the government that they can be with changes to inflation, unemployment and other formulas over the decades. You get the point and so does the market.
6. Time and monetary inflation are the only big sticks left. All the jawboning, deal proposals, rumor-mongering, margin requirement tweaking, handouts, short-term stimuli sugar-highs, promises and financial packaging are intended to buy time which allows more gradual debt clearing, debt transfer to taxpayers and inflationary debt reduction. QE1, QE2, low rates, unenforced regulations and other such efforts are intended to inflate our way out of debt.
7. The problem is that the delaying tactics are having diminishing effect, because more and more people see that debt, time and mathematics are approaching a brick wall. And, intentionally-induced inflation particularly hurts the working class which is gradually rising up in mass around the world, causes misplaced, inefficient, unfair speculation and eventually leads to the overturn of currencies and those in power.
8. So, the ONLY meaningful trick left for governments and central banks is to cause just enough inflation to overcome deflation and just enough inflation to gradually reduce the value of debt, but inflation and deflation are never distributed evenly especially with intervention and none of it does any good if debts keep growing at rates above inflation to the point of lost confidence, lending lockup and no return.

In the end, if you believe that logic, the world will experience a muddle-through volatile uneven economy with spurts of inflationary intervention and deflationary effects as governments and central banks try to avoid both a rapid domino effect financial collapse event and hyperinflation.

That certainly explains 2000-2011 and likely 2011-2016+. Combined with my DRSI analysis back to the 1800s and my belief in cycles for demographic spending, debt, technology and business, that also explains why I am expecting some sort of large triangle or complex pattern from 2007 to 2014-2016+.

In the shorter-term, I think I have been very clear that my discretionary spending analyses, System cycles, seasonality and EW/Fib timing favor an SPX rally into mid-December likely holding above 1200 into end of year followed by a large drop into mid-to-late January. My favorite count is a sideways triangle A1293-->B1159-->C1260s-->D1180-1200-->E1240ish. My second favorite count is a zigzag A1293-->B1159-->C1300ish. And, my least favorite count is the 1-2-1-2 count with wave 3 possibly underway now. Please see my public daily chart for those counts, my 60min chart for System trades, my weekly chart for my spending analyses and several charts for projections. Even shorter-term, I am expecting triangle wave C to be A1260+-->B1210-1230-->C1260+ into Dec 8-13. Obviously, if SPX trades much outside my projected triangle leg projections, that will move my zigzag 1293+ count or bearish wave3 count into the forefront depending on which way SPX breaks. In the mean time, I think it's best to trade the triangle and then switch projections and trading strategy if the triangle count is broken before completing an ABCDE.

I reviewed Terry Laundry's charts and audio today, and he is expecting a sharp drop sometime between now and mid-January to form a T-theory low. He seems to favor SPX going higher or sideways into year-end, but he's not sure if we'll get a sharp drop before or after that. Obviously, my analyses would complement his if you use either of my 2 favored counts which call for sideways-to-up action into mid-to-late December followed by a sharp drop into the System cycle low. Like any system, Terry's short-to-intermediate projections don't always work, but I've periodically followed his blog for years and he's more accurate than most especially on the multi-month and multi-year time frames. So, I like to check proven systems like his to add or subract a little weight or shape to my own analyses. As a counter-point, I should mention that Tony Caldaro at OEW is favoring a huge bullish wave 3 rally into 2012, but his system has not quite confirmed and has been flipping back and forth recently with the rapid trend changes, plus he has an alternate ABC count to retest 875-1075. Good luck.