"It will be of little avail to the people,
that the laws are made by men of their own choice,
if the laws be so voluminous that they cannot be read,
or so incoherent that they cannot be understood;
if they be repealed or revised before they are promulgated,
or undergo such incessant changes that no man,
who knows what the law is to-day,
can guess what it will be to-morrow.
Law is defined to be a rule of action;
but how can that be a rule,
which is little known,
and less fixed?

James Madison, Federalist Papers, # 62

UPDATED 20060508

COMMENT #156

CHART #s 315-316 & 317-318

1. At the end of last month, the expectation was that, because of how markets were tending to turn at the same time due to the increased importance of liquidity over the last few years, important turns were at hand in numerous markets.

2. Going into this period, the importance of M-3 had been elevated for two reasons:

3. First, the growth rates prior to discontinuance were quite high.

4. For example, in the week ending 322, M-3 increased almost $30 billion, which was a little over 14 percent annualized rate of growth.

5. A little over $80 billion over two weeks, or almost 21 percent annualized rate of growth.

6. About $130 billion over 12 weeks, or about $1 trillion annualized and greater than a 10 percent rate of growth.

7. Hence, the reason why "Whirly Ben" has stuck to the new Fed President, Ben Bernake, who's been characterized as dropping $100 bills from helicopters.

8. Second, as M-3 was discontinued on 323, the aura was cast that the profligate rates of increase were being continued, but hidden.

9. (In fact, the components of M-3 are still available from the bank call money reports, allowing for reconstruction of M-3 privately.)

10. Since this discontinuance, we can see in the first CHART of daily prices for the continuous spot futures contract that the following market has virtually panicked as shown by the rally from the date of discontinuance (shown in the CHART by the black vertical arrow):

11. As the green numbers in the upper right corner show, price has risen by 141.4 points (FIBONACCI #=144) or a little over 25 percent.

12. Were it not for the minor overlap at the pink horizontal line, the suggestion would be that the rally from low shown in the lower left corner of the CHART formed a Wave 1 and Wave 3 advance to the two green boxes of about equal length in price.

13. But cracks have started showing in this general thrust seen in many markets as a result of the perceived loss of control over liquidity and public tendency to join the bandwagon and buy the latest "fad".

14. The important of the above divergence (see pages 171-84 of "The $upertrader's Reference Manual") was further seen as the continuous spot futures contract peaked here:

15. Insight as to this peak was seen at the time in this related market:

16. What we want to look at today is the divergence shown by the following two charts of daily prices for the June and December futures contracts as shown in CHART #315 (see pages 171-84 of "The $upertrader's Reference Manual"):

17. CHART #316 focuses on daily prices for the December futures contract.

18. What is suggested in the advance is that three uplegs have occurred as measured by the green numbers reported in the CHART.

19. The two green boxes show that the latter two legs are about equal in price.

20. In the upper right corner, the black bracket relates the total advance to the third upleg of the advance.

21. As can be seen, this relationship is 2.046 (PHI X SQ RT PHI=2.058).

22. Since the 2nd upleg and 3rd are about equal (see the two green boxes), we know that the relationship of the total advance to the 2nd upleg is also going to be about the same.

23. In this case, it is actually 2.079 (PHI X SQ RT PHI=2.058).

24. The blue lines above price show that the recent high is about twice the 2004 low.

25. We can see that the high shown in the December contract is occurring at the blue boxes shown in the upper right corner of the CHART.

26. These boxes, however, were based on analysis of the continuous spot futures contract and not the December contract.

27. We can see that price has moved back up to the up channel marked in the CHART by the red up sloping trendlines.

28. The red vertical and horizontal lines show the importance of the 55 trading day periodicity to this market (FIBONACCI #=55).

29. The movement shown actually seems to divide into two 165 trading day segments (FIBONACCI #s 3 X 55=165).

30. We can see how the first of these three 55 trading day segments (in each of the two 165 trading day [or so] segments) measured 58 and 55 trading days each while the remainder of each 165 [or so] segment was followed by 114 and 110 trading days (FIBONACCI #s 2 X 55=110).

31. The red sloping trendlines to the very far right of the CHART show that the recent new high in price was not confirmed by such momentum oscillators as RSI and Slow Stochastics, thereby forming an important price/momentum oscillator divergence in the December contract (see pages 171-84 of "The $upertrader's Reference Manual").

32. Though not labeled in the CHART, the three uplegs and relationship of the legs to each other clearly suggests a completed Elliott Wave movement even though the December contract has made the aforespecified new high in price (see pages 283-92 of "The $upertrader's Reference Manual").

33. CHART #318 revisits the continuous spot futures price and last Friday's Commitment of Trader's Report in the bottom box.

34. Shown are the net positions of the commercial and large spec interests.

35. The green vertical line shows the spread between the two and how commercials viewed this market favorably late last year at the price bottom.

36. At the time, the red line was well above the black.

37. On the other hand, the red box now shows how the position is reversed.

38. Here the red line is well below the black.

39. Last year, at the big-time high, we can see how this indicator was not anywhere near as indicative of future price movement.

40. Now we want to compare the new high in the December contract versus the market that provided the most important insight at the time of the high last month.

41. Here we see, in CHART #319 of daily prices, that this market is not supporting the new high in the December contract, thereby suggesting that the December contract was a "false flag" new high.

42. The high described in this discussion is a most important high.

43. It was not the leader, however, as it was not to peak.

44. The following CHART #317 shows 1 minute bars through Thursday's close for the December futures price.

45. This market was first to peak in mid-April.

46. The importance of the peak is, again, seen here:

47. The CHART suggests that the market has already completed a red Wave 1 low and A-B-C correction to the red Wave 2 high shown (see pages 283-92 of "The $upertrader's Reference Manual").

48. The initial decline lasted 122 minutes (LUCAS #=123).

49. The red A-B-C counter-trend correction lasted 50-130-134 mintues, 314 total as shown in the CHART (LUCAS #s=47, 123 & 322).

50. The proximity to the LUCAS #s cited places the red Wave 1 decline / red Wave 2 advance in approximate PHI proportions as shown by the green arrows and 2.574 ratio (SQ PHI=2.618).

51. Further, the ratio of the red Wave C advance to that of the red Wave A advance, in minutes, is 2.680 as shown by the green up arrow

52. The following CHART #321 continues the 1 minute above chart through the close Friday.

53. As can be seen, the corrective process from the blue Wave 1 low has been strung out somewhat.

54. The initial upleg did occur early Friday morning.

55. However, from the relabeled blue Wave A high of 61 minutes, the ensuing decline did not unfold in a 5 wave impulsive pattern, but unfolded in a 3 wave corrective pattern (see pages 283-92 of "The $upertrader's Reference Manual").

56. This decline, as seen in the CHART, lasted 103 minutes.

57. From this low, a 182 minute movement followed to the blue Wave C high late Friday afternoon.

58. This 182 movement was 1 minute short of being a perfect 3.000 multiple of the blue Wave A advance.

59. As the red Wave 2 corrective advance is seen as simple in nature, it is acceptable that the complex movement since the blue Wave 1 low has occurred.

60. From the red Wave 2 high, 106 minutes down and 346 up, 452 total.

61. Up/down=3.264 (2 X PHI=3.236).

62. Total/Up=1.306 (SQ RT PHI=1.272).

63. 314+452=766 minutes total from the mid-April high to the blue Wave C high of late Friday.

64. 766/452=1.695 (PHI=1.618).

65. The point is that this market appears to be leading to the downside.

66. Last week, we showed how ideal turns had been extended by movements such as the one shown in the following CHART #310 of hourly prices:

67. That extension was further seen in the following market and complex in this CHART #304 of daily prices for the cash index:

68. We can see, in the next CHART of hourly prices for the June contract, that the short position was executed and was profitable, but that the low of the move afterwards was but to the third point on the green arc and that, two days later, the market had not followed through, but had breeched the arc.

69. The horizontal pink line was added as the congestion of the last couple of weeks appeared at about an end.

70. Today's CHART #322 of hourly prices shows how price advanced through the pink line and has moved higher from the pristine suggestion that it would not move higher seen here:

71. The expectation remains that this complex is part of the turning process that appears to have already begun in other markets as seen in the hereinabove discussion.