Al-Qaida for 'death blow' on US

'"Confirmation Bias": when one searches for supporting news, angles, and analyses while avoiding the less sanguine indications.'
-John Allen Paulos, Mathematician

The intermediate term equity view remains unchanged: down.
Beginning on SEP 3 (FTSE ALL WORLD), SEP 4 (DAX), OCT 15 (DOW, VLG, RMS), and, more recently, on OCT 21 (NIKKEI, HANG SENG), global share markets have succumbed to multi-week dynamic cycles supported by ending elliott wave patterns and natural resistance. The time window which began on OCT 14 and closed on OCT 19 represents a classic TOP-to-TOP count. These markets have turned, but have not accelerated lower on a weekly basis.

The OCT 27-NOV 4 period has been singled-out since early fall. A cluster of multi-month/year dynamic cycles fall within the next 10 days and WILL set the tone for the year-end trade.
(When reading over the cycle sequences, think about mrkt environment surrounding these dates.)

2/25/02>>12/26/02>>10/29/03 LLH***In the short term, this cycle has the ability to lift prices sharply and preceded significant tops (MAR19 2002 & JAN 14 2003).see chart below

7/22/02>>3/12/03>>10/31/03 LLH
9/21/01>>10/9/02>>10/27/03 (55 week static) LLH
8/30/00 (Y2K Labor Day Top)>>9/21/01 Panic>>10/9/02 Panic>>10/29/03 HLLH
3/12/2003+233 calendar days=10/31/03

It is expected that this time window [10/27-11/4] will equate to some sort of top in prices and ignite downside volatility in its wake.
We will be watching closely for any hints of cycle inversion if this time window does not succeed in turning prices.

From an analog perspective the period which began on OCT 12 2002 has mirrored Japan's 'recovery' rally in 1993-1994. see chart below

DOW 30

DAX

Sun hurls another solar flare at Earth
By The Associated Press
October 28, 2003

Scientists again warned that communications on Earth could be disrupted
this week by another spectacular eruption on the surface of the Sun and
that it might even hamper firefighting efforts in California.

"It's headed straight for us like a freight train," said John Kohl, a solar
astrophysicist at the Harvard-Smithsonian Center for Astrophysics in
Cambridge, Mass. "This is the real thing." Predictions are it could strike
Earth's magnetic field by midday Wednesday.

There is one development that is causing us some near-term concern about the strength of economic growth in the first half of 2004. And that is the recent sharp deceleration in M2 and M3 money supply growth, as shown in Chart 7. We believe this slowdown in money growth is the result of a slowdown in net new mortgage credit growth as a result of the recent backup in mortgage rates. We expect that increasing credit demand from the federal government and businesses (to finance higher inventories) will soon lead to resumption in rapid growth in the monetary aggregates. If this does not occur, however, the risk is that our first-half 2004 GDP forecast is too high.

(Paul Kasriel, Director of Economic Research, Northern Trust)

Along with the Hang Seng, the Nikkei is stalling at or near significant monthly resistance after completing 5 inflection points(daily). The Nikkei looks to have reached a secular low earlier this year; but, will need to correct its first wave advance before entering its third.

Cheney's new adviser has sights on Syria
WASHINGTON - A neo-conservative strategist who has long called for the United States and Israel to work together to "roll back" the Ba'ath-led government in Syria, has been quietly appointed as a Middle East adviser to Vice President Dick Cheney.

Wolfowitz: "There's got to be a change in Syria,"

Perle: ...hoped the US would itself take action against Damascus... "Syria is itself a terrorist organization," he asserted, insisting that Washington would not find it difficult to send troops to Damascus despite its commitment in Iraq.

Former CIA director, James Woolsey, has called the conflict in Syria the early stages of "World War IV".

Iran-OPEC (from MEHR news wire)
Irans's Deputy Prime Minister for Oil for Economic Affairs, Dr. Masoud Nili has urged Iran leave OPEC.

The Fed's Global Experiment Continues

According to Scott B., "One of George Soros' great points was, 'We don't try to play the game better. We try to figure out when the game has changed.'"

Very little has changed with regard to the intermediate term opinion. The first thing to note is that global equity market momentum is waning on both weekly and daily scales. Price/Momentum divergences are materializing in a number of sectors. The SPX advance is now more mature in its 33rd week. The DOW chart illustrates a cluster of dynamic and static cycles occuring between 10/17 and 10/22.

The value line geomtric VLG has completed 5 clear waves since its wave 4 low on JUL 1 into natural and structural resistance projected this past summer (see OCT 8 post) and failed. The weekly 340-41 level remains the high water mark for the intermediate US advance. Patience.

Noteworthy:

China has begun tightening:
The current credit boom has been dependant on state bank lending to regional and local banks through the interbank market. Liquidity in the interbank market appears to have dried up. Signs of credit distress in the real economy are already surfacing. This is hitting companies that depend on investment to cover their losses.

US Interest Rates to Rise Soon
While Mr Snow refrained from discussing monetary decisions, which are left to the Federal Reserve Board, his comments implied that the Bush Administration was preparing for much higher rates in the election year ahead — in contrast with Wall Street, where many leading banks are still predicting that there will be no tightening of monetary policy until 2005.

Escalating MidEast Situation:
DEBKAfile’s military sources interpret the war talk coming from the Syrian capital as indicating an imminent all-out effort to pump Syrian, Hizballah and al Qaeda combatants across the borders to scale up the level of Palestinian terrorist combat against Israeli targets - on the pattern of Damascus’s role in abetting the flow of pro-Saddam fighters infiltrating Iraq to fight US and allied forces. The Assad regime’s overall objective is to bring about a sharp downturn in security in Israel to parallel the situation in Iraq.

Nasdaq Margin Debt, No words needed...

LEHMAN BROTHERS’ “DAMOCLES” WARNING SYSTEM
PREDICTS LIKELIHOOD OF FINANCIAL CRISES

Succession of Globalization:
Re-Emergence of Trade Blocs and Exclusive Arrangements

EU viewed by China as world power to rival US

Is an Asian Trading Bloc Feasible?

Headlines of a Mature Advance

Tokyo stocks surge on U.S. optimism
Dow runs up triple-digits to 16-mo. high
Chip sector tracker reaches 52-week high
FTSE races to 13-month closing high
Experts: Q4 should be A-OK
Smith Barney sees improved pricing lifting earns views
Lehman upgrades software sector
Fed's Moskow predicts U.S. growth atop 3.25%
Eight Dow components reach yearly highs
GM shares hit year high ahead of Wed. results
EDS considering IPO of software unit
Good times are finally coming back on the corporate party circuit

Sell SPXcash as of 10/13/03 close, 1045.35

DOW_daily_week_Oct 13

See monthly chart on sidebar.

HK people's trust in govt hits new low -poll

Russia to price oil in euros in snub to US
Russia is to start pricing its huge oil and gas exports in euros instead of dollars as part of a stragetic shift to forge closer ties with the European Union

UKTelegraph

The breadth and geometric calculation of the VLG makes it a prescient market barometer. The fact that it is not well followed and miss understood by many traders provides us with a unique look at a large sampling of US stocks. Unlike the NYSE, the VLG is void of any closed/open-end funds. Currently, the VLG is within 180bps of a projection made in July; 339.5 represents the panic low printed during the fall of 1998 and 340.134 is a natural Fibonacci projection (where red wave c equates to 1.618*red wave a). Supporting this projection is a daily Elliott wave structure within a daily wave of being complete. I will be forced to reassess if the VLG is not contained within these parameters.

Bottom Line: The largest US index in terms of breadth in within striking distance of harmonic resistance and is due for an intermediate peak. Another piece of the puzzle I have been assembling and communicating over the last few weeks.

Value Line Geometric Composite Index—this index assumes equally weighted positions in every stock covered in the Value Line Investment Survey. That is, it is presupposed that an equal dollar amount is invested in each and every stock. The returns from doing so are averaged geometrically every day across all the stocks in the Survey, and consequently, this index is frequently referred to as the Value Line Geometric Index (VLG). The VLG was intended to provide a rough approximation of how the median stock in the Value Line universe performed. There are roughly 1700 stocks in the VLG.

"On the chess board lies and hypocrisy do not survive long." --Emanuel Lasker

The oversold nature of the DOW/SPX early last week produced a larger reflex than anticipated. The mrkt activity on Friday was inconsistent with the total pattern from MAR 12. There is little to add on the Elliott wave front. Note how the DOW has marched to an 11 trade day rhythm since the AUG 5 lows; today marked the last H of a LHH sequence (cyan vertical lines). The SOX black static cycle (OCT 2/3) discussed last week has managed to pick a top, again. Pay attention to the FTSE ALL WORLD index.

We are in the maturing phase of the intermediate advance. The nature of multi-month static cycles converging this fall should expose a tipping-point for which the market is ill-prepared. OCT 14-16 is the next dynamic cycle which originates from the JUL 1 lows.

From an analog perspective, there have been six spans since 1970 which have produced back to back intermediate-term rallies; the average duration of these two rallies is 31.5 weeks. We are entering the 31st week.

Strategy:

Stay with current short positions initiated on DAX (SEP 4 @3669), XAL (SEP 19 @64.38), FTSE (SEP 29 @4157), DOW (SEP 22 @9559 and SOX (OCT 3 @446); patience.

Trade ideas in development: Morgan Stanley REIT Index and Hang Seng (SEHK) Index Futures.

At this juncture, the US markets find themselves at an oversold level similar to that which has bred renewed buying pressure since the MAR lows. The one who trades with stochastics into OCT 27-29 will get hurt. There will be little reprieve from selling before this time. The SP500 has room to rally 1.3% at most from these levels (as of sep 30 close) and global share markets as a whole (FTSE All World Index) have 2.5%. This is best case. Accelerated selling will begin with a close below 9252.66 (DOW) and 991.14 (SPX). There is a powerful static cycle due for the SOX tomorrow (OCT 2). Airlines offer most attractive sector for sales at this time.