We too are shocked at how quickly this happened

This crisis, however, has turned out to be much broader than anything I could have imagined”

“Those of us who have looked to the self-interest of lending institutions to protect shareholders equity – are in a state of shocked disbelief”

Alan Greenspan, Federal Reserve chairman 1987-2006 – October 24, 2008

Shocked – well, we are shocked that Mr Greenspan is shocked. The former Fed chairman who was revered as a god by Wall Street now has the chutzpah to say he is shocked by what has taken place. He went on to admit that he was “partially” wrong to resist regulation of some securities. Some securities? Which ones? Most securities except for the stock market are not regulated. Except for the Sarbanes-Oxley Act of 2002, most securities regulation in the USA dates back to the 1930s.

Mr Greenspan, we are shocked that you could have been so naive for so long. In a world of
unbridled deregulation and laissez faire capitalism, allowing interest rates to remain low for so
long while pouring oodles of money into the financial system was like throwing gasoline on a
fire. It would end in an unmitigated disaster.

S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

- May have completed a huge ABC down from May highs.
- May have completed an ABC wave of a larger degree from October 2007 highs. Fell in a
5-3-3 corrective fashion. But we can’t rule out that the current wave is actually a five
wave collapse with waves 4 and 5 to come.
- VIX indicator at all time highs
- VIX Indicator made new highs even as the S&P 500 fell short of its previous lows
- Numerous positive divergences being seen on indicators
- A break out over 1000 would be very positive and may confirm a low in place otherwise
the area will act as resistance
- Short term buy signal would be seen above 910
- Pessimism remains extremely high
- Monday is the anniversary of the Monday/Tuesday 1929 stock market crash
- We don’t expect that but instead the market will probably end with a whimper
- We can’t rule out more new lows though on Monday because of the weak market on
Friday although Friday’s market was not the collapse it seemed to indicate at least
initially
- Awaiting finishing of hedge fund liquidation and can’t rule out that they may just
continue again this coming week
- If we get a break over 1000 we could just go straight up
- Look for a low by Tuesday at the latest

TSX INDICES
It was another ugly week in the markets with the TSX Composite making new lows and losing about 3 per cent. If there was any good news is that after the scary plunge on Friday we closed almost unchanged and we did close the week nearly 600 points off of the new lows. Some faster moving indicators are turning up on the weekly charts for the first time in a while. But we note we note we do not have any major divergences on the weekly charts.

New lows were seen not only on the TSX Composite, the TSX 60 and the CDNX Venture Exchange (now back at 1999/2000 levels which we note was a major buying opportunity) others making new lows were Information Technology, Consumer Discretionary, Materials, Gold and Metals & Mining. The latter three have been particularly beat up and they were not even at the heart of the financial crisis but have been the most sideswiped victim. Think of it as a reckless, careless driver causing a serious accident but innocent victims get killed.[ read more... ]

Subscribe to David’s reports and read more about:

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• Gold has not fallen in all currencies.
• DJI headed for 5000? Well the charts seem to tell us so.

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