Market Update Email 5-14-09

To: Friends and Family
Subject: Market Update May 13 2009

Welcome my new additions to the newsletter I have been sending out to my friends and family for about 2 years now. Let me know if you have trouble viewing the attachment.

Ill keep it short tonight. I left my last update with the comment "I may be turning slightly bullish but not until a good pullback". It looks like that pullback has finally started. This has been like the rally that never ends! It also proves why picking tops or bottoms is a fools game unless you have tight stops in place.
1) The primary expectation is for this pullback to go pretty deep (most likely back down to S&P500 $800) as I have shown first on the chart. It is in this area (the green zone) that I will look to be a buyer with the expectation that the market has another 15%+rise at least back to $925 again (most likely will get over $1000 though). I expect this summer rally to last 6-7 months and so far it is 3 months into it.

2) But, I also have reason to believe that this decline could be short lived which is why I have picked my next scenario as a close second. If the pullback ends tomorrow or Friday and we have a decent bounce up either double topping or making a slightly new high at $925, then I will have reason to believe that this correction may indeed by pretty shallow. I have drawn that scenario in the 2nd section. The risk/reward play there is to be a buyer at the 2nd time the market makes a new high (above $950).

3) The 3rd count is pretty far fetched at this point and doesn't add much value that the other two haven't already, but it still is a valid scenario and something to keep in mind if this correction turns out to be more than just a correction.

4) The other scenario not on this chart is that the entire "summer rally" is over as of last week, but that is highly doubtful and it will be awhile before I can make that claim. Believe me, if it is over, then there will be plenty of time to make money on the short side.

Summary: After this pullback there should be another big move up which will end with everyone claiming the bear market is over, there is no more recession, Obama has saved the world, no one will foreclose anymore, and the word depression isn't stricken from the dictionaries. At the end of the next move up is precisely the time to get short and head for the hills because this market just had a killer 1.5 year 5 leg move down and initial five wave moves always are eventually followed by another five wave move in the same direction. This implies another killer 5 wave move for 2010 starting roughly where I have my blue 2. labeled. At this point cash will be king once again. At that bottom you will be able to buy assets (those that survive) below book value. And, at that bottom you will be able get that vacation property in Florida for under $50k!

Let's see how it all plays out in the short term before focusing on the long, though--still a long way to go. And remember, markets evolve and are always changing, so the only certainty is that my views and scenarios will certainly change in the near future!

By the way I read somewhere that the unemployment rate on an apple to apples basis to the 1930s is 17% today; the primary difference being that in the 30s the US didn't have the welfare system we have now that supports many lower income families who live off of welfare and also the 30s unemployment rate included those disgruntled workers who were forced to work reduced hours which is excluded in today's numbers. So if you believe that January 17% number then we are getting close to the 1930s 25-30% unemployment rate. Also, the 1929-1933 period was 4 years from peak to trough. We are only in year 2 of this downturn.

Good luck and let me know if you want to discuss at all. Also, remember that you know your own financial situation best and you should not speculate with money that you can't afford to lose.

LaterChad