What is this chart? This is the Real-Estate Investment Trust (REIT) MSCI it is the underlying asset for the 3xLeveraged Short Real-Estate ETF DRV.
Why is it important? Because if you buy DRV during a housing market crash you can make some pretty insane returns, and if you look at the Elliott Wave count (unconfirmed) you will see that MSCI has possibly just completed Wave-c of an Extended Zigzag. Since it also ended with a terminal impulse it means that at a minimum Wave-c needs to be completely retraced but since we are completing an extended zigzag, and we are most likely in a triangle, it is highly unlikely that we'd retrace ALL of the entire zigzag because, based on my stock market count, we are in the 2nd "Three" of a major correction that started in 2000.
What does this mean? It means that if my chart is correct the Real-Estate market, and the US Economy, is about to collapse. The process will be slow and painful but this is a perfect starting point for it., the stock market is also reaching a nice high at this point it has basically triple topped. It seems like my related chart will probably continue to be right and the stock market growth will pretty much come to a halt and then the whole market will fall through the floor after about a year. I except there to be blood in the streets by the end of this. It will be at least as bad as 2007-09.
So how do we know if this chart is right? Well first of all it's still extremely speculative (lower probability), if you wait for it to first break the lower yellow line, and then to break the red and blue lines, it will have more or less confirmed the Wave-c impulse and also the entire Zigzag. If you wait until the blue line there is still plenty of profit left but you did miss out on quite a bit (especially on DRV) so it may be a good idea to take the risk of being wrong and start moving capital into this trade now. Since Wave-c ends on a terminal it needs to retrace the terminal in 50% or less time it took, and typically its much faster than that. This means that if this chart does end up being right the housing market (and in particular MSCI) is going to crash very fast and very hard within the next year.
How do we know if this chart is wrong? Well this would be the tippy top so if it moves up even a little bit from here it would be a good idea to stop-out and wait for a break down before taking this trade. That means that if you take the trade now on DRV your R/R is over 1:1000. If you wait until there's a break down your R/R isn't quite as fantastic but the probability that this chart is correct increases substantially because it eliminates any other possibilities I may have overlooked.
Remember that DRV is the big play here. The gains made from shorting MSCI are nothing compared to what DRV could be worth in a recession. The only reason we look at MSCI is because it is the underlying asset for DRV and because it's wave patterns are much more clear. Again this is a very speculative and risky trade at this point it's definitely not recommend that you get overly aggressive until this trade has more confirmations!
The clouds are definitely dark over Cyclical City, I would be seriously cautious about being invested in housing and anything that is cyclical in nature for the next couple of years. The market has had a good run for the last 7 years but now it looks like its time for the cycles to change and for the Economy to once again enter into a bearish period.
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I just realized this chart is actually for the MSCI Inc. Stock, and not the MSCI REIT Index that DRV is inversely backed by, so while the above Elliott Wave Analysis may be valid for the stock, this actually doesn't really apply to DRV Directly, but it could be very telling of the overall health of the economy because MSCI Inc. is a US-based provider of equity, fixed income, and hedge fund stock market indexes, and equity portfolio analysis tools. So the fact that this company looks like it just reached a peak at the same time as the stock market could be very telling of the overall strength of the economy.
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This is the chart that is more relevant to DRV. RMZ is the actual index, this chart is actually just the stock for the company that makes the RMZ index. It's interesting though, that a company that makes indexes looks so bearish right when it looks like many of the indexes have peaked out. MSCI stock tends to follow the stock market and the economy pretty closely.
Could you maybe share an update on this analysis? How does the new high in the stock market fit in your idea?
Intuit
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The monthly bearish divergence on the Housing Index has only gotten bigger, I may have missed the top with my original chart but I do believe that this is a new potential top, especially if the current quarterly candle closes lower than it opened and then the low of that candle is violated it could definitely signal a very long-term top in the Housing Market. On the stock market we've had another one of these "wiseman" signals on the monthly chart which has already been activated this month, coupled with yet another very large bearish divergence on the momentum indicators. There is certainly still a high probability for a reversal here, and even with the new highs made this seems to be getting more and more bearish the closer we get to the election. The major news events I am watching for are 1. Raising interest rates, 2. Fraudulent elections (or postponed because clinton has to drop out), 3. A Trump Victory in November, 4. Nuclear war with North Korea. Any one of these events (or all 4 of them) could push the stock and housing markets further over the edge and cause foreign capital flights and wreck an economy that is overloaded with debt and cheap money. The charts have already given us the early warning signs now we just sit back and wait and see what happens.
Also, the M1 money supply has increased 5 fold since Obama took office, it has went from a total of $800 Billion in circulation to over $4 Trillion dollars in circulation through massive QE, on top of that the government has literally DOUBLED our debt from $10 Trillion to $20 Trillion during Obama's tenure, which is significantly faster than any other president has ever increased our debt. And as history has shown when governments rapidly print money and take on more debt than they can afford it always leads to a currency crisis, which means the Dollar could eventually become nearly worthless and the government will take extremely desperate measures to pay off their debts such as looting people's retirement accounts, bank accounts, stock market accounts, and by increasing taxes or even retroactively taxing people like they have been doing in California. I am almost certain that this will lead to a crisis, it's really just a matter of when, and with the charts and the election and geopolitics all looking worse and worse I think that time is very soon upon us.
KenzoMorsa
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Thanks for the comprehensive reply. There has been a lot of news lately about the high end real estate market. Like you said... with the upcoming elections it's hard to see how this house of cards won't fall down. I'm really considering getting into DRV...
What's your opinion on Martin Armstrongs Economic confidence model, He states europe will fall apart, the bond market will crash, this would cause global capital to shift from europe to US and from bonds into stocks. Causing a huge surge in the stock market s&p 500 (2500-4500). I'm not sure if he stated those exact numbers himself, but it's the only way how i can comprehend some of the Elliot wave theories around...
Intuit
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There's a high probability that the stock market is reversing now, though this signal could be wrong, I'd have to disagree with him until it is proven wrong because it doesn't seem like stocks have very much upside left in them, though its possible. I'm not really much of an economist so I can't say what will happen if/when the EU disintegrates, but if its anything like the Brexit people are going to move their money out of risk assets and into dollars and euros and treasury's. I really doubt that in such a volatile time as the EU collapsing that people would be ready to jump on risk assets like US stocks. Eventually that would lead to the USG having to print dollars at an astronomical pace to incentivize investors to actually invest in stocks and bonds. In 2007 the stock market topped first and then eventually the bond market followed in 2008, I wouldn't be surprised if that happens again simply because of how my charts look at the moment.