Bats, Butterflies, Crabs and Bernanke

September 15th, 2012
in contributors

The World According to Ben

by Pebblewriter

batSMALLFlashback: The World According to Ben is inflationary. It is confident. Its citizens consumers buy stuff today because it might be too expensive tomorrow — or, just for grins. It’s a world plagued not by irrational fears, but by irrational exuberance. It’s a return to those thrilling days of yesteryear, when nothing bad ever happened, as long as you owned a house (preferably 2-3) and borrowed money to fill that house with plasma televisions. 

Follow up:

But, we’ve been down that road before. Seems to me it didn’t end terribly well. Fortunes were lost, families were torn apart, lives were ruined when the bubble burst. Ben would like us to think this time will be different, that the Fed is now watching so closely that such a thing could never happen again.

But, isn’t it interesting that CPI just posted the biggest monthly spurt in over 2 years? And, of course, that was before Benny’s helicopter even lifted off. As Zerohedge put it:

“In other words, the food inflation which is already spreading through the economy courtesy of the record drought, is about to be supported by some brand new Fed-generated inflation. Luckily, as yesterday, nobody uses gas or food.”

Here’s the chart of the day. For those unfamiliar with Bat Patterns, learn more HERE.

Click on any chart for larger view.

Not all Bats mark huge reversals. Since we put in a Point B at just under the .618 retracement, there’s the possibility we’re constructing a Crab Pattern that ultimately targets the 1.618 extension (2138.)

Point B could also have been the .786 reversal at 1370 in May 2011, which would indicate a Butterfly Pattern targeting the 1.272 (1823) or the 1.618. On a scale this large, these are obviously patterns that could take years to play out. And, we never use harmonic patterns in a vacuum; their targets must be supported by other technical analysis.

The last really big Bat Pattern we completed was in January of 2007, when SPX had retraced 88.6% of its 2000 – 2002 plunge from 1552 to 768.

There was a relatively minor pullback of only 98 points; but, it was certainly enough for traders to capitalize on. Note the pullback to just below the previous Fibonacci level (the .786) was a nicely formed Crab Pattern — one of our other favorites.


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