By Joseph Granville
The Granville Market Letter
In my biographies of Frederic Chopin the one by George D. Marek in 1978 reveals why Chopin left Paris and moved to England a year and half before he died. The reason why he left was because a revolution was getting underway in Paris. It was that 1848 revolution that saw closely similar conditions in the United States now. I now quote below from the Marek book.
"On February 22, 1848, workmen, students, and the unemployed of Paris assembled to march on the Chamber of Deputies and the Tuileries, shouting for change - or vengeance by violence. The Place de la Concorde was a solid mass of discord, until the National Guard, which had earlier shot into the crowd, joined the revolutionaries. Two days later Louis Philippe abdicated, the republic was proclaimed from the balcony of the Hotel de Ville, with the arch-Romantic poet Lamartine as its provisional head. It was the wrong place for a poet.
As the 1848 revolution spread over Europe, it split into sharp and ugly factions in France itself. Those noble speeches, the great sacrifices, the efforts to create employment artificially, the fulsome new laws, the barricades and the dead- all seemed in vain. Taxes rose 45 percent in March, commerce came to a standstill, fear crept into the houses. In June terrible blood baths took place in the streets of Paris. The workers' rising was crushed by a military dictatorship, and ten thousand lost their lives. The revolution which had begun in February ended in December with the election of wily Louis Napoleon.
Berlioz fled to London. Returning to Paris in July he wrote:
What a sight! What hideous ruin!...the fallen trees, the crumbling houses, the squares, the streets, the quays, seem still quivering with the murderous struggle! Fancy thinking of Art at such a period of wild folly and bloody orgies!... All the theaters are closed, all the artists are ruined; all the teachers are idle... poor pianists play sonatas in the squares, historical painters sweep the streets, architects are mixing mortar on the public works."
Now carefully reread the above. It is a picture of what can follow a time of great discontent when a growing number of people seek a change. I have been tracking a market that has been signaling a massive move to the downside between now and the November elections.
Stocks are breaking down rapidly now. I am seeing the identical things I saw in May 2007 when I warned of the coming global trainwreck which later was seen in October 2008. An increasing number of stocks are moving under their 200-day trendlines. I had pointed out in my books that once the 200-day line is broken that the stock will then move all the way down to where the advance had begun. This is what is predicting a major smash ahead.
The poisonous word is debt. You will recall how impressed I was with when Jack Bogle of the Vanguard Fund told the story about saving $8.00 for five weeks to buy a $40.00 bike. He got the bike and had no debt. What a great lesson is in that story. You have to save for what you want to get.
The Federal Reserve teaches the wrong lesson. It is time to get rid of the Federal Reserve. It has now no useful purpose. Ron Paul was the first to make that clear.
But whatever happens I think the 1848 revolution in Paris is a good blueprint of what to expect.
I follow by OBV numbers and I never ask why. It is a mathematical thing of beauty to behold. The Wall Street Journal has removed all of the stock volume numbers. It never explained why that was done. It was a major disservice to its readers.
Here are a few of Granville's shorts. Granville notes that stops listed are all mental ones. He always goes for stop close only. "You never have to call your broker unless you are stopped out. Once the stop is effective, the stock is either bought or sold at the opening the next day along with any options on the stock," says Granville.
Blue Nile (Nasdaq: NILE; $42.79) topped out at 106.00 in October 2007. Crashed to 18.00 in February 2009. Mounted a 9-onth rally to 67.00 in November 2009. Major declining top at 65.00 in January 2010. Zigzagged to its low at 42.00 in late July of 2010. Currently at 44.09, anything under 42.00 projects to 36.00 and then to 18.00, right back to where the upswing began, Buy the October 40.00 puts, Place the buy stop at 50.00. Sell Short.
Cascade Corp. (Nasdaq: CASC; $32.19) peaked at 78.00 in September 2007. Zigzagged all the way down to its low at 13.50 in March 2009. Turned higher and saw its high at 43.30 in June 2010. Fell in July to its 200-day line at 32.00. Rebounded to 43.25 in August and then fell to 31.28, breaking below its 200-day line. I have said many times in my books that when the advance began. In this case Cascade is now headed to 13.50. No options available. Place the buy stop at 38.00. Sell Short.
Conway Inc. (NYSE: CNW; $27.95) saw its high at 55.00 in August 2008. It collapsed to 14.00 in March 2009. It then rallied to 49.00 in August 2009, topping out far sooner than most stocks which peaked on April 26th when 674 stocks saw their highs. It recorded a major declining top at 40.00 in April 2010. Fell to 28.50 in June. Rallied back to 35.50 and now down to 28.89. Anything below 28.50 is free fall to 14.00, right back to where the upswing started last year. Buy the November 25.00 puts. Place the buy stop at 35.00. Sell Short.
Cree Inc. (Nasdaq: CREE; $59.72) topped out at 83.00 in early April 2010. Initial fall to 75.00 was followed by a declining top at 81.50 in late April. Lows were seen this year at 59.75 in mid-May, 59.00 in June and 57.50 in early July. Any lower prices project to the January 52.50 low. But a longer-term chart shows a more reliable support at 40.00. It had seen a low at 17.00 in the October 2008 plunge. Buy the December 55.00 puts. Place the buy stop 65.00. Sell Short.
Harman International Industries Inc. (NYSE: HAR; $30.45) peaked at 118.00 in September 2007. Crashed to 10.00 in March 2009. Completed a 13-month rise to 53.00 in late April of 2010. Declined to 36.00 in early June. Remained in restricted trading range. If it breaks under 26.00 it will signal a return to 10.00 where the upswing began. I am seeing more and more of this type of chart. Buy the October 27.50 puts. Place the buy stock at 36.50. Sell Short.
Rosetta Stone Inc. (NYSE: RST; 17.30) peaked at 33.00 in August 2009. Bottomed at 16.25 in late February of 2010. Rallied to a major declining top at 27.50 in late April of 2010. Series of more declining tops preceded fall to current price of 18.18. Headed back to 16.25 and lower. Buy the December 15.00 puts. Place the buy stop at 23.00. Sell Short.
Editor's Note: Joseph Granville is editor of The Granville Market Letter, published continuously since 1963, P.O. Drawer 413006, Kansas City, MO 64141. 1 year, 46 issues, $250. Special Offer: 4 issues, $31. Granville's book, How to Read the Stock Market, written in 1994, explains his entire theory of On-Balance Volume. For subscription information or to order the book, visit www.GranvilleLetter.com.
