Thursday, February 19, 2009Golden sentiment
http://4.bp.blogspot.com/_V7Pddp58Py0/SZ2Q2klWj5I/AAAAAAAACFI/U_lWgWE4L-I/s400/slv.png
Granted these things are hard to quantify but it seems to me that the prevailing sentiment right now towards gold is that it is overbought and due for a correction.
I'm not really seeing the panic buying that typifies most tops in gold.
I've pointed out before that overbought can get a heck of a lot more overbought in a powerful bull market.
All those traders that sold their silver because it was overbought only managed to miss a 30+% move.
If we do get a correction, great, I'll be able to put the rest of my capital to work. But selling simply because a bull market is overbought? No thank you!
Posted by Gary at 9:02 AM
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Wednesday, February 18, 2009"Old Turkey"
I love this story from Reminisces of a stock operator. It is so appropriate as the second phase of the gold and silver bull get underway.
"Most let us call' em customers -- are alike. You find very few who can truthfully say that Wall Street doesn't owe them money. In Fullerton's there were the usual crowd. All grades!Well, there was one old chap who was not like the others. To begin with, he was a much older man.
Another thing was that he never volunteered advice and never bragged of his winnings. He was a great hand for listening very attentively to the others.He did not seem very keen to get tips -- that is, he never asked the talkers what they'd heard or what they knew. But when somebody gave him one he always thanked the tipster very politely. Sometimes he thanked the tipster again -- when the tip turned out O.K. But if it went wrong he never whined, so that nobody could tell whether he followed it or let it slide by.
It was a legend of the office that the old jigger was rich and could swing quite a line. But he wasn't donating much to the firm in the way of commissions; at least not that anyone could see. His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast.
The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock.They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap's answer was always the same. The customer would finish the tale of his perplexity and then ask: "What do you think I ought to do?"Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, "You know, it's a bull market!"
Time and again I heard him say, "Well, this is a bull market,you know!" as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And of course I did not get his meaning.
One day a fellow named Elmer Harwood rushed into the office, wrote out an order and gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to John Fanning's story of the time he overheard Keene give an order to one of his brokers and all that John made was a measly three points on a hundred shares and of course the stock had to go up twenty-four points in three days right after John sold out. It was at least the fourth time that John had told him that tale of woe, but old Turkey was smiling as sympathetically as if it was the first time he heard it. Well, Elmer made for the old man and, without a word of apology to John Fanning, told Turkey, "Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I'll be able to buy it back cheaper. So you'd better do likewise. That is, if you've still got yours."
Elmer looked suspiciously at the man to whom he had given the original tip to buy. The amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out."Yes, Mr. Harwood, I still have it. Of course!" said Turkey gratefully. It was nice of Elmer to think of the old chap."Well, now is the time to take your profit and get in again on the next dip," said Elmer, as if he had just made out the deposit slip for the old man.
Failing to perceive enthusiastic gratitude in the beneficiary's face Elmer went on: "I have just sold every share I owned!" From his voice and manner you would have conservatively estimated it at ten thousand shares.But Mr. Partridge shook his head regretfully and whined, "No!No! I can't do that!": 'What?" yelled Elmer. "I simply can't!" said Mr. Partridge. He was in great trouble."Didn't I give you the tip to buy it?""You did, Mr. Harwood, and I am very grateful to you.Indeed, I am, sir. But --" "Hold on! Let me talk! And didn't that stock go up seven points in ten days? Didn't it?""It did, and I am much obliged to you, my dear boy. But I couldn't think of selling that stock."
"You couldn't?" asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers to be tip takers."No, I couldn't.""Why not?" And Elmer drew nearer."Why, this is a bull market!" The old fellow said it as though he had given a long and detailed explanation."That's all right," said Elmer, looking angry because of his disappointment. "I know this is a bull market as well as you do. But you'd better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.""My dear boy," said old Partridge, in great distress "my dear boy, if I sold that stock now I'd lose my position; and then where would I be?"
Elmer Harwood threw up his hands, shook his head and walked over to me to get sympathy: "Can you beat it?" he asked me in a stage whisper. "I ask you!"I didn't say anything. So he went on: "I give him a tip on Climax Motors. He buys five hundred shares. He's got seven points' profit and I advise him to get out and buy 'em back on the reaction that's overdue even now. And what does he say when I tell him? He says that if he sells he'll lose his job. What do you know about that?""I beg your pardon, Mr. Harwood; I didn't say I'd lose my job," cut in old Turkey. "I said I'd lose my position. And when you are as old as I am and you've been through as many booms and panics as I have, you'll know that to lose your position is something nobody can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don't feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It's a bull market, you know." And he strutted away, leaving Elmer dazed.
What old Mr. Partridge said did not mean much to me until I began to think about my own numerous failures to make as much money as I ought to when I was so right on the general market.The more I studied the more I realized how wise that old chap was. He had evidently suffered from the same defect in his young days and knew his own human weaknesses. He would not lay himself open to a temptation that experience had taught him was hard to resist and had always proved expensive to him, as it was to me.
Posted by Gary at 7:03 PM
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Tuesday, February 17, 2009When the time comes
http://3.bp.blogspot.com/_V7Pddp58Py0/SZtdYU8ASyI/AAAAAAAACFA/BsURufiOQ84/s400/qqqq.png Granted it's still way too early for this trade but I'm taking notice of the relative strength in tech.
The Dow is on the verge of breaking the Nov. lows and the S&P isn't far behind. However the NDX hasn't even broken below the last trading cycle low yet. As a matter of fact it's still 16% above the Nov. lows.
As long as this relative strength continues to hold I will be looking at this sector for a counter trend trade late this month or early next month when we get the next cycle low.
Posted by Gary at 4:54 PM
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Monday, February 16, 2009Miners are on the move
http://4.bp.blogspot.com/_V7Pddp58Py0/SZmBALPQ74I/AAAAAAAACE4/hTRLrdcIhiM/s400/gdx.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SZmA_24qVLI/AAAAAAAACEw/3AjYx8dLA70/s400/gdx+daily.png As I've noted in recent posts, I believe we've seen the long term low for gold. The signs are many. Gold is now making higher highs. The down trend line from March has been broken. The 50 DMA has turned up and crossed above the 200 DMA and the 200 DMA has turned marginally higher.
All that is well and good but I'm more interested in mining stocks at this time. The weekly chart of GDX shows the ETF has solidly regained the 06/07 consolidation zone and the rally is coming on gigantic weekly volume.
On a daily basis the GDX has just broken out of a pennant continuation pattern, again on huge volume.
All that being said, I think there is a much better place to be than gold or gold miners. The complete analysis is in this weekend's report for subscribers.
Posted by Gary at 7:06 AM
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Saturday, February 14, 2009Crash again?
Could the market crash again?
It seems many of the bears are banking heavily on that happening. While anything is possible I think we would need some kind of catalyst for the market to crash twice. I will also note that we have never seen two climax selling periods one on top of another.
As I've pointed out in prior posts the S&P is still 25% below the 200 DMA. It's pretty tough to keep an index that depressed below the mean much less look for another massive move down from these depressed levels.
It took an implosion of the credit markets to start the last crash. Now we've just witnessed the first negative earnings in S&P history and the market has responded by trading sideways.
I'm not sure what we would have to see at this point to get another crash started but obviously poor earnings isn't going to do it.
It seems more logical to expect the market to either continue to trade sideways or slowly drift lower as unemployment continues to rise.
My guess is that the market will probably trade sideways for a bit longer and allow the 200 DMA to catch up a bit before we get the next serious leg down.
This could be a process that lasts into the summer so I'm not sure taking big short positions right now is the safest investment decision.
This probably explains why we aren't seeing any really heavy selling into strength readings lately.
Posted by Gary at 2:55 PM
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Friday, February 13, 2009Find the trend
Investors trying to trade the indexes are getting whipsawed to death. That's probably putting it mildly.
The bears think the market is ready to crash down to the 600 level.
The bulls say the market has already crashed, valuations are cheap and after a more than 50% decline this is already one of the worst bear markets in history. Hence we probably have a long term bottom.
Here's the problem as I see it. The market is still 25% below the 200 DMA. It's probably going to be tough to fall off a cliff again with the market still stretched so far below the mean. Not impossible mind you but tough.
Fundamentally earnings are going in the wrong direction. Until we see some indication that the recession is ending and earnings are heading back up it's going to be tough for the markets to rally much. Sure the Fed can just devalue the dollar and spark a rally that way. It worked in 2003. However we have a deflating credit bubble that is putting enormous deflationary pressure on the system. At this point its a stalemate.
The end result has been a market that is just trading sideways never giving us a sustainable trend. Investors trying to do anything other than day trade are getting fleeced.
There are two sectors however that are trending. Precious metals/miners and refiners. One has to ask themselves if it's really worth the stress of trying to second guess the daily swings in the market when they could just get on board one of the two areas that are moving higher and let the trend do the heavy lifting for them.
The longer the market stays in this vicious trading range the more investors are going to gravitate to these two trending sectors.
Posted by Gary at 9:18 AM
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Thursday, February 12, 2009gold sentiment and the dollar
http://4.bp.blogspot.com/_V7Pddp58Py0/SZP96nbINGI/AAAAAAAACEo/7KFK3FQ4CkA/s400/dollar.png I'll be the first to admit that gold sentiment is getting too bullish. At some point gold is most definitely going to have to correct and wipe out a big chunk of this bullishness.
However an interesting correlation has developed recently. Gold instead of trading inversely to the dollar has developed a tight positive correlation to the dollar. That has very bullish implications for gold.
The reason being that the dollar is now threatening to break out of the consolidation zone of the current T1 pattern. Once this happens we should see a second leg up in the dollar roughly equal to the first leg. That gives us a target of 93ish on the dollar chart.
As long as the positive correlation remains in play that would suggest a huge move higher for gold ... and don't even get me started on silver.
More in last nights update for subscribers.
Posted by Gary at 2:44 AM
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Wednesday, February 11, 2009Dow Theory
http://4.bp.blogspot.com/_V7Pddp58Py0/SZLIUs5ZCqI/AAAAAAAACEg/C1iJV1Kmrgo/s400/dow.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SZLIUT6EoFI/AAAAAAAACEY/9jZw5VMNPrY/s400/oil.png I think we have an important test coming. According to Dow Theory the primary trend is still down. However there is a nonconfirmation in progress. So far the transports have broken below their Nov. lows but the industrials have not. That is potentially bullish as many bottoms and tops occur with just such as nonconfirmation.
I've included the oil chart because I think it is going to be key as to whether the Dow confirms the transports or not. The reason being is that XOM and CVX are the number 2 and 3 heaviest weightings in the Dow. If oil breaks below $35 the energy stocks are going to probably react badly. We know the market can't rally with out the banks but I would say it's not going to be able to rally without energy either.
There is another consideration that could be calling for another forced liquidation like we saw in Oct. and Nov. I'll go over this in tonight's report.
Posted by Gary at 4:44 AM
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Monday, February 9, 2009Oil vs. gold
During the first phase of the commodity bull, base metals and energy were the outperformers. That makes sense as we were seeing the incredible expansion of emerging markets around the world especially China and India.
Once the second phase of the commodity bull starts, and I'm not convinced it has started yet, I wouldn't look for energy and base metals to be the leaders again. Remember the old leaders rarely lead the next bull market.
I suspect everyone will want to jump back on the energy bull once commodities do bottom and start the second phase. Granted oil will definitely rally. It may even make new highs again. I suspect it will. But it's not going to be the leader anymore.
The global economy has been far too damaged by the bursting of the credit bubble for demand in this sector to recover quickly.
No the second phase will be lead by the commodity sectors that underperformed during the first phase. It will be lead by the commodities that will benefit not from surging economic growth but surging money supplies. That would be precious metals and to some extent agriculture because infrastructure in this area has been neglected for years.
Liquidity will always flow into undervalued sectors.
During the 2001 to 2008 period oil gained over 1400%. I can pretty much guarantee that before the second phase of the commodity bull is over we will see the same thing happen in gold and probably more so as it's much easier for the general public to invest in gold and silver than oil.
You need the public to come into a asset class for a bubble to form. Yes, precious metals will undoubtedly end up in a bubble before this is over.
Let's just say I won't be at all surprised to see $3000-$5000 gold before this is finished.
That being said we are now due for a correction in the precious metals markets. Ultimately it will be a buying opportunity whether gold holds above the 1980 highs at $850 or if there is still one more leg down before we get a final low.
Posted by Gary at 3:41 PM
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Friday, February 6, 2009Watch the dollar
http://1.bp.blogspot.com/_V7Pddp58Py0/SYwz98ULqcI/AAAAAAAACEQ/84H9kvcpDtI/s400/dollar.png As we all know the market has been stuck in a difficult trading range for the last three weeks. Perusing the blogosphere I'm seeing countless methods being employed to try and forecast the direction of the market. Needless to say none of them are working at this point.
In my opinion the only thing we need to watch is the dollar. The Fed is going to try to debase the dollar and inspire another phony rally based on nothing more than inflation. However the forces of deflation are pressing down relentlessly.
We have the potential for a T1 pattern (you can find the technical rules on the lower right side of the home page) developing in the dollar. If the buck breaks out of this consolidation to the upside then we will most likely see the market move to new lows.
If the dollar explodes higher out of this consolidation then we could see another climax selling event.
Until the dollar decides where it is going I'm not going to try to second guess this market.
Posted by Gary at 4:57 AM
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Wednesday, February 4, 2009Stuck again
http://2.bp.blogspot.com/_V7Pddp58Py0/SYmZahJwisI/AAAAAAAACEI/0pSoQrmwqcU/s400/spx.png
The market is again stuck in a range. Until it breaks out one way or the other there just doesn't appear to be anything to do right now.
A break to the downside has serious connotations though.
Posted by Gary at 5:33 AM
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Tuesday, February 3, 2009Gold
http://2.bp.blogspot.com/_V7Pddp58Py0/SYhQNwRg1MI/AAAAAAAACEA/Drc3g7GmiTk/s400/gold.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SYhQN-713CI/AAAAAAAACD4/IE9sHlhjmJY/s400/goldweekly.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SYhQNmLN_4I/AAAAAAAACDw/NaUOuNr0oLE/s400/t1.png
Gold has now been rallying for 15 weeks. We should get the first major test of the weekly trend line anytime now. If gold has put in a long term low then I would expect the trend to hold. I would like to see the 1980 highs at $850 hold during the coming test.
I would also want to see the 75 week moving average hold. That average acted as support throughout the entire bull market until we got the forced selling in Oct. and Nov.
My assumption at this time is that a giant T1 pattern in gold is now in play and gold will hold above these support levels. We'll just have to see how the decline unfolds as gold works it's way into the daily cycle low. I'll be monitoring this cycle in the daily updates.
Posted by Gary at 5:53 AM
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Monday, February 2, 2009Not a good sign
http://2.bp.blogspot.com/_V7Pddp58Py0/SYdHc6bducI/AAAAAAAACDI/fNhX5xY0yd0/s400/dow.png The move below the Jan. lows this morning isn't a good sign. I'll explain in detail in tonight's report.
Posted by Gary at 11:19 AM
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Thursday, January 29, 2009Confused yet?
To say this has been a difficult market lately is putting it mildly. The other day I noted in one of the daily updates that I thought it was going to be a waste of time to try and trade this market with any kind of technical approach be it patterns, retracements, support and resistance, Elliot wave, etc., etc.
Here's my opinion on what I think is going on. The market is trying to rally. However the fundamentals are so rotten that there just isn't any way to justify a higher market. The chop over the last couple of weeks hasn't helped either. Traders are now too nervous to hold for any length of time. Not exactly conducive to a trend developing.
With all the government intervention traders have no idea if tomorrow they are going to come in and the rules will have suddenly been changed. Also not conducive to a trend.
On top of that we just witnessed a crash, of historic proportions, that originated from below the 200 DMA. That's pretty unusual. As I noted the other day we are still extremely stretched below the mean. So I think it's going to be tough to crash again from these severely depressed levels.
In order to get the next big leg down I think the market is either going to have to find a way to rally and close some of that big gap between it and the 200 DMA or we are going to have to continue trading sideways and let the 200 DMA catch up to the market.
Posted by Gary at 5:46 PM
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Wednesday, January 28, 2009Gold long term chart
http://4.bp.blogspot.com/_V7Pddp58Py0/SYE5VyAh8dI/AAAAAAAACDA/VpTD5LHEUvk/s400/gold.pngEver since gold's break of the intermediate down trend I've been wondering if we didn't see the long term bottom a little earlier than expected. Of course there is no way to tell at this point but I wanted to point out the size of the consolidation that we are talking about here.
I've pointed out in the past that the size of the consolidation is often a clue as to how large the rally will be once an asset breaks out of the consolidation.
I'll have more in tonight's update.
Posted by Gary at 9:06 PM
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Tuesday, January 27, 2009Will we ever regress to the mean
http://4.bp.blogspot.com/_V7Pddp58Py0/SX--n52fzjI/AAAAAAAACC4/jQT6JYqtg60/s400/spx+%25.png I suspect most investors have forgotten that the market is still extremely stretched below the 200 DMA.
I'm going to go over the implications in tonight's report.
Posted by Gary at 6:10 PM
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Sunday, January 25, 2009Gold:XAU ratio in buy zone
http://3.bp.blogspot.com/_V7Pddp58Py0/SXxs7lk6enI/AAAAAAAACCs/3e_SH6bIm4s/s400/gxau.png Following up on my last post. If the breakout in gold is for real (and even if it isn't) the miners are a sreaming buy right now.
During the forced liquidation in Oct. and Nov. the miners got beaten down unmercifully. Compared to the price of gold they have never been this cheap.
Even after rallying over 100% the miners are still incredibly cheap. In fact at the current gold price the XAU would have to rally to $220 just to be fairly valued.
Posted by Gary at 5:44 AM
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Saturday, January 24, 2009Is the golden bull back?
http://2.bp.blogspot.com/_V7Pddp58Py0/SXs-kbo_lvI/AAAAAAAACCk/wqLJVOyZbg4/s400/gld.png With yesterday's rally gold has now broken the down trend line and is potentially set up to break the pattern of lower lows and lower highs that has been in effect since March.
I think we have some potentially interesting developments in the precious metals markets.
I'm going to go over them in depth in the weekend update.
Posted by Gary at 8:14 AM
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Wednesday, January 21, 2009The banks went too far too fast
http://4.bp.blogspot.com/_V7Pddp58Py0/SXf4AbjNvEI/AAAAAAAACCQ/Gxr-7mrstMA/s400/bkx.pngYesterday's 19% swoon in the banking index was enough to trigger a Bollinger band crash trade. You can see from the chart that these crashes are usually followed quickly by a snap back rally. However they have also been followed by more weakness.
The general market obviously needed the banks to rally to have any hope of a sustainable rally. We didn't get it last Thursday or Friday and that led to more selling Tuesday. Finally with yesterday's crash the BKX got oversold enough to bounce.
The question is did today's bounce signal the daily cycle low we've been looking for? Maybe!
I still have concerns though and even if we did get the short term low we were looking for virtually none of the criteria for an intermediate low have been met. So the assumption is that any bounce here will be of the dead cat variety and may be rather short lived.
More details in tonight's update.
Posted by Gary at 8:36 PM
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Dow Theory nonconfirmation
http://1.bp.blogspot.com/_V7Pddp58Py0/SXcSmK_3JaI/AAAAAAAACCI/x0cC-h0EwAc/s400/dow.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SXcSmP1fLTI/AAAAAAAACCA/HqDGFQiZaAU/s400/tran.png We now have a Dow Theory nonconfirmation. The Transports have closed below the Nov. lows but the industrials have so far not confirmed. I expect that the industrials will eventually confirm the move by the transports as it now appears the weekly cycle has rolled over again.
I'll tell everyone what I told subscribers. We are going to get the buying opportunity of a lifetime, probably in the fall of 2010 but you have to get there with your capital intact. Almost every mistake I made last year was on the long side. Duh we are in a bear market!
Make no mistake this is probably the most dangerous market in history. Those that think they are smart enough to play both sides of this thing will most likely end up getting chewed up and spit out before this is over.
I will not be playing the long side anymore with the possible exception of very small positions and only at weekly cycle lows. There are two courses of action here. One can sell into rallies or one can be in cash. Either way, the goal of every investor should be to just make sure they get to the bottom in 2010 with something left.
Posted by Gary at 4:16 AM
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Monday, January 19, 2009Something for nothing
My daddy taught me a long time ago that there is no free lunch. You just can't get something for nothing in this world.
Governments embrace Keynesian economics because we all want to believe that we can get something for nothing. That all we have to do to cure any problem is print money or hit a computer key nowadays.
I can see it in the hope on peoples faces as Obama promises to fix all of their problems. They want to believe in magic.
How is he going to do it? With a stroke of the computer key of course. It doesn't really matter that the US is technically broke. The theory is that we can rectify that by simply printing more money and creating more and bigger debts.
Let me ask you a question. If you were broke and couldn't pay your bills does it really help you to get another credit card and max it out? When you do max it out does it really make sense to repeat the process again and again?
Well that is exactly what the US is doing. If it doesn't work for an individual why should anyone think it will work for a country?
The downside is of course if an individual does this he eventually takes down not only himself but any credit card company that was dumb enough to give him credit .
The scary thing about the big picture is that the whole world has been issuing credit cards to the US. Not only are we spending ourselves into bankruptcy but we are now trying to take down the rest of the world along with us.
At what point do we accept the fact that we really can't get something for nothing? When does it finally dawn on us that we can't keep spending trillions of dollars in a fruitless attempt to avoid taking our medicine? And when do we realize that the longer we avoid taking that medicine the more bitter it becomes?
Posted by Gary at 8:46 AM
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Sunday, January 18, 2009The most important chart
http://1.bp.blogspot.com/_V7Pddp58Py0/SXPZgjh5LuI/AAAAAAAACB4/mXfL-7fGla8/s400/dollar.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SXPXZpY6ReI/AAAAAAAACBo/OSyYHfEyL3A/s400/dollar+weekly.png
I'm just guessing here but I think the dollar rallying back above the 200 week moving average and rising unemployment are going to be the most important themes of 2009. Both are deflationary.
Until I see the dollar move and hold back below the 200 week moving average I'm going to assume that deflation is the name of the game for now.
Actually as long as unemployment continues to rise I don't really expect any easing of the deflationary pressures. So I have my doubts that we will see the dollar back below the 200 this year and maybe not next year either.
As a side note; I expressed my opinion in a prior post that gold demand would drop in a global slow down since the largest use of gold is in jewelry. It appears to have started.
Posted by Gary at 5:15 PM
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Saturday, January 17, 2009possible 1-2-3 reversal
http://3.bp.blogspot.com/_V7Pddp58Py0/SXIdf9DT0uI/AAAAAAAACBQ/vbZRZKyBzt4/s400/spx+1-2-3.png We have the makings of a possible 1-2-3 reversal starting on the S&P. However I have some serious concerns at this point. I'm going to go over them in the weekend report.
Posted by Gary at 10:03 AM
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Wednesday, January 14, 2009Gold
I just wanted to do a quick post on gold today. I'm still see incredible bullishness in the gold bug camp.
I think most inflationists assume the incredible expansion of the Fed's balance sheet is going to immediately lead us into a hyper inflationary environment.
While I agree that this will be the eventual outcome and this is exactly the unintended consequences that are going to result from the Fed's current actions I don't think it's going to happen quickly.
I have a feeling all the gold bugs loading up on gold right now are going to be too early and probably end up selling at the exact bottom.
I'll remind everyone that the main source of demand for gold is jewelry. I don't see that demand skyrocketing in a deflationary environment or with unemployment over 10% (where I expect we will be at some point this year). Actually if unemployment were still calculated in the same way it was several years ago we probably already have over 10% unemployment.
There will come a time to buy gold and silver again but I think it's probably still too early at this point.
Posted by Gary at 5:38 PM
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Tuesday, January 13, 2009Dollar rally back on
http://1.bp.blogspot.com/_V7Pddp58Py0/SWydph54bSI/AAAAAAAACBI/u_Tnp7ijdC4/s400/dollar.png I've been watching the dollar rally for a close back above the 200 week moving average. Yesterday we got that close. If the dollar can hold above this major support level into Friday's close then I think we may have seen the end to any rebound in commodities and probably stocks.
I've been saying in the daily reports that a move back above the 200 week moving average would constitute confirmation that the dollar rally is back in force and deflation is still in control.
Posted by Gary at 5:56 AM
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Monday, January 12, 200960 minutes on oil
http://2.bp.blogspot.com/_V7Pddp58Py0/SWtnmem3JrI/AAAAAAAACBA/xviKASXeCEY/s400/oil.png This is all over the Internet today and I'm going to throw my 2 cents in also.
The basis of the 60 minutes story was that the spike in oil last summer was caused by speculators. Duh ya think?
But there's so much more to the story than that. The beginning of the oil bull market was rooted in fundamentals just like any bull market. The end of a the bull market was carried on the back of speculation and greed again just like all bull markets.
However the ultimate blame has to fall squarely on the Fed. They are the ones that turned on the printing presses in the ill planned attempt to stop the recession. All of a sudden trading desks and big banks had billions of excess dollars to work with. Unfortunately there was only one thing going up at the time...oil. The logical choice was for all this excess money to flow into the one market that was resisting the bear, the energy markets.
I warned for months and months this was what was going to happen when I saw the dollar start to tank. I also warned for months that a spike of 100% or more within a year's time would lead to a recession.
Geez one has to wonder when the media will finally figure out that all our troubles are being caused by the idiots at the Fed that everyone seems so inclined to put their trust in. How far must they run us into the ground before we wake up.
Posted by Gary at 7:53 AM
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Saturday, January 10, 2009Sell treasuries
http://4.bp.blogspot.com/_V7Pddp58Py0/SWiUj7vSQ8I/AAAAAAAACA4/QKq4dhtjh5c/s400/usd.png I've been hearing, for some while as a matter of fact, that foreigners are going to bail on our debt. The reason given of course is that the dollar is collapsing.
I guess most of these people haven't looked at a chart recently. The dollar isn't collapsing, on the contrary it's soaring. Anyone who bought our debt back in July not only got a 3.5% coupon (give or take) but they enjoyed a 22% rise in the value of the dollar. Even recently as bond rates have collapsed buyers of US debt managed to score a 7.5% gain in the value of the dollar.
Since I think the dollar is destined to go much higher in this deflationary environment I don't see buyers of our debt bailing until the dollar tops out.
I don't see that happening as long as the powers that be refuse to let any broken companies go bankrupt and as long as unemployment continues to rise.
As long as the bailouts continue these zombie financial companies will continue to act as a huge drain on the money supply.
Economics 101: too little supply equals higher prices.
Posted by Gary at 4:27 AM
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Thursday, January 8, 2009Unemployment is good
Counter intuitive isn't it? How can high unemployment be good? Actually I wouldn't say it's good, but it is inevitable.
I've been saying that 2008 was about the collapse of the financial system but 2009 is going to be about unemployment.
Here's the problem. Americans make too much money. Again sounds counter intuitive doesn't it. That is the problem though. We've had it too easy for too long. We want to get paid big salaries for doing the same job that a Chinese worker will do for 1/10th the cost.
As long as that imbalance is in place we are going to continue to lose jobs in the US. As long as this imbalance continues our companies (think autos here) are going to remain unprofitable.
We could start to cure the problem by willingly lowering wages. In a deflationary environment we are in the best possible scenario to weather a voluntary pay reduction. However that's not going to happen. It's very hard to take something away once it's been given.
So the market is going to take it away for us. It's going to take it away with high unemployment. People who don't have a job are more willing to accept a pay cut. Workers who can't or won't willingly work for lower salaries run the risk of losing their jobs to someone unemployed that is desperate and will work for less.
Ultimately if the US is going to bring back it's manufacturing base and if current businesses are going to survive and compete in this climate wages are going to have to come down.
So I guess in the long run unemployment is good for the long term business structure of the United States.
Posted by Gary at 6:29 AM
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Monday, January 5, 2009Dollar weekly chart
http://4.bp.blogspot.com/_V7Pddp58Py0/SWK67BijGyI/AAAAAAAACAg/BTTYzzOBths/s400/dollar.png One of the things I'm watching is if the dollar can close back above the 200 week moving average on a weekly basis. With the strong move up today it is again knocking on the door.
It's been over six long years since the dollar has been above this level. The fact that it has moved back above and is threatening to do so again would suggest that something different is going on.
Even though the Fed is printing money like it's going out of style the dollar is not responding like it has for the last half decade.
I think the difference is that we are now experiencing deflation. I've got to say that finding a dollar bull these days is like trying to find a needle in a haystack. Needless to say they are few and far between. That by itself makes me leery about being on the short side.
As long as the dollar holds above the 200 WMA then I'm going to assume that deflation is still in the drivers seat. As long as that's the case all other asset classes are probably going to struggle.
Posted by Gary at 5:52 PM
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Sunday, January 4, 2009Rally is starting to get stretched
http://1.bp.blogspot.com/_V7Pddp58Py0/SWDOCXadnHI/AAAAAAAACAY/7FkG0mMMDT4/s400/SharpChartv05.png
With Fridays move up to 931 the current rally is starting to get stretched. (More in the weekend and Sunday update for subscribers.)
Just looking at the point and figure chart we can see stiff resistance coming in at the 960/970 level. I have my doubts the market will be able to penetrate this resistance without first testing the lows.
Also take note that we now have 14 X's in a row. Anytime a market or stock can put in 20 X's or more without a pullback it is a sign of a severely overbought market. I'm not sure we will be able to tack on another 6 X's before a correction as many of the sentiment and breadth levels are already pushing into moderate to excessive overbought or bullish readings.
If we do manage to reach 960/970 without a pullback it would probably be a low risk short entry for any short term traders.
Posted by Gary at 6:52 AM
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Wednesday, December 31, 2008Monthly charts
http://1.bp.blogspot.com/_V7Pddp58Py0/SVwYSiMM13I/AAAAAAAACAQ/xpyIDkzhOnI/s400/rut.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SVwYScLduvI/AAAAAAAACAI/17vvmCpZn0E/s400/tran+month.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SVwYSW7l-8I/AAAAAAAACAA/LqaVa1-Xajs/s400/dow+month.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVwYSLU8G_I/AAAAAAAAB_4/oLn5oH4Kncs/s400/comp+month.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVwYR5WtzKI/AAAAAAAAB_w/Z0fw5pB05-E/s400/spx+month.pngI thought to start off the new year I would take a look at a few very long term monthly charts. First off let me say that I think this bear market is different than any other bear market we’ve experienced in the last 60-70 years. I think what we are seeing unfold is a complete deflationary collapse. This was brought on of course by the Greenspan Fed’s totally irresponsible inflationary monetary policy. True to form Bernanke is following right in his footsteps.
It does seem strange that inflationary monetary policy ultimately leads to a deflationary collapse doesn’t it? Unfortunately the incredible expansion of credit over the last 5 years has ultimately led to the same outcome as it did in the 30’s. The credit bubble now is imploding just like it did back then and it’s taking down not only the financial system and stock markets but also the global economy, just like it did in the great depression.
Amazingly enough the only way that Bernanke knows to put out the fire is to throw more gas on it. The bigger the fire gets the more gas they throw. Talk about a vicious circle.
Anyway on to our charts.
I’ve included the 200 month moving average on each chart. As you can see the S&P and Nasdaq have already sliced through these very long term support levels. The Dow, Russell and transports are in the process of testing the 200. Every index except the transports has already penetrated this support so I really doubt they will ultimately be able to hold above it. I also doubt that the S&P or the Nasdaq will be able to recover these levels at this point.
I think this bear is destined to correct the entire move out of the 1980 bottom. I don’t think we will move below that level per se but I also don’t think we’ve seen the lows for this bear at 740 either.
I have a feeling before this bear is over it will change our world and I suspect that by the time the bottom is reached the average investor will never want to see another stock as long as they live.
Posted by Gary at 5:10 PM
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More dollar musings
Expanding on my last post I would remind bears that the dollar is measured against a basket of currencies. As the global recession wears on other countries are going to be tempted to devalue their currencies to prop up faltering economies.
The dollar is still the world’s reserve currency. In a time of competitive currency devaluation I suspect there will continue to be a flight to what is perceived as the safest global currencies. Namely the dollar and the Yen.
As of today the dollar is on the verge of completing a 1-2-3 reversal. A move back above the 200 week moving average at 83 would confirm the dollar is still in a bull market and deflation is still in the drivers seat.
I’m starting to wonder if the dollar is going to be at the mercy of who has the fastest fingers on the computer. Which ever countries can create money the quickest will ultimately win the coming devaluation wars.
Posted by Gary at 6:59 AM
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Tuesday, December 30, 2008The dollar has to collapse...or does it?
Trying to find a dollar bull right now is like trying to find the proverbial needle in a haystack. Everyone seems to assume that the Feds actions will condemn the dollar to the depths of hell. I’ll be quick to point out that the Fed has been on this course for almost a year now and the dollar has continued to rise.
Let me just say I’m skeptical. First off when everyone is thinking the same thing then no one is thinking. It feels like everyone is on the same side of the boat right now. That alone would make me nervous to be short the dollar.
Sure the Fed is printing like crazy but where is the money going? Well most of it is going into the banking sector. However the banking sector is basically crippled and any money flowing this way is just going to plug the enormous holes in their balance sheets. I don’t see the banks lending when they are still using any money to just stay solvent. If the money is stuck in the financial sector how is it supposed to get into the system and cause inflation?
I’ve thought for some time now that the world is entering Kondratieff winter. During this period the world will go through massive debt destruction. Sound familiar? During this period cash will be in short supply causing the value of currencies to rise. Sound familiar?
Even if banks were able to lend, who would they lend to? Real estate is still overpriced and lending standards have tightened. The first time home owner is now priced out of the market. Sure I guess it’s possible that banks could loosen lending standards and reflate the sub prime market. Do we really want to go through that again? Isn’t this lesson painful enough already? Are we really willing to going down that road again? No I would say the odds of reflating the housing bubble again are slim.
So we aren’t going to push money into the system through that vehicle anymore in my opinion.
How about lending to business?
Well we are in what will likely turn out to be the most severe recession since WWII or worse. What business is looking to expand in that environment? I doubt we are going to see a big demand for money from that front. I suspect business is now close on the heels of the banking sector. I expect in 2009 we are going to see massive small and medium size business failures.
In the first half of the year commodity based companies were looking for capital to expand. With the collapse of the global economy and subsequent crash in commodity prices I think that one is now off the table too.
I think 09 is going to be all about unemployment. People without income tend to hoard cash. Basic economics 101 too much demand and not enough supply equals rising prices.
Ultimately I do think we will see the dollar collapse but I think we have to get through the debt destruction phase first.
Posted by Gary at 8:06 AM
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Friday, December 26, 20083 part rally
http://3.bp.blogspot.com/_V7Pddp58Py0/SVS_1r_u3DI/AAAAAAAAB_o/Y-6Yf9sGQ-s/s400/spx.png A great many investors, myself included, have been expecting a powerful rally to correct the Oct. Nov. crash. I'm wondering if we didn't already get it. Instead of one big rally we've had three smaller rallies all of them at least 20%.
Normally a bear market rally will last 1 to 3 months and gain anywhere from 5-20%. As you can see all three rallies have been short in duration but they have all been in the very top range of the normal percentage we would expect to see from a counter trend rally.
We're starting to see quite a few sentiment indicators pushing back into extreme levels that have signalled the end to the other counter trend rallies this year.
The only thing that suggests that we should still have further to rally is the fact that the market is still very stretched below the 200 DMA. The fact that the market hasn't been able to rally prior to Christmas, one of the most consistently positive times of the year, makes me wonder if even 27% below the 200 DMA is going to be enough to get this market moving higher.
Posted by Gary at 3:27 AM
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Tuesday, December 23, 2008New rates
I’ve been debating for sometime on whether to raise subscription rates. On one hand I don’t want to make prices too high to where the average investor can’t afford it. On the other hand putting out a nightly and weekly newsletter at half the rate of almost any other product on the market can be a bit grueling.
I’ve decided to give myself a small Christmas present. Starting Jan.1 I’ll be raising the monthly rate to $20. The 6 month rate to $80 and the yearly rate to $140.
Anyone on a fixed income, student, unemployed, etc that might need a little help can contact me at gsavage4997@cox.net and I'll work out an alternate rate for you.
Posted by Gary at 7:13 PM
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More point and figure charts
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxJ_PtCBI/AAAAAAAAB_g/pK4YvXFTpBs/s400/dow.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxJkUevsI/AAAAAAAAB_Y/EBpHJO36bBU/s400/spy.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SVDxJvIQN7I/AAAAAAAAB_Q/trJrDtOj1Zw/s400/ndx.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxJRenMMI/AAAAAAAAB_I/PMg3W-30q0E/s400/comp.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxIPGc_sI/AAAAAAAAB_A/9mNYzJrNfak/s400/dow20.png
Yesterday I looked at the energy markets. Today I'm going to look at the general market indexes. Unfortunately the picture isn't any prettier here. Across the board we see double bottom breakdowns and bearish triangle breakdowns.
Also notice the Dow has closed back below the 20 DMA. Institutions watch this level. If this level is lost big money is probably going to be hesitant to buy.
The magnitude of the fall decline suggested that this was probably our single best chance for a big bear market rally. As of yesterday it's starting to slip away.
If all we can manage is a weak 1 month rally after the recent crash then this is indeed a very weak market.
It's been said that dumb money lost in the crash of 29 but the smart money lost from 1930-32. I see a lot of analysts calling for the bottom already. This is exactly how the market took everyone's money in 30-32. Investors tried to pick the bottom way too early. I really don't expect a bottom before summer or fall of 2010.
I'll point out that bear markets don't typically last only one year. The odds of this one now being done are slim.
Actually I suspect most individuals have not sold and are not willing to sell yet. It's the same old story that plays out in every bear market. Investors get caught with losses, they can't accept that they are going to take a loss and they hold until the losses become unbearable. Once that level is reached everyone sells and we have a bottom. We saw this play out in the 2000-02 bear market. We are seeing it still in the housing market.
It takes about 2 to 2 1/2 years before investors are "willing" to give up. That's why bear markets tend to last longer than a year. If the market rolls over here and breaks through 850 it will be a very bearish sign that we could already be seeing the next leg down. I doubt that anyone is ready for another leg down after weathering the recent crash.
Posted by Gary at 6:04 AM
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Monday, December 22, 2008Point and figure charts
http://3.bp.blogspot.com/_V7Pddp58Py0/SU-jcsHnKKI/AAAAAAAAB-Q/QWUKs1Tgdws/s400/oih.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SU-jcsnvjGI/AAAAAAAAB-I/1OnmzwSZCG0/s400/xle.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SU-jceWLl0I/AAAAAAAAB-A/hQEwwrHjuOo/s400/cvx.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SU-jcGPRBhI/AAAAAAAAB94/tsDAawAstPg/s400/xom.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SU-jcLa_TzI/AAAAAAAAB9w/Fb-QGCEOtbU/s400/uso.png I pointed out the breakdown in XOM in my last post. Today I'm taking a look at the point and figure charts for oil and the energy stocks.
It's not a pretty picture. We've got double bottom breakdowns across the board. I really thought oil would have mounted some kind of significant counter trend rally when the dollar broke down. It just didn't happen. As a matter of fact nothing except gold managed to bounce to any significant extent.
I'll say it again. Wihout energy participating it's going to be tough for the markets to sustain any kind of significant rally.
Posted by Gary at 6:24 AM
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Friday, December 19, 2008XOM
http://2.bp.blogspot.com/_V7Pddp58Py0/SUx764qYXdI/AAAAAAAAB9o/jdfaSjEVEQE/s400/xom.pngWe need the energy stocks to participate if this rally is going to be sustainable. The break down of XOM today on expanding volume was not very encouraging. This on a day when oil closed up too. CVX and COP also closed down on expanding volume. I think the best the market is going to be able to do is trade sideways if energy stocks can't rally.
That's exactly what has happened over the last couple of weeks. Keep in mind that XOM and CVX are the number 2 and 3 weighted stocks in the Dow. If they fail here it is going to be a drag on the industrials.
I still think the intermediate term rally is intact as long as my line in the sand at 865 isn't crossed.
Posted by Gary at 9:00 PM
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Is the Dollar correction over?
http://1.bp.blogspot.com/_V7Pddp58Py0/SUutgBnbDSI/AAAAAAAAB9g/Toyrgk9Dgvc/s400/dollar.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SUutf4Rx6AI/AAAAAAAAB9Y/7Cjrdt7fUns/s400/dollar+weekly.png
I think yesterday's big reversal in the dollar likely marked the low for the T1 correction. You can find the technical rules on the lower right side of the blog.
A move back above 80 would be confirmation of sorts that the dollar is ready to resume it's longer term rally.
I'd have to say if the dollar can't drop even after the Fed has cut rates to zero that's quite the signal that the deflationary trend is very powerful.
I included the long term weekly chart so you could see that for the first time in 7 years the dollar has moved back above the 200 week moving average. That's a pretty good signal that the recent move wasn't just a counter trend rally. If it was it shouldn't have moved above this long term average. A move back above the 200 WMA would be further confirmation that the deflationary trend is still intact.
The rally in 05 was a counter trend rally and it was unable to penetrate the 200 WMA.
If the longer term trend is reasserting then commodities are going to come under pressure again.
I think it is probably significant that only gold benefited from the recent decline in the dollar. We should have seen a bounce in all commodities. It never materialized though. That probably says a lot about the supply and demand fundamentals right now.
Posted by Gary at 6:19 AM
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Friday, December 26, 20083 part rally
http://3.bp.blogspot.com/_V7Pddp58Py0/SVS_1r_u3DI/AAAAAAAAB_o/Y-6Yf9sGQ-s/s400/spx.png A great many investors, myself included, have been expecting a powerful rally to correct the Oct. Nov. crash. I'm wondering if we didn't already get it. Instead of one big rally we've had three smaller rallies all of them at least 20%.
Normally a bear market rally will last 1 to 3 months and gain anywhere from 5-20%. As you can see all three rallies have been short in duration but they have all been in the very top range of the normal percentage we would expect to see from a counter trend rally.
We're starting to see quite a few sentiment indicators pushing back into extreme levels that have signalled the end to the other counter trend rallies this year.
The only thing that suggests that we should still have further to rally is the fact that the market is still very stretched below the 200 DMA. The fact that the market hasn't been able to rally prior to Christmas, one of the most consistently positive times of the year, makes me wonder if even 27% below the 200 DMA is going to be enough to get this market moving higher.
Posted by Gary at 3:27 AM
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Tuesday, December 23, 2008New rates
I’ve been debating for sometime on whether to raise subscription rates. On one hand I don’t want to make prices too high to where the average investor can’t afford it. On the other hand putting out a nightly and weekly newsletter at half the rate of almost any other product on the market can be a bit grueling.
I’ve decided to give myself a small Christmas present. Starting Jan.1 I’ll be raising the monthly rate to $20. The 6 month rate to $80 and the yearly rate to $140.
Anyone on a fixed income, student, unemployed, etc that might need a little help can contact me atI'll work out an alternate rate for you.
Posted by Gary at 7:13 PM
26 comments Links to this post http://www.blogger.com/img/icon18_edit_allbkg.gif
More point and figure charts
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxJ_PtCBI/AAAAAAAAB_g/pK4YvXFTpBs/s400/dow.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxJkUevsI/AAAAAAAAB_Y/EBpHJO36bBU/s400/spy.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SVDxJvIQN7I/AAAAAAAAB_Q/trJrDtOj1Zw/s400/ndx.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxJRenMMI/AAAAAAAAB_I/PMg3W-30q0E/s400/comp.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SVDxIPGc_sI/AAAAAAAAB_A/9mNYzJrNfak/s400/dow20.png
Yesterday I looked at the energy markets. Today I'm going to look at the general market indexes. Unfortunately the picture isn't any prettier here. Across the board we see double bottom breakdowns and bearish triangle breakdowns.
Also notice the Dow has closed back below the 20 DMA. Institutions watch this level. If this level is lost big money is probably going to be hesitant to buy.
The magnitude of the fall decline suggested that this was probably our single best chance for a big bear market rally. As of yesterday it's starting to slip away.
If all we can manage is a weak 1 month rally after the recent crash then this is indeed a very weak market.
It's been said that dumb money lost in the crash of 29 but the smart money lost from 1930-32. I see a lot of analysts calling for the bottom already. This is exactly how the market took everyone's money in 30-32. Investors tried to pick the bottom way too early. I really don't expect a bottom before summer or fall of 2010.
I'll point out that bear markets don't typically last only one year. The odds of this one now being done are slim.
Actually I suspect most individuals have not sold and are not willing to sell yet. It's the same old story that plays out in every bear market. Investors get caught with losses, they can't accept that they are going to take a loss and they hold until the losses become unbearable. Once that level is reached everyone sells and we have a bottom. We saw this play out in the 2000-02 bear market. We are seeing it still in the housing market.
It takes about 2 to 2 1/2 years before investors are "willing" to give up. That's why bear markets tend to last longer than a year. If the market rolls over here and breaks through 850 it will be a very bearish sign that we could already be seeing the next leg down. I doubt that anyone is ready for another leg down after weathering the recent crash.
Posted by Gary at 6:04 AM
9 comments Links to this post http://www.blogger.com/img/icon18_edit_allbkg.gif
Monday, December 22, 2008Point and figure charts
http://3.bp.blogspot.com/_V7Pddp58Py0/SU-jcsHnKKI/AAAAAAAAB-Q/QWUKs1Tgdws/s400/oih.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SU-jcsnvjGI/AAAAAAAAB-I/1OnmzwSZCG0/s400/xle.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SU-jceWLl0I/AAAAAAAAB-A/hQEwwrHjuOo/s400/cvx.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SU-jcGPRBhI/AAAAAAAAB94/tsDAawAstPg/s400/xom.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SU-jcLa_TzI/AAAAAAAAB9w/Fb-QGCEOtbU/s400/uso.png I pointed out the breakdown in XOM in my last post. Today I'm taking a look at the point and figure charts for oil and the energy stocks.
It's not a pretty picture. We've got double bottom breakdowns across the board. I really thought oil would have mounted some kind of significant counter trend rally when the dollar broke down. It just didn't happen. As a matter of fact nothing except gold managed to bounce to any significant extent.
I'll say it again. Wihout energy participating it's going to be tough for the markets to sustain any kind of significant rally.
Posted by Gary at 6:24 AM
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Friday, December 19, 2008XOM
http://2.bp.blogspot.com/_V7Pddp58Py0/SUx764qYXdI/AAAAAAAAB9o/jdfaSjEVEQE/s400/xom.pngWe need the energy stocks to participate if this rally is going to be sustainable. The break down of XOM today on expanding volume was not very encouraging. This on a day when oil closed up too. CVX and COP also closed down on expanding volume. I think the best the market is going to be able to do is trade sideways if energy stocks can't rally.
That's exactly what has happened over the last couple of weeks. Keep in mind that XOM and CVX are the number 2 and 3 weighted stocks in the Dow. If they fail here it is going to be a drag on the industrials.
I still think the intermediate term rally is intact as long as my line in the sand at 865 isn't crossed.
Posted by Gary at 9:00 PM
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Is the Dollar correction over?
http://1.bp.blogspot.com/_V7Pddp58Py0/SUutgBnbDSI/AAAAAAAAB9g/Toyrgk9Dgvc/s400/dollar.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SUutf4Rx6AI/AAAAAAAAB9Y/7Cjrdt7fUns/s400/dollar+weekly.png
I think yesterday's big reversal in the dollar likely marked the low for the T1 correction. You can find the technical rules on the lower right side of the blog.
A move back above 80 would be confirmation of sorts that the dollar is ready to resume it's longer term rally.
I'd have to say if the dollar can't drop even after the Fed has cut rates to zero that's quite the signal that the deflationary trend is very powerful.
I included the long term weekly chart so you could see that for the first time in 7 years the dollar has moved back above the 200 week moving average. That's a pretty good signal that the recent move wasn't just a counter trend rally. If it was it shouldn't have moved above this long term average. A move back above the 200 WMA would be further confirmation that the deflationary trend is still intact.
The rally in 05 was a counter trend rally and it was unable to penetrate the 200 WMA.
If the longer term trend is reasserting then commodities are going to come under pressure again.
I think it is probably significant that only gold benefited from the recent decline in the dollar. We should have seen a bounce in all commodities. It never materialized though. That probably says a lot about the supply and demand fundamentals right now.
Posted by Gary at 6:19 AM
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Thursday, December 18, 2008Gold back in bear market mode
http://1.bp.blogspot.com/_V7Pddp58Py0/SUqf8fcvKPI/AAAAAAAAB9Q/t-PoicM0F1Q/s400/gld.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SUqf8B3HuhI/AAAAAAAAB9I/-LOHRBHGWaw/s400/gold.png
It appears that the counter trend rally in gold has about run it's course. Yesterday GLD was rejected by the long term trendline. Today it has moved back below the 200 DMA.
Looking at the long term chart we can see the 200 DMA has rolled over. The 50 DMA is below the 200 and declining steeply. That looks like a bear market to me.
I trimmed my core position in metals even further yesterday.
There is a T1 pattern that may be playing out in the dollar which would suggest that the decline there may be about over. If the dollar is ready to resume it's upward trend then gold is probably ready to resume the longer term down trend.
Posted by Gary at 11:09 AM
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Bond bubble
http://3.bp.blogspot.com/_V7Pddp58Py0/SUpH4pHEu7I/AAAAAAAAB9A/uZ7o_SWcSOY/s400/usb.png Bonds now appear to be the last bubble waiting to pop.
Unlike the dollar this parabolic move is occurring at the end of a 28 year bull run. This looks like an ending move to me. Either way this is the definition of a parabolic move and as such it’s prone to collapse. For the last 8 years the world has jumped from one bubble to the next. First it was tech, then housing, then commodities (specifically oil) and now its bonds. We have become incapable of moderation. I’m not sure if there has ever been a time were investors have been so irrationally controlled by their emotions that they have to produce multiple bubbles one after the other.
I have got to think anyone with a lick of common sense can look at that chart and see the same process going on that pushed oil to $147 this summer. Namely everyone is jumping on what they think is a sure bet. The current thinking is that since the Fed has threatened to buy bonds and target long term rates then bonds are a sure thing.
But lets think about that for a second. Can the Fed really accomplish this goal with no consequences? Is it really as easy as turning on the printing presses? Has the world really seen a paradigm shift and we can now get something for nothing?
Let me just say I seriously doubt it. There is always a consequence. If the Fed goes down this path the dollar will likely crater. Since we need to borrow over a billion dollars a day to keep our country solvent what is going to prevent our creditors from dumping our bonds if the value of the currency comes unglued? What's the point of holding a bond that pays 2% if the value of the currency depreciates 10, 15 or 20%. Not much I would think.
Anyway back to our parabola. If this collapses like all parabolas do I think there's a good chance the money that's been going into bonds will go back into stocks and commodities.
Posted by Gary at 4:53 AM
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Tuesday, December 16, 2008Still stretched
http://1.bp.blogspot.com/_V7Pddp58Py0/SUiDp1ffFfI/AAAAAAAAB84/i55XsWMZLSM/s400/spx.png I'm already hearing targets for where the rally is going to top out. I guess it's not surprising given the incredible beating investors have taken over the last 3 months. We are understandably gun shy. I doubt anybody thinks this market can rally more than another 50 to 75 points before the bear takes over again.
Let me just remind everyone that all markets regress to the mean. There are no exceptions. Sometimes it may take a while but they all do it.
Now I want to revisit a trade that some of us put on back in Oct. That would be the 20 under the 200 trade. Usually bear markets aren't able to stretch much more than 20% below the 200 DMA before snapping back at least close to the mean. We witnessed extraordinary times this fall. Markets got more depressed than just about any other time in history. We saw breadth extremes that have never been matched in history. At the bottom the S&P was 40% below the 200 DMA.
I think the regression to the mean is now underway. However the market is still 24% below the 200 DMA even after today's rally. So by any historical standard this is still a market that is extremely depressed. I still think we have a good chance of moving back up to the 200 DMA before this rally finally rolls over.
Posted by Gary at 8:43 PM
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Monday, December 15, 2008Setting up for another breakout?
http://2.bp.blogspot.com/_V7Pddp58Py0/SUZl2YuAjRI/AAAAAAAAB8w/Bw8AAwmObuw/s400/dow.png Last week I pointed out the crawling action of the dollar and the mining stocks. Often this precedes a strong break either up or down depending on the setup. Both the dollar and the miners did in fact break strongly above the 50 DMA in the case of the miners and below the 30 DMA in the case of the dollar.
We now have a similar situation setting up on the Dow and S&P. Both are crawling along the underneath side of the 50 DMA. Since I think we've put in an intermediate term low the odds are probably good that this will also break strongly to the upside.
Posted by Gary at 6:11 AM
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Sunday, December 14, 2008
I thought this was an interesting article and it ties in nicely with my recent Guru post. With out risk control even Nobel prize winners are ultimately doomed to failure.
Posted by Gary at 7:23 AM
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Saturday, December 13, 2008dollar woes
http://3.bp.blogspot.com/_V7Pddp58Py0/SUQETF9ozOI/AAAAAAAAB8o/r0sFCqbZ9TE/s400/dollar+daily.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SUQETME7TjI/AAAAAAAAB8g/0jXtuqrk00A/s400/dollar+weekly.png
By closing below the Nov. 25th low the dollar has now completed the 1-2-3 reversal I've been watching for. We now most likely have an intermediate term decline starting. We need to correct the parabolic move out of the July lows.
As we can see on the weekly chart that rise is now starting to fail. Parabolic moves are never sustainable and they invariably end in collapse. This one certainly looks like it's going to be no exception.
I'm already starting to hear comments in the media and especially from the gold bugs that the dollar is toast and the run is over. If this parabola had occurred at the end of a multi year rally then I would be inclined to think this was indeed an ending pattern. However this move came out of a severely depressed multi year bear market. This is more likely a beginning pattern and not an ending pattern.
The rally in the dollar is due to one thing and that is deflation. That process is hardly over. I dare say it's just beginning. Once this correction has run it's course the odds are that the dollar will turn and head to new highs.
More in the weekend report for subscribers.
Posted by Gary at 10:50 AM
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Wednesday, December 10, 2008gdx
http://1.bp.blogspot.com/_V7Pddp58Py0/SUCOyxNnHXI/AAAAAAAABbQ/USAT-CAWcIA/s400/gdx.png In the last post I pointed out the "crawling" pattern on the US dollar index. I noted that often this pattern leads to a swift breakdown.
We have the same thing occurring in the mining stocks as the GDX has broken up after crawling along the underneath side of the 50 DMA.
I pointed this out to subscribers several days ago in one of the nightly updates. I think the action in the precious metals sector is warning that the dollar will break down soon. When it does I wouldn't be surprised if the GDX tests the 200 DMA.
Posted by Gary at 7:50 PM
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Tuesday, December 9, 2008Dollar crawl
http://4.bp.blogspot.com/_V7Pddp58Py0/ST5hIPNHvTI/AAAAAAAABbI/4UfnZwwb6xE/s400/dollar.png
We've been looking for weakness to develop in the dollar as a necessary ingredient for any market rally sustainability. I've been pointing out the "crawling" action in my nightly updates as a sign of a coming break. Yesterday the dollar finally broke down out of that pattern. Often when this pattern breaks a quick move down to support will unfold. Support for the dollar would be at the consolidation zone of the T1 pattern between 76 & 80.
A move back to that level would likely correspond with an impressive rally in stocks and especially commodities.
Just another sign that we have probably seen the bottom and are starting an intermediate term bear market rally.
Posted by Gary at 4:00 AM
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Sunday, December 7, 2008Searching for a Guru
Investors are always on the lookout for the next Guru . That special someone who has the market figured out. I can tell you it's been going on since time began.
So what should we look for in a Guru? Usually they are men. Often young men. Almost all Guru's think the way to beat the market is with a very high success rate. When a Guru gets on a hot streak they almost always want the world to recognize their ability. This is where the peacock dance and chest beating come into play as they proclaim to the world their superiority over the masses. If their streak lasts for a while they will gather quite a flock of sheep to lord over. Invariably they come to believe that they have in fact mastered the markets.
History is full of these Gurus, some of them legendary. Unfortunately history is also full of the broken bodies of Guru's whose system quit working and they didn't see it coming.
I've got news for you. No matter what Guru you follow, what system or indicator or technical analysis you use, it will eventually quit working.
Whenever something starts to work too good the market will discount it and it will stop working. The more popular a Guru becomes the shorter his lifespan usually is as the market will start to fade him. A good example is CNBC's Jim Cramer.
I have to shake my head when I see investors touting this or that system. Usually they can point to an impressive record of calls as proof that their particular Guru or system is the only system for making money in the market. If these people had actually studied history they would know that when any system starts to produce amazingly accurate returns then you are getting close to the top.
Examples are everywhere. Look at the tech bubble in 2000. At the time it was obvious that we had achieved a new paradigm shift and tech stocks would continue higher forever, earnings or no earnings. We have the same picture in real estate in 05 and 06. It was obvious to all that we had a shortage of available land and an excess of population. If that wasn't a combination for ever higher real estate prices I don't know what is. Recently it was oil. The world had reached peak oil and everyone knew we would never see $100 a barrel again. This theory while it sounded very plausible as oil was hitting $147 may have had a leak or two in it. The collapse of commodities recently took down oil Guru Boone Pickens when he failed to recognize in time that the assumptions he had based his investing on weren't entirely valid.
We can find similar examples with indicators that suddenly fail to work like Joe Granville's On Balance Volume indicator. For a while back in the 70's Joe had a hot hand. When Joe spoke markets moved. I guarantee you that any system, whether it be the COT, cycles, technical analysis, pattern recognition or following the latest Guru's prescient calls is destined for failure once it becomes too popular. As a matter of fact once a system starts working really well you would be best to become very nervous.
There are ways to become rich in the market. One of them is by compounding over a long period of time. Another is to get in a the beginning of a secular trend and hop off at the top. We've just seen how hard that is to do as many investors got caught in the commodity collapse.
I can almost guarantee you the way to get poor in the market is to follow a system or guru with a very high success rate. It sounds counter intuitive doesn't it? The problem with having a very high success rate is that we become convinced that we have in fact discovered a way to beat the market and we start to bet too big. So that when the market decides to take away our system or kill our Guru we quickly lose all of our hard earned profits.
I invariably see the hot Guru's talk about "betting big". Once you start seeing those kind of statements you know your Guru's life expectancy is short.
Posted by Gary at 2:23 AM
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Thursday, December 4, 2008Freak out meter
http://2.bp.blogspot.com/_V7Pddp58Py0/STiVGhFVZJI/AAAAAAAABa4/2b2CcfXgr5o/s400/oil.png To say this has been a tough market would be an understatement. As I browse the blogosphere I see just an amazing amount of indecision and yes outright fear that we might have another leg down. From a contrary point of view that's probably a good thing.
I think all we need to get a rally going is for oil to bounce. It's funny that last summer high oil was killing the market and now we need oil to rally so we can sustain any upside in the market.
As always human emotions are in control. Back in June and July oil was obviously trading purely on greed with no regard to fundamentals. As always these extremes are eventually reversed and now oil is trading purely on fear, again with no regard to fundamentals.
I do think oil is destined to reverse soon. Actually I know it's going to reverse because nothing just goes straight down forever. At the low today oil was trading almost 60% below the 200 DMA. Let me say that again. 60% below the 200 DMA. That my friends is just incredible. Not even silver or sugar which are both far more volatile than oil have moved that far below the mean. As a matter of fact I don't know of anything off hand that has stretched that far below the average. It's even fairly rare to have an individual stock trade that far below the 200.
The gold:oil ratio is now at 17 barrels per oz. Again levels we've not seen in 10 years.
I'm seeing stories in the media predicting ridiculously low prices for oil. I saw similar predictions for $170, $200 or even $300 oil at the top this summer.
Now for an explanation of the title. I've noticed that very often when I get an uncontrollable urge to sell into weakness it usually ends up being either the exact low or very very close to the low. Today I had an almost irresistible urge to sell all my energy positions. On top of that a lot of subscribers emailed me freaking out about their energy stocks.
I have to ask myself does it really make sense to sell with oil 60% below the 200 DMA? Is oil really going to $25, $20 or $10 in the near future? Does the world really have any other serious alternative to oil?
Just like high prices are the cure for high prices, low prices are the cure for falling demand. With gasoline priced under $2.00 in most areas and under $1.50 in some I have to wonder are we really still seeing demand destruction?
Posted by Gary at 6:42 PM
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Recommened services
I often get asked what newsletters or services I like. Of course there are a ton of them out there but here are the ones I like.
http://sentimentrader.com/
For sentiment data and historical stats Jason Goephert is the best in the business in my opinion.
http://www.cyclesman.info/
I've sampled many cycle proponents but I think Tim Woods is at the top of list. I use him almost exclusively for anything cycle related. Whenever my view of the current cycle doesn't match his I get nervous.
http://ww2.dowtheoryletters.com/
For Dow Theory Richard Russell is the only one to go to. If I'm not mistaken Dow Theory Letters is the oldest continously published newsletter in exsistence.
http://www.lowryresearch.com/
Lowry's service is indispensible for money flow data.
The many blogs I read are mostly posted under my blog list.
Posted by Gary at 8:45 AM
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Wednesday, December 3, 2008Where are we headed?
Yesterday was another 90% down volume day. That makes twelve 90% down days so far. This is just an incredible amount of selling. I continue to believe that this is trying to tell us one thing and one thing only. The next depression is heading our way.
But things aren’t that bad you say. Sure you probably can’t sell your house but we don’t have 20% unemployment and we don’t have bread lines…yet.
However, the extreme left translation of the current 4 year cycle is suggesting that we will. We simply cannot create the largest credit bubble the world has ever seen and expect to escape unscathed. (I tend to believe we can’t escape without a train wreck). Depressions aren’t created overnight. I suspect by this time next year we will have at least 10-15% unemployment.
Here’s the thing though. I hear some talk about a depression in the media and from the average American but at this point I don’t think anyone really believes it can happen. I get the sense that everyone thinks we learned our lesson in the 30’s and we will never make those kinds of mistakes again.
Here’s the problem as I see it. It appears that everyone thinks the depression was caused by the Fed’s actions after the credit bubble started to deflate. Namely reducing the money supply, protectionism and raising taxes. However, in my opinion the actions leading up to the depression are what caused the hard times and no action by the Fed after the fact was going to stop or help the situation. Maybe we won’t make those mistakes this time around, although I think the government is probably going to resort to protectionism and higher taxes. I get the feeling the powers that be, namely Bernanke, believe that as long as he expands money supply we won’t go down the deflationary path that we did in the 30’s.
What I don’t see is any one acknowledging that we already have gone down the same path that created the depression in the first place. Namely, we created another huge credit bubble. That’s what caused the depression in the first place and we obviously weren’t smart enough to avoid that mistake all over again. Instead of Bernanke studying the 30’s maybe he should of studied the 20’s. If Greenspan and Bernanke had paid more attention to what caused the Great Depression in the first place - instead of the measures used to try and fix the problem - we might not be in this mess.
Actually I suspect we would anyway. Why you ask? Because human nature never changes. I can tell you that pretty much every human being on the planet who sees how well two aspirins work is going to automatically assume that four aspirins will work twice as well. That my friends is the exact mentality that got us into this fiasco. Greenspan saw how well printing and cutting rates worked in '87 and decided that since it worked then it would also work in 90, 94, 98 and 2000. Then Bernanke came along and when things started to crumble in 06 he decided that if 2 aspirin had worked in the past then 100 aspirin should work marvelously now. Unfortunately 100 aspirin will only kill the patient just like the Fed’s credit bubble has now killed the global financial system with the global economy following close behind.
Despite all that I think, until conditions get truly desperate people will continue to delude themselves that this is just a recession like many others. As such we should be approaching the end soon, right? Well if this is a run of the mill recession then I would agree and expect the market to bottom soon and start discounting better times ahead. However, as I’ve pointed out many times in the past, the extreme left translation of the current 4 year cycle is saying that this is anything but a run of the mill recession. We’ve never seen a 4 year cycle roll over this fast. Not even in the 30’s. What the market is trying to tell us, in my opinion, is that we are now facing Kondratieff winter .
Historically, Kondratieff winter (a depression) happens about once every 70 years. It takes about that long for the market to forget what caused the last bust. Of course what caused it was rampant credit growth. As credit starts to expand exponentially it eventually leads to a deflationary bust as the market cleanses debt from the system through massive defaults and bankruptcies.
That my friends, is exactly what we are experiencing right now. So it doesn’t matter what tactics Bernanke, Paulson, Obama or anyone else use, we’ve already made the mistakes that allowed the credit bubble to form. Once that happened there was, and is, nothing that’s going to fix or stop the collapse of that bubble.
Back to my earlier thought that people are probably expecting the recession to end soon. I think we will need to see that kind of mentality in order for any rally to take hold. Granted it will start simply because selling pressure will eventually exhaust itself, it may already have. Once the rally gets started in earnest, investors will convince themselves that the market is discounting the end of the recession....more in last nights update.
Posted by Gary at 5:12 AM
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Tuesday, December 2, 2008Dollar key
http://2.bp.blogspot.com/_V7Pddp58Py0/STVVjTw1bbI/AAAAAAAABaw/Z3LmTNNbsiI/s400/dollar.png Yesterday I pointed out the 1-2-3 reversal in progress in the S&P. We also have the same pattern forming in the dollar.
With today's move down the dollar has put in another swing high. It's now set up to complete the pattern if it can close below the Nov. low.
I've marked the timing band for the weekly cycle low with the light blue box. If the dollar is completing a T1 pattern (explained in the weekend report) then we should see the buck move back down to test the consolidation zone between 76 & 80.
I suspect this move into the weekly cycle low will correspond to an intermediate term rally in stocks and commodities.
Posted by Gary at 7:34 AM
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Monday, December 1, 2008Another 1-2-3 reversal???
http://4.bp.blogspot.com/_V7Pddp58Py0/STP8sMYuS7I/AAAAAAAABao/gDPZzlRFYrA/s400/spx.png On Friday of last week the S&P just did break above the down trend line. With today's move lower we are now set up for another attempt at a 1-2-3 reversal.
As of today the trading cycle is on day 35. The average cycle runs between 28 and 43 days. We could see another move back down to and possibly even another attempt at a 2b reversal before the final bottom of this intermediate decline is in.
I will be watching the buying into weakness data as a sign the smart money is ready to step in and buy any pullback. Insiders are already buying at levels never seen since 74.
We should be days away from a final bottom if we haven't already put it in.
Posted by Gary at 7:02 AM
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Wednesday, November 26, 20084 day rule
http://3.bp.blogspot.com/_V7Pddp58Py0/SS3kRsUZrTI/AAAAAAAABag/sJZiIKztObw/s400/spx.png With today's positive close the S&P has signaled a Sperandeo 4 day rule possible trend change.
The rule says that after a long intermediate decline or advance 4 days in a row in the opposite direction is often confirmation of a trend change.
I have a feeling that if we see the market close above the Nov. highs we are going to start seeing that performance anxiety that I've been warning about.
Posted by Gary at 4:04 PM
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Tuesday, November 25, 2008Buying panic?
In the last several posts I've gone over my take on human nature. The one constant is that it never changes. The other dependable is that we always go to extremes.
Well we just got the negative extreme. We may now be ready for the positive extreme. I pointed out in last nights update that all the short term indicators I watch are at extreme overbought levels. Usually this is the recipe for a pullback. In bear legs it's the recipe for another move down. On top of that we saw huge selling into strength yesterday (explanation in last nights update). I was expecting this, as selling into any rally has been very profitable the last 3 months.
However the futures are up strong this morning. A market that just rolls right over short term over bought levels is a strong sign of a bottom . Once the market becomes convinced the bottom is in we could see a buying panic on par with the selling panic we just saw, as money managers chase the market trying to improve their year end numbers.
I suggested in the weekend report that market participants would probably come in at the beginning of the week looking to sell the rally. I also thought they could get burned on the short side if this market had in fact bottomed. Yesterday they did get burned and burned bad. Not only that they missed a 400 point rally. All those that sold heavily at yesterday's close looking for the market to fall today are now in the red at the open. If a buying panic does start they will take more losses and miss another chunk of the rally. We have the ingredients in place for a runaway bear market rally. Will it happen? I don't know, we'll have to wait and see. I do know that I'm not willing to lose any of my long positions right now.
I would be very nervous about shorting at this point.
Posted by Gary at 6:27 AM
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Sunday, November 23, 2008What a leg!
http://3.bp.blogspot.com/_V7Pddp58Py0/SSogFq40ZXI/AAAAAAAABaY/fG_j73c_T14/s400/spx.png If we put in the final bottom for this leg down on Friday then this was the second largest percentage decline in history at 43.5% in 3 months and 7 days. Only the initial crash in 1929 exceeded this with a decline of 45% in 2 months and 6 days.
Does anyone remember Newtons third law. For every action there is a reaction. The same holds true for the stock market. The more extreme the decline the more extreme the counter trend rally. Action/reaction. In 1930 that 45% initial decline produced a counter trend rally of 50% in a matter of months.
Do I think we are going to see something similar? Yep I certainly do. I've stressed over and over how human nature never changes and I guarantee it still hasn't. We have the mother of all counter trend rallies coming. It's going to make everyone believe that we've seen the ultimate lows for this bear market. I guarantee it. I really doubt 741 is going to ultimately prove to be the final low but I think it has a good chance of marking the intermediate low.
I think anyone short the market is now taking a big risk of getting caught in an explosive move up. Everyone has to decide for themselves if they are willing to risk going long in a bear market. That being said counter trend rallies can be extremely profitable in bear markets. The catch is that intermediate bottoms are hard to spot in real time.
At this point though even if one doesn't catch the exact bottom the expected violent rally should be so powerful that any timing mistakes will be trivial. That is if you are willing to take long positions. Bears that just can't bring themselves to play both sides of the market might just consider going to cash until we have signs that any rally is running out of gas.
I would caution against trying to sell to quickly as I expect this rally will go much higher in percentage terms than anyone can imagine at this point.
Posted by Gary at 7:31 PM
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Friday, November 21, 2008Was breaking the 02 lows significant?
http://3.bp.blogspot.com/_V7Pddp58Py0/SSbLiNqSMxI/AAAAAAAABaQ/Cr67gDNqf4A/s400/spx.png As expected the break of the 02 lows is bringing out all the technical traders now calling for a total collapse of the market. Maybe and then again maybe not.
Major tops and bottoms are often accomplished by the markets breaking major support levels. The dumb money investors jump heavily into a trade that they think is risk free. At the same time the smart money takes the opposite side of their trade.
We saw this exact pattern play out at the 02 bottom and the 07 top. Could we be seeing it in action now? Maybe!
We know the 22 week cycle is due to bottom anytime now. Yesterdays total panic into bonds suggests we saw completely irrational capitulation. Public short interest is at record highs. Cash sitting in money markets is at levels not even seen at the 02 lows and insiders are currently buying stock at levels last seen during the two weeks after the 87 crash.
All that being said, should one jump in right now? I'm going to suggest that a close above the 10 day moving average might be a safer entry and provide a margin of safety that we have in fact seen the weekly cycle bottom.
Posted by Gary at 6:52 AM
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Thursday, November 20, 2008Reaching levels only seen once in history
http://2.bp.blogspot.com/_V7Pddp58Py0/SSVixXPpEdI/AAAAAAAABaI/qQ5JY9HTbb4/s400/6a00d8349edae969e2010535f68fbf970b-800wi.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SSVgPQ8t3sI/AAAAAAAABaA/JniNeZMW2Ws/s400/spx.png
At yesterdays close the S&P was 36% below the 200 DMA. There has only been one other time in history where the market has stretched further on the downside. That was at the bear market lows in 1932. The upside is that every time the market got anywhere near this stretched below the mean it was quickly followed by an extremely violent rally.
That being said I think we are very close to the bottom time wise. The daily trading cycle and weekly cycle are now in the timing band for that low. Smart money is starting to buy on sell offs. Dumb money is panicking. We have the ingredients in place for the mother of all counter trend rallies.
All that being said we probably need to put in at least two more down days before this is over.
Details in last nights update.
Posted by Gary at 5:03 AM
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Tuesday, November 18, 2008New 52 week lows are not confirming the recent decline
http://4.bp.blogspot.com/_V7Pddp58Py0/SSN0rBYi0GI/AAAAAAAABZ4/K6f9zBNObrA/s400/lows.png On Oct. 10th 92% of all stocks on the NYSE made new lows. So far that has been the internal bottom for this market. On each successive decline fewer and fewer stocks have been moving lower. Most of the stocks on the NYSE are not confirming the new lows. Not what you want to see happening if you are heavily short.
As of today the current trading cycle is on day 27 (the average length is between 28-43 days) The odds are very high that this trading cycle low will also mark the 22 week cycle low. The odds are also good that we will see a powerful counter trend rally out of this low.
Thursday's 2b reversal may have marked that low. At this point it remains to be seen. Either way we are getting very late in the cycle to be short. Sure we very well could see another move down but I dare say at this point it seems like that is what everyone is expecting. It seems like many bears are now anticipating a move to 500 quickly. I'm not so sure this bear market is going to make it that easy on the bears though. Remember the market will do what ever it takes to fleece the most participants. As of today the dumb money confidence was back down at levels that have marked intermediate lows in the past.
This late in the cycle I would rather be long or in cash than risk getting caught on the short side hoping for a few more days of declines. If the weekly cycle bottoms the ensuing rally could be deadly for bears caught on the wrong side.
Take a look at gold on Sept. 17th if you want to see what can happen as a weekly cycle bottoms in a bear market.
Posted by Gary at 6:05 PM
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Monday, November 17, 2008Where to now?
I'm going to take a guess and say investors at this point don't know where to turn? I suspect blog traffic is high everywhere as shell shocked investors frantically look for the market guru that can tell them what's going to happen and what they should do with their investments.
I'll make a few observations for what it's worth.
First off you might as well quit searching. No one knows what's going to happen tomorrow or the next day. We are already making history on a daily basis. The only other time in history even close to approaching what we are seeing now occurred in the 30's. Even then many of the extremes were far less than today. So expecting someone, anyone to have any realistic insight at this point is probably wishful thinking.
At times like this (granted there hasn't been any "times like this" before) I always try to remember one important fact. A fact that never changes no matter what the fundamental environment or technical basis of the market is. Human nature never changes. We are currently experiencing a level of pessimism never seen before in the last 100 years. If there's one thing I do know about human nature it's that we go to extremes. The other thing I realize is that these extremes can't be maintained for extended periods of time. (Extreme pessimism is harder to maintain than optimism. It's one of the reasons tops usually take longer to form than bottoms.)
Remember back in the summer when it appeared that oil would never stop going higher? The current bleak outlook will eventually burn itself out just like the excessive optimism in the oil market burned out. So unless human nature has changed the current negativity will be followed by extreme optimism.
So what do we do right now you ask? Common sense would suggest that human nature being what it is, extremes should be faded.
At the moment I have no idea if the market will continue lower or not. I do know that I don't want to short this extreme pessimism. It's usually much more profitable to short the other extreme...euphoria. I do think we will get the opportunity to do just that at some point asI think this bear will not be done until at least 2010.
At this point though I'm pretty sure the risk reward is better on the long side. However as I noted in my previous post I don't think we are going to spot the bottom with any of the tried methods. At this point I'm thinking more in terms of time than any technical or oversold levels. I'm pretty sure that if one is patient human nature will run it's course and eventually the tide will turn in the other direction.
I suspect that while we wait for that tide to turn most traders trying to pick the bottom are just going to take many losses and only manage to whittle down their account. At times like this it's probably better to just take your stand and do something else besides watch the market all day. Perhaps now is a better time to think like an investor than a trader.
Posted by Gary at 5:45 PM
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Sunday, November 16, 2008Those pesky patterns
http://4.bp.blogspot.com/_V7Pddp58Py0/SSDlTFRlp5I/AAAAAAAABZw/9EWZeen_a6g/s400/spx+triangle+breakdown.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SSDlS9mHstI/AAAAAAAABZo/wvjRL313nEs/s400/triangle+negation.pnghttp://1.bp.blogspot.com/_V7Pddp58Py0/SSDlSryYpZI/AAAAAAAABZg/4TfE3-9WKzQ/s400/negation+negated.pngI noted some time ago that Trading patterns was becoming too popular. I'm becoming even more convinced that it is going to get harder to succeed in the markets by TA alone. By that I not only mean pattern recognition but levels of support and resistance are not going to mean much during this bear market.
I suspect this bear is going to take away almost every tool that investors use to try and get an edge in the market before it's over. And yes that may mean the COT reports go out the window also.
I've included a recent example of what I'm talking about.
In the first chart we see a nice triangle consolidation forming. Often these are continuation patterns. Since the market had been falling apart it seemed reasonable to assume that it was going to continue to fall apart. The pattern breakdown suggested this was likely the case.
However moving on to the second chart we see the market quickly negating the triangle breakdown. A negation of the triangle should have been a very positive sign. A V shaped rally at this point would not be unexpected.
Umm not so fast with the rally. The triangle negation got negated. Whew is anyone else getting dizzy?
Granted this is just one example. But I think this kind of TA will only get worse as this bear market continues. I also expect levels of support and resistance to regularly fail only to quickly reverse course as this bear wears on.
One example that I think will be tested at some point is the 1200 level on the S&P. If we get the large rally that I think will separate the 1st and 2nd phase of the bear market it seems logical to expect the 1200 level to be tested. That was a major breakdown point. I'm guessing there will be many a bear that will go heavily short at that level.
I also suspect the market will likely push right through that level and take all the bears to the cleaners before reversing at a higher level and dealing out the same beating to all the bulls who will view a move above 1200 as proof the bear is dead.
I'm afraid this is going to be one tricky market to negotiate in the next couple of years. The extreme left translation of the current 4 year cycle suggests that the ultimate bottom when it does arrive is going to be much lower than anyone thinks or can even imagine at this point. However the road to that end is going to be anything but straight.
I'll elaborate in more detail in the weekend report.
Posted by Gary at 7:29 PM
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I'm back
I'm back and working on the weekend update.
Posted by Gary at 2:42 PM
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Thursday, November 13, 2008Out of town for the weekend
I will be leaving Friday morning to, you guessed it, go climbing for the weekend. I won't have the weekend report out till late Sunday evening. I also won't be around to respond to new subscribers. It wouldn't hurt to wait till Sunday if you wish to initiate a new subscription as I won't be able to respond till then anyway.
BTW we got a 2b reversal today. Old timers here know what I'm talking about. If you don't, just enter 2b reversal in the search bar.
Posted by Gary at 7:35 PM
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Dollar Cycle
http://2.bp.blogspot.com/_V7Pddp58Py0/SRwrDNxng0I/AAAAAAAABZY/Ox7Q06LAxFE/s400/dollar.png
The rising dollar continues to pressure all asset markets. At times like these it seems like conditions will never change. I guarantee they will though :)
Over the last year investor emotions have been swinging to extremes. Why should now be any different. Last summer oil rallied to heights that convinced everyone that it was different this time. We were never going to see $100 again. However as we know that wasn't quite true.
Right now it seems like the market will never rally again and that the end of the world is near. At some point sentiment will turn and if the last year is any indication it will move just as violently in the opposite direction.
Part of the key is the dollar. We are now moving into the window for the weekly cycle low. The daily cycle is now on day 9. The average duration of the daily cycle is 18 days so we should be getting close to the top. I'm looking for the next swing high as the potential top of this run. At that point the dollar should start to work it's way down into the weekly cycle bottom. Once this process starts I expect it will spark a counter trend rally in all asset markets.
Posted by Gary at 5:25 AM
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Monday, November 10, 2008Forced selling
http://1.bp.blogspot.com/_V7Pddp58Py0/SRhK8WzVqVI/AAAAAAAABZQ/oolL5LWIj54/s400/xau.png As subscribers know I'm not only bullish on the general market right now but I'm especially bullish on two sectors. One of them is mining stocks.
The last time the XAU traded as low as it did in Oct. Gold was around $325 an oz.. With Gold now priced more than 2X higher than that I doubt the mining industry is in any danger of bankruptcy, unlike the financial sector. If miners aren't going bankrupt then the only reason I can see for such ridiculously low prices is simply forced selling. Other wise know as emotions run amok.
When the market does something stupid I want to take advantage of it. No matter how I look at this it still looks stupid. Miners should be a big beneficiary if the market rallys.
Posted by Gary at 6:53 AM
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Sunday, November 9, 2008McClellan Oscillator
http://1.bp.blogspot.com/_V7Pddp58Py0/SRcA55tkQLI/AAAAAAAABZI/xG-h3x2MR7E/s400/nymo.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SRcA53FP4NI/AAAAAAAABZA/_F09z9LFRuU/s400/nymo+long.png
One of the signs that the market is trying to put in an intermediate bottom is a quick flip in breadth. One of the things I watch for is a move above the zero line by the McClellan oscillator. Usually once this occurs the oscillator tends to hold above zero for a month or more.
We just got that move into positive territory. Consider that this move pushed the oscillator to levels not seen in 10 years and that it came from the most depressed level in 10 years. Just another sign that the market is likely setting up for a very powerful 4th quarter rally.
If and when the 1-2-3 reversal completes and signals a trend change I'm guessing we are going to start seeing performance anxiety from many fund managers as they try to improve their yearly numbers. That should add fuel to the fire.
I still think the market will likely trade up to and maybe even past the 200 DMA before this rally exhausts itself and the market rolls over into the second phase of the bear market.
Posted by Gary at 7:15 AM
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Thursday, November 6, 2008Shall we try again?
http://1.bp.blogspot.com/_V7Pddp58Py0/SRMQYZn-LiI/AAAAAAAABYg/zXEEMkPepjg/s400/spx.png It looks like the market is trying to form another 1-2-3 reversal. The last attempt failed. I think this one will likely succeed.
Posted by Gary at 7:42 AM
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Wednesday, November 5, 20081-2-3 reversals
http://1.bp.blogspot.com/_V7Pddp58Py0/SRGhhPSF3XI/AAAAAAAABYY/VXkEkbXsds4/s400/oil.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SRGhhMTEO2I/AAAAAAAABYQ/HWjFRvzJaI0/s400/gold.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SRGhguw4oCI/AAAAAAAABYI/TCAVgN-wRic/s400/Crb.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SRGhgdx-IeI/AAAAAAAABYA/94LQC6CrvU8/s400/dollar.png
We now have several complete 1-2-3 reversals. I'm focusing on oil and gold. Specifically I want to take note of oil. The reason is that as oil collapsed it never really tested the 200 DMA. Seldom does an asset, especially one that's been in as powerful a bull market as oil, just slice through the 200 DMA and never look back.
You can see on the gold chart that recently gold shot back up to and above the 200 DMA. I think the odds are good that oil is also going to pop back up to the 200 DMA before rolling over again later this year or early next.
I've also included a long term chart of the CRB. Commodities are now bouncing off long term support. This looks like a logical level to launch a powerful counter trend rally.
Finally the dollar is also on the verge of completing a 1-2-3 reversal. I noted in a previous post that the dollar was likely topping and the weekly cycle bottom was due sometime between Nov. 7th and the beginning of Jan. As the dollar works into that bottom it should take a lot of pressure off all asset classes.
Posted by Gary at 3:45 AM
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Tuesday, November 4, 2008Capitulation or no capitulation?
http://2.bp.blogspot.com/_V7Pddp58Py0/SRBggxuYDwI/AAAAAAAABWw/uClXYHnyAMk/s400/vix.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SRBggm1wizI/AAAAAAAABWo/FyV5tM6aIv8/s400/lows.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SRBggbRxj0I/AAAAAAAABWg/GnDy4VGR31g/s400/spx.png
There seems to be some debate about whether we saw enough of a decline to represent capitulation at the Oct. lows. I've seen everything from "the decline was too orderly" to "they didn't sell them hard enough" used as an excuse for why the bottom isn't in yet and this rally is going to quickly fail. Let me point out that we are always going to hear that at bottoms. I heard it at the 02 bottom.
Now take a look at the charts and you tell me if we went far enough to represent capitulation. Volume spiked higher than any other time in history. New lows pushed higher than any other time in history. As a matter of fact new lows almost doubled any other low in the last 28 years.
The Vix spiked to almost 100, again dwarfing any period in the last couple of decades except maybe Oct. 87.
So what do you think? Does historic extremes never before seen in the history of the stock market represent a selling climax or not? Some times I have to wonder how these people can come up with these off the wall ideas. Actually I know exactly how they come up with it. They went short as we were making new lows and now they are on the wrong side of the trade. They are trying to rationalize why they should continue to hold on to a losing trade.
As we've witnessed many times, investors want to be right more than they want to make money. I mentioned some time back that when I turned negative on energy a portion of my subscribers who were energy bulls left. I can't tell you how many e-mails I received trying to convert me back to bullish. Fundamentals this fundamentals that. Fundamentals be damned it was a parabolic spike for heavens sake. That has nothing to do with fundamentals and everything to do with emotions.
I'm getting the same thing happening now with many of the bears who some how aren't satisfied with a historic decline. They think the market should somehow go straight to zero. I'm not even sure that would satisfy some of the perma bears. Now that I don't confirm their position they need to find someone else who does. Again it's more important to be right than to make money. I suspect that when the rally runs out of steam and I turn bearish again many will be back but likely with a smaller portfolio because they couldn't take the small loss when they had the chance and they couldn't change their mindset.
Now let me say that anything is possible. The market could roll over again quickly and break to new lows. However the odds are against it. If you bet against the odds you will eventually lose. That doesn't mean that you will always win by betting with the odds either, just that your chances of making money are greater. I've got news for you. Since none of us can see the future the best we can do is to keep the odds on our side.
Posted by Gary at 6:46 AM
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Monday, November 3, 2008Parabolic moves
http://2.bp.blogspot.com/_V7Pddp58Py0/SQ8AvPYQqtI/AAAAAAAABWY/b7LtMWnnVBQ/s400/crb+daily.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SQ8Aur24t9I/AAAAAAAABWQ/NraiJKj9OXA/s400/crb+weekly.png I've noted in the past that parabolic moves are not sustainable. Not on the upside or on the downside. We are now seeing an extreme decline in the CRB. I doubt this move is sustainable. As a matter of fact you can see on the weekly chart that we may be at the beginning of a bounce.
On the daily chart we can see that the trend from the last month has now been broken. Any bounce in the CRB will probably correspond to a correction in the dollar. As I noted in a previous post the dollar is now in a parabolic rise that will need to be corrected also. I think the odds are good that the dollar correction and commodity bounce is starting.
Posted by Gary at 5:46 AM
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Friday, October 31, 2008A different ballgame
I'm starting to hear talk in the media that the recession is probably nearing an end. If this was a normal recession I might tend to agree as most recessions only last 9 months to a year. I know this is going to be used as the excuse for why the market is going to rally. I'm pretty sure the rally will have everything to do with relieving oversold conditions and nothing to do with an improving economy.
I also know a great many investors are now positioning for a 70's style stagflation or hyper inflation based on the incredible amounts of paper currency being printed by the central banks of the world. I suspect most of these investors are expecting a return to that kind of investing climate. I was expecting that myself until recently.
I don't think we are moving towards that kind of scenario anymore, at least not for a while. I think what we are seeing unfold is something none of us has ever seen before. A whole different ballgame. Consequently I doubt that very few investors are going to be prepared to survive what's coming much less make money.
I'll start off by saying that I don't think this is a "normal" recession. Definitely not a mild recession like Abbey Joseph Cohen and many in the media want us to believe. No this is something much more dangerous. What we are heading into is a massive purging of all the excess debt built up over many years.
For all practical purposes our economy for the last few years has been built on a foundation of debt instead of real productivity. What does it say to you that 70% of GDP is consumer spending? A good portion of that spending was coming from inflating housing prices or credit cards.
As this debt bubble implodes the powers that be, who also have never seen this before, are taking the exact wrong course of action to try and "fix" the problem. I've got news for them, there is no way to fix this. It certainly can't be fixed by continuing to add more debt. Unfortunately that's exactly what is happening. Every week we get another billion dollar bailout. All of these bailouts are only adding more and more debt that will need to be either repaid or defaulted on. I'm pretty confident the ultimate path for a big part will be default.
So the more the governments of the world try to use the remedy that worked for the last 30 years the bigger the problem actually gets. It's exactly because we did go down the debt expansion road for so many years that we are in the mess we're in.
This is why on average the world experiences a depression every 70 years. The new generation never experienced the ravages of an imploding debt bubble so we take the good times as a sign of never ending happiness. Believe me an expanding debt bubble can be very pleasurable. I can say that quite a few people have been living high on the hog for a long time based purely on nothing more than ever larger debt. Unfortunately I'm afraid that almost no one foresaw the ultimate outcome of this false prosperity.
That outcome isn't going to be pretty and it certainly doesn't lead to a "typical" or even mild recession. What it does lead to are hard times the like of which probably none of us have ever experienced.
So when I hear the talking heads on CNBC calling for a mild recession and the end of the bear market I have serious doubts. Very serious doubts!
Posted by Gary at 7:44 AM
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Thursday, October 30, 2008Dollar topping
http://3.bp.blogspot.com/_V7Pddp58Py0/SQmkPA4jWpI/AAAAAAAABWI/To81kbTxbDk/s400/dollar.png I've been noting for a while that the strength in the dollar has been putting pressure on the markets along with commodities. I've also pointed out in the past that parabolic move are prone to collapse. I think it's safe to say we've seen a parabolic move in the dollar.
We are also moving close to the timing band for the 19 week cycle low in the dollar. Now that we have a swing high in place I think the odds are good the dollar has topped and will be heading lower for the next 5-7 weeks into that cycle low.
I expect this will take the pressure off the markets giving us the counter trend rally we've been looking for that should separate the first and second phase of the bear market.
The next phase will probably be accompanied by a much more orderly rise in the dollar.
Posted by Gary at 5:01 AM
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Wednesday, October 29, 2008
http://3.bp.blogspot.com/_V7Pddp58Py0/SQiFAOdMSvI/AAAAAAAABWA/hXxK0QUIT2Y/s400/climbing.jpg
http://3.bp.blogspot.com/_V7Pddp58Py0/SQiE_2RZ45I/AAAAAAAABV4/a8_XlMMFJok/s400/canyons.jpg
http://4.bp.blogspot.com/_V7Pddp58Py0/SQiE_yoOn-I/AAAAAAAABVw/cHvQAmSNawg/s400/sunset.jpg
http://1.bp.blogspot.com/_V7Pddp58Py0/SQiE_ujU69I/AAAAAAAABVo/sXXO7jt98Pc/s400/group.jpg
Here's where I've been the last several days. Hanging out in the dirt of Utah's Canyonlands. I'm the scruffy one in the middle holding the vicious killer dog.
Posted by Gary at 8:44 AM
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Monday, October 27, 200812 month moving average
http://3.bp.blogspot.com/_V7Pddp58Py0/SQZ8ZJcSHdI/AAAAAAAABVg/qarDELSb8oU/s400/spx.png I think we are probably within days to at most a week to 10 days of putting in a bottom. Granted I don't think this will be the final bear market low. That won't come for at least another couple of years.
As of today we are now on day 36 of the current trading cycle. The average duration is between 29-43 days so this decline is getting long in the tooth. Especially since the last cycle ran long at 45 days. Usually a long cycle is followed by a short cycle.
Either way we should be close to a bottom. A test of the 02 lows would seem to be in the cards at the very least. However that's not what I'm interested in. No I'm interested in the bounce out of this bottom. I suspect the rally is going to be amazing to say the least. I fully expect the market to test the 12 month moving average. That could mean a rally back to the 1200 level in very short order.
I imagine almost everyone will take that as a sign that the worst is over. However I really doubt that will be the case. We aren't dealing with a "normal" bear market. What we are seeing is the credit cycle coming full circle since the last bottom in the 1932 depression. This is commonly known as Kondratieff winter. This is the period where excess debt gets purged from the system.
Since we just saw the largest credit bubble in history I don't expect that we will accomplish this purging in only a year. It took several years back in the 30's and that was a much smaller bubble. Once the coming rally runs it's course I fully expect the market to roll over into the second bear phase. This phase will last much longer and probably result in much more damage than what we've just seen.
Posted by Gary at 7:43 PM
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Monday, October 20, 2008Possible 1-2-3 reversal developing
http://2.bp.blogspot.com/_V7Pddp58Py0/SP0JwiskZmI/AAAAAAAABVY/yGzXdrnYFbg/s400/spx123.png
The market is working on a 1-2-3 reversal. If it can close above Mondays high it will complete the trend change. At that point the odds would favor that the path of least resistance has changed to up.
Todays rally in the face of short term overbought levels is another sign that the bottom for the year may be in. I'll have more in tonights update.
Posted by Gary at 3:42 PM
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Thursday, October 16, 2008New charts
New charts are now posted to the Public Chartlist.
Posted by Gary at 7:05 PM
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Wednesday, October 15, 2008Midpoint consolidation ?
http://2.bp.blogspot.com/_V7Pddp58Py0/SPaRI75K7QI/AAAAAAAABVI/Th_T4Qg4oVc/s400/spx.png We are seeing things that by all rights we should never see. First off we are getting a waterfall decline after the market had already fallen over 20%. Waterfall declines almost always come at the beginning of declines. Typically as a bull market dies or at the end of a very right translated four year cycle. We do see bear markets produce from time to time a 20 under the 200 scenario. Rarely do they move down with the viciousness that we've just witnessed though and they tend to bounce back quickly.
I've noted in the past that waterfall declines often have a midpoint consolidation before the final leg down. So far we've not seen anything that resembles a midpoint consolidation.
I certainly hope I'm wrong, but what if we are forming that midpoint consolidation right now? If we are and it breaks down it would suggest a final low in the 450-500 range for the S&P.
I think at this point we should probably just watch the credit markets and forget about the stock market. Until the credit markets show significant signs of recovery it's going to be tough to put together a lasting rally.
So far they have not responded to anything the powers that be have tried.
We are going to need to see the dollar break also. A rising dollar is telling us deflation is still in control.
Posted by Gary at 5:55 PM
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Tuesday, October 14, 2008New Bull market or Bear market rally?
http://3.bp.blogspot.com/_V7Pddp58Py0/SPRbmza5e8I/AAAAAAAABVA/nrRslroG5cI/s400/spx+cycle.png It certainly looks like the oversold rally we've been looking for is now underway. The question now is whether this is a bear market rally that will eventually roll over or is this the start of a new bull market.
I suspect this is probably not the start of a new bull market and here's why.
First off bull markets don't start with 900 point rallies.
Second, we still have what so far appears to be a very left translated 4 year cycle. This is still suggesting that we will see one of the worst stock market declines in history after this rally runs its course.
The extreme nature of the recent crash suggests that the coming rally should be a doosie. I fully expect to recover the 200 DMA. I also expect this rally to last 3-5 months. So I have no doubt that we will at some point see investors become extremely complacent again. That's the point at which the bear will come back.
Third, as of Friday, Lowry's selling pressure was at multi year highs. Never in the 75 year history of Lowry's service has the market made a final bear market low sooner than one month after selling pressure has started to decline. As I noted, as of one day ago selling pressure was increasing. I suspect we will now see selling pressure decrease a bit but I really doubt buying pressure is going to increase much. Smart institutional money will likely use this rally to unload more stock just like they've done on every other rally so far in this bear market.
If this is the rally that separates the first and second phase of the bear market and I think it probably is, then the real damage will be done when this rally finally rolls over. The next phase of the bear market will probably take the market down to levels that no one can conceive at this point.
The powers that be may have temporarily saved the financial system but they can not turn the global recession around in it's tracks. Once the euphoria of this rally wears off the markets are still going to have to deal with declining earnings. As long as earnings are dropping P/E ratios will be rising. Contrary to what many in the media have been saying the market still wasn't cheap even at 840. Trailing P/E's were still running at around 13 which is only slightly below average. Of course if 3rd quarter earnings decline that P/E ratio will be higher.
Posted by Gary at 1:41 AM
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Monday, October 13, 2008New chart
I've added a new chart to the Public Chartlist. If you don't mind click on the Vote link at the bottom of the page. I'd like to move back up the list :)
Posted by Gary at 10:59 AM
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Thursday, October 9, 2008Stock Market Bear/Gold Bull?
http://1.bp.blogspot.com/_V7Pddp58Py0/SO6N58Clm2I/AAAAAAAABUQ/omkDnVfmHOo/s400/spx.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SO6N53a7EoI/AAAAAAAABUY/DR-LLQJ1AGY/s400/USDJIND1960.gif
http://4.bp.blogspot.com/_V7Pddp58Py0/SO6N6IPPnbI/AAAAAAAABUg/gd8mizwyqo4/s400/xau.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SO6N6HPTEuI/AAAAAAAABUo/unFDaCZwEz8/s400/xoi.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SO6N6GTeZRI/AAAAAAAABUw/yT-FL1Is9yg/s400/gold.png
Here's something to think about. What if the market tests the 02 lows this month? Maybe even by next week the way this market is going. The S&P has already sliced through every conceivable support level. We are only about 150 points away. What if that's it for the bear?
What if the onslaught of paper money from the central banks around the world finally takes effect and we start to hyperinflate? That would mean a meteoric rise in stocks and more importantly commodities. Look at the chart of the 70's. Those rallies went up just as fast as they came down.
Now look at the charts of miners and energy companies. Both are holding up much better than the general markets. The miners more so than the energy stocks. Remember I've said in the past that the precious metals should out perform during the second (or third) leg of the secular bull market for commodities. Could the miners be setting up to lead the next bull?
In my previous post I noted that the dollar has likely made about all the gains we can expect from this counter trend rally unless it no longer is in a secular bear market. The powers that be are doing everything in their power to devalue the currency. Every central bank in the world is now on this path.
I want to point out a couple of of things on the gold chart. First off notice that Gold broke out above the 1980 highs back in the spring of this year. It then retraced 38% of the entire bull market. In the process it moved back below the $850 breakout level. Needles to say this scared the crap out of every gold bug in the world. I dare say very few have been able to hold on through this.
Now gold has broken through the $850 resistance level again. Tested that support, actually breaking back below it for two days, only to rocket higher again. The easy answer is that gold is a safe haven and everyone is flocking to it while the market crashes. I have to wonder if the easy answer is the correct one.
What if the powerful rise in gold has almost nothing to do with the stock market woes. What if gold is starting to discount the coming hyperinflationary future. Remember gold exploded higher by $88 dollars in one day. I'll tell you that from talking to my gold sources you just can't buy gold right now, everyone is sold out and silver, forget about it. You will wait for weeks to get silver. What little gold the dealers have is gone in seconds. Someone is buying all this gold and silver.
I've shown the Gold:XAU chart before. Unfortunately I can only get five charts on blogger so you will have to trust me on this one. The ratio of gold to the XAU is at extremes never seen in history. The miners are practically being given away. The start of the bull market in 2001 also saw the Gold:XAU ratio get stretched to historic extremes. Let me ask a question. How do bear markets end? They end of course in black pessimism. I think I can safely say that we have seen black pessimism in the precious metals sector, especially miners.
Do we remember how human nature operates? That's correct we go to extremes. We saw oil crushed to extreme lows in 06/07. What followed was what can only be called an amazing parabolic moon shot that ended with oil at $147. Now the miners have gotten crushed to the point where no one believes anymore. Hell, I've still got doubts myself. Not about the secular bull market mind you but on the timing of the next bull phase. What if my timing is off though? What if we are now seeing the beginnings of the third and final phase of the bull market in gold?
If so this is what's going to happen. The bull will recover quickly from a nasty decline. Check.
Fundamentals will support a renewed rally that very few will believe in as it gets underway. Check.
As gold breaks out to new highs smart money and nimble traders will jump on board. Somebody is buying a lot of gold. Tentative check.
At some point the general public will take notice. Once that happens we will have about 1 to 1 1/2 years of parabolic gains to look forward to.
The bull will end in a bubble completely unsupported by fundamentals. There will be a massive oversupply of gold but price will just continue to rocket upward. Everyone of your neighbors will be buying gold. The Dow:gold ratio will be at or near 1:1. That my friends will be the signal to sell your gold.
Could we be starting the third phase of the bull now?
What say ye?
Posted by Gary at 3:11 PM
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Is the dollar rally over?
http://1.bp.blogspot.com/_V7Pddp58Py0/SO36zRToz5I/AAAAAAAABTY/YAxgKcx03hg/s400/dollar.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SO36zl_Me7I/AAAAAAAABTg/LKhse9l0xLw/s400/dollar+timing+band.png
I'm starting to think we may have seen the top of the dollar rally. This was always a counter trend rally in an ongoing secular bear market. I thought it would probably last at least a year like it did in 05. However the dollar has now met all the requirements to put in a top. It's now overbought on the weekly chart. The magnitude of the rally is similar to the last rally. More importantly the dollar is now facing major resistance in the form of the declining 200 week moving average.
On a cycle basis the dollar is now on week 12 of the current 19 week cycle. We should have anywhere from 5 to 9 weeks to the timing band for the coming low due in Nov. or Dec. Unless we see surprising strength today or tomorrow the dollar is going to end the week with a solid black candle. That's often a sign of a top after a long intermediate move. Perhaps the strength in the mining stocks yesterday is a signal that the dollar is ready to resume it's bear market. That should be a big plus for gold and miners and I suspect it will be a short term positive for the general market.
Of course if one thinks that the FED printing dollars by the truckload to bail out the financial system is somehow a positive for the dollar then maybe the secular bear market is over.
Posted by Gary at 5:17 AM
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Wednesday, October 8, 2008Hyperinflation vs. Deflation
http://4.bp.blogspot.com/_V7Pddp58Py0/SO07oI-0ijI/AAAAAAAABSw/MI_ggPq_gic/s400/tnx.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SO07ocLEU9I/AAAAAAAABS4/YUFdLUYcGr8/s400/gold.png The battle between deflation and hyperinflation continues. The big reversal in the 10 year yield along with gold closing back above the 200 DMA would have to be a check mark in the hyperinflation column.
Central banks around the world have now turned the printing presses on full blast. I expect the world to run out of trees within the month. Will it be enough to halt the deflation monster? That's the million ...trillions of dollars question isn't it?
Posted by Gary at 4:00 PM
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Monday, October 6, 200820 under the 200
http://4.bp.blogspot.com/_V7Pddp58Py0/SOq01xTsM7I/AAAAAAAABSo/V_ls-1A8i8c/s400/spx.png Today we saw one of those rare long side setups that only happen in bear markets. What I'm talking about is a 20% under the 200 DMA buy signal. All markets regress to the mean whether they be bull or bear it doesn't matter. This leg down has gotten too stretched. It needs to regress to the mean soon before the next leg down can unfold.
At the low point today the S&P was a little over 24% below the 200 DMA. Did we see an important intermediate low today? It's certainly possible. If not I think we are getting very close. I'll have more details and statistics in tonights update.
Posted by Gary at 6:00 PM
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Saturday, October 4, 2008New charts
I've posted new charts to the PublicChartlist
Posted by Gary at 10:58 AM
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Thursday, October 2, 2008New Charts
New charts are now up on the PubliChartlist .
Posted by Gary at 5:49 AM
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Dollar rally
http://3.bp.blogspot.com/_V7Pddp58Py0/SOSrM6fdmZI/AAAAAAAABSg/6MY9b1DkbS0/s400/dollar.png
I'll be the first one to admit to being surprised by the strength of the dollar rally. At first it looked like the dollar was going to "crawl" along the 50 DMA and breakdown. Well obviously that didn't happen. What has unfolded is a picture perfect T1 pattern. After testing the consolidation zone the dollar is now in the process of the next leg up which should take it to new highs.
If this pressures gold enough to force it back below $850 then I would have to say that the recent rally was nothing more than a powerful bear market rally in an ongoing cyclical bear market.
I will note that every commodity other than gold is obviously in a cyclical bear market. It might be asking a lot for gold to resist the downward pull of the rest of the commodity markets.
If the cyclical bear market continues in gold then it will be safer to trade gold from the short side as the larger trend will be down for the time being.
Now is not the time to try and pick a bottom in the miners. The cycle low isn't due for gold until at least next week and possibly not until Oct. 20th. Let's see where gold goes to at that low before we try to be a hero and load up on mining stocks.
Posted by Gary at 4:06 AM
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Wednesday, October 1, 2008gold: the pros and cons
http://2.bp.blogspot.com/_V7Pddp58Py0/SONuq7oJSSI/AAAAAAAABR4/TUXhkXAa-Xs/s400/gold+pos.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SONurFSI2NI/AAAAAAAABSA/ZV2dpSaCSzM/s400/goldxau.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SONurJp5sGI/AAAAAAAABSI/u8c1wnOuC18/s400/gold.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SONurMST8ZI/AAAAAAAABSQ/tgNeteCMkGk/s400/gold+cycle.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SONuricsWEI/AAAAAAAABSY/nKW1kIZRfo4/s400/xau.png Today I'm going to reprint part of last nights update.
The question is whether gold's recent explosive move was the start of another leg up in an ongoing secular bull market or a counter trend rally in a cyclical bear market.
Here are the Positives:
Gold has rallied strongly back above the 75 week moving average.
The COT recently gave us an extreme bullish reading.
Physical gold and silver are in short supply.
The Gold:XAU ratio is at levels that have signalled good buying points for miners in the past.
Now the negatives:
Gold is still clearly making lower lows and lower highs.
The 50 DMA has plunged below the 200 DMA unlike any other time during the secular bull market.
The dollar rallied strongly yesterday possibly changing the 19 week cycle low to come in at a much higher level than I previously thought. I also thought the dollar would test the 200 DMA before moving higher. Now it looks like it wants to break out to new highs.
Gold tested and was rejected by the 62% retracement level.
The current trading cycle is only 13 days old. Most trading cycles last 18 to 28 days. With yesterdays decline gold is already close to testing the major support level of $850. If this level fails there will probably be heavy liquidation in the gold market. Gold needs to hold above this level and it needs to do it for the next 5 to 15 days.
The XAU rallied 36% from bottom to top, so the gold:XAU signal could already be considered to have worked, so to speak. Now the XAU and HUI are both trading back below the 200 week moving average.
Gold and the XAU have both broken back below the 10 day moving average. The miners are threatening to break below the 20 DMA.
Most of the gold stocks fit all the requirements for selling short according to William O'Neil .
Finally Platinum which has led the precious metal bull both up and down broke through the 06 lows yesterday.
There you have it. The pros and cons for precious metals. Everyone can make their own decision as to how they think this will play out.
Posted by Gary at 5:30 AM
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Tuesday, September 30, 2008Is Deflation back?
http://4.bp.blogspot.com/_V7Pddp58Py0/SOJWyE73zsI/AAAAAAAABRw/3jOyqne5jaw/s400/uup.png The action today in the dollar is suggesting that it may very well be. It's now possible that no mater how much money the FED prints, the forces of deflation are going to overwhelm it. One way or another the massive amount of debt that has been created over the last 20+ years is going to have to be destroyed. The million (or should I say trillion) dollar question is whether it is going to be hyperinflated away or destroyed through deflation.
With the introduction of the 700 billion bailout package it looked like hyperinflation was going to carry the day. However as we all know that fizzled. I'm going to be watching gold closely now. The rest of the commodity complex is deflating spectacularly. The only hold out is gold.
I expect gold will test the $850 level sometime in the next week or two. If it can hold above that level then perhaps the powers that be can induce one more inflationary surge. If however gold sinks back below $850 and follows the rest of the commodity markets down it may be that the end game is here and deflation is now unstoppable.
Either way the end game was always going to be a massive deflation. The only question was how long could it be postponed.
Posted by Gary at 9:41 AM
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Tuesday, September 30, 2008New Charts
New charts on the Chartlist.
Posted by Gary at 6:28 AM
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Monday, September 29, 2008Bailout plan will accelerate the fall into depression
I don't have the exact details of the bailout plan but as I understand it there are provisions to stop foreclosures. I can tell you that anything that stops foreclosures or tries to prop up real estate prices will only accelerate the slide into depression.
First off real estate is still overvalued. Until it moves back to sane valuations there will be no real demand for housing. Especially in a recessionary or depressionary environment how will keeping prices artificially high create demand for all the inventory that's on the market? Common sense will suggest that it won't.
Any bill that puts a halt to foreclosures would lead to catastrophe. If all of a sudden there was no penalty for defaulting on your house (the bank won't take it) and prices continue to fall, how long will it be before home owners in mass decide to stop paying their mortgage?
This would result in a tidal wave of defaults crashing onto an already stressed financial system.
As I've said before there is no easy fix for the mess Greenspan created and now Bernanke is exacerbating.
Posted by Gary at 5:54 AM
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Sunday, September 28, 2008New Charts
I've posted new charts on the public chartlist .
Posted by Gary at 8:25 AM
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Friday, September 26, 2008HUI
http://1.bp.blogspot.com/_V7Pddp58Py0/SNyeUKT6T0I/AAAAAAAABRc/LP3LbfL2urc/s400/hui.png The Hui is now in the process of working through a potential 1-2-3 reversal. I suspect that eventually congress is going to pass the bailout package. Once that happens the hyperinflationary signal will be given. The dollar will weaken and gold should take off. The timing band for gold to make it's trading cycle bottom is between Oct. 6- Oct. 20. I think the longer Congress delays on the bailout the more the odds increase that the Fed will surprise with a rate cut. Either outcome is going to be inflationary and positive for gold.
Posted by Gary at 1:32 AM
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Wednesday, September 24, 2008New charts
I've posted new charts to the public chartlist. As always, if you would take a second to click the tally link I'd appreciate it.
Posted by Gary at 4:02 PM
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Tuesday, September 23, 2008End of a bear market
http://4.bp.blogspot.com/_V7Pddp58Py0/SNnEx0o5NoI/AAAAAAAABRM/IEUSqMwe7Nw/s400/spx+long.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SNnEycUCW_I/AAAAAAAABRU/BQ34tqDn_1I/s400/tyx.png I've pointed out to subscribers in the past that often a secular market, be it bull or bear will end with the market breaking out to higher highs or lower lows and then reversing. In the first chart we can see the cyclical bear and bull market in the S&P ended with this pattern. Dumb money sees the breakout or break down and follows the trend at the same time that smart money seeing the changing fundamentals takes the opposite side.
A couple of weeks ago I sent out what I considered my most important update of the year. What I was watching was the 30 year bond to see if it was going to follow this pattern. Sure enough bond yields broke to new lows as everyone was witnessing deflation grip the world. A couple of days later though yields reversed sharply. Even though the stock market has since come off the rally sharply in the last two days bond yields are showing no signs of coming back down. In my opinion the 30 year bond is now telling us that the FED is going to risk hyperinflation to save the banking system.
I think what we've just witnessed is the end of a 28 year bear market in bond yields. Unless this reverses soon I think we are now in for many years of rising interest rates. This has nothing to do with an improving economic outlook in my opinion. It has everything to do with what I fully expect to be 70's style inflation. Actually I expect it to eventually become much worse than the 70's before this is over. One way or the other I think we are headed for a depression. The question has been whether it would be a deflationary or a hyperinflationary one.
So far the bonds think we are heading down the hyperinflationary route. This is how the groundwork is laid for a Dow:gold ratio of 1:1.
Posted by Gary at 9:40 PM
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Sunday, September 21, 2008Oops!
http://4.bp.blogspot.com/_V7Pddp58Py0/SNYldhfNmFI/AAAAAAAABRE/bk7fR4smthE/s400/combo.png I'm going to go through the chain of blunders the FED has made over the last 8 years. Well actually Greenspan started all this in 1987 when he found out he could just cut rates and print money to alleviate any crisis. This worked all way up to 2000. Thus was born the phrase "dont fight the FED"
However something changed in 2000. If you followed the rule of never fighting the FED you just guaranteed that you rode your losses all the way down. Oops ! As you can see Greenspan sacrificed the dollar to avoid a recession and halt the bear market. As I said it didn't work. The 2002 4 year cycle was a left translated cycle and it finished it's run into the 02 low despite the FED's best efforts to halt it.
All the FED really accomplished was to make the problem much much bigger. By holding rates at 1% the FED created not only the real estate bubble but the credit bubble. Oops! This was the point where monetary inflation was still fun, as a matter of fact it was the greatest party the world had ever seen.
However we already were seeing warning signs as commodity prices were on the rise. Oops! By 06 the economy was starting to falter. Well that wasn't acceptable for an election year so a little rejiggering here and there with weightings in Goldman's commodity index and we get a massive sell off in oil. The 4 year cycle which should have bottomed in 06 was avoided. As you will notice this coincided with another steep devaluation of the dollar.
The end result was a final parabolic run in the markets. However a cancer was already growing as the housing bubble had already burst and the credit bubble started to leak. Oops!
As usual the FED's response was to print more and more dollars faster and faster. This time however those dollars just went straight into the commodity markets especially oil. Big Oops! That was the straw that broke the camel's back and the world tipped over into recession.
Now the government is at it again. It's election time and the politicians are crying for a fix. So the powers that be are now using taxpayer dollars to artificially prop up the financial and real estate sectors. They continue to make the same mistakes over and over. The cure is to let the system cleanse itself. Japan already tried this approach and it led to an 18 year recession. Oops!
The end result of all this meddling will be much higher taxes and most likely a hyperinflationary depression. It's simply not possible to legislate or print the credit bubble away.
Artificially propping up housing prices just means that housing remains unaffordable. Oops! That means inventory remains high. Throwing trillions of dollars at the problem just means taxes will have to rise and inflation will heat up again. Just what you want as unemployment continues to rise. Oops! If inflation starts to rise again interest rates are going to move higher. As subscribers know I think we saw the end of a 28 year bear market in bond yields last week.
Combine ever rising interest rates with housing prices that are not allowed to correct and you get the ingredients for more foreclosures and ever larger inventory. Oops!
Now the powers that be have decided that short selling is the root of all evil in the financial sector. It has nothing to do with banks being insolvent of course. So by making shorting illegal the SEC has taken away a very powerful supply of buyers from the market. When the next leg down in financials finally comes there will be no shorts to cover and put a floor under the banks. Oops! The next leg down will probably only be halted by making it illegal to sell financial stocks. Imagine that, you won't be allowed to sell stock in a bankrupt company.
I know it sounds ridiculous but then who could have dreamed in Jan. that shorting would be abolished. If the FED's meddling had been aborted back in 2000 we would already be through this and on to much better times. Instead we are looking at years and years of tough times ahead. Oops!
Posted by Gary at 3:43 AM
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Friday, September 19, 2008Manipulation
There are historic changes going on in the markets. The government now is in the business of monetizing bad debt. On top of that the markets can no longer even be considered free with the ban on short selling. This is simply amazing to me.
Now let me tell you that in the end the overall trend of the market can not be manipulated. The Fed has been trying to manipulate the markets since 2000. When the tech bubble burst the FED debased the dollar and lowered rates to 1%. The unintended consequences where the real estate bubble and credit bubble. When the credit bubble burst the attempt to keep the bubble inflated spawned a surge in inflation, most apparent in spiking oil.
Does anyone seriously think that the current meddling will have no long term consequences? Of course the "powers that be" want to bandaid over all of the credit problems prior to the elections.
I've got news for everyone, there is no freebie fix for what ails us. We simply have to take our medicine in the end. Pumping a cancer patient full of morphine may mask the pain but its not going to cure the cancer.
We just had the largest credit bubble in history. The last one spawned the Great Depression. The continued attempts to manipulate the markets is almost sure to guarantee we are now headed down the same path as 1930. The only question is whether it will now be a deflationary depression or a hyper inflationary one.
Posted by Gary at 5:25 AM
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Thursday, September 18, 2008Weekly charts
I've posted a few weekly charts in stockcharts public chartlist. I always check to see what the weeklies are telling me before I try and wade through the noise of the daily charts. I would appreciate it if you would take a second and click on the tally link at the bottom of the chartlist.
Posted by Gary at 9:09 PM
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Gold's largest one day move in history
http://2.bp.blogspot.com/_V7Pddp58Py0/SNJXzVe0_xI/AAAAAAAABQ0/AFlUr_qFeDU/s400/gold.png I remember having a debate some time back about gold. I felt confident that at some point we would see gold moving higher by $100 a day. While I still think we are many years from the top in the gold market and I'm not even sure if commodities are in a cyclical bear market or not, I think we got our answer yesterday as to whether gold is capable of moving by huge amounts daily.
I still have no doubt we are going to eventually see a Dow:Gold ratio of 1:1 before this is over.
Posted by Gary at 6:29 AM
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Wednesday, September 17, 2008Watching the 30
http://1.bp.blogspot.com/_V7Pddp58Py0/SNGR1eOMrzI/AAAAAAAABQs/hhM4C4LzdLA/s400/tyx.png On Sept. 9th I sent out what I considered my most important update of the year. The subject of that update was the 30 year bond. The conditions are now playing out. We should have our answer shortly although the move in gold today is suggesting it knows where the 30 is going.
Posted by Gary at 4:24 PM
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Tuesday, September 16, 2008A pair of 2b's
http://4.bp.blogspot.com/_V7Pddp58Py0/SNBpUMmtoLI/AAAAAAAABQk/BaxV5I2vo0k/s400/dow.png The market topped in May with a 2b reversal. Now it looks like it's bottomed with that exact same 2b reversal. As I pointed out in yesterdays update we were setting up for an intermediate term bounce as panic selling was starting to show up almost everywhere.
It's time to get long for another bear market rally in my opinion. Actually it's "normal" for the market to rise into a presidential election.
I'll have more in tonights update.
Posted by Gary at 7:19 PM
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Monday, September 15, 2008The market is nearing an intermediate bottom
http://1.bp.blogspot.com/_V7Pddp58Py0/SM8QnnOlw3I/AAAAAAAABQU/5sk_eruwCVk/s400/cpce.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SM8Qnk4OSiI/AAAAAAAABQc/MD_Ab09Z6Is/s400/spx.png We are finally seeing true panic today. This is how intermediate bottoms are made. Just look at the put call levels. These kind of spikes are indicative of bottoms. This is just one of a myriad assortment of breadth and sentiment indicators that also spiked today. I'll explain in more detail in tonight's update.
I have to take note that the S&P is nearing the 50% Fibonacci retracement level. We may have a bit more downside tomorrow to push the market down to tag that line but the odds are now in favor of a relief rally soon. These levels of fear just can't be maintained forever.
Of course whenever we get a decline like today we start hearing the calls for a crash or it's 1929, 1987 all over again. While anything is possible it's not likely. Crashes come either in bull markets or at the very beginning of bear markets following a parabolic rally. They don't come after we've been mired in a bear market for almost a year and have already lost more than 20%.
Besides that I think its safe to say there is now very little doubt we are in a very left translated 4 year cycle. These left translated cycles don't crash. They slowly bleed you to death over the course of a couple of years. The next expected 4 year low is either summer or more likely the fall of 2010.
As I've been alluding to in the daily and weekly updates, I think there is a much better place to play the likely rally than the general market. Details in tonight's update.
Posted by Gary at 6:47 PM
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Saturday, September 13, 2008Gold charts
I've posted a few gold charts to stockcharts public chart list with info on what I think is going to unfold in the next couple of months. If you find them helpful feel free to click on the tally link at the bottom of the screen.
Posted by Gary at 7:30 PM
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Friday, September 12, 2008weekend report
We've been waiting a long time for this one :)
Finally this week the COT has given us the signal we've been looking for.
I'll explain in the weekend report and how I intend to play this signal.
Posted by Gary at 1:26 PM
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Wednesday, September 10, 2008Market setting up for a crash?
http://2.bp.blogspot.com/_V7Pddp58Py0/SMh8PTNaNbI/AAAAAAAABP8/c6QLXEkBq9o/s400/qqqq.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SMh8P2mrc3I/AAAAAAAABQE/Mn6IH5aDHEA/s400/aapl.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SMh8P8xDIvI/AAAAAAAABQM/1QoGVNeqqvY/s400/goog.png The Nasdaq appears to be in the early stages of a waterfall decline. So far there is no indication of a midpoint consolidation. The problem is that both of the bellweather tech stocks AAPL and GOOG are breaking down. A break below $150 for AAPL and below $400 for GOOG will likely send the market into a tailspin.
The energy stocks where strong today. I have to wonder if oil is going to bounce on the production cut by OPEC. In it's fragile state I'm thinking the market may be ready to fall apart and this may be as good a reason as any. Not to mention there is roughly 600 billion in short term debt that needs to be rolled over this month by the financial system. One has to wonder who is going to step up with fresh credit.
Now if we do see a crash right before elections you can bet your bottom dollar the FED is going to freak out and start cutting again. If that happens you can say good bye to the dollar rally and hello to hyperinflation.
I find it hard to believe Bernanke would be that stupid but so far neither Bernanke nor Greenspan have let me down.
Posted by Gary at 7:01 PM
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Tuesday, September 9, 2008The most important chart
http://1.bp.blogspot.com/_V7Pddp58Py0/SMbJwyK9sOI/AAAAAAAABP0/X81lF75FQ94/s400/thirty.png This is the key to the markets right now. Tonight's update will probably be the most important report I write this year.
Posted by Gary at 12:08 PM
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Monday, September 8, 2008The end of the bear?
I saw quite a bit of talk this weekend about how the FNM & FRE bailout was going to signal the end of the bear. Let's step back for a minute and consider this shall we.
First off let me remind you what bear markets do, especially secular bear markets. They take valuations back to ridiculously cheap levels. They do not take values back to the average. That's not how human behavior works. The current trailing P/E ratio for the S&P is about 20. Granted prices have come down a lot so theoretically P/E ratios should be falling right? Well the problem is that earnings are coming down even faster.
Unemployment is still rising. housing prices are still falling. Pray tell how are earnings going to rise if more and more people are out of work? If those same people can't rely on asset appreciation then how is consumption going to be maintained? In a recessionary economy how are earnings going to grow? If earnings aren't growing or heaven forbid contracting (which they are) what is the incentive to bid up stocks?
In the end all the chart patterns, COT reports, trend lines, price of oil, etc. etc. are meaningless. If earnings are contracting stocks are going to be moving down. It really is that simple.
At the moment wall street is projecting next years earnings at $100. The problem is that this years earnings look to come in around $63. One has to wonder how in a global economic recession earnings are going to grow by 50% next year. I suspect the market is going to be sorely disappointed. I have to wonder how likely a disappointed market will be to bid up stock prices.
So let's see, did the bail out of the GSE's do anything to change the economic outlook? Did it in anyway change the employment picture? Will it somehow prevent upside down home owners from walking away from their homes. Will it in any way increase demand for still overpriced real estate? Does it somehow shrink the national deficit? Does it stem the tide of rising credit card and auto delinquencies and defaults? I have to think the answer to every one of those questions is no.
So what exactly did happen this weekend. It seems to me that the powers that be just stuck another finger in another hole in a severly leaking dike. I have to wonder how many more holes are ready to spring up and how soon before the leaks get too big to be plugged.
Realistically does anyone think that this bailout has fixed the underlying problems that have sent the markets into bear mode?
Posted by Gary at 10:25 PM
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Sunday, September 7, 200818 week cycle bottom?
http://1.bp.blogspot.com/_V7Pddp58Py0/SMS1F4YHP7I/AAAAAAAABPs/PQxVzJdrKTM/s400/xau.png
As I posted in stockcharts public chart list gold is getting very close to a major 18 week cycle low. I think there is a good chance that the bail out of the GSE's may have manufactured that low just a little bit early. I wasn't expecting it for a few more days. As you can see in the chart the gold:XAU ratio is about as stretched as it has ever gotten. We should see a powerful rally in mining stocks maybe starting tomorrow and if not tomorrow, soon.
I'm still expecting that rally to ultimately fail but if gold can regain $850 there is a good chance it will at least test the 200 DMA again. That could put gold back in the $900 range.
Posted by Gary at 10:09 PM
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Saturday, September 6, 2008Newton's Third Law
I'm guessing everyone knows Newton's third law of motion. It states for every action there is an opposite and equal reaction. I think we can apply this law to investing and to economics.
Have you ever noticed that for almost every parabolic spike there is a parabolic collapse. Have you noticed that the longer a sector spends at the top of the market the further and harder it falls once it tops out. Take the energy sector for instance. Oil stocks were at the top of every one's list for most of 08. However for the last couple of months they have been one of the worst performing sectors. Commodities soared during the first half of the year. Now they are falling just as fast if not faster.
I've been saying for quite a while that the world is going to suffer through a very serious recession. The more I think about this the more I think I'm going to be wrong. I don't think we are going to fall into a recession, I think we are most likely going to fall into a depression.
Let me explain. First off history has shown that the world suffers a depression about every 70 years. It takes that long to work through a generation of investors so that we have time to forget the mistakes that led to the last one. They are of course massive credit expansion.
So let's take a look at recent history and see if we are heading down that same road. In 98 Greenspan flooded the world with liquidity to stop the bleeding in the financial system brought on by the collapse of LTCM. That gave birth to the largest stock market bubble the world had ever seen. Of course since there is always an equal reaction we then witnessed the total collapse of that bubble. Unfortunately Greenspan and the powers that be were not willing to accept the fact that we needed to take our medicine and let the excesses work their way out of the system. So the FED went on an even bigger liquidity binge in the process inflating the largest real estate and credit bubbles the world had ever seen. Now these bubbles are bursting. So what does Bernanke do? Of course he follows down the same path as Greenspan and floods more liquidity into the system. Since the real estate and credit markets are broken that liquidity went into commodities causing a parabolic spike in energy prices.
We are now on the reaction side of this whole mess. The historic rise will demand a historic fall before this is finally over. I don't see how we can possible cleanse the system of these incredible excesses without a global depression of similar magnitude.
There is no way that oil is going to stop at $100 after the move we just saw from the 07 bottom. There's no way the real estate market is going to bottom in 2 years from the stratospheric levels it reached during the bubble. The last time we witnessed a credit bubble even close to the magnitude of the recent levels was in the 20's. The reaction from that bubble was the Great Depression. There is no way in the world the financials have bottomed in only a little over a year and with only 10 banks so far going belly up.
In the real world there is no Goldilocks. The real world is going to demand full payment for creating the three largest bubbles in history. This is not something that is going to happen over night. It's also not something the government can stop by bailing out FNM & FRE. (The market has known this was coming for months now. It's already priced in). No there is no way to stop what's coming. All the FED can do at this point is continue to make it worse. So far that's exactly what they've done.
It could have stopped with the tech bubble bursting. If the Fed had just let the system work, the casualties would have been limited to stock market investors. Of course they didn't stop there. They created the real estate bubble and credit bubble. At it's high point this bubble affected almost 70% of the US population, not to mention a big part of the global population. When that collapsed they brought everyone on board by spiking commodity prices especially energy and food. Now we are all going to pay for the stupidity of a few people in power who think they can control the global economy. The same people who apparently think that monetary policy comes with no strings attached and that it really is possible to get something for nothing. I've got news for them it's not going to be different this time.
Not only have we come to an end of the fun part of monetary inflation but now we are entering the hangover stage of that party. It was one heck of a party and its going to be one hell of a hang over.
Posted by Gary at 11:11 AM
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Thursday, September 4, 2008Bear Flag or T1 consolidation
http://2.bp.blogspot.com/_V7Pddp58Py0/SMCgAPsPB5I/AAAAAAAABPk/P1DOUl97bns/s400/xaau.png I've been warning for weeks now that gold should likely have another leg down. Now I want to look at the mining stocks. I'm seeing a very destructive behavior amongst the gold bugs right now. Denial is it's name. There is way to little fear and way to much bottom calling in the precious metals sector.
The XAU is on the verge of breaking through major long term support. The current 18 week cycle still has 5 to 15 days to go yet before reaching the timing band for a low. I have to wonder, can the miners hold above that $120 level that long?
Now here is a scary thought that I dare say none of the gold bugs are even considering. What if the bear flag is in reality a midpoint consolidation of a T1 pattern. If it is we could see the XAU drop fairly quickly to the $70/$80 level.
I will say that this decline probably won't halt until precious metal investors experience enough pain to put an end to the bottom calling. From the comments I see on most of the gold blogs that's not even close yet.
Posted by Gary at 7:56 PM
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Wednesday, September 3, 2008Channel break
http://3.bp.blogspot.com/_V7Pddp58Py0/SL9BVcQcbrI/AAAAAAAABPM/5CTnHiAhQZc/s400/spx.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SL9BVtNEIJI/AAAAAAAABPU/24d8nsXGeUY/s400/compq.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SL9BVyox_vI/AAAAAAAABPc/262NdBhLD_8/s400/tnx.png I've gone over historical data with subscribers that suggests we should see some kind of rally attempt after today's weak decline. However there are some disturbing signs popping up.
First the S&P looks to be trying to break down out of the rising channel. It actually moved outside the lower trend line today before managing to close back above it.
More disturbing is the relative weakness of the Nasdaq. The tech sector has clearly broken the trend from the July rally and has taken out the Aug. lows. It has failed three times to move back above the 200 DMA and is now threatening to break below the 50 DMA. If this rally were healthy we should see the speculative tech sector leading.
Remember all those analysts pumping the tech sector as sub prime proof and recession proof? Funny, I don't ever remember a recession where tech was a safe haven, do you? One has to wonder if anyone really believes this crap.
The next chart is equally disturbing. Money continues to flow into the safety of bonds. To top it all off Lowry's selling pressure is starting to rise again.
I'll say it again, bear markets end in multiple 90% down volume days followed by a buying stampede as smart money comes roaring back into the market looking to buy value. We've had one 90% down day since June and there's been no rush of institutional buying. The smart money is still trying to exit this market. The only ones buying into this rally are the retail investors listening to Cramer.
These are the same investors who bought housing stocks at the top when Cramer was pumping them in 06. Or tech in Oct. 07 when Cramer was calling for 16,000 in the Dow. Recently the minnows got caught in the great wildcatter bonanza of the summer of 08. Want to take a guess what Cramer's pumping now? Financials and housing stocks!
I can hardly wait to load up tomorrow on these buys of a lifetime???
Posted by Gary at 7:00 PM
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Tuesday, September 2, 2008Bear or No Bear
http://3.bp.blogspot.com/_V7Pddp58Py0/SL32Ee-WAXI/AAAAAAAABPE/vu-ocMx2v1w/s400/spx.png Tonight I've got another long term chart for you. Over the last 28 years the 20 month moving average has only turned down in bear markets. It's turned down again.
I started to hear a lot of talk this moring on the financial media how falling oil prices would save the economy. Amazingly enough I even heard that lower gas prices would translate into home owners being able to pay their mortgage and thus foreclosures would slow or cease.
All I have to say is where do they find these people? The damage has been done, we are in a bear market no matter how much one wants to deny it. Actually denial is what caused investors to ride the last bear all the way down into the 02 bottom.
Posted by Gary at 7:26 PM
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Monday, September 1, 2008Necessary Correction
http://4.bp.blogspot.com/_V7Pddp58Py0/SLxA3T8YpoI/AAAAAAAABO8/y2hjqE-5MEM/s400/gold.pngRecently I've come to the conclusion that commodities have now joined the rest of the markets in a cyclical bear market. I pointed out to subscribers a while back that whenever the CRB has topped out in 19 months or less it has signalled a longer term top 100% of the time. The 3 year cycle for commodities should bottom somewhere around 2009/10.
I've pasted the Fibonacci retracements on the long term gold chart. I suspect by the time this bear is over we will see gold trade down to the 68% level. We may even make it back to $450 which is where gold took off on the Katrina disaster. Note how three years later we are in the process of taking another hurricane hit but gold and oil are trading down instead of rallying. There is a gap on the GLD chart that has never been filled from Sept. of 05. The next couple of years would be the perfect opportunity for GLD to fill that gap.
I'm going to point out that because of how human emotions work it is absolutely critical that the metals go through a major correction at this point and if not now, soon. Without it there would be little hope of this secular bull market reaching it's ultimate potential. That potential in my opinion will be a Dow:Gold ratio of 1:1 sometime in the next decade.
I'll elaborate in more detail in today's update for subscribers.
Posted by Gary at 12:21 PM
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Sunday, August 31, 2008Sign of a longer term top
http://2.bp.blogspot.com/_V7Pddp58Py0/SLqLG7YuEXI/AAAAAAAABOk/PHhpuQsey2w/s400/gold.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SLqLHHt3q-I/AAAAAAAABOs/P-33DMYl0tU/s400/silver.png
I always like to keep track of the long term charts as a way to follow the true direction of a market. There's too much noise in the daily charts to really get a good idea of the big picture. Today I'm looking at the monthly charts of gold and silver. There are a couple of problems here. First both gold and silver have broken through their 12 month averages, something that hasn't happened other than briefly and by only minor amounts during this entire bull market. Silver especially is showing a very clear change of character with a major breakdown below the 12 month moving average.
Another warning that the 9 year cycle in gold has probably topped is the quarterly swing high in gold. The odds are starting to swing heavily that gold has topped out for now and will be working it's way down to that 9 year cycle low in 09/10.
The next 9 year cycle is where the real fireworks in the precious metals should take place.
Posted by Gary at 5:09 AM
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Thursday, August 28, 2008One more leg down
http://4.bp.blogspot.com/_V7Pddp58Py0/SLaVqxHInXI/AAAAAAAABOE/apxvmAPOi3M/s400/gold.png
http://3.bp.blogspot.com/_V7Pddp58Py0/SLaVrLS6amI/AAAAAAAABOM/81L45jB15dM/s400/dollar.png
During this phase of the bull market gold should move inversely to the dollar. Many point to gold's decoupling during 05 as proof that gold will rise despite a strengthening dollar. I think they are going to be wrong this time. First off gold was responding to hurricane Katrina and then the rally continued on the Fed flooding the world with liquidity to cushion the after effect of Katrina's devastation. Unless the Fed does something stupid like suddenly cutting rates again I don't see the dollar all of a sudden breaking down.
Looking at the dollar chart we can see an obvious change of character. Previously when ever the dollar became overbought it immediately sold off. This time the dollar got overbought and then just continued to stay overbought. At this point the dollar is in a high level consolidation. This is completely different action than we've seen in the past.
Notice in the first chart I've marked the weekly cycle lows. These cycles average 18 weeks in duration. The low 2 weeks ago was three weeks early. We should ideally get one more leg down before this cycle bottoms. Of course it is possible that the cycle bottomed early but with the dollar consolidating as it is I wouldn't be surprised if the dollar pushes through the 78 level before seeing a more significant correction.
Also gold is following oil at the moment. Oil is rising on the hurricane threat. Notice the stock market is no longer crashing on rising oil? It's probably a safe conclusion that the market is starting to discount this rise in oil as temporary since hurricane season will be mostly over within a month.
Posted by Gary at 5:09 AM
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Tuesday, August 26, 2008Russell
http://1.bp.blogspot.com/_V7Pddp58Py0/SLSRQH9expI/AAAAAAAABN8/dfNmtDljRoQ/s400/spx.png
http://4.bp.blogspot.com/_V7Pddp58Py0/SLSRBdVsRaI/AAAAAAAABN0/iXVJnU1Qiwk/s400/rut.png The Russell has been the strongest index during this rally so far. Notice it just bounced off resistance at the 75 week moving average similar to the S&P during the Mar. to May rally.
The S&P so far has not been able to regain the 200 week moving average. This has been a very weak rally up till now. Most of it predicated on the assumption that falling oil will some how prevent the economy from falling into recession. I think that is going to be a false assumption. Falling oil just means the one sector that was still working in the economy is now probably rolling over along with everything else.
Posted by Gary at 4:25 PM
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Monday, August 25, 2008Have bonds got it wrong?
http://1.bp.blogspot.com/_V7Pddp58Py0/SLMrqSci3DI/AAAAAAAABNs/U0d7yYAeywo/s400/tnx.png Amazingly enough the 10 year note is yielding 3.8% while inflation is running at 5.6%. Why in the world would the bond vigilantes allow a negative yield? The commodity bulls have been pointing to the negative yield as an excuse for why commodities in general and gold specifically should be moving higher. Generally speaking bond traders are probably the most sophisticated investors in the market. Now either these investors are completely off base or bond traders are sensing deflation in our future.
Somehow I doubt the bond market is wrong. If that's the case then the collapse in commodities makes perfect sense.
Posted by Gary at 3:00 PM
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Friday, August 22, 2008poll
I'm curious as to where readers of the SMT live. If you feel inclined leave an anonymous post with the city and country you reside in.
Posted by Gary at 11:57 AM
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Thursday, August 21, 2008The odds are starting to skew toward a left translated 4 year cycle
http://1.bp.blogspot.com/_V7Pddp58Py0/SK31GQrMzQI/AAAAAAAABNk/cpPpCMGH1cQ/s400/djw.png I've mentioned in past updates and posts here on the blog that left translated 4 year cycles tend to be very bearish periods. The 2000-2002 bear was a left translated cycle.
I tend to believe that we saw the last 4 year cycle low in Jan./Mar. We then saw the rally out of that low into the May highs. The decline from that rally made a lower low. That started to suggest that the possibility for a left translated cycle now existed. Now we have the Dow Jones World index breaking down to new lows. That makes the case even stronger for a left translated cycle.
Here's the unpleasant part. Only the 1930 cycle topped out as quickly as this cycle if in fact it has topped. We all know what followed after the June 1930 high. The world sank into the Great Depression. Now I don't know if we are heading into a depression or not. I do think we are probably heading into one very nasty recession. China, you know the great global growth story, land of perpetual double digit growth, is now contemplating a stimulus package. What does that say about the global economy?
Lowry's selling pressure has continued to hit multi year highs as the market has rallied. Big money is selling into this rally just like they sold into the May rally.
I suspect the rest of the global markets are going to follow the world index down and break to new lows strengthening the case for a very bearish next couple of years.
Posted by Gary at 4:06 PM
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Tuesday, August 19, 2008It's time to bounce
http://1.bp.blogspot.com/_V7Pddp58Py0/SKuDC3ukhbI/AAAAAAAABNc/SJBzLRnhRe4/s400/wtic.png I think commodities are probably ready for a counter trend bounce. I'm using oil as an example because the parabolic move is more evident. The weekly oscillators are now oversold. This is the level were I think we can expect a rally. Bullish sentiment doesn't evaporate quickly, especially after the kind of run we just experienced. The commodity bulls are now thinking they have the buying opportunity of a lifetime. I believe they are going to be disappointed as I think this rally is eventually going to fail and roll over again.
That's not to say I won't take a trade here to catch the bounce,I am. I will not however expect that it's party time again and that oil is now going to $200. The world is facing deflation. If the stock market does roll over here it puts this 4 year cycle in jeopardy of repeating the 1930 cycle. That was also a very left translated cycle. In that scenario everything is going to get sucked down by the bear.
So for now I do think commodities are going to rally but I won't count on it being anything other than a counter trend rally as Mr. Market does his best to take the most money from the most participants...as usual.
Posted by Gary at 7:35 PM
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Sunday, August 17, 200810 rules
Investing legend Bob Farrell's 10 rules to investing.
1. Markets tend to return to the mean over time
2. Excesses in one direction will lead to an opposite excess in the other direction
3. There are no new eras -- excesses are never permanent.
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. As the fever builds, a chorus of "this time it's different" will be heard, even if those exact words are never used. And of course, it -- Human Nature -- never is different.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don't expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction -- eventually.
5. The public buys the most at the top and the least at the bottom
6. Fear and greed are stronger than long-term resolve
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
8. Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend
9. When all the experts and forecasts agree -- something else is going to happen
As Stovall, the S&P investment strategist, puts it: "If everybody's optimistic, who is left to buy? If everybody's pessimistic, who's left to sell?"
10. Bull markets are more fun than bear markets.
Pretty damn good common sense rules in my opinion.
Posted by Gary at 1:03 PM
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Saturday, August 16, 2008Bias
http://2.bp.blogspot.com/_V7Pddp58Py0/SKdOuzC5sZI/AAAAAAAABNE/Mx5GYTJqZOw/s400/gold.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SKdOu4PFDwI/AAAAAAAABNM/12ahh452O-w/s400/silver.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SKdOvDsAB9I/AAAAAAAABNU/RUL__By6ExM/s400/xau.png We all have our beliefs or bias as to what we think is or should happen. For the most part our beliefs are influenced by recent history. As humans we are programed by our emotions to look at the past and expect the future to look the same. Unfortunately the world doesn't actually work that way. The world is constantly changing. Always will be. Sure there will be periods of time where trends will develop. They may last for long periods of time. What I can guarantee you is that change is inevitable. Nothing lasts forever. Markets don't go straight up or straight down.
The simple fact is that change is going to happen and it's probably the single most dangerous concept that investors tend to ignore. (Well beside position sizing) Once we get locked into a belief and especially once we put money behind that belief it becomes very tough for us to break that bias. We start to rationalize why we are right even if change is blatantly obvious.
Take a look at the three charts and you tell me if something has changed.
If there is anything that has amazed me over the last year that I've been writing this blog it's how strong investor biases can be. During the first part of 07 I was bullish. The only readers of the blog were bullish investors and of course the occasional bear telling me all the reasons why I was wrong. Of course the one reason that was telling me that I was right was that I was making money. The bears could not fall back on that rational. Once I recognized the start of the bear market readers and subscribers spiked. Obviously there were a lot of investors out there who were bearish.
Like any normal human we like to see confirmation that our view is correct. If someone else has your same view then it reinforces your belief that you are on the right side of the market. All of a sudden I was reinforcing the bearish belief. Viola, a whole new set of readers.
Now when you think about it this is ridiculous behaviour. Since no one can actually see the future none of us really has any idea of what's in store for tomorrow. Searching for someone to validate your position is really quite stupid. That being said we still all do it. I'm just as guilty as the next person.
Now I've turned bearish on commodities I expect that I will lose a segment of my readers and subscribers as I'm no longer reinforcing the bullish case. I've already seen quite a few oil bulls drop off the subscriber list. It was obvious that these investors were interested in getting confirmation of their bias. Once I didn't give it to them anymore they decided to look elsewhere. It didn't matter that I was correct and could have saved them losses by getting them out of oil when it became apparent that something was changing. They were unable to break their bias.
I suspect I will now lose readers who continue to hold on to the bullish case for gold. Again it doesn't matter that I've been warning for several weeks that the bells and whistles were going off in the precious metals sector. It doesn't matter that I was right and if one had been able to set aside their bias for a minute and look at what was unfolding they could have saved themselves losses. None of that matters really. What we want is confirmation that we are right and that it's OK to continue to lose money because the market is going to turn and go our way soon.
I strongly suggest that we try to think outside the box and not let our beliefs control our actions especially if the market is telling you something different. Remember you can argue with the market all you want but you will never win that argument.
Posted by Gary at 3:03 PM
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Friday, August 15, 2008The dollar premium is coming out of commodities
http://4.bp.blogspot.com/_V7Pddp58Py0/SKVozqvaOYI/AAAAAAAABMc/Zcgrwd0SUvs/s400/dollar.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SKVoz04KnuI/AAAAAAAABMk/CqXXT-iTbvw/s400/gold.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SKVoz_UifBI/AAAAAAAABMs/3TgHTMAlV7g/s400/copper.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SKVo0PZV0gI/AAAAAAAABM0/TSoAU3bFc88/s400/natgas.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SKVo0ULsyEI/AAAAAAAABM8/Mm8pXFCVZJQ/s400/oil.png The Fed cut rates aggressively at the end of Jan. and commodities took off. Now the dollar has retraced almost all of that drop. The upshot is that almost all commodities are rapidly shedding their dollar premium. The only one still well above the late Jan. level is oil.
Now I don't know about anyone else but I have yet to see a gas station run out of gas. There's been no 70's style gas lines in Vegas. If we don't have a shortage it's kind of hard to explain the huge move up in the price of energy other than it was just a response to monetary devaluation.
I suspect oil will also shed all of the dollar premium before this decline is over.
Posted by Gary at 4:29 AM
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Thursday, August 14, 2008Gold's failure
http://1.bp.blogspot.com/_V7Pddp58Py0/SKRS7Tyt92I/AAAAAAAABMM/W4G1MJIwNEE/s400/oil+weekly.png
http://1.bp.blogspot.com/_V7Pddp58Py0/SKRS7jHgjGI/AAAAAAAABMU/4w8pNO2iCnw/s400/gold.png First off I'll repeat that the secular bull market in gold is hardly over.
I'll sell my core position when I see a Dow:gold ratio of close to 1:1 and not until. However it certainly looks like gold has entered a cyclical bear market along with just about every other asset class.
If the gold bull was going to continue this year we probably should not have seen gold trade back below the $850 breakout. Also notice the failure of the recent consolidation. In 07 a similar consolidation led to gold's amazing run over $1000.
Until I see the commercials become extremely bullish on gold I don't want to try and catch this falling knife.
Once this cyclical bear is over though the long term fundamentals will still be in place. Social security, medicare, budget deficits and war expenses. The only way the US can possible hope to pay theses debts is through monetary inflation. Long term tenets #1 & 2 are still valid just on hold for a while
Posted by Gary at 8:44 AM
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Tuesday, August 12, 2008Commodities are now in a cyclical bear market
http://4.bp.blogspot.com/_V7Pddp58Py0/SKGIugpmC6I/AAAAAAAABL8/srpidRPX9d4/s400/oil.png
http://2.bp.blogspot.com/_V7Pddp58Py0/SKGIu4-_VKI/AAAAAAAABME/XLDNMe7Ir0c/s400/gold.png About a month ago oil pushed up into the largest parabola of the entire bull market. At the time many commodity bulls were finding an unending list of fundamental reasons for why the price was going to continue up for the foreseeable future. This is what happens at the top of parabolic spikes.
Let me first say that we aren't even close to the ultimate top of the commodity bull. We are however entering a global recession. As such I wouldn't expect rising commodity prices for the next couple of years. Once we get through this recession though the commodity bull will resume.
However at some point years into the future we will see the final top in commodities and it will end in another one of these parabolic spikes. At that point the bulls will need to have the discipline to exit when things look the brightest. If they don't they will run the risk of giving back many years of gains very quickly. So far I see very little ability to do this by most of the bulls.
I suggest we start practicing now before that final top comes.
Now we should see a bounce soon in oil, probably at the $110 level. Gold is also showing a long tail down. Which is a signal of a very oversold market. I expect gold to bounce along with oil. I would suggest using that bounce to exit any remaining long positions. The longer term trend is now broken in commodities. At this point I would have to say that commodities have now joined the rest of the market and are in bear mode. If that's the case rallies should be sold instead of buying the dips.
Posted by Gary at 5:56 AM
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Saturday, August 9, 2008weekend report
I'm going to make the weekend report free again this week. Send a request to gsavage4997@cox.net If you made a request and didn't recieve the report check your spam filters. Sometimes I've found the emails get flagged as spam.
Posted by Gary at 11:19 AM
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Friday, August 8, 2008Buying opportunity
http://4.bp.blogspot.com/_V7Pddp58Py0/SJxFA-HihtI/AAAAAAAABL0/PA00jd3LzL8/s400/spx.png The trading cycle averages 28 to 43 days in length. Normally we see a half cycle low somewhere around day 18/19. Yesterday was day 17. I still think this rally has more to go. Mostly because I don't think oil is done going down yet. This pullback is most likely the half cycle low and probably a buying opportunity. In an uptrending market two days down in a row greatly increases the odds of the next day being positive. If I remember correctly 3 down days in a row has odds over 90% of being positive the next day.
Posted by Gary at 6:06 AM
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Wednesday, August 6, 2008Investing vs. trading
Yesterday I posted the virtues of risk management and compounding. For traders that is the safest way to amass and keep long term gains in the market. It's how a trader can grow his capital over time. I showed what the power of compounding over a modest 20 year period would do for an original $100,000 nest egg.
There is another way to get rich. That is to get in a secular bull market early and hold on. This is how many billionaires are created. Warren Buffett bought the bottom of the bear market in 74 and held on. Jim Rogers and T. Boone Pickens spotted the bottom of the commodity cycle and both have made fortunes.
Many in the media are trying to call the current rise in commodities a bubble. Ridiculous. You need oversupply and massive public participation for a bubble to form. Commodities are simply deflating because of demand destruction brought on by the global recession. Once the recession ends demand will return and commodities will turn around and move higher. They will continue this trend until enough supply is brought on line to swamp demand.
We are going to get another great buying opportunity sometime in the future probably at the bottom of the current recession, when things look bleakest, to get back on the commodity bull. Those that can buy and hold will make tremendous returns probably far in excess of what is possible compounding over a 20 year period. They will do it in a much shorter period of time also.
Posted by Gary at 8:46 AM
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Tuesday, August 5, 2008The Key to Making Money in the Market
Today I'm going to let you in on a secret, the holy grail of investing if you will. The key to making and holding on to long term gains in the market has nothing to do with how much you make on your winning positions. Never has never will. The key to making money is in how much you lose when you miss.
As anyone who's read the comments on the blog or any blog for that matter knows there is a never ending line of people who claim to make outrageous gains in the market or they claim to never or rarely ever miss a call.
I can tell you when I see these amazing claims I just have to shake my head. Anyone who claims to make 100% in the market is also going to be the one who loses 100% in the market. If there is anything that history has shown it's that no one and I mean no one can produce much more than 20% annually over any significant period of time. Buffett is one of the best and his 30 year average annual return is in the neighborhood of 25%.
What most investors don't realize is that you can get filthy rich in 15 -20 years by compounding 20% a year. Hell you can get rich by compounding 12-15% a year. All you need is a little patience and good risk management skills to assure your future.
After 20 years compounding at 15% a year you would turn $100,000 into $1,636629.
That same $100,000 compounded at 20% would have you retiring with $9,584,383.
The only way to achieve these kind of long term results by trading is to control risk.
Investing on the other hand is a different ball game. Maybe I'll do a post on that one tomorrow.
Unfortunately most investors can't be satisfied with 10-20% so they take on too much leverage trying to make outlandish gains. Sooner or later this leverage always comes back to bite you in the ass. The bottom line is by trying to maximize your gains you end up guaranteeing your failure.
This is probably the hardest thing for novice investors to accept. We all start investing because we see it as an easy way to get rich. I mean seriously how hard is it to click a mouse? The answer of course is it's about the hardest damn thing in the world to do successfully. In this business you are competing against the smartest people in the world. Does anyone really think it's going to be easy to part them from their money?
My advice to any beginning investor is to keep your positions tiny for the first 5 years. Concentrate on not losing money and forget about trying to make any. That part will take care of itself in time as long as you don't lose your wad. The smartest thing you can do as a beginning investor is make it as hard as possible for the pros to get your money.
Posted by Gary at 8:18 AM
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Monday, August 4, 2008XAU character change
http://bp2.blogger.com/_V7Pddp58Py0/SJcn4rQ7tCI/AAAAAAAABLs/zjSlJ4mH-bM/s400/xau.pngThe behavior of the mining stocks has been pretty consistent throughout this bull market. Every new upleg has resulted in a higher consolidation zone. Today we may being seeing a significant character change in the mining stocks. Unless the XAU can regain the $160 level quickly we will have a breakdown of the consolidation zone that hasn't happened at any other time during the PM bull. Considering that gold is quite a bit above the recent lows of $850 it would seem that the miners are saying gold is going lower.
I still think commodities are trying to tell us that the world is slipping into a serious recession.
Posted by Gary at 9:01 AM
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Friday, August 1, 2008Bear market COT's
One of the things that characterized the last bear market was a persistently net short COT in the S&P futures. The commercials have been net short for three weeks now. I'm starting to think we are going to see the same action this time.
We also likely have a very left translated 4 year cycle. The last cycle that topped out in such a short time span was the 1930 cycle. The following two years took the market down into the most vicious bear market in US history.
Granted I doubt we are going into the depths of a deflationary depression like we saw in the 30's. But a 4 year cycle that tops out this quickly is anything but good.
Posted by Gary at 6:51 PM
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