一个笨蛋的股指交易记录-------地狱级炒手

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Monday, January 14, 2008Gold breaking out in all currencies



We all know that gold is rising in US dollars no doubt about that. Take a look at the above charts and you will see Gold is rising in Euros, Yen, Pound Sterling and Canadian dollars. I rail at the Fed for printing too much money but they are hardly the only ones. Every country is running the printing presses like there's no tomorrow. This is a global effort by every central bank around the world to keep the bear at bay. They have managed to stretch this bull market till it has become the second longest in history. This concerted effort to print away all our troubles will ultimately fail. Always has, always will. All the central banks are going to accomplish in the long term is to put the global economy into a nasty inflationary spiral. Whether this ends up as a global recession or depression will be determined by how quickly the CB's realize that hard times are inevitable and all they can do is soften the blow by trying to control inflation.



Posted by Gary at 4:08 PM

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Friday, January 11, 2008BKX weekly
I noted this to subscribers the other day. Unless something drastic happens before the end of the day this weekly chart looks like the BKX may be ready for the counter trend rally similar to what housing did in 06. peak to trough the banks have moved down 35%. Intraday Wed. the BKX was 26.3% below the 200 DMA. That's about as stretched as it's ever gotten. If the banks rally here for a bit it will take quite a bit of pressure off the general market. I don't think for a minute this will be the end of the troubles for the banks but things can only get so stretched before snapping back to the mean.



Posted by Gary at 9:24 AM

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Thursday, January 10, 2008Market rally? So what.


The market has rallied off the Mar. support and it followed through today. Yawn! So what. I'm going to show you what's really important today. First off scroll right and read the four rules. Ben just confirmed rule #1 today. Was there ever any doubt? Today Silver finally got in gear, gold surged and the HUI broke out to new highs. The XAU was just a whisper away from breaking to new highs. Intraday it did trade above the old high. Did the market put in a meaningful bottom today? Who cares? The miners and silver are now confirming the break to new highs by gold and platinum. Game on.



Posted by Gary at 2:53 PM

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Wednesday, January 9, 2008Are the Piggies ready to bounce?
The Banks have seen severe selling the last couple of weeks. Since nothing goes straight down there's a good chance they are ready to bounce. I'm wondering if they may rally back to resistance. If they do it will take some pressure off the general market. I'll also be watching the Yen. It dropped today at roughly the same time the market rallied. The Yen got quite oversold recently and a pullback would be normal before the rally resumes.



Posted by Gary at 6:06 PM

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Tuesday, January 8, 2008Dow Theory Sell signal confirmed
I know most investors dismissed the Dow Theory sell signal when the market didn't follow through and bounced last month. Today the markets confirmed that sell signal again. Remember the average decline from the point where the signal was given is between 20 to 30%. Of the 30 Dow Theory sell signals in the last 110 years only three have resulted in no or minimal declines in the market. It's pretty hard to argue with an indicator that has been correct 90% of the time. Oh and by the way the COT has shown massive liquidation of longs over the last 3 months. The signs have been there it just depends on if you want to pay attention to them.

Posted by Gary at 1:31 PM

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Monday, January 7, 2008The triangle consolidation has been broken

I noted in the daily updates last week that sentiment has been sharply split between the bulls and bears with very few neutral players. The Investors Intelligence survey as opposed to the AAII survey showed the same thing. Namely one survey showing extreme optimism and one extreme pessimism. Note the Ticker Sense poll this week. This was manifested in the triangle consolidation that formed in the S&P. When this kind of extreme polarization in sentiment is finally resolved what normally happens is a big move in the direction of the winning side as the losers have to capitulate. So far this is exactly what's happening as the S&P as accelerated to the downside after the break.



Posted by Gary at 7:26 PM

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Friday, January 4, 2008Tech a safe haven?
I keep seeing on CNBC analyst after analyst touting tech as a safe haven to hide from the credit crunch. Maybe these commentators think we can't calculate a %. I've got news for everyone tech is going to get beaten like a red headed step child if we continue down into the 4 year cycle low. Tech is already leading the market down. The S&P is currently down a little over 10% from the Oct. peak. The NDX is down over 12%. The S&P is still holding above the Nov. lows. Tech closed below the Nov. lows today. The S&P was down 2.4% today the NDX was down 4.3%. Yeah tech is the place to hide only if you want to get your head handed to you. If we go into a recession does anyone think that consumers are going to be spending food and gas money on AAPL trinkets? I seriously doubt it. Does anyone think that there's going to be a surge in new computer or software sales if the consumer can't make his mortgage & car payment? How about business upgrading to all the newest IT technology if sales are falling off a cliff. Hardly! Notice the Dow made new all time highs during this bull market (granted not inflation adjusted new highs). Even the S&P made a nominal new high. Tech didn't even come close. Where do they find these analysts? Even worse, who in the world believes this crap?


Posted by Gary at 9:02 PM

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A tale of two bulls

Actually its a tale of one tired bull and one raging bull. Bull markets typically end with a bang. By bang I mean with high volume and high volatility. Take a look at the first chart and you'll see what I'm talking about. For all the wild swings back and forth the past year we have basically gone nowhere since last Feb. Also take a look at the big surge in volume since this summer. I believe that we started down into the 4 year cycle low back in July but the Fed put that move on hold by flooding the system with liquidity. However all that liquidity didn't really do anything for the markets as we can see. The market has simply gyrated back and forth as the liquidity leaked out of the paper markets and into the commodity markets.

In the bottom chart we can see one of the beneficiaries of this liquidity pump. This my friends will ultimately be the end result of trying to print our way out of trouble. Always has been always will be. Just keep the four rules on the home page firmly in mind for the next 10 years or so and you will have a successful game plan to invest with.



Posted by Gary at 4:00 AM

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Wednesday, January 2, 2008Things are not looking good


We are now getting warning signs. The S&P has broken the lower trendline and the Dow has completed the trend reversal by closing below the Dec. lows. The weekly chart also doesn't look good as the 65 WMA has been breached again. All that being said I think we could see a bounce here as most of the short term levels are pretty oversold and there was some pretty heavy buying into weakness of the SPY ETF at the close. One more violent bounce to scare out the weak shorts before we start down in earnest might be in order. Especially since tomorrow is one of the most historically positive days of the year. If the Yen is weak tomorrow we could see that bounce.



Posted by Gary at 4:44 PM

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Tuesday, January 1, 2008Tech stats
Here are some stats to consider when you hear the pundits tout tech as the safe haven.

45 of the 100 NDX stocks have 200 DMA that are already declining (they are in intermediate to long term down trends).
56 of the 100 NDX stocks are below the 200 DMA.
68 of the 100 NDX stocks have a declining 50 DMA (short to intermediate term down trends).
67 of the 100 NDX stocks are below the 50 DMA.
and last but not least 50 of the 100 NDX stocks have 50 DMA that have crossed under the 200 DMA.
Of the 33 stocks above the 50 DMA only 14 of them are what I would consider strongly above (making new highs) and 5 of those 33 stocks above the 50 are still below the 200 DMA.
This doesn't paint a pretty picture for tech being a safe haven for investors with only 14 stocks in strong technical positions.

Posted by Gary at 9:33 AM

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Sunday, December 30, 2007COT Review
Let's review the last four months in the S&P COT reports. In the first box we see the commercials at historic long positions. Apparently the smart money thinks rate cuts are coming and they are going to fix what ails the market. In the second box we get the rate cut and it's bigger than expected. The market rallies big. Oh but what happens? Half those commercials sneak out the back door on the big pop. Apparently there is some really smart money that was just waiting for this move to unload their longs. Boy did they. After the second rate cut the commercials again added to longs briefly hoping finally for the market to rally. When it didn't they again quickly started to cut long positions drastically even selling into weakness. Then along comes Abu Dhabi and throws 7 billion at Citi. The market rallies and again some of the commercials jump on the long side hoping for an end to this mess. It's not to be as the market sells off hard on the next rate cut. By the next week the commercial long position has evaporated as they sell at all costs into extreme weakness. Now comes the Santa Clause rally. Is it the start of some thing big? Well apparently the big boys don't think so as they use this strength to dump a bunch more longs taking their net position into the negative for the first time in 7 and a half months. Unless something momentous happens it appears the commercials have decided that nothing the Fed or sovereign wealth funds can do will save this market. Now that's not to say the market can't rally from here. If it does though I expect the smart money to be selling heavily into that rally. And as long as the big boys are exiting then the market is going to be on borrowed time.



Posted by Gary at 6:50 AM

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Thursday, December 27, 2007Is the S&P at the mercy of the piggies?

The S&P is consolidating in a triangle pattern. Also notice that resistance has again rejected the rally. The market looks headed for a test of the lower trend line. Whether it breaks that lower trend and heads down will probably depend on whether the BKX breaks down to new lows and another bear leg down.



Posted by Gary at 6:50 PM

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Tuesday, December 25, 2007More on the carry trade


I'm going to go over the carry trade a little more today. Notice in the first chart that no sooner did the yen start to strengthen than the Nikkei entered a bear market. Massive monetary inflation has been holding up the Japanese market just like it has the US markets. Once the BOJ took away the punch bowl things started to go sour.

Now let's take a look at the second chart. You can see for the last couple of years the US and Japan have been busy devaluing their respective currencies. We can see that in July that changed. The BOJ stopped running the printing presses. The US on the other hand turned on the presses full blast.

I think there are two reasons why this happened. The first one is shown in the bottom chart. Oil, good ole energy, the life's blood of any economy. What happened in July? Well oil priced in Yen was back nearing all time highs. Japan has the same problem we do. Liquidity is leaking into the commodity markets.

Japan's recovery from a decade and a half recession has been very fragile. What they don't need is escalating energy costs to force the economy back into recession. That's exactly what's been happening though as long as they have been following the Fed model of printing troubles away. Which actually just creates more and bigger troubles.

Now for the second reason that made this change in monetary policy possible. Japan held their elections in July and the ruling party was defeated. They lost the majority vote in the lower house. Now what do politicians do when they first come to office and don't have to worry about getting re-elected for a couple of years? They try and fix some of the problems of course. That's why the year after elections is often a year when the markets struggle. AKA 2001!

So now the new ruling party in Japan has 3 years before the next election. It's pretty obvious they are more concerned right now with keeping inflation from crushing their economy than trying to help US politicians get elected next year. I would look for the Yen to continue to strengthen and the carry trade to continue to unwind for a while.

Posted by Gary at 6:17 AM

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Monday, December 24, 2007Yen carry trade


Since June we've watched as the Yen carry trade has unwound. Also since that time the market has struggled matching the Yen tit for tat. As the yen sold off the market recovered if it strengthened the market waned. We are now at an interesting junction in not only the Yen but also the dollar. The Yen has now become oversold. In an up trending market oversold conditions should be bought. That would suggest that we are going to see the up trend resume soon. If the correlation holds then the market is probably going to fade again. Take special note that the week before last even though the Yen weakened the market still sold off hard. That would suggest to me that any strength in the Yen now is going to be deadly for the market. Now let's look at the dollar. The dollar is in a secular bear market no thanks to the Fed who seem to be determined to reduce our currency to the approximate value of a sea shell. Take note that the dollar is now overbought. Overbought conditions in a down trending market should be sold. On top of that looking at the weekly chart we see the dollar right up against the descending 20 week moving average that has tended to reject rallies this year.

It looks to me that conditions are ripe for a reversal of these two trades. The end result should again be pressure on the stock market and a boon to gold.



Posted by Gary at 3:51 PM

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Saturday, December 22, 2007Money flows
Thanks to Subscriber Robert L for pointing this out. The chart above shows the money flows selling into strength and buying into weakness. All data points are for significant inflows and out flows of the SPY ETF. A couple of things become apparent as you study the data. Assuming this is smart money selling into strength and buying weakness which I am going to do since retail investors do the opposite. Then it seems like the smart money can't pick tops any better than you or I but it does look like they recognize quickly when a top has been made and use any rallies to sell into. They also seem to spot bottoms as they are nearing and start buying into weakness. While this data probably won't help us time the markets it could potentially warn that a top has been put in especially when coupled with COT data. Vice Versa it might help us to buy closer to the bottom again combined with COT data. The take away from the last two days of heavy selling and the lack of buying last week or Monday would seem to be that this rally had more to do with options expiration and making sure everyone went into the final weekend shopping season in a good mood than an actual bottom to this decline. Couple this with the very large decrease in net longs in the COT this week and I'm not sure I want to be a big buyer of this market just yet. I would prefer to see the COT adding longs and smart money buying some of these down days first.



Posted by Gary at 6:06 AM

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Wednesday, December 19, 2007XAU line in the sand
Here's the other line in the sand I'm watching.



Posted by Gary at 2:54 PM

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Tuesday, December 18, 20072b reversal in the BKX
I think we saw a very important event happen today in the form of a 2b reversal in the BKX. Very often these 2b reversals will signal the exact turning point of a trend change. If this holds then the selling pressure could be lifted from the market. Until the Nov. lows are broken or the COT turns short I'll have to go back to a bullish stance. This could be a very short bullish position if the BKX quickly breaks down again but for now bullish. While I'm not in any big hurry to buy the general market I think it's probably about time to get back on the precious metal bull. I'll elaborate in today's daily update.

Posted by Gary at 6:17 PM

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Monday, December 17, 2007Where's Joe Sixpack?

Somehow investors have gotten the impression that every bull market will continue higher until the public enters the market. I think this is a fallacy inspired by the recent bubbles in Tech and real estate. In the top chart we see the secular bull market that started in 82. I've marked the 4 year cycle lows. Note that only twice did we see the public come into the market. The first time was prior to 87 as the first phase of the secular bull was topping. Keep in mind this was nothing compared to what happened in 99 & 2000. The fifth year decline came along and wiped out Joe Sixpack. That cured him from wanting to invest in stocks for the next 10 years or so. It wasn't until after the 98 cycle low that the public had forgotten 87 and was ready to pile into a "sure thing". The public only piles into an asset class as it enters into the final bubble phase. I see the rational used that this market can't be topping because the public isn't in yet. I think it's way too late for us to expect the public to pile in. That happened in 2000. The market isn't in a bubble it's in a secular bear market. I have a feeling that to expect every bull move in the stock market to draw in the public is just ridiculous. History shows that it only happens rarely.

Now let's look at Gold. I think that the first phase of the secular bull ended in 06. The public was starting to take notice of gold as it made the parabolic rise into the May top. Unfortunately we then saw the fifth year decline and that cured the public of wanting to invest in Gold. Witness that Gold recently touched the $850 level and nobody is talking about buying Gold or Silver. If anything they think Gold is in a bubble. Hardly :) Gold will be in a bubble when everyone is buying it not when everyone thinks it's too expensive.

Posted by Gary at 6:44 AM

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Sunday, December 16, 2007The mess that Greenspan made





In 2001 Greenspan started slashing rates and began devaluing the dollar. This was done to try and sidestep the recession that should have followed the bursting of the tech bubble. Despite investors losing a large portion of their investments (which BTW adjusted for inflation they are still heavily underwater) the plan was semi successful. We had a mild recession in 2001. Unfortunately life isn't quite that easy. You can't just turn on the printing presses and escape the consequences of a bubble bursting. Japan tried this approach when their bubble burst in 90. It's now 17 years later and the Nikkei is still nowhere near all time highs. Japan also tried to prevent any pain in their banking sector just like the Fed is doing today. Just like Japan we are going to go through a long drawn out bear market unless the Fed allows the market to correct the imbalances. That is not a popular scenario unfortunately. So my guess is they will compound the problem again.

When Greenspan cut rates not only did he not stop the deflation in the stock market but in the process he created another bubble in real estate and credit. As we know bubbles are unsustainable and they will burst. In the first chart we can see the housing sector topped in the summer of 05. It has clearly been in a bear market since then. The housing bubble was in my opinion a large contributor to the incredible growth we've seen since 03. Unfortunately once that driver of growth failed we have seen a domino effect of failing sectors following housing down the bear path.

Out of the 06 bottom the Fed really started to pump the money supply to compensate for the deflating real estate market. From that point we can see the last major leg up in the stock market and what a leg up it was. Two runaway moves higher divided by one minor and short lived correction in Feb. and Mar. Sadly the cost of this borrowed prosperity was a devaluation of our currency to levels never seen before in history. Since this is also unsustainable it had to come to an end and it did come to an end in July of this year. At that point no more currency devaluation was going to lift the markets. The only thing it was now accomplishing was higher and higher inflation (the government finally this week published inflation numbers that vaguely represent what we have all known for sometime).

So now let's look at the progression of what's been taking place. First the housing bubble, the driver of this prosperity, collapses. Once the free money from refi's and home equity dries up and the devaluation of the dollar has run it's course we start to see the domino effect. Next go retail and of course if retail is declining the the transports are going to follow. That's exactly what has happened. The semi's also followed retail down. Even though the Nasdaq has held up better than the general market it is being held up only by a few large caps like AAPL and GOOG. The internals are actually much weaker in the Nasdaq than the general market. With the semi's in a bear market it won't be long before the last remaining large cap tech succumb to gravity.

Now for the sector that made the credit bubble possible, the banks. We see the rise as housing drove the economy into 05. We also see the banks start to falter right before the housing bubble burst. Then we see the meteoric run during the Fed's all out currency devaluation. Now we are seeing the result of the bursting of the credit bubble. The banks who failed to heed the warnings when greed was running rampant are now paying the price of that hubris.

The only question now is will the Fed let the market run it's course and clean out the excesses so we can start to rebuild or will they try and hold everything together like Japan did and draw this out for years to come. At the moment it looks like they are headed down the wrong path.


Posted by Gary at 6:26 AM

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Thursday, December 13, 2007Platinum

All during the commodity bull platinum has been the strong sister in the precious metal sector. It has already broken out to new all time highs. Both Platinum and Gold are consolidating in triangle patterns after the powerful fall rally. The positive take away is that triangles usually break on the flat side. In the case of Platinum a break of the flat side would be up. If Platinum breaks up it will take the rest of the precious metals with it. At the moment silver is struggling but I have a feeling that some of this may have to do with the industrial component of silver and an economy that is slowing and may be heading into recession. If gold and Platinum move up though I expect silver to follow. I'll be watching Platinum in the coming days to get an idea what's going to happen to gold and silver.



Posted by Gary at 7:59 PM

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Bull or Bear?
There's quite the debate right now going on as to whether we are starting a bear market or if the bull is still alive. This is probably one that will never be settled. Investors continued to hope all the way down from the top in Mar. 2000 till the bottom in Oct. of 02. However let me point something out. Without fail the market has seen a 4 year cycle low every 3-5 years for the last 100+ years. There have been no exceptions. For longer term traders I have to beg the question what's the point trying to catch the last little bit of profit in this bull? The odds are now very stretched against this bull lasting much longer. It's already tied for the longest trough to peak rise in history. Here's what is going to happen to investors who insist on trying to wring the last little bit of upside out of this bull. When this bull turns into a bear (and it already may have) these diehards are going to start taking losses on the long side. The longer you hold on to your bullish bias the more losses you are going to take. Eventually this cycle will bottom and when it does there are going to be incredible bargains to be had. However if you have been taking losses all the way down you will be gun shy and unable to pull the trigger when the time is right. You will miss those bargains. The next rally out of this low should be much more powerful than what we've seen in the past. Huge profits will be made in the commodity arena. Unfortunately you won't be able to make them if you've whittled away your capital trying to suck out the last dime of this bull. Patience to wait for that cycle to come is what is needed now. You don't have to be short and for most shorting is probably not a great option as the profits are limited. Simply go to cash and when the bottom comes you will be in a buying mood and ready to take advantage of Mr. Markets irrational move. I included a chart of the 98 cycle. Look at how much better entry one would have gotten just by being patient. This market gave a very clear entry at the exact bottom with a 2b reversal in Oct.

Posted by Gary at 3:37 AM

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Tuesday, December 11, 2007Failed support

With today's decline the S&P closed back below support in the 1490 area. Now this level again becomes resistance. The S&P also broke the intermediate term up trend line on today's decline. I mentioned before that V shaped rallies are prone to failure and it looks like the odds are good that this one is going to fail. Amazingly enough the VTO signal from from Oct. 19th would have closed profitable on Dec. 6th. Not by much but it was a profitable trade.

Let's just say I wouldn't be at all surprised if the Fed comes out and cuts another 1/4 point in the next week and the market trades back above resistance. Heck they can't seem to make up their mind what they are going to do from one week to the next. One week it's the economy is softening and they will need to cut aggressively. Then the next week they cut small and still seem worried about inflation (rightly so IMO. In the long term if they let inflation get out of control now it will do much more damage than the credit crunch) Keep in mind we still have positive seasonality through Dec. and many short term levels are already severely oversold. A bounce in the next day or two wouldn't be unexpected.






Posted by Gary at 6:48 PM

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Sunday, December 9, 2007Devaluing the currency and other Fed scams

Let's take a closer look at this supposed bull market from 02 till the present shall we. First off notice the strong dollar as the bear market commenced. It wasn't long after 911 that Greenspan realized that just cutting rates wasn't going to do the trick and the serious currency devaluation began. By this time the bear was firmly in place and it took over a year of massive currency debasement to halt the bloodletting in the stock market. In the bottom chart we can see that oil started to respond to the printing presses almost immediately. The smart money was already on board the commodity ship. As we progress through the cycles we see two times where the Fed tried to drain liquidity from the system and both times the markets stagnated. One of these was right before the 04 elections. Whew that was almost a major mistake. However we can see that Greenspan got with the program just in time to salvage the market and get Bush re-elected. Then in 05 we see another attempt to drain liquidity from the market and again stocks stagnated. Back to pumping again as this was about the time the public started to get fed up with the Iraq situation and Bush's ratings were in the dumps. Up goes the market except now we are starting to have a real problem with energy prices. As a matter of fact energy prices are starting to trump stock market gains. Something needs to be done before the mid term elections. Next we see a concentrated effort to move energy prices lower. The stock market suffers to some extent during this campaign even though the Fed never really drains liquidity from the system. Once the energy markets are brought back in check the Fed goes back to the printing presses just in time to levitate the market into elections. All's well. Well sort of. Right after the elections the pressure is released from the oil markets and wow look what happens. Like a spring that's been compressed and suddenly released the energy markets rocket upward gaining almost 100% in less than a year. All that liquidity that was being held in the paper markets drained right back into commodities. Now we come to July and Aug. Something big happened here IMO. The dollar was allowed to break through to new all time lows. Now the currency was in uncharted territory. There was no support under the dollar at all. Instead of the market continuing higher as its done for the last 5 years that the Fed has been busy devaluing the currency all of a sudden the market changed character. Volatility started to spike upwards and the markets are swinging wildly back and forth. In the meantime oil just kept climbing straight up. The massive amounts of devalued dollars the fed has been pumping into the markets is almost immediately draining off into commodities. We see the same picture in the gold market. A straight shot up from the Aug. lows. Now the Fed is again embarking on an even more massive liquidity pump. Not only are they printing money but they are lowering rates to make that money even cheaper to borrow. How will they ever keep all this liquidity out of the commodity markets? If they can't keep it out then what is going to happen to the price of oil, gas, gold, silver, natural gas, food, etc. in the coming months? Just what we need as the economy slows, skyrocketing prices for everything we need to live. Do us a favor Bernanke and raise 50 not cut 50.



Posted by Gary at 6:22 PM

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50 points next Tuesday

Thanks to Doc for the chart. The spread between the 2 year note and Fed funds rate is as wide as it's been in 17 years right now. Contrary to popular belief the Fed doesn't lead the market. They follow as you can see from this chart. With a spread this wide I'd say it's a pretty good bet the Fed is going to lower 50 basis points on Tues. Lately they have been trying to talk short term rates up so they won't have to cut as much. I think they know these easy monetary policies are going to stoke inflation and weaken the dollar just like it's done since 01 but the market is demanding this action. At some point a Fed president is going to have to break this cycle like Volker did or we will just continue to watch the dollar drop and inflation rise. Rising inflation will eventually clamp down on the global economy.


Posted by Gary at 9:38 AM

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Saturday, December 8, 2007Agricultural sector
I'm going to show you another sector that I will be investing in when we get a pullback. That is of course agriculture. The powershares ETF DBA is one way to play this sector. Unfortunately there are only four components to this ETF, corn, wheat, soybeans and sugar. Other than sugar the other three are right near all time highs so I'm not keen to be jumping in at the moment but I will be when we get a pullback. Notice the recent weakness in the market had almost no effect on agricultural prices. When I see corn, wheat and soybeans pullback I will be looking to get into this ETF. Like precious metals agricultural prices have severely underperformed during the first phase of the commodities bull market. They will most likely outperform during the second. They already are :)



Posted by Gary at 10:54 AM

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Friday, December 7, 2007Gold & silver again
I think it's time to buy gold & silver again. Now I'll give you my reasoning. First off we all know the Fed is going to cut rates. Has anyone else noticed that after every rate cut they start talking about this being the last cut and inflation is a worry yada yada yada? Have you also noticed that right before the next meeting something pops up that necessitates another cut? Now maybe the rest of the world joins the party and starts cutting and the dollar stabilizes against other currencies and maybe it doesn't I don't know. I do know that won't change the fact that every country is running the printing presses. As long as everyone is devaluing their currency then it stands to reason that the price of Gold should go up in every currency. That's exactly whats been happening for the last several years. Now ask yourself what scenario would bring down the price of gold. The Fed tightening and draining liquidity from the system right or a huge gold discovery. Any one want to hazard a guess as to what the odds of either happening are? The other option the central banks have would be to try and control the commodity markets. Basically attempt to keep the liquidity in the paper markets. Well if that is their goal I'd have to say that with gold over $800 and oil at $90 they haven't been too successful.

Taking a look at the chart this just doesn't look like a major correction to me. Notice how gold typically just collapses after a powerful run? Silver BTW tends to fall apart even worse because it's an even thinner market. This looks more like a consolidation from the Sept. and Oct. rally to me. This also looks like we may be setting up for another rally of similar proportions. I'm really in no hurry to buy the general market but I will commit my capital to PM as they are in a secular bull market. If I'm wrong in the short term it doesn't matter as the bigger overall trend will eventually correct any short term timing mistakes.

Posted by Gary at 5:38 PM

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Thursday, December 6, 2007Are the precious metals ready to move again?


I like the action in GLD and SLV. GLD has held above the 50 DMA and it worked off the overbought condition from Sept./Oct. Last Tuesday GLD took in another 18 tons of gold. It has now surpassed the physical gold holdings of the central bank of China. Despite the strength in the dollar gold has not been able to break through support. The XAU is starting to look like it wants to break out of the consolidation to the upside. I have no desire to chase the market rally as I feel it's ultimately doomed to failure. I am willing to commit capital to a secular bull market that's pulled back and consolidated since the larger overall trend is in my favor. Stops are very close on this one. A close below support would probably signal the correction isn't done yet and one could exit with minimal losses.




Posted by Gary at 6:11 PM

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Wednesday, December 5, 2007Dollar rally Market rally
The market has been matching the dollar rally day for day. Tell me the market wasn't worried about a dollar collapse. I think the jobs report comes out strong and the Fed tries to get away with a 25 basis point cut or maybe even no cut. I'm wondering how the market would react to either one of those scenarios. If the ECU raises or stands pat tomorrow the dollar could start to weaken again. Either way the dollar needs to test the lows before a meaningful rally. If the Fed cuts 50 I suspect the dollar decline continues. Also note the RSI is approaching overbought. The pattern so far on rallies has been to touch the 70 level and then swoon back down to new lows.



Posted by Gary at 7:05 PM

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Monday, December 3, 2007S&P long term chart
Friday I posted that the S&P had bounced off resistance at the 90 DMA. So far this week that resistance is still holding.

I find it's often helpful to look at really long term charts and get away from the short term noise. We can see here that the last time the 90 DMA turned down sharply and moved under the 200 DMA was the fall of 2000 as the bubble was in the process of bursting. For the last several months we have been watching the bursting of another bubble. The credit bubble. The market may still bounce into the end of the year. The odds are still in favor of that scenario but I think the catalyst is now in place for the markets to move down into the 4 year cycle low. This bull is now tied with the 82-87 4 year cycle for the longest trough to peak at 60 months. Once we get past this bounce/rally we should be setup for the final decline. History would suggest this decline has the possibility of being especially violent.


Posted by Gary at 9:10 PM

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Saturday, December 1, 2007COT warning signs


11/27/07---- 25.80
11/20/07---- 28.03
11/13/07 ---- 37.02
11/6//07 ---- 35.53
10/30/07 ---- 30.58
10/23/07---- 31.91
10/16/07---- 26.89
10/9/07 ---- 36.46
10/2/07---- 38.02
9/25/07---- 38.87
9/18/07---- 64.24

I'm going to try and explain what's happening in the COT's that has me concerned. Let's start on 9/18 we see a combined contract (S&P, Nasdaq, Dow & Russell large and e-mini) net long position of 64 billion dollars. The next week on 9/25 that position was almost cut in half. A move like this almost never happens in the COT. It's something that needs to be taken notice of. This happened as the market was rallying. It's not unusual for the commercials to add to hedges as the market rises. So the direction of the move wasn't surprising it was the one week rate of change that was unusual. The next big move came on 10/16 when the commercials dropped their long position by 26% from the prior week. As you can see on the chart this corresponded very closely to the market turning down. Last week they dropped another 24%. Now the first two reductions in longs make sense to me. The commercials usually sell into strength so they were just doing what they do, hedging their longs as the market rallied. The last one is very strange. They dropped a huge amount of longs as the market was going down. Now let's look at the data from 10/16 to 11/27 a little closer. Granted they did increase longs a bit as the market declined but notice they aren't anywhere close to the 64 billion that they had on 9/18. Does anyone remember what happened on 9/18? That's right the Fed cut interest rates. The very next week (correction: the chart has the week of 9/18 marked and it should be the next week)all those longs that had been building up for months got basically cut in half. Hmm??? They then increased longs slightly as it became apparent the Fed would cut again. This time however the increase never came close to the 64 billion we saw before the first cut. Now it's widely believed the Fed is going to cut again but instead of building long positions the commercials are drastically trimming longs and they are doing it as the market has moved down. This is completely out of character with what the smart money normally does. Hopefully this clarifies what I mean when I say the COT has been giving warning signs for a while now.


Posted by Gary at 2:06 PM

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Friday, November 30, 2007The S&P hit the glass ceiling
As expected the S&P was unable to penetrate resistance at the 90 DMA at least on it's first attempt. Now the question is do we get a test of the lows, maybe even a very mild test and then off to the races again or are we seeing a dead cat bounce with more pain to come.

First off let me say the odds are stacked in favor of the bottom being in. No doubt about it. We are entering one of the most seasonally positive times of the year. We just came off some pretty severe breadth and sentiment extremes. We should be set up for a nice rally.

Here's my problem or problems I should say. First off if we were to make new highs then this would move the bull up to the second longest 4 year cycle in history. Second we obviously have the catalyst in place for the 4 year cycle low to happen with the credit crunch and subsequent damage to the financial sector. On top of that we can add the spike in oil that has always preceded or accompanied recession in the past. A bond market that is saying something ugly is coming. Widening credit spreads between T-bills and the 2 trillion dollar commercial paper markets. BTW I have trouble seeing the Fed cutting especially 50 if the market is rallying big into Dec. 11th. And the biggie. Almost everyone thinks the bull market is back. Can it really be that easy? The biggest financial crisis in years and all we get is a meager 10% correction and then it's back to the races with a 5% move in 4 days.

First off I don't know about you but the markets have never been that easy for me. Another thing I don't recall is bull markets moving straight up like a rocket. Don't bull markets climb a wall of worry? I'll tell you what does jump straight up and that is oversold rallies in bear markets. That's how the bear keeps everyone on board for the full trip down. You don't believe me? Just look at the 2000-2002 period. Heck just look at the BKX for that matter. It's obviously in a bear market and we continually see these big rallies that ultimately fail as investors continue to try and pick the bottom. BTW everyone seems to be calling the bottom in the banking sector also.

Some of the biggest one day and one week rallies in history occurred right in the middle of one of the nastiest bear markets.

Now let me state again the odds are highly in favor that we've put in an intermediate bottom. Let's just say I'm still a bit skeptical.

Posted by Gary at 10:18 PM

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Thursday, November 29, 2007Position size again
This is going to be probably the most important post that I will do this year. I've gone over this before but I'm going to go over it again because I think it's doubly important right now as we possibly head into the 4 year cycle low. Position size!!!

As one might expect I received quite a number of e-mails the last two days from investors freaking out about their short positions.

Now let me reiterate again that I'm not going to be like 99% of the other bloggers and newsletter writers on the Internet. I'm not going to brag about how accurate my calls are and what a great record I've got yada yada yada. Sure it's great for subscriptions but I didn't really start this to sell subscriptions. I started the blog to help novice and intermediate level investors improve their investing skills. (Many are the days I wish I'd never started this. It's become a monster that's eating up way too much of my time.) Sure I've had a few good calls lately. I can tell you unequivocally that it was luck. Pure D luck. I'm going to tell you a secret. No one, not me, not Trade, not F-Trader, not Pattern Guy, not Mr. T, not Richard Russell, not John Hussman, not Dennis Gartman, not Warren Buffett, no one can see the future. I've guaranteed before that I'm going to be wrong on probably 40-50% of my calls. Over the long haul trust me I'm correct in telling you this. It is just senseless to search the newsletter world or Blogosphere looking for someone to confirm your bias.

So how does this relate to position sizing you ask? Well here's what I see happening. From the amount of e-mails I've received quite a few investors are now on the short side. Which by itself is not a problem. Maybe I'm right about the 4 year cycle low and maybe I'm wrong. The problem is that these investors shouldn't be freaking out about a 4% bounce after the market has dropped 10%. At most they shouldn't have more than a 4% drawdown on their account and that's only if they went short at the exact bottom. If you were watching your position size you should only be down 1% or at most maybe 2%. That's nothing to freak out about.

I'm going to say it again. There's going to be huge money to be made in the commodity bull market but you can't make it if you get a case of the stupids and lose everything trying to bet too big on the decline. Big money is never ever made in bear markets, unless you take on leverage, simply because markets can only go down 100% and realistically a bear market is probably going to drop no more than 20-30%. Bull markets can easily go up 1000%.

Here is my motto and has been for several years. "If the market is going to take away any of my money it's going to have to fight me tooth and nail to get it and you better believe it's not going to get very much at any one time."

Posted by Gary at 7:23 AM

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Wednesday, November 28, 2007BKX
I think this is the key to whether the market recovers and goes higher or whether the rally yesterday and today was just a pressure release of extreme bearish sentiment. So far the piggies are still making lower lows and lower highs. I suspect they still have many skeletons in the closet that haven't popped out yet. If the BKX rolls over again and heads down I have a feeling we're going to see more downside for the markets. As we all know I think we are heading into the 4 year cycle low. It is possible that the 4 year cycle low was put in with a 10% decline. It would be the smallest cycle low in history if so. It would also be the shortest peak to trough cycle low. It is possible the Fed has done away with 4 year cycles aka the business cycle. It's also possible the Fed has now done away with ever having another recession. Let's just say I'm a skeptic.



Posted by Gary at 5:24 PM

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Tuesday, November 27, 2007weekly chart
So far I just don't see any reason to get rid of my short position or to doubt the Dow Theory primary sell signal. Notice also that the S&P still isn't even oversold on the weekly charts yet.



Posted by Gary at 8:29 PM

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Monday, November 26, 2007A great start to the holiday shopping season
The media would like us to believe that the holiday shopping season started out with a bang. For some reason the retail stocks don't believe the spin. But then of course there's no inflation either. Jeez It makes you wonder how long it takes before people realize the king has no clothes.

"You find out who's been swimming naked when the tide goes out." - Warren Buffett



Posted by Gary at 10:11 PM

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Saturday, November 24, 2007Cycles

I've posted two long term charts of the Nikkei and the S&P showing the 3 year cycles in the Nikkei and the four year cycle in the US markets.

In the first chart we see the secular bear in the Japanese market. It started with a 2 1/2 year decline from the late 89 peak to the 92 bottom and an initial loss of over 60%. What followed was a series of right and left translated cycles until the bottom in 03. That's a 13 year bear market. Notice the right translated cycles end very quickly and the left translated ones tend to just grind lower. Also notice the first counter trend rally ended in a right translated cycle and a vicious waterfall decline. The remaining cycles were all left translated and each successive 3 year low ended lower than the preceding one. The current cycle looks to be a left translated cycle or possibly a very shortened right translated cycle. It's also entirely possible the secular bear market in Japan isn't over yet. The slowing US economy has the potential to drag down the rest of the global economies. The action in the Nikkei is becoming rather ominous.

Now let's look at the US market. Here we see the same series of cycles only the US cycle is a 4 year cycle. We also see that right translated cycles have ended in violent moves downward even in a secular bull market. We see the cycle that topped in 2000 was a left translated cycle that ended the great secular bull market that started in 74. The normal 2- 2 1/2 year decline that followed is typical for first legs down in secular bear markets. During this decline the S&P lost almost 50% of it's value. We now have the third longest 4 year cycle in history. This cycle is now coming to an end and it's doing it in the overall context of a secular bear market. It's probably discounting a recession. Maybe even one that's already started. By the action in the Nikkei and China it may very well be discounting a global recession. This has the potential to be a very wicked bear move if it ends like other right translated cycles have ended and if it is in fact discounting a global recession.


Posted by Gary at 4:03 PM

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Bonds have spoken

The bond market dwarfs the stock market. It's also generally considered that bond traders are a more savvy lot that stock traders. You don't really find Joe Sixpack trading bonds. These markets are the dwelling place of institutional investors aka the smart money. When the bond market starts talking it's usually a good idea to listen. Well the bond market lately has been doing more than talking it's screaming at the top of it's lungs. Notice how the bond market rolled over in early 2000 just prior to the market topping out. This is usually the case about 90% of the time. Bond traders will spot problems on the horizon before stock traders and start allocating capital to "safe" investments. Now take a look at the 3 month T-Bills. What we see happening in the last few months is an unprecedented flight to safety. This move even makes 98 look tame. Remember the upheaval in 98 produced a 20% correction in the market. What does the current state of the bond market say about the future I wonder?



Posted by Gary at 8:08 AM

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Thursday, November 22, 2007S&P has now broken the 65 WMA
The S&P has now broken through the 65 week moving average. This has contained all corrections so far in the cyclical bull market. Notice that -2.88% in the top right hand corner of the chart? The period from Friday's close to the Wed. close before Thanksgiving is historically one of the most bullish times of the year. Well this year we just got the second biggest decline during this period in the last 27 years. The only year that exceeded 07 was the period in 2000 as the market was rolling over into the first leg down of the secular bear market. I also see a lot of discussion leaning towards another rally to let the big money out at higher prices. Unfortunately I think investors are probably going to be disappointed in this hope. We already had that rally out of the summer bottom. I mentioned during this time in the dailies that Lowry's buying pressure was not increasing and that selling pressure was spiking as the market rallied. This is not what we should have been seeing as the market moved higher. In hindsight it seems pretty obvious that the smart money was unloading stock to the little guy all the way up. I also mentioned the extreme ROBO (retail only, buy to open) levels of call buying and the extreme ratio of volume on the Nasdaq compared to the S&P. Both of these were signs of extreme speculation by the little guy at the same time the big money was jumping ship. At the present time the Nasdaq volume is still way to high. The smart money and media are now in an all out campaign to convince the retail investor that tech stocks are the place to be as protection against subprime fallout. Low and behold the sheep are falling for it all over again. They haven't learned a damn thing since 2000. First off this recession isn't being caused by subprime problems. Granted it's not helping matters. It's being caused by inflation. The same thing that was the Achilles heel of the 70's markets. We are currently in the exact same investing climate as the 70's and the Fed is trying to use the exact same methods to solve the problems. Namely printing money. Predictably we are now getting the same results. Spiking energy costs are the noose around the global economies necks not subprime loans. Tech is not going to be any protection against a contracting economy. As a matter of fact it will most likely be the worst area to be in. Everyone should read the quote on the home page by Edwin Lefevre and decide if they wish to avoid a similar fate. By the way he is talking about the 29-32 bear market.

BTW If you are reading this on Thur. then you are obviously a fanatic about the markets. Get out of here and go enjoy Thankgiving with your family :)



Posted by Gary at 7:08 AM

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Tuesday, November 20, 2007Point and Figure charts: not a rosy picture


Despite today's little rally attempt the markets are not on solid footing. Looking at the point and figure charts we see a descending triple bottom breakdown, another descending triple bottom breakdown and another descending triple bottom breakdown. The test of the Aug. close might have failed today but I doubt that will be the last test and I'm not so sure the next time it's going to hold. All three charts are now in down trends until otherwise notified.



Posted by Gary at 6:52 PM

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65 week moving averages violated




The S&P has now dropped below the 65 week moving average. Other than one week during the summer 06 correction this average has contained every other decline. If this is just a correction we need to see this level recovered soon. The Wilshire has also violated the 65 WMA . The Russell is in considerably worse shape than the broader market. Finally the transports look like it's going to take a miracle to revive this chart.



Posted by Gary at 5:15 AM

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Saturday, November 17, 2007Troubled sectors


I've included a few charts today of specific sectors that are already in a bear market or are dangerously close. Of course we all know the financials are in trouble. The thing that's troubling here is that they make up 20% of the S&P. Unless they can all of a sudden find new life and start rallying strongly I don't see how the general market is going to make a lot of headway. The other obvious one is housing. No need to elaborate there. Third on the list is retail. This one is concerning since we're in a time of year when retail should be moving up strong as it has every other year since 03. Instead it's dropping like a stone. Since the consumer is 70% of totally GDP this just doesn't bode well. The transports are also flirting with bear market status. I could have also included the semi's here. The SOX rolling over right before Christmas isn't a particularly bullish development either.


The last one is a chart of the Nikkei which is now down 18%. The third largest economy in the world is heading into a bear market. If all this talk of the global economy still being strong is correct then why is Japan heading south?




Posted by Gary at 6:30 PM

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Wednesday, November 14, 2007Secular Bear markets
Looking at the first chart and keep in mind the effects of inflation does this really look like a new secular bull market sprang out of the ashes of the bubble bursting in 2000-02.







Now take a look at the second chart of the late 60's to early 80's. This is what a secular bear market looks like and I think this is what we're in store for in the coming years.






How about a peek at the Nikkei in the 90's. Secular bear markets don't end over night. They surely don't end in 2 1/2 years. To think the decline from 2000-2002 was the end of the bear is a little absurd in my opinion.







Posted by Gary at 6:43 PM

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Tuesday, November 13, 2007semi's lagging

The semi's are a very good indicator of economic strength. When demand is high it's a good sign of economic growth. Notice on the first chart how the semi's resisted making new lows in 03 as the market was putting in the final low before the multi year rally. Now look at the recent chart of the semi's. Does this look like strong economic times ahead to you? I think today was just an oversold rally. This is how the bear keeps everyone riding all the way down. As I've said before markets go up different than they go down. The bull does his best to buck you off and the bear (that sneaky bastard) will do anything he can to keep you on board for the full ride down. If you let emotions control your investing decisions then they will both be successful. Remember our objective is to beat the market not let the market beat the crap out of us.




I've added the chart of copper, also a good indicator of global economic strength.





Posted by Gary at 4:08 PM

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Monday, November 12, 2007Watershed event????


Keep in mind that what I'm going to show you doesn't mean that we are in for a similar event but then again we could be. I've pointed out before that extremely right translated bull markets tend to end in very quick nasty bear markets. Ones that are extremely long tend to produce even nastier endings or a waterfall decline if you will. The two longest 4 year cycles in history were the 32-37 bull and the 82-87 bull. Look at the charts to see what the outcome of each one of those was. A 42% decline in 37 and a 35% decline in 87. Take special note of how fast this devastating drop occurred. The current 4 year cycle is the third longest in history.

Now I see on CNBC that most everyone thinks we are searching for a bottom. Quite a few are expecting a 10% correction. I even heard one analyst say we were due for a 10% correction. ?????? Didn't we just have one a couple of months ago? Why on earth should we be due again already? I also see may traders on the blogs positioning to catch the "coming powerful bounce".

Let me just point out something. A watershed event if indeed that's what we're in for is the most powerful move in the stock market. Why oh why would you want to stand in front of something like that? Does the phrase "trying to catch a falling piano" mean anything to you? Now take a look at the waterfall decline in the 93 Nikkei. Again we see the 2 1/2 month move with most of the decline occurring over 23 days . There were only 3 days were a trader could have realistically made any money on the long side. How many losing trades would you have had to take to catch those three days and in the meantime you are missing out on the move of a lifetime. In this type of event you don't try and catch a counter trend move. If you get one then great use it to add to shorts but for heavens sake don't stand in front of a train that size.



Posted by Gary at 6:25 PM

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Sunday, November 11, 2007The Line in the Sand
Here's the line in the sand 12,845. If the Dow closes below that level we will have a primary Dow Theory sell signal. Nuff said!



Posted by Gary at 8:56 PM

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Saturday, November 10, 2007Transports in trouble
I pointed out to subscribers the other day when the transports closed below the Aug. 16th close that we now had a Dow Theory nonconfirmation. Let's take a look at the weekly chart of the transports shall we. We see the 65 week moving average that has supported every decline since the 02 bottom decisively penetrated this week. We see that moving average ready to roll over unless the transports can mount a powerful rally and quickly. The tranny's are already down 16% from the peak. We are dangerously close to an official bear market in the transports. What's even more disturbing is this index still isn't oversold on a weekly basis yet. True bear markets can not only get severely oversold but they can stay oversold. I'll be watching this closely.



Posted by Gary at 8:38 AM

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Thursday, November 8, 2007Cash Flow
Tonight I want to talk about cash flow otherwise known as income. From what source do you get your income? What does this have to do with investing you ask? We’ll get around to that in a minute.

First off let me say that if you want me to show you how to put together options strategies I can’t do it. If you want me to tell you what a calendar spread is I have no idea. I have no expertise with complex hedging systems (which BTW are a waste of money unless you are a large hedge fund that can’t sell your positions without moving the market). I have no idea what the Black Scholes model is other than a way to determine option value. I have no expertise in any of these areas and I must confess that I have no desire to acquire any. There is just no need to know this kind of stuff to make money in the markets. This is all just a way for investors to make something that should be simple and boring into something that’s complex and exciting. I get plenty of excitement by hanging off the side of mountains. I want to keep my investing strategies simple.

Now what I am half way decent at is seeing the big picture. I can see the forest and not just the trees :)

Now how does cash flow fit into the big picture you ask? Well first off let’s look at the different types of cash flow.

Let’s start with earned income. A job! Security, risk free right? Well maybe and maybe not. I think before I’m done we are all going to see that there is no such thing as risk free cash flow. Security… maybe unless we have a recession then unemployment is going to soar. Also technology is now advancing rapidly. Most of the scientific discoveries ever made in the history of the world have occurred in the last 20-30 years. Your job skills could and probably will become obsolete quickly in this changing world. Also as I’ve stated before I think we are in an inflationary environment. During times like this businesses are going to have their profit margins squeezed. At times like this it is hard for business to raise payrolls enough to match rising input prices. Bottom line the employees of the world are going to get hammered by rising prices and stagnant wages. Also if you are in this category the government is going to take their chunk before you ever get your hands on your paycheck. Needless to say as an employee you have no tax advantages.

Now let’s take a look at passive income starting with real estate. First off real estate has great tax advantages. One thing going for it. If you had bought real estate back in the early 90’s you could rent your property, get a positive cash flow and on top of that normally your property would be appreciating as someone else paid for your asset. I think it’s safe to say that that category of cash flow is now kaput. Not only can you not purchase real estate at a price that will let you get a positive cash flow but your property will most likely be depreciating for the next 10 years. I think we can all agree that this category is now too risky to invest in.

How about risk free bonds? I’m going to show you why bonds are about as far away from risk free as you can get at this time. Almost as bad as real estate. Let’s say you bought $10,000 worth of 10 year notes in 2000 yielding 6.75% annually. Now let’s use that gallon of gasoline as a proxy for our inflation gauge since everyone is dependant on it. At roughly $1 a gallon your original $10,000 would buy 10,000 gallons of gasoline. Compounding that return for 7 years we get $16,860. Now let’s take that gallon of gas which is now costing $3 and see how many we can buy $16860 / $3 = 5620 gallons. Son of a B****. The damn government just stole half my purchasing power on a risk free investment. Let’s just say that inflation is just now getting started good. Let’s also agree that we don’t want to make that mistake again.

That leave’s us with two options that I think have a better chance of actual returns.
The first is to start a business. I personally have owned several businesses. There’s nothing better than being your own boss and having other people work for you. On the other hand there’s nothing worse than being the one that has to be there to solve any problems when they happen because your employees are not going to take your problems home with them. It will be up to you to handle life’s little curve balls. This of course isn’t risk free by any means either. Especially in the coming times of high inflation it’s going to be challenging to start and keep a business alive and well. But at least you are in charge not someone else. You also have some tax advantages. You get your hands on your money before the government. If you desire you can use some of those profits to expand your business or as investing capital before the government takes its share.

Now the last category: investing. For our purposes we’ll stick to investing in the stock market. Also I think we all will agree not risk free. As I’ve said many times now I think we are in a secular bear market for paper assets and a secular bull market for commodities. If you had bought stocks in 2000 you have lost a tremendous amount of purchasing power even though the Dow is considerably above the highs of 2000. Even if you bought the Dow at the absolute bottom at say 7000 and are now up 100% you have still lost purchasing power compared to that gallon of gas because that gallon of gas has increased 200%. So even if you are the best market timer in the world you have lost half your purchasing power. However if you had bought oil in 2000 you have not only kept up with inflation but you have vastly outpaced it. Same with almost all commodities. So if we are going to produce cash flow in the markets we either need to be both an excellent market timer and a great stock picker or we need to be invested in commodities because that’s were the real bull market is. On top of this investing has advantageous tax breaks if you are a long term holder. At the moment long term capital gains are taxed at a 15% rate as opposed to as high as 35% for short term gains.

Now I’ve gone over all this because I think we are quickly coming to the end of the “fun” times for this monetary inflation period. The Fed is now in a box. They need to cut rates to keep the economy growing. The last two rate cuts have produced a brief rally in the stock market that has quickly faded away and put the dollar in jeopardy of a waterfall collapse. If this were to transpire inflation would skyrocket. Here’s what I think is going to unfold. The Fed is going to have to hold off on more cuts and the economy is going to stagnate. When this gets serious the Fed is going to have no choice but to cut. The dollar collapses and inflation really starts to take off. Maybe we even see hyperinflation. This puts an even bigger strain on the economy as paychecks can’t keep up with rising prices. Standards of living decline. Multiple recessions take their toll on the economy. At some point we will have to suffer through a bad recession or possibly even a depression to clean out the excess built up during the bubble years. Historically a depression happens about every 75 years. At some point a Fed president will have to be willing to flush out all the excess liquidity like Volker did but this is going to be very painful and I have a feeling the powers that be will put this off as long as possible thus making it infinitely worse than it has to be.

Posted by Gary at 2:13 PM

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Monday, November 5, 2007bull market rallies
As many know by now I like to take a longer term outlook on my investments. To that end I often prefer to look at the weekly charts and also multi year charts. Sometimes we get so caught up in the day to day happenings that we forget to step back and see what's actually going on. Today I'm posting a chart of the XAU but the principles are quite often the same for most stocks or indexes. Typically what happens is we see a strong rally followed by a correction or consolidation. The retail investor trading on emotion usually doesn't trust the move until it's about over and consequently often enters close to or at an intermediate top. If he does get in in the middle of the move he is often so nervous that he can't hold on to his position for more than a couple of points. He then either gets knocked out by the correction or worn out by the consolidation. Notice how each successive consolidation has been longer than the preceding one and each rally has been larger and now they are becoming steeper also. This latest rally is really breaking the mold for parabolic moves so far. I think the reason for this is the market realized that the Fed decided to sacrifice the dollar to try and save the economy by entering a rate cutting cycle. Now this is just my personal observation but it seems like everyone is expecting a rally in the dollar and that of course would mean a crash in gold. Several members of the Fast money crew have been talking down gold for the last $100 or so for that very reason. However taking a look at the size of the consolidation and the extreme hesitancy of investors I've got to wonder if we don't still have a ways to go yet. So far even though this move has been parabolic in nature it still hasn't even come close to matching the size of the other three uplegs.


Posted by Gary at 7:52 PM

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Saturday, November 3, 2007The bigger the consolidation the bigger the bull



I've noticed that often the size of a consolidation will give one a clue as to how big the rally will be once that consolidation is complete. Often the length of the rally will approximate the duration on the consolidation. I'm not necessarily talking time wise here since a powerful rally will often cover a lot of distance rather quickly. What I'm suggesting is that the length of the consolidation can give us a target for the magnitude of the following upleg. In the first chart of gold we see a 9.5 month basing period that was followed by a rather large rally that actually exceeded the size of the consolidation by a bit. In the next chart we have every ones favorite bubble, China. However look at the sheer size of the consolidation during the devastating bear market from 01 to 05. That my friends is a 5 1/2 year consolidation from a bear that took away more than half the value of the Chinese market. It looks to me like the upleg is still a bit short of matching the magnitude of the consolidation. Now lets look at my favorite market, Gold. What we are looking at is a 16 month consolidation of the gold market. This would suggest a tremendous move is now underway. As bulls are want to throw off as many riders as possible we are already hearing the cries of gold topping out. Hell, it doesn't even look like it's getting started good yet. My suggestion is to ignore all the naysayers and let the bull make you money. All the doom and gloomers are going to do is cause you to miss one of the greatest bull markets in history.





Posted by Gary at 12:06 PM

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Thursday, November 1, 2007Nicolas Darvas
Today I'm going to tell you the story of Nicolas Darvas. The short version. Actually the very short version. Darvas was a professional dancer who made over 2 million dollars in the stock market from an original stake of $8,000. Basically he found a system he could stick to (his box theory) and then he followed it. However and this is what I found very interesting, as long as he was overseas and away from the stock market he made money. His broker would send him the tape once a week. That's it! He wasn't distracted be the constant noise of daily news, wall street hype, etc., etc. He just watched the tape once a week.

But then he decided that he could improve his investing if he went to New York where he could be in the middle of the action and get the latest happenings as they unfolded. So what do you think happened? That's right he immediately started to lose money. You want to know why? Because all that worthless noise played on his emotions till he couldn't stick to his system that's why. My suggestion is you turn the damn TV off and ignore all the crap that the media and wall street put out every day. Just look at your positions once a week like Darvas did and I suspect you will have a much better chance of achieving results like he did.

Ever wonder why Buffett lives in Omaha, NE?

Posted by Gary at 11:58 AM

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Wednesday, October 31, 2007Picking tops
No charts on this one. None needed. Everyone who has continually tried to pick the top of this bull has been taught a painful lesson so far. I'll say this again. The only way that I know of to realistically have any chance of spotting a market top is by watching what the big money in the market is doing. Right now the big money is buying heavily. As long as the COT is long I will have to assume that any corrections are buying opportunities. Since commodities are where the real bull market is that means I want to continue to hold my positions in precious metals since they are due to outperform other commodities with the possible exception of agriculture which has also underperformed.

Posted by Gary at 8:09 PM

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Monday, October 29, 2007Point and Figure charts


I think it's time to take a look at the point and figure charts. Triple top breakout on SLV price objective of $190. Quadruple top breakout on GLD price target of $85. Finally a triple top breakout on the XAU with a price objective of $274. So far things are looking good in the PM world.



Posted by Gary at 4:50 PM

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Saturday, October 27, 2007Inflation



I'm going to talk a little bit about inflation today but I'm going to come at it from a little different angle and try and show you how it affects everyone personally and why you should keep inflation in mind when you make investing decisions.

I'm going to use gasoline as an example because it's the most widely used form of energy but the principles can be applied to anything from food, tuition, housing, health care, you name it.

In 2000 right as the stock market was topping out gasoline would cost you roughly 75 cents to a dollar a gallon. So if you were to cash out one share of the Dow you could purchase 11,750 gallons of gasoline at that time give or take depending on the actual price of gas.

The Dow has been in a strong bull market right? We've been making new highs right? Stocks are a protection against inflation right? WRONG

As of yesterday gasoline was selling for $2.28 per gallon and the Dow was valued at $13,800. Well gosh darn it the Dow that has supposedly been in such an exceptional bull market now only buys 6,052 gallons of gasoline. Don't even get me started on how well the Nasdaq has done during this same period. Now if you were or are in bonds during this time you are getting eaten alive by inflation. Investors tend to view bonds as guaranteed but that only works if the government behind those bonds isn't destroying it's currency. (Ours is by the way)

During times like these investors must be invested in "REAL STUFF". Gold, silver, oil, wheat, soybeans, copper, you get the point. The government can print as many dollars as they want for free but they can't print a barrel of oil or an oz. of gold or a field of wheat.


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Friday, October 26, 2007Commodity bull: Second phase


I know many of you are familiar with my 5th year correction scenario. For any who are new to the site. All that means is that typically secular bull markets will have a serious counter trend decline somewhere around the 5th year of the bull market. The 87 crash is a great example. Last summer I think we saw that decline in the commodity markets. During the first phase energy and base metals outperformed precious metals and agriculture. During the second phase I fully expect PM and Ag to outperform. Notice how the correction in PM during this time was also milder than what took place in energy. During this next phase I think PM and ag is where an investor will outperform. These second phases can be rather long. The second phase in the stock market lasted from 87 to 98. During this time corrections should be bought not feared. Remember a correction is just the market doing something stupid. Your job is to take advantage of this stupidity.



Posted by Gary at 5:51 AM

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Wednesday, October 24, 2007How to get rich in the markets in 3 easy...errr hard steps
Tonight I'm going to post a clip from today's daily update.

"Now I’m going to tell you the three ways to get rich in the stock market. The first and most dependable is compounding. Start early in life, buy good companies that throw off cash flow as dividends, reinvest those dividends and in 30-40 years you will be rich.

Second: Find a superior system that consistently makes money and then stick with it thru thick and thin. Every system will have losing trades. Every system will have losing years. If you can stick with your system for 30-40 years you will end up rich. If you had invested $10,000 in the COT system in 1986 and used leverage as described above you would now be worth somewhere around 5-10 million dollars.

Third: Spot a secular trend as it begins, get on and hold on till it’s done. The third is how billionaires are made. If you had spotted the bottom of the bear market in 74 and just bought and held on till 2000 you would probably be worth many, many millions at that time. Do any of you happen to recall who was buying in 74? That’s right Warren Buffett. We have that very same opportunity right now or I should say we had. Commodities have entered into a secular bull market. Most will gain 1000-2000% before this bull is over some like silver may move 4,000 or more %. To realize this incredible potential you have to be willing to hold on. There are going to be countless investors who are going to jump ship especially in this second phase. The media will broadcast repeatedly that this is a bubble. The naysayers will be many. If you can ignore all this crap and just keep holding you will be rewarded, big time. We will know when the end is approaching because everyone you know will be investing in commodities. Everyone at work, at the gym and the guy filling up his car next to you will be bragging about his gold or silver or XOM stock. When you see this start to happen then you’ve got about a year to a year and a half before it’s all over. BTW at that time nobody will think it’s a bubble anymore. They will give you countless reasons why oil prices will rise into the foreseeable future even though we’ll see drilling rigs off both the FL and CA coast. Gold and silver mines will be sprouting up daily. We’ll be prepared though and we’ll know when to jump ship and move on to the next bull market. By that time you should have made your fortune. See you at the top!"

Posted by Gary at 7:25 PM

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Tuesday, October 23, 2007Can the precious metals runaway?


I pointed out the runaway move in the S&P last year. These kind of moves are characterized by very uniform and minor corrections. It's beginning to look like the PM could be entering into a runaway type move. So far the corrections in gold have held at roughly $25 and in Platinum at $35-$40. If this trend continues then we should look for a correction that exceeds these parameters as a hint that the run is over. The two strong metals will most likely pull the weaker two (Silver & Palladium) higher with them. Both are too cheap and I expect liquidity to begin flowing into both.

Posted by Gary at 6:31 AM

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Sunday, October 21, 2007The real bull market (Commodities)




I suppose many investors assume that the rise in commodity prices is a monetary phenomenon. However looking at gold and oil in Euros, Pounds and Yen we see they are both in strong bull markets even when measured in currencies that are appreciating strongly. The US is exacerbating the problem by printing too many dollars but the underlying cause is a supply/demand imbalance.



Posted by Gary at 2:55 AM

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Thursday, October 18, 2007Keeping an eye on oil
I'm going to point out again what I think will ultimately bring about a recession and it's not the housing melt down. I've posted in the past here and here about what I think the cause of recessions is. It is a spike in energy prices. As long as energy climbs in a controlled manner economies can adapt and survive higher energy prices. It's when they spike quickly that problems start to happen. If all of a sudden it costs two or three times as much to fill your car, heat your home or ship your products then bad things normally follow. Unless you have a really nice boss or can easily pass on the increase in energy costs to your customers then you are going to have to make some drastic changes in your life style during an energy spike. We all know how likely it is for your employer to boost your pay by 20% especially if he's feeling the pinch from the energy spike himself. Needless to say the extra money that was used for discretionary spending probably suffers during an energy shock. Since personal consumption is 70% of the economy it's not a good thing when a big chunk of this gets diverted to energy. Less consumption means less profits for business. Shrinking profits mean layoffs. Layoffs mean even less consumption. A vicious circle ensues. Notice the chart above. You will see a large spike in 79-80. Two recessions followed. Another spike during the first gulf war causing an immediate recession. Another spike in 99-2000. The bursting of the tech bubble and another recession followed. We are nearing the level at which things can get dicey. If we cross the $100 level this winter and especially if oil holds at this level I would say there's a very good chance we could see a recession sometime next year.

Posted by Gary at 5:59 PM

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Tuesday, October 16, 2007Trading against the odds
I think it must be human nature to love the underdog. It seems that it is often human nature to want to invest in the underdog. By that I mean play the low percentage bet or buck the odds. Now if you are in a casino you will get rewarded if the long shot hits with a sizable return on your original bet (not sizable enough for you to make money over the long haul though. Hey they don't build those casinos by letting gamblers win.) Let's take roulette for instance. If you put $5 on 13 and it hits you will be paid 35:1 or $175. Unfortunately there are 38 spots on the wheel so over the long haul you will slowly lose money. Now lets take a look at what's involved when you choose to fight the odds investing. I showed subscribers today that the odds were roughly 4:1 that the rest of the week should be positive. Now if you were in the casino you could expect to get paid at least 3:1 if the long shot hit. That's not the case here. If you do beat the odds and the market goes down there's no guarantee it's going to drop 3 times as much as it would go up. Actually the odds in this situation are skewed the other way. Historically the return has been 3 times higher than the drawdown on options expiration week by going long Wed. thru Fri. Either way the market is rarely going to reward you for playing the long shot. The market is only interested in taking away your money as fast and as unfairly as possible. Fortunately you have the option to be the casino and keep the odds in your favor at all times. Unfortunately because we love the underdog or because the market makes the underdog look so appealing it's quite often hard to make ourselves take the correct trade.

Posted by Gary at 7:44 PM

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Sign of a fundamental change

I'm posting the weekly charts of GLD and the XAU. Notice the only other time that GLD shot up like it did recently was during the final leg of the first phase in golds secular bull market. Now take a look at the XAU. It has never gone up like that. Some are suggesting that we are witnessing the final blowoff in this bull market. I guess it's possible. Anything is possible. However I'm going to point out another possibility. Perhaps something very significant in the investing environment recently changed. Gold is simply responding to that change. The Fed has decided to sacrifice the dollar in exchange for stimulating the economy. Gold is simply responding to the obvious that the Fed is now embarking on a rate cutting cycle. Will they cut at the next meeting? I don't know. The Fed funds futures say the probabilities are low for that in Oct. but who knows about the rest of the year. I don't see gold reversing this uptrend to any great extent until the Fed starts tightening again and I doubt that will happen at least till after next years elections.



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Monday, October 15, 2007A failed 1-2-3 reversal

I'm going to point out a failed Sperandeo 1-2-3 reversal. I guess you could call this one a 1-2 continuation :) The test of the highs proved unsuccessful and so the trendline has now changed to a slightly lower angle and the trend has continued up instead of reversing. We now look like the HUI is on it's way to a technical rule #1 advance (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected).

Posted by Gary at 4:20 PM

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Is the commodity bull almost over?
I'm going to let you in on a secret. There are always going to be doubters in any secular bull market. As bull markets progress the Beanies of the world will come out of the woodwork and tell you with great confidence that this is a bubble and the end is near. Some can even make a pretty convincing argument. I suggest when you start to buy into this nonsense you proceed to the beat your head against the wall technique. Remember no one can see into the future. You don't make money in bull markets by getting shaken off the bull after a couple of points. You make money by holding on. Just because the market is overbought is no reason to exit. Bull markets get overbought and they stay overbought for long periods of time. They make new highs. That's what bull markets do, they go UP.

Posted by Gary at 7:06 AM

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Sunday, October 14, 2007Archived updates
Archived daily updates are now available. See instructions under "requesting the spreadsheet" on the lower right side of the home page. BTW let's not get carried away with this one. Let's keep this reasonable. I'm not going to spend hours sending out 6 months worth of daily updates.

Posted by Gary at 6:11 AM

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Saturday, October 13, 2007The Sinking Dollar
In bull markets you get abrupt nasty sell offs. We had one in Mar. and Aug. as an example. On the flip side in bear markets you get violent rallies when the market gets too oversold. We had several of those kind of rallies during the bursting of the Nasdaq bubble. The object is to figure out when we should be looking for one of these powerful rallies. In the S&P that level was 20% below the 200 DMA. Once that level was reached it was a good idea to cover shorts and wait for the inevitable rally before selling again. Well since I'm heavily invested in PM and they're influenced by the action in the dollar I want to know when I should be looking for a powerful rally in the buck. So far during this bear market that level has been around 8.5-10% below the 200 DMA. At the moment the dollar is about 5% below the 200 DMA. That would suggest that the dollar has a ways to go yet before we should look for a powerful rally. My guess earlier this month using other bear markets as an example was that the dollar could possibly sink to the 72-75 area in this second leg down. That should just about give us that 8-10% below the 200 DMA that I'm looking for before I want to sell any of my gold or silver positions.



Posted by Gary at 2:02 PM

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Friday, October 12, 2007Silver fundamentals


I wish I could have found a little more recent charts however the trends are still intact. Notice the historic silver/gold ratio in the first chart.



Posted by Gary at 5:55 AM

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Thursday, October 11, 2007Trendlines still intact




Today seemed like a very bad day didn't it? Many of the bears are again calling for the end of the world. The truth is however that no trendlines were broken today. That's not to say they won't be broken tomorrow or the next day but as of today nothing serious has happened. Also take a look at the summation index. Notice how almost all declines are preceded by a divergence in the index. At the moment there is no divergence as a matter of fact the SI was up today. We may get a little short term weakness, but as of today it hardly looks like we saw the beginings of a bear market yet.

Posted by Gary at 7:55 PM

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Silver/Gold ratio
I got a request for a longer term chart of the gold/silver ratio. Ask and ye shall receive...hmmm I think I'll ask for silver to rise to $200 within the next 5 years :)

Notice the ratio has been erratically declining since 91. I tried to find a much longer chart, something in the 500 year range but wasn't able to locate it. The longer term chart shows the normal 15 to 1 ratio much better than this rather short chart. If anyone has a link to the longer chart maybe they could post a link.



Posted by Gary at 7:16 AM

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Tuesday, October 9, 2007Looking for a bargain?



We all like to buy when something is on sale right? The common sense answer is of course we do. If you go to the store to buy a pair of jeans and one store is having a sale, half off, I think it's safe to say you're going to make your purchase at the store having the sale. The problem is that when it comes to investing common sense gets tossed right out the window. When investing we are drawn to the most expensive "jeans". Hell if they raise the price overnight on us that just makes us want those "jeans" even more. Take a look at those first two charts oil & copper. Pretty representative of what's been going on in energy and base metals during this bull market. Both are showing gains in the 700% range. Now take a look at Gold. A measly 200%. How about silver 250%. Copper and oil look much more appealing don't they?

Of course that doesn't make any sense.

We're looking at two commodities that are on sale and not at half price but more like 1/3 price. Now let's take a little closer look at silver because at first glance it looks like silver is slightly more expensive than gold. The problem is that sometimes looks can be deceiving. The historic ratio of gold to silver is roughly 15 to 1. That means 1 oz. of gold should only buy 15 oz. of silver. So what does 1 oz. of gold buy at the moment you ask? 20 oz. of silver? 30 oz. of silver? 30 oz. would be twice what the historic norm is which would suggest that silver should be trading at $27.00 not $13.50. However 1 0z. of gold will buy a little more than 30 oz. of silver. How about 55 oz. of silver! At the moment gold will buy almost 4 times as much silver as it historically has throughout history. That means with gold at $750 an oz. silver should be priced somewhere around $45-$55. That would suggest this pair of "jeans" is on sale at 50-75% off. Personally I do love a good bargain and if the market is stupid enough to give me that kind of bargain I have no qualms about taking advantage of it :)

Posted by Gary at 6:52 PM

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Chinese Bubble
It seems that most investors think that China is in a bubble and it's ready to pop soon. Maybe it is and then again maybe it's not. First off notice from Mid 01 till 05 the Chinese market went through a devastating bear market . The SSEC lost more than half it's value. From that point the market has blasted off to a little over 400% gain. Impressive to say the least. But not all that unusual. Many secular bull markets can tack on 2000% before they're done. Look at the Nasdaq from 1980 to 2000. It gained 2000%. Granted the Chinese market has made those gains rather rapidly. I frequently hear about Chinese public piling into the markets as a sign of the end. However it usually takes about a year and a half of this kind of public participation before the market tops. Keep in mind the total population of China. The number of retail investors is still rather small compared to that huge population. I think I would hold out the possibility that China is exploding economically and there may be considerable upside yet before the inevitable correction comes. Of course it will come. When it does it's going to be one heck of a buying opportunity.



Posted by Gary at 5:32 AM

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Saturday, October 6, 2007When contrary opinion doesn't work



I'm starting to hear much ado about how there is too much bullish sentiment. This may or may not be true. At the end of a long bull market everybody is going to be bullish. The markets will have conditioned us to be bullish. Buying the dips will have been the motus operandi for years and human nature being what it is we will assume that strategy will now work into infinity. The thing is at the end of a huge bull market contrary opinion won't work. Everybody will be piling in. Occasionally a few will get scared and sell only to see the market rocket upward. They will then be forced to chase as they can't stand to miss out on any gains. The market will just keep rising no matter how lopsided the sentiment gets. Near as I can figure when we start to see this happen. When the public starts to catch on we've got about a year to a year and a half for it to suck in every last one of the sheep. During this time it's best to ignore all the contrary opinion polls. They're just not going to work as the markets get lost in an orgy of speculation and euphoria. Are we starting to enter this phase of the bull? I don't know but I do trust that the smart money is going to know when the end is coming and get me off the train in time. Just like they did in 2000.



Posted by Gary at 5:22 PM

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Friday, October 5, 2007Could the Transports be getting into gear?
It now appears that the transports are ready to breakout of the triangle on the flat side as tech rule #6 (Triangles of either slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side) would suggest is the greater possibility. While the transports haven't broken below the Aug. 16th lows they have been lagging. A break below the Aug. 16th low would have been a Dow Theory nonconfirmation and a possible warning sign. It is now starting to appear that possibility is becoming more and more remote.



Posted by Gary at 8:42 AM

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Wednesday, October 3, 2007Double dip correction
I checked recent history to see how many times the markets went through a 10% correction, rallied back to test the highs and then fell into another 10% or worse correction. This is the only one I could find in the last 27 years. Needless to say the odds are not good for the markets making a double top and then dropping below the Aug. lows.



Posted by Gary at 7:38 PM

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Tuesday, October 2, 2007Final bull legs
I've posted this before but it's probably worth repeating. Final legs up in bull markets average 34% trough to peak in roughly 6 months. I've also noted that once the public starts to pile into an asset you can look for a parabolic move that lasts roughly 1 to 1 1/2 years. The Nasdaq bubble fit that criteria pretty closely. It lasted almost 1 1/2 years exactly. The real estate boom also lasted about a year and a half once the public caught on to a "sure thing". Notwithstanding last weeks COT, which may have been an aberration, the commercials are and have been at historic long positions. If we are entering this kind of period and you start hearing your neighbor and coworkers brag about how much they are making in the market keep in mind that at this stage of the game this is not a contrary signal. Far from it this means it is the time to be greedy as hell for about a year. Once that year is done then get rid of that greed at all costs and get the hell out.

Posted by Gary at 4:10 PM

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Monday, October 1, 2007COT short signals
I'm going to show you COT sell/short signals in the gold market for the duration of this secular bull. Take note here as this is important. The commercials are much better at spotting value than they are timing tops. I've got news for you it's pretty much the same in every futures contract including the S&P's. Spotting tops is virtually impossible and the commercial traders aren't really any better at it than you and me. When I get a short signal I'm very hesitant about shorting and if I do it is in very small amounts. It is much safer to just go to cash and wait for the next long signal. We've got a short signal in gold right now but as we can see the history hasn't been great for calling tops. Even if we do get a pullback it's very unlikely to amount to much or last very long. So I won't be shorting or selling any of my PM. I may take a little off the table on my PM stocks because there is some pretty strong odds of some kind of pullback this month but I would never think of selling any of my physical gold or silver which is where most of my capital is anyway.



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Thursday, September 27, 2007Gold pennant
I've been pointing this out to subscribers for a couple of days now. GLD has formed a pennant pattern. Yes I'm showing you a pattern. I know shell shock right? :) The only reason I'm pointing it out is that I'm bullish on PM. Now that I've got the disclaimer in; I've noticed in the past that these continuation patterns often form about half way through a move. As of today GLD is looking like it wants to break out of the pennant to the upside. Many of the leading gold stocks were very strong today. Probably a good sign that gold will be moving higher in the coming days. If you are trying to trade gold be mindful of your position size as the sentiment in gold is getting quite bullish. However I think the rise was so swift that many investors missed this trade and even though they may be bullish I'm not sure they've actually committed cash. If not and gold continues to rally we may get investors eventually chasing GLD higher. Just remember the PM are volatile and it could just as easily take a dive.



Posted by Gary at 3:50 PM

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Wednesday, September 26, 2007Thanks Fed, Thanks a lot
Yesterday the dollar traded intraday down to levels it has never been at before. I expect we could see an attempt at a rally here but it seems very unlikely that it will amount to much. Take a look at the long term chart of our currency and you can see what the Fed has done to the purchasing power of our money. Be thankful I can't show you a chart from 1913 when the Fed was created, you would freak out. Since 1913 the Fed has destroyed over 90% of the purchasing power of the dollar. Thanks Fed, thanks a lot. If the dollar does try and hold the line in the sand however temporary then Gold may hesitate here for a bit. However with all the recession talk I'm hearing on the media now days it seems like an almost sure bet the Fed is setting their cover for another rate cut next month. I highly suspect that the reaction of the dollar and gold is going to be the same as it was last week when they cut. Dollar down gold up.



Posted by Gary at 6:41 AM

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Monday, September 24, 2007Hope and Fear

I see quite a few comments on the blogs that the markets are overbought and that's the reason that a correction is imminent. I've got news for you hope and fear operate differently. Which is to say that markets don't go up the same way they go down. Pretty much any breakout is going to be overbought. Just look at the two charts. The S&P was already overbought by the middle of Aug. in 06 but that didn't stop it from going up another 6 1/2 months. Same for gold only it was even more extreme. As markets continue to rise hope gradually brings more and more investors in as an increasing amount of people become confident in the move. Sometimes this becomes really heated and you get a parabolic rise. Fear is a different animal altogether. It doesn't take too much pain before everyone gives up all at the same time. When that happens there are no sellers left to sell and the market has no where to go but up. That's why the VTO and Bollinger band crash trades work during declines. If you tried to reverse the rules and apply them to tops they will fail miserably.



Posted by Gary at 9:27 PM

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Saturday, September 22, 2007GS a Guaranteed 30% Return revisited

Remember this post GS A Guaranteed 30% return. I took a lot of heat on this one. But only a little more than one month later Goldman is up 20% already. Come to find out Goldman is a pretty good company. Even though the charts were telling us that Goldman's business was going to hell in a hand basket we now find out that Goldman's traders were a little more savvy than that. They had been shorting the real estate debacle. So instead of losing a ton of money they actually made a ton. Who knew? I only show this because it illustrates very well how panicking never made anybody any money.


Posted by Gary at 4:23 PM

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Thursday, September 20, 2007"After all it is a bull market"
I love this story from Reminisces of a stock operator. It is so appropriate to the gold and silver market.

"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 6:57 PM

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Point and Figure charts


Since we were discussing the Point and figure charts in the last thread I thought I'd put them up. Breakouts in Gold and XAU. SLV has reversed the down trend. The bullish price objective on gold is $900. SLV is almost $190 which would be $19 silver and the XAU is coming in at $274. That would be pretty close to my observation that each major upleg has resulted in a 100% swing for the XAU and HUI from trough to peak. I wouldn't even think about trimming any of my PM positions until we get to those levels.



Posted by Gary at 4:09 PM

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Wednesday, September 19, 2007silver/gold ratio
Since the middle of 03 silver has been outperforming gold. Notice how silver when it starts to move takes off like a rocket. That's what happens when a little bit of money moves into a very thin market. Silver took a beating on Aug. 16th. However look what has happened in the past after one of these washouts. I have a feeling it won't be too long before silver starts to make up for lost time. If there is anything in the investing world that is ridiculously cheap it's silver. The commercials seem to think so to as they have had over the last 4 weeks one of the smallest net short position since 03. Even more bullish in my opinion is the fact that as silver rose almost a dollar they got even more bullish. This my friends is one of those opportunities that only come around every once in a while. I've heard a bit of talk about gold in the media recently mostly as a signal of inflation rarely as an investment but I have yet to hear a single thing about silver. I just love it when that happens. It means silver has a long long ways to go.

Posted by Gary at 10:18 PM

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hefeiddd

Tuesday, September 18, 2007Weekly gold and silver charts

Notice that gold has again bounced strongly off the 65 week moving average that has acted as support for every decline in this bull. Silver was a little weaker. That's understandable as silver is a very thin market and moves in both directions will be more volatile. However it hasn't taken long for silver to recover and close above the moving average. The average is also again moving up. Now let me point out something. We will eventually surpass the old 1980 highs. However in inflation adjusted terms we still have a long way to go. Simply put that means that gold and to an even greater extent silver are dirt cheap right now. This bull still has a long ways to go yet.



Posted by Gary at 2:58 PM

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Monday, September 17, 2007Gold ready to spring?


The Gold market looks like its getting coiled again. Normally big moves follow. So far this morning Gold is up strong so I'd be leaning towards an upward move out of this level. Also technical rule #1 could come into play here. If so we could look for a similar sized move in the coming weeks as what we just saw. That would suggest that Gold could add on another $70-$75 fairly quickly. I imagine the PM stocks will follow and break out to new highs.


Posted by Gary at 6:07 AM

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Saturday, September 15, 2007Tis the season




Since the commodity bull started the period between July and Dec. has been very good for PM. Last year was the only year that didn't have big gains and it was still flat. The average gain has been 12.5% for any year gold has been up during this bull market. After the flat year last year and the size of the consolidation I suspect this year will be up much more than 12.5%. The max year was 05 at 20.4%. 05 was also a year following a large consolidation. Since this consolidation has been larger than the 05 consolidation I would expect at least as large of a rally as 05 and probably even larger. 20.4% would put gold at $795 BTW.



Posted by Gary at 8:20 AM

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Friday, September 14, 2007COT report
Still long. Who knew?

Posted by Gary at 6:23 PM

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Thursday, September 13, 2007Gold/Oil ratio
In the beginning of the commodity bull market gold outperformed oil. The Fed started cutting at the beginning of 01 and the gold bull market got underway. It quickly reached a peak of 1 oz. of gold buying about 15 barrels of oil. From there things turned in favor of oil for the next 3 1/2 years. In 05 one oz. of gold would buy only about 6 barrels of oil. Since Sept. of 05 though the advantage has swung back to gold. After correcting for the first half of the year I think gold is now ready to resume it's out performance. During the commodity run so far oil is up in the neighborhood of 700% while gold is only up a little less than 200%. It's about time gold makes up for lost ground. For gold to catch up to oil it will need to rise to $2000. I have no doubt that gold will do just that over time and probably much more. Silver would need to go to $32. However silver is the most undervalued commodity and at some point the market will recognize this and I expect silver to increase much more than 700%. I think 2000-3000% is probably more realistic for silver. Hence my constant harping on silver :)



Posted by Gary at 7:41 PM

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Wednesday, September 12, 2007Evaluate your trading
I read quite a few blogs and occasionally comment on a few. All in all here is the impression I get from the blogosphere. A big percentage of traders fall into the day trader category. Here's another impression I get from reading the blogs. Most of these traders are losing money. I'll tell you right now I followed the same path when I started trading. Day trading is exciting. You get a sense of doing something. However after several years of watching my account slowly dwindle down I was forced to make a realistic judgement that my trading methods were not working. I'm sure we all rationalize it as just a string of bad luck and it's all going to turn around on the next trade. Unfortunately it never does. If you keep using the same methods is it any wonder that you keep getting the same results. I liken it to watching a rat in a maze that just keeps going to the same dead end. Humans fortunately are a bit more intelligent than rodents...or are we? Sometimes I have to wonder when I see otherwise intelligent people continue to do the same thing over and over and still become amazed and disappointed that they don't get the result they are looking for. The sooner you can come to grips with the fact that what you are doing isn't working and try something different the quicker you can get down to the business of making money.

Of course for the investors that have found a trading style that is consistently making money, I say if it's not broke don't fix it.

Posted by Gary at 8:21 PM

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hefeiddd

Tuesday, September 11, 2007A most important chart
Remember this chart? I said before this is a very important chart maybe the most important chart. It's the ratio of the Dow divided by gold. Historically PM bull markets continue until this ratio hits or at the very least gets close to 1:1. Briefly this ratio hit 1:1 in 1980, the top of the last commodity bull market. As you can see we've got a long way to go yet. Now whether this happens at $3000 gold and $3000 Dow or $15,000 gold and $15,000 Dow I have no clue. Knowing human nature though it will happen sometime in the future. When it does I'm going to be telling everyone to sell your gold and silver and buy stocks. In the meantime there's a lot of upside still left in this chart. Might as well get on board. Better late than never.



Posted by Gary at 7:49 PM

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NEM
Stodgy old NEM which has been underperforming for the last year and a half has now broken the down trend. If NEM is on the move I have a feeling that's a very bullish signal for the PM markets.



Posted by Gary at 9:11 AM

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Saturday, September 8, 2007Golden bull
As anyone who reads the SMT knows by now I think the first leg up in the second phase of the gold bull market has begun. Take a look at the last leg up in the first phase of the gold bull. Over 61% from the breakout. Now look at the 8-9 month consolidation phase right before that move. I'll point out how well technical rule #1 applied to this huge up leg. First gold broke out in Sept. and rallied hard until Jan-Feb. when it traded sideways for a couple of months then it broke out again moving quickly to $700+. Then the correction that brought gold right back down to the consolidation level. It has been moving steadily upwards ever since and in the process it's been lulling all the gold bugs to sleep. I'm sure most gave up on gold and especially silver on Aug. 16th. Of course that was the day you should have been backing up the truck. Now it looks like gold is ready to breakout of this year and a half trading range. After the size of this consolidation I suspect we will all be amazed how high gold goes. Let's just say I will not be at all surprised to see a 100+% gain during this leg up.



Posted by Gary at 3:11 PM

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Thursday, September 6, 2007Recessions

I'm going to point out again tonight the main cause of recessions is spiking energy prices not credit crunches or real estate woes. Notice the spike in 80. It was followed by two recessions. The 90 recession was accompanied by a vicious spike in oil prices during the Iraq war. The 2001 recession soon followed a year long spike in oil price. I believe if we see oil near or above $100 by the end of the year then we can probably look forward to another recession in the not to distant future.



Posted by Gary at 7:31 PM

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Here we go!

It appears more and more likely that gold is ready for it's first leg up in the second phase of the secular bull market. If this leg can take gold above the 1980 highs at $880 we could see a tremendous upwards move. I've said this many times in the past but it bears repeating because I think quite a few investors are going to make this very critical mistake. You have to be in when the PM start to move or you risk missing big parts of the rally. These are thin markets and a little buying pressure can make them move rapidly. Just take a look at the rally in gold over the last 4 days. The big money will be made by buying and holding on. Unless you are very good or very lucky, you will most likely cut your gains significantly by trying to jump in and out of the this market. This is not a bull market that you want to lose your position in.



Posted by Gary at 8:54 AM

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Wednesday, September 5, 2007Gold
Quadruple top breakout on Gold yesterday. Gold is on the move. If gold can put an x in the $700 box I think the next major upleg will be on.



Posted by Gary at 6:03 AM

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Tuesday, September 4, 2007TRINQ buy signal


I wanted to post the charts relevant to the TRIN discussion we've been having on the previous post. Here I've posted the last three times the TRINQ closed below .50 three consecutive days in a row. These levels normally signal extreme buying frenzy and at least a short term top. However when combined with multiple consecutive closes below .50 and the market emerging out of an extreme oversold level it has historically signaled the beginning of powerful intermediate rallies.



Posted by Gary at 5:10 PM

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hefeiddd

Monday, September 3, 200790% days
What we are looking at here is a series of 90+% up volume days. Notice how the last couple of intermediate term rallies have begun with a series of powerful up days. As of Friday we've now seen three of these in quick succession. The market got about as washed out as it's ever been a couple of weeks ago. The only time in recent history that may have been more was 98. This is the kind of action one would typically look for after this kind of washout. To many investors IMO are concentrating on the current problems. I think there's a very good chance the market has already discounted the sub prime mess. Now the market is on to bigger and better things. It's looking 6-9 months down the road and as of right now it appears to like what it sees.



Posted by Gary at 8:43 AM

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Sunday, September 2, 2007Time for PM to move

Look closely at the two charts and you will notice a couple of things. First the big moves normally occur from a bottom in late summer until Jan.-Mar. You'll also notice that from trough to peak every one of these moves in both the HUI and XAU logged a 100% move. Now notice the monthly Bollinger bands are squeezing down to a very narrow range. This is what has happened prior to big moves in the past. Only this time volatility is drying up even more than in the past. Now let's factor in a couple more positives. The COT is at very bullish levels for both gold and silver, especially silver. We are now in the window of time when the PM "outperform". On top of all that the dollar appears ready for another leg down in the secular bear market. Adrian Douglas has also noted unusual activity in the options market. The same activity seen prior to the big run in late 05 and early 06. Got gold? (or silver)



Posted by Gary at 2:13 PM

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Sept. the weakest month?
Over the last 26 years Sept. has been up 12 times and down 14 with one year even. Not exactly great odds of Sept. being either up or down. The % gain for all up Sept. is roughly 33% while the % loss for all down Sept. is 58%. However without the 3 bear years (2000-2002) the % loss is 33%. The odds are probably about 50/50 for Sept. being a down month. However if you narrow the data a bit and look for periods where the market had an intermediate decline in the month or two prior to Sept. then the odds of a positive Sept. improve a bit. 8 to 5. Now if you factor in the historical returns seen for the months after the kind of breadth extremes we saw in Aug. then it would seem the odds are much better for a positive Sept. than a down one.

Posted by Gary at 7:34 AM

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Saturday, September 1, 2007COT Report
The commercials are still long this week. The total net position for all index contracts increased slightly. Which makes sense as the market was down on Tuesday. That's what the commercials normally do they buy weakness and sell strength.

Posted by Gary at 11:55 AM

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Friday, August 31, 20071-2-3 Reversal
I will be watching the close on the NYSE today. If it can close above 9600 it will have completed a trend reversal according to Victor Sperandeos 1-2-3 reversal rules. If so the test of the lows at #2 was very weak. If that's all the test we're going to get out of this correction then this is one very powerful bull market IMO. We'll have to see how the market closes.

Posted by Gary at 6:46 AM

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Thursday, August 30, 2007Fed rate cut
Money is again rapidly flowing into the 3 month T-bill. As we can see in the past this has been followed by a cycle of Fed rate cuts. The last week this strong flow of money into T-bills was a sign of fear as investors wanted out of riskier assets and into safety. The last 2 days so far the market has been strong so I'm of the opinion that the market is seeing a rate cutting cycle ahead. Apparently the market thinks this will be a positive for the economy and stocks. Well either that or the credit markets are bracing for another round of selling and the stock market doesn't know what it's doing.



Posted by Gary at 7:53 AM

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Wednesday, August 29, 2007Head & Shoulder Pattern
OK here's my pitiful attempt at a pattern analysis. It looks like we may be forming an inverse head & shoulders pattern. LOL Actually what I'm looking at is a potential 1-2-3 reversal with the big key reversal day and a very weak test of the lows. If the S&P can close above the reaction high then it will have completed the trend change back to the long side. Does this guarantee the market is going back up? Of course not there are no guarantees in the stock market but it does skew the odds a little more in favor of the bulls. Also yesterdays 90+% down volume day was the worst in 10 years. The last four times we saw anything similar in the last decade it has been followed by an average weekly gain of 4.9% and a monthly gain of 6.2%. 4 out of 4, that's pretty good odds. Combine that with the COT at historic long positions, insiders backing up the truck and short interest at record levels and those are the kind of odds I refuse to pass up.



Posted by Gary at 1:42 PM

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hefeiddd

Monday, August 27, 2007New lows
I'm going to point out just how unusual the breadth extremes were the week before last. The only time in the last 10 years that have seen new lows on the NYSE spike higher was the bottom of the 98 decline. On Thursday Aug. 16th the new lows hit 1132. There are 3453 stocks traded on the NYSE. That means 1/3 of all stocks on the NYSE hit new lows on Aug. 16th. That is a sign of extreme panic. I think we've all learned by now that panic is almost always an opportunity. We all know that the market reversed big time on that day and then rallied big the next day. As a matter of fact the next day was a 90% up volume day. Most intermediate rallies start with a 90% day. I strongly believe we saw the internal low for the decline on Aug. 16th. As of today the new lows have totally collapsed back down to 16. We may very well see the market drop again and new lows may move even higher than 1132 but let's just say I have strong doubts as to that happening. If the market holds here then we should have hit such an oversold level that the ensuing rally could be quite impressive and that's exactly what the historical precedents would suggest.



Posted by Gary at 4:31 PM

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Technical Analysis



I've had a few requests to do a post on how I use TA. Here goes. First off let me say to a great extent I look for TA that will confirm the COT position. So yes I have a bias. Don't we all? Mostly I'm looking for reversals that signify that the selling or buying has dried up. I have a strong preference for the 2b reversal. I also look for the 4 day rule and 4 day corollary after long intermediate moves. Mostly I'm looking for levels of supply and demand. I will use indicators such as RSI, MACD and Stochastics as a secondary indicator if they confirm the COT position but definitely not as a reason to trade against the big boys. I almost never pay any attention to patterns personally such as head and shoulders or bear flags (whatever the hell that is). I particularly like the point and figure charts because they take out everything but the price action and levels of support and resistance are pretty obvious. I try to keep it as simple as possible and not overthink my trades. If the COT is long I look at the indicators to confirm that position. If it's short I look for indicators that would suggest that the market is or has turned down. Pretty basic stuff really.



Posted by Gary at 6:30 AM

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Saturday, August 25, 2007Emotions
Emotions. We humans are blessed with them. Of course on the flip side we investors are cursed with them. Fear and greed. The two emotions that make the markets go round. Emotions were put on full display week before last, at least the fear emotion. This week the greed emotion started to come back or maybe it was just his younger brother Hope.
Ever notice how easily these two can change places in your brain? Heck sometimes they can flip flop back and forth several times a day. Now look back at some of your past trades and notice how many times these two emotions made you take the wrong trade. I've said several times over the last week that we should be getting a pullback. So far it hasn't happened, but it will since nothing goes straight up. Right now greed is feeling pretty good but I guarantee that as soon as we have one down day fear is going to jump right back on your head and greed and hope will go right out the window.

So how do we control these little devils that make us act irrationally? In case anyone hasn't noticed irrational behavior isn't real good for your portfolio.

There are a couple of ways. First and foremost we trade with correct position size and we expect the worst. That way if a trade does go against us we don't have so much at risk that if it hits our stops it will do serious damage. If you know ahead of time that even if the worst happens you're not going to lose most of your life savings then it is much easier to keep your head when everyone else is losing theirs. (I got news for you when everybody else is losing their cool that just means they're going to do something stupid and hell if they're going to do something stupid you might as well profit from it) However if you are one of the sheep running with the herd then you're not in any position to take advantage of anything. As a matter of fact your probably to busy getting fleeced.

The second thing we can do is learn discipline. That means when you've got the odds in your favor then play them. Ever heard a pit boss at a casino ask a blackjack player to leave the table just because he's on a lucky streak? Hell no. In fact what happens is that player will start getting all kinds of comps. Now why would the casino do that you ask. He's taking their money. Well obviously the casino knows that the odds are in their favor so all they have to do is keep that player there and eventually the odds will "fix" that little winning streak. It's exactly the same with investing. As long as you trade with the odds in your favor they will eventually "fix" any losing streak. That is as long as you believe me about rule #1.

Now trading with the odds can mean many different things. There are probably 1000's of ways to make money in the markets. I've posted the three that I've found work the best COT, VTO and Bollinger Band crash trade. All three have a positive expectancy and if consistently traded with discipline and correct position size will produce a long term gain for your portfolio. That's not to say there aren't other systems that will do as good or better. I'm all ears if anyone wants to post their systems BTW. However for these systems to work you've got to take the trades when they setup. You've got to have the discipline to stick with them and you've got to be willing to take a loss since no one knows before hand whether a trade will be a winner or a loser. If you're not willing to let the trade work then you will cut your profits short. All trades have some BIG winners. If you are nervous and take your profits too soon then you will never allow a trade to produce a big winner. By so doing you usually change a positive expectancy into a negative one.

Posted by Gary at 7:13 PM

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Friday, August 24, 2007PPT
I've been trying to refrain from touching on this subject because I know it's going to spark a lot of controversy but here goes. Get this through your heads there is no plunge protection team, period. The markets are just way to big for anybody to control and that includes governments. The market is bouncing right now and I'm seeing all over the blogosphere the "PPT " used as the excuse for why the market is rising. First off if you believe in the PPT why in the world would you be short? Second if there is such a thing as the plunge protection team which supposedly was created by Reagan after the 87 crash then explain to me how in the world we could have had the 2000-2002 bear market. I'm all ears. If any one can answer those two questions with any kind of logical answer I'll consider the existence of the PPT. If not then quit blaming your losses on some imaginary group and take responsibility for your own mistakes. Jeesh it just amazes me the things people will come up with to try and rationalize why losses are not their fault.

Posted by Gary at 11:15 AM

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Summation index
The Summation index has now turned back up. There have only been a few times where this index has gotten more oversold in the last 10 years. One was 98. While there could be another drop the odds are against it and if it does happen the data would suggest it won't drop significantly below last Thursday before a rally ensues. As I've mentioned before these declines that come at the very end of a long multi year rallies tend to be very swift and very scary. Does anyone think that's an accurate description of what we just went through? These kind of corrections historically recover very quickly. The declines that do the real damage are the ones that start early in the cycle and just slowly hemorrhage for months or years. Remember 2000-2003 or for some of the older investors 1973-74. I have a feeling the next cycle is going to be one of those nasty ones.

Posted by Gary at 6:33 AM

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Wednesday, August 22, 2007Bullish Percentage Charts

I like to keep tabs on the Bullish Percentage charts. I know many of you are familiar with my 5th year scenario. All that amounts to is that normally bull markets can't make it passed a fifth year without a large decline. One of the things I was going to be looking for to indicate that the fifth year decline was playing out was an oversold reading on the Bullish percentage chart. Something in the 30 or lower range. Well the NYSE so far has bottomed at 30.99 and has now turned up and is back above 40. All this means is that only 30% of the stocks on the NYSE were in bullish trends on the point and figure charts. That's an incredibly small amount of stocks in bullish trends. If this rises back above 50 it will be just another positive sign for the market. Now notice the second chart of the Nasdaq 100. It was much stronger than the rest of the market and never even came close to oversold. That should not be happening in any serious decline. The Nasdaq should be leading the charge lower. Notice how it lead last year. It is entirely possible that we just got the 5th year decline and the pitiful 10% is all the market is going to give back. This seems hard for me to believe but a great many indicators other than just the BPNYA also signaled extreme oversold levels rarely seen and usually only at very important lows. Of course we still have the fact that the commercials are at historic long positions. Oh and in case anyone hasn't noticed the current long signal is still profitable so far. As a matter of fact everyone just got a second chance to get in at a lower level than the original signal and you still have a chance to get in at a level very close to the original even at today's close. Ah but after experiencing what we just went through will you now be able to pull the trigger? Buffett did. Lambert did. Gates did. Soros did. Altucher did. Ah what the hell do they know anyway.

BTW if you do pull the trigger here will you immediately sell for a loss if the market drops to test the lows?

Posted by Gary at 7:59 PM

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Russell
The Russell appears to be getting coiled for a big move. I have no idea whether that move will be up or down however. There are some positive signs however. Note the 2b reversal and the divergences in MACD and RSI. Also notice the 4 up days in a row. Remember the 4 day rule?
here is a post describing the 4 day rule for any who are new to the SMT. I'm watching the reaction high. If the Russell can close above that level then the odds are good that the intermediate trend has turned back up.


Posted by Gary at 6:16 AM

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hefeiddd

10% corrections




You're looking at 10 years of bull market history. During that 10 years we saw 9 10% corrections or better. 10% corrections don't seem to be all that unusual. For all the panic lately you would think something incredibly out of the ordinary had happened and maybe something extremely rare will happen but as of right now this just looks like the same old thing we've seen happen many times in the past. As a matter of fact at the moment it looks extremely tame when you consider the financial Armageddon rhetoric being thrown about. If 10% is all the market can muster with the credit markets locked up then this has got to be one of the strongest bull markets in history. The last time we had a financial meltdown was 98 and the market managed to drop 22% before common sense came back and the world realized the sky really wasn't falling.



Posted by Gary at 2:35 PM

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Saturday, August 18, 2007Second Chance?

First off let me point out the 4 day corollary signal that was given by the Dow on Friday. For any who are new to the site here is a post with explanations on the 4 day rules. Also take a look at the long tail in both charts. Normally a strong sign of a bottom. On top of that we had a 90% up day the very next day. Many intermediate declines end on a 90% up day.

Now let's move on to the next chart of the S&P. For all the people who missed the original long signal back in Mar. well you just got a do over. As of Friday the S&P is right back at the level where the Mar. signal was given. Now let me make a few things clear. First off your odds on any COT signal producing a winning trade over the last 21 years are about 3 to 1. If you were to just take long trades they would be better than 3 to 1. Next and I've repeatedly called attention to this the commercials are not just long they are at massively historic long positions. The little guy is at almost historic short positions. Insiders are buying like there's no tomorrow and there's only one reason for insiders to buy. Now lets throw out a few more statistics. Breadth extremes like we've seen over the last week or two have only occurred four times in the last 40 years or so. Every one of them was followed by extremely powerful rallies.

I've said this many times before that if you can get the odds in your favor then just like a casino you will make money in the long run. Having said all that and shown you that the odds are very heavily weighted to the long side and the technicals are also suggesting a bottom how many of you after all the volatility last week have the balls to pull the trigger? Let me point something else out. Your stop would be a break below the recent lows. The four times in history where we saw these kind of conditions the panic lows where not violated. So to make it simple your maximum loss if you put your intire account (which I better not catch anyone doing after all my rants about position sizing) is 5.5%. Your potential gain if we just go back and match the highs is 6.8%. Of course if the market rallies powerfully as has been the case after such extreme oversold levels then your potential gain could be much more than 6.8%.

So the odds are in your favor and the risk reward is in your favor. It doesn't get any better than this in the markets. So I'll ask again how many when presented with all these factors in your favor have the courage to buy here? My guess is few and here's why. Too many investors are more concerned with being right than making money. I've just explained to you that if you consistently trade with the odds in your favor you will make money in the markets. Not you might make money in the markets. You will make money (well as long as your position size is sane). That doesn't mean that you won't lose from time to time. You will. This could be one of those times even with everything in your favor. My guess is the extreme volatility we've just experienced and the fear of losing will prevent all but the most experienced and disciplined investors from buying here.

Posted by Gary at 7:40 PM

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Friday, August 17, 2007COT report
The COT is again a bit more bullish than last week. The commercials are now back to doing what they do. They bought as the market went down.

Today I want to talk again about how I look at the COT and some of the mistakes that I think people make.

First off just because the commercials are long it doesn't mean that every commercial trader is long. I read posts that seem to suggest that investors think that since the COT is bullish then all the commercial traders are long and taking a beating during this decline. At any one time there are usually just about as many commercials shorting as there are buying. What I look at is the net position or the longs minus the shorts. There will usually be a difference one way or the other. When that difference swings a little bit too far in one direction then I start to look for a trend change. But just because the net is tipped in one direction that doesn't guarantee that the market will move in that direction. All the COT is saying is the majority of the commercial money thinks the market will move in a certain direction. That doesn't mean that the majority can't be wrong. It's just like a casino. The odds are in their favor but that doesn't mean that the occasional gambler won't win. But by having the odds in their favor a casino does guarantee that they will make money over the long haul even if they occasionally have a losing day or week. That's all I care about is will a system make me money over the long haul not whether every trade will be a winning trade.

Posted by Gary at 3:54 PM

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Position Size
I just got an e-mail from a subscriber and it prompted this post. The key to making money in the stock market has nothing whatsoever to do with being right or wrong. It's all about position sizing, period. If you never listen to anything else I say, If you think the COT is junk, if you hate every strategy I've ever posted that's fine. If I can make you believe me on position size then I will have done you the greatest service anybody could do. First off let me say the best thing you can do is ignore all these idiots and their leveraged options crap. Options can be great tools when used properly. You can control risk wonderfully with options. However I suspect almost everyone uses them for leverage. When used for leverage especially large leverage then you're almost guaranteed to destroy your account. Many newbies are wrapped up in making the correct call. Making the correct call is meaningless in the long haul. It's not about how much you make. The key to making money in the markets is how much you lose when you have a losing trade, period. Sure the COT is down 2-3% on this particular trade. So what? It's up 50-80% over the last 4 years. I don't know about you but I'm willing to trade a small loss occasionally to make those kind of returns. I also know that no system can win every time and I don't need it to win every time just more times than it loses. If it does that then in 10 years I'll have a lot more money than I do now. I guarantee someone who trades emotionally and with too large of a position size will be gone 10 years from now. You decide whether you want to be here in 10 years or not.

Posted by Gary at 2:14 PM

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Thursday, August 16, 2007VIX
The Vix is fast approaching levels that have signaled 4 year cycle lows in the past. You can't see it on this long term chart but the VIX has jumped from 22 to 32 in 5 days. At the rate this market is moving it could reach the 40's in one or two days. That should produce the kind of panic that signals major bottoms. That's not to say that we couldn't get a serious drop yet. I'll say it again these kind of waterfall declines are normally corrected rather quickly, similar to 90 & 98. That being said if you can't stand the volatility simply stand aside until things calm down. They will calm down they always do. This isn't the end of the world anymore than any other highly volatile time in the market. What I do know is that emotional selling will always create bargains, always! I'm looking at the PM myself.



Posted by Gary at 5:21 AM

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Tuesday, August 14, 2007Fed & Inflation



I've mentioned this before. You need to watch what the Fed does not what they say. If they were really determined to control inflation they would have continued to raise rates last summer when the had the commodity markets deflating. Instead they buckled to political pressure and quit raising rates. Look at the charts above and you tell me if inflation is under control. Now they have a real problem. They can't raise rates because credit markets are in turmoil. If the pressure from the politicians gets hot enough I suspect they will start cutting. If the economy starts to sour the incumbents can expect to get booted in the next election. I suspect the powers that be are already feeling the temperture rising what with the stock market declines coupled with the heat in the real estate markets. I wouldn't be surprised if sometime in the near future the Fed starts lowering rates.



Posted by Gary at 7:08 AM

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hefeiddd

Sunday, August 12, 20074 year cycles
I'm no master at cycles but even a dumby like myself can sometimes spot the obvious. The four year cycle in the stock market has been around for about the last 100 years or so. I've noted the last five cycle bottoms on the chart. During a multi year secular bull market most of the 4 year cycle tops tend to be extremely right translated. All that means is that the top tends to form very far into the 4 year cycle. Examples 87, 90, 98 and it looks like this 4 year cycle will also be extremely right translated. These cycles tend to be short and vicious but they also tend to be corrected fairly quickly. Ex. 90 & 98. The cycles that do the real damage tend to be the ones that are left translated. Ex. the cycle that topped in 2000. It just bled investors to death for almost 2 1/2 years and has taken 5 years to recover from. The current cycle will most likely be the quick nasty type. These usually result from some kind of scare that seems much worse than it really is thus the market recovers rather quickly when it comes to it's senses. The left translated cycles are normally a sign of a deteriorating business climate. Ex. the spike in energy in 2000 coupled with the fact that the market had to grasp the fact that many dot.coms were never going to make the kind of money it would take to justify the valuations at the time. Then of course 9/11 dealt a serious blow to the economy. What transpired was a slow death of sinking stock valuations followed by sharp counter trend rallies that would inspire just enough hope to keep most investors holding and hoping.
I suspect this 4 year cycle low will be similar to 98 short and nasty. Heck we may have seen the lows already and then again maybe not. However when we do put in a bottom I don't think it will take the market long to gain it all back. Just look at last week for instance. It only took the market 3 days to gain back over half the losses that it took 3 weeks to lose. However I also suspect that the next cycle will be a left translated cycle and will do some serious damage similar to the 73-74 scenario. I also have a feeling it will be brought on by a surge in inflation specifically energy prices. If the Fed ends up lowering rates to appease the politicians they will be laying the groundwork for increasing inflation in the coming years. If so then we can start getting used to even higher commodity prices and stagnating growth. Hmm...I think I'll buy some more silver and gold now that I've just scared the bjesus out of myself.



Posted by Gary at 5:32 PM

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Saturday, August 11, 20072b reversals

Some current examples of 2b reversals. These are by no means 100%. I've never actually tested to see what kind of % can be expected from a 2b signal. If I had to guess I'd say maybe 55-60%. The Dow actually did signal a 2b on Friday along with the NYSE. Just something to think about if you are trying to press the short side. The odds may be slightly against you. It might not hurt to cover and see if the 2b is negated before pressing the short side anymore.



Posted by Gary at 6:33 PM

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COT loss and Draw down


“Contrary to what 99% of the investment population thinks, trading is not about being right. Being right is easy. Trading is about being wrong; and navigating this inevitable occurrence distinguishes winners from the losers in the long run.”– Fari Hamzel






I love that quote. It is so true also. It's not how much you make it's how much you lose that determines whether you make money in the markets. Most investors think being right on their trades is what determines whether they make money or not. Nothing could be further from the truth. Any experience trader will tell you that the best you can do is maybe 3 to 2 in the market. (The COT has a history of 3 to 1). So it all boils down to your position size on your losing trades as to whether you will ultimately make money over the long haul. First I'm going to use an example that I think is probably playing out right now.

The bears have been consistently wrong for several years so I'm guessing they are currently betting huge trying to make back all their losses quickly. It may very well work but here's the rub. If they don't have the discipline to use correct position sizing now then they aren't going to use it when the market turns against them. The outcome is they will eventually lose all the profits that they are making from the current fall. It is the same as a gambler sitting in the casino. He catches a winning streak and makes some good money. Does he pack up and go home? Let's just say that living in Vegas I've never seen it happen. What I have seen is the gambler starts raising his bet because he's obviously hot right now. Then he loses a couple but because he was betting big he just gave back a good chunk of his winnings. Now he's pissed and wants to make that back so he keeps betting big trying to get back to where he was. We all know where this is going don't we. Yes he gives it all back and then some (usually "then a lot").

Does anybody seriously think that this mentality doesn't play out exactly the same way in the stock market? BTW I guarantee it does. I've seen the horror stories on the blogs.

Now I'm going to walk you through a losing COT trade and a draw down.
First chart the commercials flipped to an extreme short position on June 24, 03. The market started to drift down but then began climbing in Sept. The commercials realized their mistake and covered most of their shorts for a 5% loss on Sept 16th. If you were watching your position size you maybe lost 3-4%. 5% if you went all in. 5% is easily recoverable.
Now let's look at a draw down. The market appeared to have topped and rolled over in the beginning of 04. Common sense and the charts said the counter trend rally was over. But for some reason the commercials didn't dump their longs and go short here. Well with hindsight we can see why they didn't abandon their position. They weren't interested in shorting for a measly 8% gain they were too busy accumulating stocks for the multi year run that was to follow. I have found that most of the time when the commercials stubbornly stay on the wrong side of the trend it is because they are accumulating or distributing stocks. Right now it would appear that the commercials are accumulating like there's no tomorrow.



Posted by Gary at 5:50 PM

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Friday, August 10, 2007COT report
Not much change in anything this week. The commercials added a few shorts in the S&P contracts but more than made up for it in the combined contracts. All in all they added about 1.5 billion to the long side. It still appears that the big boys think this is a buying opportunity. There's been much discussion lately that the commercials are hiding their hedging in black pools. While I must admit it is possible I've also noted that the open interest hasn't declined in recent months. It would seem reasonable to expect that open interest would decline if the commercials were all of a sudden taking their business elsewhere. It doesn't seem reasonable either that they are spending billions in the futures markets just as a decoy to hide what they are doing somewhere else. All in all the most reasonable explanation is that nothing has changed and the big boys just think the global expansion is still intact despite the temporary problems in the credit markets.

Posted by Gary at 8:34 PM

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Thursday, August 9, 2007Anatomy of a Bear Market
What we're looking at is the bull bear cycle for the US dollar. Notice the three legs down. Most bear markets have at least three legs down some more. the Nikkei had multiple down legs. However applying this to the present situation we see the initial decline in the dollar lasted about 2 1/2 years. Sound familiar? Then we got the counter trend rally from the beginning to the end of 05. We are now in the process of the 2nd leg down which should take the dollar index to new lows. Actually it already has taken out the 05 lows. I suspect it will continue down much more even though the 2b reversal from last week may mean a bit of a bounce here. When this decline really starts to roll into new lows gold should move much higher to put it mildly. Again if gold can push past the old high of $880 then the average gain has been 140%. Patience is the word of the day for PM holders. Our time will come and probably sooner than later.



Posted by Gary at 8:08 PM

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Wednesday, August 8, 2007Housing and Financials




Anybody will tell you that you've got to sell housing and financials nowadays. It's common knowledge right. I mean it only makes sense real estate is done and the financials are going to collapse because of subprime and Alt-A loans. Even Cramer can tell you that you've got to get rid of anything in this sector. Well let's take a look at the charts. The S&P is up 4.50% in the last 3 days. Pretty sweet. But wait a minute housing is up over 8%, FNM is up over 17%, the banks and broker dealers are both up over 8%. What the hell is going on? I thought these two sectors were toast. This very well could just be an oversold bounce heaven knows they've both been punished recently. However let me lay out another possibility. The panic selling the last couple of weeks may just have put some very good companies on sale for half price. Sure subprime is a problem but it won't last forever. I dare say most if not all the large banks are going to take some heat but I doubt that any of them have sustained irreparable damage. Perhaps people that don't necessarily follow the herd realized the other day that Mr. Market just threw them a slow ball right over the plate and all they had to do is swing. Maybe those same people also noticed the 10 year yield was back down around 4.75 which is good for the housing sector. Maybe those people also think that even though the housing sector is in trouble I doubt it is finished as an industry. You might also notice that the housing sector has been in decline for 2 years now. Remember how I noted that initial legs down in bear markets usually last about 2- 2 1/2 years. With all the rotten news in the real estate and financial markets these two sectors are moving up strong not sinking. This is how major bottoms are put in when the market can't go down anymore even on bad news. I think these two sectors bear close watching in the coming weeks.

BTW if you had been brave enough to take GS the other day when I pointed it out you would now be up over 7% in three days. 2% better than you could do in treasuries all year.

Posted by Gary at 7:57 PM

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VTO and Bollinger band crash trades


There are several VTO and Bollinger band crash trades that may close soon. The Q bollinger band crash trade signalled at $49.00. Any close above that will signal a profitable exit. The VTO is also still open. Any close above $152 on the SPY Bollinger band trade will signal a profitable exit. VTO trade is also still open here. The third chart is the weekly Bollinger band crash on the SPY. If the close on Friday is above the open last Monday we will also have a profitable trade here. The weekly VTO is also still open. Last week I imagine many investors probably exited these trades thus guaranteeing a loss. Now do you see why discipline is so important. If you are going to take these trades then you MUST be willing to take a loss otherwise you won't hold on for the winning trades. If you don't follow the rules of the trade you turn a positive expectancy into a negative one.



Posted by Gary at 7:23 AM

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hefeiddd

Wednesday, August 8, 2007NYSE High/Lows

You can see from the first chart how unusual the the breadth extreme was during the recent decline. In the past these kind of extreme spikes have signaled the exact bottoms. The only exception was the 04 period. However there was a strong rally after the 04 spike down. Now look at the second chart. This signal was slightly different than other spikes in that the market moved down into a lower low but the NYHL diverged and made a higher low. The odds seem to suggest that we've probably made the low or at the very least we should bounce strongly before the market can work lower again.



Posted by Gary at 5:03 AM

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Tuesday, August 7, 2007COT current level


The current long position in the COT is historically the largest ever. Looking back the only two times that the COT reached bullish levels similar were in 94 and Oct. of 99. As you can see the outcome was fairly positive on both occasions and that's a bit of an understatement.



Posted by Gary at 5:39 AM

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Monday, August 6, 2007Goldman Sachs a Guaranteed 30% return
Yep you read it right! A guaranteed 30% return if you were to buy GS right here. How can that be you ask it looks like its in free fall. Notice I didn't say a guaranteed 30% return in the next month or even in the next year. But if an investor is willing to buy and hold GS and willing to believe they will survive the current turmoil in the credit markets without going bankrupt then I guarantee they will be back to making new highs some time in the future. When that happens you will have earned 30% on your investment. Even if it takes 3 years for them to get back to the highs you would still make 10% a year which is double what you can get in treasuries plus you will get a .70% annual dividend. It is possible you might have to hold through a draw down on your investment but eventually GS IMO will be back to making tons of cash and the market will see that whenever this current crisis passes and it will pass, they all do eventually. Panic like what we are seeing now creates opportunities. If you can keep your head and think rationally you can find great companies that are being put on sale for no other reason than human emotions are running amok. This is how investors like Buffet, Soros and Greenblatt think. Is it any wonder they are billionaires.

PS If you think BSC will also eventually survive the present situation then you could guarantee yourself a 50% return.


Posted by Gary at 3:44 AM

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Sunday, August 5, 2007Gold and Silver stocks



I thought I'd post a few gold and silver stocks here and in the previous post that I think may be leaders if the PM market is ready to embark on another leg up. Most of these are in long term uptrends, the 200 DMA is ascending strongly and the 50 DMA is above the 200.



Posted by Gary at 7:50 PM

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Gold and Silver stocks






Posted by Gary at 7:47 PM

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Gold again!
Gold is acting very strong during the recent stock market decline. Throughout most of the bull market gold has followed stocks pretty closely. I'm wondering if gold is starting to decouple from the stock market. This weeks COT report for gold is one of the most bullish I've seen in quite a while maybe ever. The commercials covered over 44,000 shorts this past week. This may be a historic high, if not then it's very close. Gold has done what is to be expected if the commercials stop selling, it's moved up. The point and figure chart is looking pretty bullish. It won't take much more strength on Monday to put another X in the 690 box and that would be a breakout. $10 more dollars would put an X in the 700 box and that would be a signal the next leg up is on! IMO. I still believe this is a correction.

Checking sentimentrader.com 20 of 22 sentiment indicators are now bullish, insiders are buying hand over fist and the smart money is extremely bullish while the dumb money has now reached levels that have signalled bottoms in the past. I'm guessing we still may have a bit more to go on the downside but somewhere soon it looks like we are going to get one heck of a buying opportunity. When we get that bounce I will be liquidating part of my stock portfolio to buy more silver and some gold. Not because I think the COT is going to be wrong and produce a losing trade. It may, I have no way of knowing before hand. But because I think the potential in the PM far outweigh anything I could make in stock indexes right now.



Posted by Gary at 5:59 AM

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Friday, August 3, 2007COT report
The commercials increased longs again this week. This report takes into account the recent decline. The extreme bullish level suggests that the commercials consider this a correction and not the start of a bear market. They are using the weakness to buy at cheaper prices.

Posted by Gary at 5:26 PM

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hefeiddd

Friday, August 3, 2007Gold
I'm going to be interested in the COT report tonight to see how much of the shorts covered after the decline. However many factors suggest that the 2 month decline is over in Gold. First off gold is now making higher highs and higher lows. The RSI got to oversold and is now bouncing. Also notice the long tails. It appears buyers are coming in at these levels. Also notice at the bottom in June gold followed with 4 up days in a row. Remember Sperandeos 4 day rule? It sure looks like the trend has changed to up. BTW silver will follow if not lead gold.

Posted by Gary at 7:02 AM

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Thursday, August 2, 2007Double top?
I've pointed out several times that the average cycle has normally lasted 21-32 weeks. This decline started early at 19 weeks. However we have some elements in the market at this time that could bring into play my 5th year decline theory. For one when looking at the charts we see some history of this bull making double tops when the first decline has been early. Second before this decline started the NYSE already had historic short interest levels. This would suggest that a lot of people are on the same side of the boat. With the recent decline I seriously doubt that the short interest has declined, as a matter of fact it seems more reasonable that it has increased significantly. Yesterday we got a preliminary look at what could happen if everyone on the same side of the boat all of a sudden find themselves on the side that's sinking. A sharp short covering rally! If we get some strength today or possibly even tomorrow with the jobs report we could get a huge rally. That could possible bring into play the scenario that I outlined in last Sat. update. Where the bears get killed the bulls get giddy and the commercials sneak back over to the short side. That would put into place the ingredients for a top. The weekly money flows and momentum would be diverging and better still nobody but nobody would be willing to short at that point. That's how tops are made when everyone is afraid to go short and everyone can only see clear skies ahead. Obviously I have no idea if this will play out so at the moment I'm just going to stick to my systems. I'll be out again today as I have better things to do than watch the markets gyrate. See ya all tonight.

Just as an after thought. The removal of the uptick rule has been bandied about as part of the reason for the severity of the decline and that may be partially true. However the ease of shorting now may also spell trouble for the bears by enticing way to many people to short. Again we saw yesterday what happens when those shorts get scared.



Posted by Gary at 5:31 AM

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Wednesday, August 1, 2007S&P 4 year chart
The 65 week moving average has held all corrections so far in this bull. That would be another 50 points in the S&P. That would give us a 10% correction. A 10% correction is totally normal in bull markets. There is going to be panic selling at the open today. It's probably not the best move to let your emotions take control of you right at the open. If you need to exit so you can sleep at night you might want to let some of the initial panic washout before trading. You'll probably get a better price. I'll be out today. I don't need to watch the market and make a stupid emotional decision today so I'll find something better to do.

I must say that absolutely no one expects the market to be up today. I wonder if the market can confound everyone and do the exact opposite of what the crowd thinks it will do. I guess we'll find out.

Posted by Gary at 2:13 AM

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Tuesday, July 31, 2007Weekly S&P Chart

I see quite a bit of doom and gloom and I suspect quite a few who may have taken the weekly Bollinger Band trade have already bailed on the position. Take a good hard look at that chart. The S&P is down .25% so far this week. What could anyone possibly find in the chart action so far to think that this trade is going to end unprofitable. Heck so far it looks like the market is wanting to rally. As far as I can see there's just as much chance that the market works its way up that long tail as falls rapidly. All I'm saying is if you have a system that produces a win 93% of the time and so far your draw down is .25% I would be inclined to let it work at this point.


Posted by Gary at 7:21 PM

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The Silver Road to Riches
As many of you know by now I'm just a wee bit bullish on silver. I'm going to point out something that probably most everyone knows but very few people can act on. The really great investors like Buffett, Rogers, Greenblatt, Templeton, etc. didn't acquire their fortunes by trying to time every little daily and weekly wiggle in the stock market. No matter how good you are you're probably never going to become a billionaire by trying to "time" the markets. These investors became wealthy because they understood one important fact and that is the markets are not always rational, as a matter of fact most of the time they are irrational. What these investors look for is opportunities to buy an asset cheap when Mr. Market does something stupid and puts it on sale for a ridiculous price. When they see this kind of opportunity arise they ignore the rest of the sheep and make their own decisions. Buying great companies at the bottom of the devastating 74 bear market made Buffett a billionaire. Buying pathetically undervalued commodities in 99 has made Jim Rogers a many fold return on his investment. Today the most glaring bargain available is precious metals especially silver. To me it is just mind boggling how cheap silver is right now and nobody can seem to see it. Well I for one see it. I don't give a damn if silver drops $2-3 tomorrow. All that means is its more of a bargain. BTW if Mr. Market were to do something stupid like that I would probably liquidate some of my stock portfolio to buy more silver. As I've said many times in the past. All this COT, VTO and Bollinger band stuff is going to be child's play when compared to what silver is going to do in the coming years.

Posted by Gary at 4:42 AM

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Monday, July 30, 2007Weighing the COT
I get the feeling that quite a few investors have the wrong idea of how the COT report works. I see posts that the smart money such as GS, JPM, LEH, etc are taking a beating and so the COT doesn't work. Let me remind everyone that there are always some commercials on the long side and some on the short side. Its not an all or nothing type of tool. Like the scale above when one side gets a little heavy the scale (or odds in our case) start to favor that side. At the moment the COT scale is still tipped towards the long side. The weekly Bollinger band signal is also tipped toward the long side this week. So the correct bet to make is long this week. What I would like to see is a V bounce back to the old highs and the commercials flip to short. That of course would fit in nicely with my 5th year decline theory. All we can do at the moment is wait and see what unfolds.



Posted by Gary at 5:54 AM

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Friday, July 27, 2007Weekly Bollinger Band Crash Trade
Quite often you can apply the rules of a daily trade to the weekly charts. We got a great example at the close today. The Bollinger Band crash trade can also be taken as a weekly signal. You apply the same rules as for the daily charts only use them on the weekly charts. Here are the rules for a weekly signal. Buy on the open Monday whenever the SPX closes below the lower 10 week Bollinger Band. Sell on any Friday close that's profitable or after three weeks which ever comes first. Over the last 27 years the trade has been profitable 93.7% of the time if you eliminate the 2001 and 2002 bear market years when the 200 DMA was declining. The trade sets up rarely. When it does its typically a sign of an extremely oversold market. BTW I'm inclined to believe you could also apply the VTO rules to the weekly charts in which case we also have a weekly VTO trade. After a quick look the weekly VTO has roughly the same winning % as the weekly Bollinger Band. The profits are much larger of course but the trade off is you have to hold much longer. Sometimes up to 4 months.

I tested the weekly Bollinger band system and it appears that closing at the end of the second week is the better play than waiting one more week for a profitable close. There were two winners and two losers in the third week. Basically a coin flip. No odds in that.

Posted by Gary at 9:00 PM

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