GOLD RISING AGAINST ALL CURRENCIES

The question was posed that perhaps gold is only rising because the dollar is falling. While every C-wave has been driven by a collapsing dollar you will see in the next several charts that gold is rising in every currency. Every country is debasing their currency.


 

 
 

 
 

 
 

 
 

 
 

 
As you can see gold is rising in all currencies even in the strongest of all currencies, the Yen.
 
What's more, gold is also rising against all other commodities since late `05.


 

 
Remember how I've pointed out that oil was the leader during the first phase of the commodity bull and how it should under perform during the second phase. That is because the fundamentals are now impaired in the energy markets but are improving in the precious metals sector.
 
I've been of the opinion that the gold:oil ratio will now remain in a range above 13 for the rest of the commodity bull with occasional spikes above 20 as C-waves progress.
 

 
At the moment the gold: oil ratio is at 17. I expect that will move up to or above 22 by the end of the current C-wave sometime this spring.

PRECIOUS METAL SECTOR REACHES MAJOR RESISTANCE

It's been my expectation that gold would manage to rally at least to $1300 before dropping into the now due daily cycle low. We are now ready to test that theory as gold has tagged $1300 this morning.

The rest of the sector is also mashed right up against all time or bull market highs.

I have my doubts that we will see all these resistance levels broken on the first try. We are also deep into the timing band for a daily cycle correction. This would be the most logical level for a corrective move to initiate from.

If gold is in a runaway move then any correction should hold within a 25 to 40 point range. My thinking is gold should drop about 35 points to test the breakout level at $1265.

A throw back to test the triangle breakout by the HUI would also be a normal corrective move.

Once silver & miners join gold at new highs the entire sector will be trading in a vacuum with no overhead resistance. This will be like throwing gas on the fire. And that is the recipe for huge moves.

CURRENCY CRISIS HAS BEGUN

It's been my position for a while that Bernanke's monetary policy would eventually create a currency crisis in the world’s reserve currency.

I warned that crisis would begin as soon as it became apparent the dollar was caught in the grip of the 3 year cycle decline.

I had three conditions that had to be met before I was willing to call the beginning of the end.  The first condition was for the dollar to move below `82.  That was the warning shot that problems were developing.

The second and third conditions were a move below long term support (80) and a failed intermediate cycle.

The drop below 80 this morning has now completed the final two conditions.

I've marked the last three intermediate cycles with the blue arrows.  The move below the last intermediate cycle low this morning initiates a failed intermediate cycle.  This is also an extremely left translated cycle.  Left translated cycles tend to produce the worst losses as they have a long time to move down. The ongoing cycle shouldn't bottom until it puts in a larger degree yearly cycle low in November or December.  I expect that low to test the `08 bottom at 71.

Finally we should see a full on mini crisis by the time the dollar drops into the major 3 year cycle low next spring or early summer.

I've been pointing out for months that deflation just isn't a possibility in a purely fiat monetary system. A determined government can create inflation any time it wants as long as they are willing to sacrifice the currency. I think it's safe to say the United States has no compunction against destroying the dollar.

We are now heading into an inflationary storm that will expose deflation theory as the pure nonsense that it is.

SHORT TERM TOP?

The market is now 16 days into the current daily cycle. We typically see a minor half cycle correction around day 15-20. I'm guessing the Fed is going to give the market exactly what it wants to hear today. I also think the market has already discounted that.

I expect the "news" will be used to take profits after the strong rally of the last three weeks (the pullback into the half cycle low). I also expect bears will mistakenly see this as the market finally coming to its senses and heading back down.

Unfortunately I'm afraid they will be wrong again. This should only be a brief profit taking event to dampen sentiment before the next push higher. Possibly to test the April highs.

S&P TREND REVERSAL: GOLD TREND CONTINUATION

The S&P has now joined the Nasdaq 100 in completing the 1-2-3 reversal.

Now whether we get any follow through next week will depend on if the dollar continues down to test 80. Note that Friday was day 14 of the current daily cycle. We usually see a minor half cycle correction sometime around day 15 to 20.
 
So we should expect a short term top any day now. However I expect the pullback will just serve to dampen sentiment a bit so the next push higher can begin. If I had to guess I would say the market will likely find support at 1100.
 
The move to a higher high also puts this rally into week 11 of the larger intermediate cycle.
 

 
That means we are now dealing with a right translated cycle. The majority of the time right translated cycles hold above the prior cycle low. In English that means it's now unlikely that the market will drop below the July low of 1010 at the next intermediate cycle bottom due in mid to late November.
 
How is that possible you ask? The economy is in dumper. Well first off never make the mistake of thinking the economy determines whether the stock market goes up or down. From 1932 to 1937 we saw one of the greatest bull markets in history. The Dow rallied almost 700% and it did it with unemployment holding above 14% and occasionally rising to over 20%.
 
Let me show you what is driving the stock market.

 
The dollar is in the process of it's own 1-2-3 reversal. If it breaks below 80 we will have confirmation that the counter trend rally that started last year is over and the secular bear trend has resumed.
 
I've been warning for sometime that the dollar is due to drop down into a major 3 year cycle low. A falling dollar is a sign that Bernanke is printing too many of them. He's trying to support asset prices and create the illusion of prosperity. He is probably going to succeed in creating asset inflation. However, in the process he is going to do tremendous damage to the global economy.
 
At some point the market will recognize that, and the global stock markets will roll over into the third phase of the secular bear market that began in 2000. But until the market wakes up to the fact that a currency crisis is brewing don't be surprised if we have a brief period where it will appear that everything has been fixed.
 
The initial phase a currency debasement is often mistaken as an improving economy. It's not. In reality Bernanke will be doing massive damage to the economy.
 
At the dollar's next 3 year cycle low, due next spring, we will be dealing with a mini-crisis in the dollar. That is going to cause surging inflation problems.
 
Gold is already trying to warn us what is coming for those that will listen.
 
Since we were talking about trend lines let me say this again for those that forgot during the July correction. In a bull market all trend line breaks will eventually be recovered until the secular bull finally comes to an end.
 
In July I saw gold bears falling all over themselves because the trend line from the Oct. `08 bottom had been broken.

 
I knew at the time that it was a mistake to attach any significance to the trend break. At the end of the article I said the "the bears are going to be wrong again". And of course they were wrong again. Gold has gone on to make new highs just like I knew it would. And we now have a new trend line to watch.
 

 
Sooner or later this trend line too will break and just like the last one it also will be meaningless. These trend breaks are one of the most effective tools the bull has to shed riders and punish shorts.


When the next break comes are you going to let the bull sucker punch you again or are you going to see it for what it is? A major buying opportunity.

WHY CAN'T POLITICIANS UNDERSTAND WHAT IS REALLY HAPPENING WITH UNEMPLOYMENT?

Everytime I hear a politician or economist call for more stimulus to create jobs I just shake my head and wonder, do these people really not understand what is happening in the jobs market? Do they really not understand that government can't legislate prosperity? All governments can do is steal from...errr I mean tax it's citizens and then throw it away on nonproductive make work jobs.

Seriously how does it help the country to tax a productive citizen and then use that money to pay another citizen to dig a hole. And if you think that is ridiculous the government will then pay someone else to fill the hole in.

How in the world is this a rational use of capital?

Let me lay out the series of events that led to the mess we are now in.

From 1982 to 2000 we had two completely new industries created. The personal computer and Internet. These two technologies drove and incredible productive phase in history. They created millions and millions of jobs.

But as always happens when a new technology hits the market there is over expansion. By 2000 there were too many tech companies. Many of them had no earnings and never had any realistic chance of ever earning a dime. As always happens when expansion reaches over saturation the market will act to clean out the unhealthy companies. That cleansing process was the bear market from 2000 to 20002. Millions of jobs were lost as the tech sector contracted.

That was unacceptable to politicians and the Fed, so Greenspan slashed interest rates and printed billions in a vain attempt to side step the natural economic forces. The end result the Fed created the conditions that led to the real estate and credit bubbles.

Those twin bubbles temporarily created millions of jobs in the construction and finance industries to replace the jobs lost when the tech bubble collapsed. Unfortunately as we now know this was a phony economy built on a massive credit expansion and not a sustainable economic expansion.

As expected the bubble imploded. When it did we again lost all those jobs that were created in the bubble sectors. We also lost a lot of marginal businesses that were only surviving because of the false economic expansion.

So instead of halting the bear market in 2002 Greenspan just created a much bigger mess.

Now politicians are trying to create jobs by taxing and spending. That's not going to fix the problem. In order to fix the unemployment problem we need the next "new" industry to come online. The computer and Internet drove the economic expansion in the 80's & 90's. Electronics and plastics drove the expansion from 45 to 66. The automobile and mass production drove the bull from 1920 to 29.

We are never going to get out of this mess by taking money from productive members of society and giving it to unproductive members to dig holes. We need the next "new thing" to come online. My best guess is that it will come out of the biotech sector.

If politicians really want to create jobs they should direct funds into research and development in the biotech industry and speed up the process of finding and bringing online the next new industry.

NDX 1-2-3 REVERSAL

The Nasdaq 100 completed the 1-2-3 reversal today by rallying above the August high. We now have a confirmed trend change on the leading tech sector.

With the dollar breaking down it's probably just a matter of time before the rest of the market follows tech. Then we can probably expect a test of the April highs before this daily cycle tops.

DOLLAR IN JEOPARDY

The dollar is going to be the key to virtually all markets. If it continues down it's going to act to support asset prices. Well at least initially. At some point we are going to see the decline become unruly and the Fed's efforts to prop up asset prices will have serious unintended consequences. Namely, surging inflation. Which is already starting to show up in China, India and many emerging markets.

On a cyclical basis if the dollar drops below 81.88 it will mark a failed daily cycle.

When that happens it's going to be a big warning sign to bears. A failed daily cycle is the first sign that an intermediate cycle is about to roll over. If the dollar's intermediate cycle has already topped then we are looking at a potential extremely left translated intermediate cycle.

A move below 81.88 would be a big warning sign for bears to cover shorts. A move below the August intermediate low (80) would be confirmation that the intermediate cycle has failed and the dollar is in the initial grip of an impending currency crisis.

It will also mean shorts on anything will quickly become toxic and must be jettisoned immediately.

I've been trying to warn the bears for months now to wait for proper confirmation before piling in on the short side. Already this morning the dollar is very weak and threatening to break below 82. As soon as the market becomes convinced the dollar is headed lower smart money will flood into asset markets causing stock markets to surge out of the trading range they have been in for the last couple of months.

Update: The dollar did break below 81.88 today. Unless 83 is recovered almost immediately we have to assume the dollar is in trouble and it's only a matter of time before the intermediate cycle also fails (moves below 80). At that point we will see inflation start to surge higher. Investors and the common man alike will need to protect their purchasing power by buying real stuff. The easiest and probably the most profitable real asset to buy is gold (or silver if you want to make bigger percentage gains).

1 DAY LEFT

Anyone who would like to take advantage of the 15 month subscription offer, you have till tomorrow night to do so. Here is the link.

DEFLATION NEVER HAD A CHANCE

Lately we've been hearing a lot of talk about Kondratieff cycles, Elliot Wave super cycle, end of the world, deflation, deflation, deflation.

What the deflationists fail to acknowledge is that in a purely fiat monetary system deflation is a choice not an inevitability. To put it in simple terms, if a government is willing to sacrifice its currency there is absolutely no way deflation can take hold in a modern monetary system.

It doesn't matter how large the debt contraction is, 10 trillion, 100 or 1000 trillion, any government with a purely fiat currency can, with the stroke of a computer key, print enough money to wipe out the debt. Granted they will destroy the currency by doing so, but at some point we are going to be faced with the choice of print or deflate. I have little doubt Bernanke will choose to throw the dollar on the sacrificial alter.

Consumer credit isn't growing you say. Consumers are deleveraging. Not possible to have inflation unless consumers are borrowing and wages are rising. Pure nonsense!

Let me point out one indisputable fact and then I will delve deeper into the deflation/inflation argument and where investors need to put their capital to protect themselves from the coming inflationary storm. In a purely fiat monetary system a government that is willing to sacrifice its currency can, if they so desire, print enough money to mail every man, woman, and child a check for $1,000, $100,000 or a million dollars. To do so would halt any deflationary force right in its tracks. It would for most practical purposes wipe out all consumer debt. Impossible you say? Well the US has already done it twice. (It was called a tax rebate, in case you forgot.)

Here's the thing, where the inflationary forces show up is determined by who gets first use of the money. So far that has been the banking system. Through the myriad bailout programs the Fed has created money out of thin air and forced into the insolvent financial system. That has resulted in selective inflationary forces being unleashed. Instead of loaning credit to consumers or businesses who don't really want it, the financial system has plowed the money back into financial marketss. It's the reason the stock market rallied 80% despite flawed fundamentals. It's why oil rallied from $35 to over $80 despite impaired fundamentals. It's why gold is threatening to break out again to new historic highs.

If instead of forcing the liquidity into the financial system it had instead been mailed to the average consumer, we would now be seeing real estate prices rising rapidly again, food prices and gasoline would be going through the roof. Wages would be rising out of control.

Where inflation shows up is a direct result of who gets first use of the freshly minted dollars. I can assure you we don't have an impending deflation problem; we have a rapidly approaching inflation problem and currency crisis.


I've said for a long time now that eventually the market is going to make Bernanke pay a terrible price for his insane monetary policy. That price is going to be a currency crisis in the dollar and I think it's already begun.

While everyone was busy watching the Euro crack during the first part of this year what no one foresaw was that eventually the cancer that began in Europe would at some point spread into the dollar.  It began 3 months, ago although no one has noticed yet.

Next I'm going to illustrate the long term cyclical nature of the dollar as the cycles are now lining up perfectly to bring on a major currency crisis in the US dollar, much worse than what just transpired in the Euro.

First let me show you a chart of the largest cycle, the three year cycle.

I've marked the last six 3 year cycle lows. These have tended to bottom about every 3 to 3 1/2 years with most running 3 years and 3 months. The consideration here is that the next major three year cycle low is due next year sometime around the March to June time frame.

As they say, the doody is going to hit the fan when the dollar moves down into this major cycle low, and Bernanke's foolish attempt to print away the credit crisis is going to blow up in our face. By spring of next year we are going to be mired in a full-fledged dollar collapse.

The first warning is going to come when the dollar breaks back below 80. That will signal that the current intermediate cycle has failed. As soon as that happens we can close the door on the dollar. 

We should first see a test of the all time lows by late this year when the next larger yearly cycle is due to bottom. After that we should have one more leg down into late spring or early summer that I expect will send the dollar to new all time lows

The only way to abort this from happening is for Bernanke to immediately start withdrawing massive amounts of liquidity from the market. That won't stop the 3 year cycle from coming but we might have hope that the dollar could hold above the all time lows and we might avert or at least reduce the damage that will be caused by the impending currency collapse.

I can assure you he will do no such thing though. For one he has no idea the crisis is brewing. (This is the same man who assured us in '07 that the credit problems were contained in the sub-prime markets and in '06 that real estate was not in a bubble.)

And second, if he were to withdraw liquidity the country, and world, would quickly sink back into recession and then depression. No, I don't think we have to worry about Uncle Ben turning off the presses.

So what should investors do to prepare themselves for the approaching conflagration? They must be invested in real stuff, commodities. There is a reason virtually the entire commodity complex was showing relative strength as the market put in the intermediate cycle low in early July. Smart money was and still is positioning to weather the coming storm.

I would point out that the beginning phase of the crisis isn't going to feel like a crisis at all. A falling dollar will act to support all asset prices. We may even see nominal new highs in the stock market.

But eventually too much of a good thing will turn deadly and the true scope of the mess we are in will dawn on the market. At that point the collapsing dollar will no longer support stocks and we can expect the market to roll over and begin the next leg down in the ongoing secular bear market. Unlike stocks, commodities will thrive in a currency crisis with one in particular shining above all the rest.

That one of course is the only remaining secular bull market...Gold!

For those of you still on the fence I'm going to once again try to entice you onto the bull. I have unlocked last week's weekend report. Click here to go to the premium website. The August 28th weekend report has been unlocked.

For the next week I'm going to offer a buy one get three free subscription. If you buy a one year subscription ($200) I will add three free months.

This should be long enough to get investors through the current C-wave advance, avoid the D-wave that will follow it, and get you back on board in time for the next A-wave rally.

If you would like to take advantage of the offer click here and follow the Paypal link.

1 PLUS 3

For those of you still on the fence I'm going to once again try to entice you onto the bull. I have unlocked last week's weekend report. Click here to go to the premium website. The August 28th weekend report has been unlocked.

For the next week I'm going to offer a buy one get three free subscription. If you buy a one year subscription ($200) I will add three free months.

This should be long enough to get investors through the current C-wave advance, avoid the D-wave that will follow it, and get you back on board in time for the next A-wave rally.

If you would like to take advantage of the offer click here and follow the Paypal link.

Current subscribers can add to their existing membership so long as they didn't already do so last week or last month. Only one extension per subscriber (I don't want to go out past 2012 with current subscriptions).

TEST THE HIGHS?

I have been expecting the daily cycle to bottom on last Friday's revision to GDP or possibly with Friday's jobs report. Yesterdays big rally more than likely confirmed the daily cycle low did come last Friday.

Now we have a test coming. If the market can break above the August highs it will complete a 1-2-3 reversal. That will confirm the trend change from down to up and the odds will be good that we will test the April highs.

 
Actually I expect we will probably test and at least marginally break to new highs even if we have entered another leg down in the secular bear market. I'll explain why.
 
Back in July I posted an article showing how big money runs technical levels in order to trick technical traders into puking up their shares. That allows big money to accumulate large positions without moving the market against themselves. Well the same thing happens at market tops and bottoms.
 
Both the `02 bottom and the `07 top occurred with a slight break of a significant technical level that immediately reversed.


 

 

 
My expectation is that if the market can complete the 1-2-3 reversal by rallying above the August highs we will probably see the April highs marginally broken. Now if that break is immediately sold there is pretty good odds that big money used the technical break to unload positions onto technical traders in preparation of the next leg down in the secular bear market.

CAN THE MARKETS CRASH?

In a word, not a chance in hell.

Folks we've had three real crashes in the last 100 years. The odds of a 4th crash following right on the heels of the 3rd is minuscule.

In the fall of `08 the financial system needed to roll over 700 billion in debt. Unfortunately the credit markets were imploding at that time which made it virtually impossible to refinance that debt. Many of the big banks were on the verge of going under. That was the trigger for the crash we saw in the fall of `08.

Those conditions don't exist at this time and they aren't going to exist anytime again in the near future. Governments the world over turned on the printing presses and made sure that scenario will never happen again.

Granted it's human nature to experience an event like that and then be constantly looking around every corner for the next one, but it simply isn't going to happen again. All these calls for a crash are either simply people who have no understanding of what causes a crash or people trying to shock and awe wide eyed bears into buying their bearishly bias newsletter service.

When the bear does return, and he will return eventually (he may have already), it will be because the economy is sinking back into recession. Those kind of bear markets are slow grinding affairs that creep lower interspersed with violent bear market rallies as governments throw unbelievable amounts of liquidity at the markets and economy in a futile attempt to halt the bear.

Not only that but one can expect the government to change the rules as we go along. At some point we can expect bans on short sales, more bailouts, more stimulus, etc. etc. It is the kind of environment that is a traders nightmare, especially if you are on the short side. In order to make money you will have to time the counter trend rally tops almost exactly and be prepared to cover on a slight break to new lows before the next violent rally takes off.

Moves to new lows will continuously fail to follow thru only to explode higher in the next counter trend rally. In other words not only a bulls nightmare but a bears too.

Now do you see why I have no desire to get tangled up in the stock market? This just isn't the kind of environment conducive to making any consistent profits and it's very likely both bulls and bears alike are going to lose lots and lots of money.

The easy money and big money will be made by just riding the gold bull. It is the only secular bull market left and very soon an event is going to happen that will transform this mild mannered bull into a rampaging monster.

Subs know what I'm talking about :)