I'm going to start off today and show
you what Fed policy has given us over the last decade and a half. What
the Fed has accomplished has been one bubble after another.
We are obviously in the final euphoric
parabolic phase of a third stock market bubble. When viewed with the
benefit of the 200 day moving average as a mean regression line, it's
glaringly obvious just how dangerous this market has become. As history
has shown, anytime the market stretches too far above the mean the
forces of gravity eventually collapse price back to and often
considerably below the mean.
Yet despite thousands of years of
evidence that parabolas are never sustainable, investors invariably get
suckered into buying into these moves and get caught when they
inevitably crash.
This I can say with 100% certainty,
this parabolic move in stocks is going to crash, just like every other
parabolic move in history.
The smart investor will wait patiently
on the sidelines and once the crash occurs the low risk trade will be
to go long as the Fed will attempt to reflate the market. This is a
virtually guaranteed strategy to make money, although very few people
will have the patience to wait for the trade to develop.
The vast majority of traders will
ignore the extremely risky environment, because his emotions make him
think that he is getting left behind. He will buy into the parabola
assuming that it will continue indefinitely (Does this sound familiar to
the tech bubble and real estate bubble?).
History however has shown that this is
never the case, and buying any asset this stretched above the 200 day
moving average always turns out to be a gamble as to whether or not you
can exit ahead of the crash. If you miss time the exit, and most people
do, you end up paying a heavy price for following the herd into a trade
that you logically know is too risky.
Once the stock market parabola
collapses then the Fed's endless money machine will generate another
bubble in another asset class.
I strongly believe the next bubble will be in the precious metals market.
The euphoria phase of the bull market that I warned about months ago is now beginning its final parabolic phase.
I'm guessing we still have another
month to month and a half before this runaway move finally ends. Depending
on how far above the 200 day moving average it ends up stretching, I
think there's a pretty good chance we will see the entire intermediate
rally wiped out in a matter of days or even hours when this house of
cards finally comes tumbling down.
That is how these runaway moves terminate. They crash! Parabolas always crash.
These things can go on and on for months
and months with savvy investors becoming more and more nervous the
longer the move persists. The longer the trend continues the more
professional traders all position right next to the exit, until finally
one day everybody tries to get out the door at the same time. It's that
mass exodus to lock in profits that triggers the crash. The magnitude is
determined by how far and how long the market stretches above the 200
day moving average.
Markets are no different than a
pendulum. They oscillate back-and-forth above and below the median line,
which in this case is the 200 day moving average. Bernanke is not doing
anyone any favors by stretching the market unnaturally far to the
upside. All it is going to do is guarantee an exceptionally violent move
to the downside once the forces of regression to the mean break the
parabola.
Again, I would warn traders not to try
and sell short as it's virtually impossible to determine when the
parabola is going to fail. My best guess is late June or early July
based upon the normal timing band for the dollar index to form its next
intermediate degree bottom. As I expect the crash to correspond with a
dollar rally that would seem to be as good a guess as any.
For savvy traders the play isn't to sell
short, it's to go long once the crash has occurred as the Fed will
almost certainly double down on QE in the attempt to reflate asset
prices.
Of course the real play isn't going to
be in the stock market. The stock market is in the topping phase of this
cyclical bull market. Yes, the Fed may be able to levitate stocks back
to marginal new highs, but the real money is going to be made in commodities
as all that excess liquidity will inevitably make its way into the
undervalued commodity markets where the potential return is many
multiples greater than in a very mature cyclical bull market in stocks that includes a weakening global economy.
I know a great many people have gotten discouraged
during the last 6 months. Many have probably gotten knocked off the
bull, and some may even buy into the end of the bull market nonsense
that many analysts have been spouting lately.
I can assure you the gold bull is not dead. Human nature
hasn't changed. Bernanke's printing press hasn't stopped. The Dow:gold
ratio hasn't reached 1:1 and the world hasn't solved it's ever growing
debt problem.
Gold just suffered a minor manipulation event after QE4
that drove price back below $1700 and held it there until the dollar
rallied out of it's intermediate cycle low. Then big money manufactured a
stop run at the $1523 level to trigger a climax selling event. They
used that panic to transfer I estimate somewhere between a quarter to a
half trillion dollars worth of shares in ETF's, mining stock, and
physical from weak hands to strong hands.
These players now have huge positions in preparation for
either another leg up, or the final bubble phase of the secular bull
market. If that's the case then gold should rally for about another year
and a half with a final parabolic blowoff top sometime in late 2014 or
early 2015.
A top in 2015 would culminate a 14-15 year trend which is about normal for a secular bull move.
As hard as it is to do right now this is the time traders
need to be positioning for the next, or the last leg up in this bull
market.
For the next couple of days I'm going to make an offer to any expired subscribers, buy one get one free.
Buy a one month subscription and I will give you the second month free.
This should be long enough to get you through the bottoming process and
far enough along to convince everyone the bull market isn't finished.
At that point you can decide whether to let your subscription expire or
continue.
Make sure you let me know that you are a returning
subscriber when you subscribe. I will email you instructions on how to
turn off auto renew and get your second month free.
OFFER EXPIRED
Interview with Al Korelin
The runaway move in the stock market that we have been watching over the last few months continues to stretch higher and longer. Let me emphasize again, these things always end badly. Usually in some kind of crash, or semi crash.
I strongly advise traders not to chase this move. It's way too late and risk is extremely high. If you don't time the exit perfectly you risk getting caught in the crash.
The way to correctly trade a runaway move like this, is to wait patiently for the crash to unfold, and then buy long as the Fed doubles down on QE in the attempt to reflate asset prices.
The crash could happen at any time, but based on the intermediate dollar cycle, which is due to bottom in late June or early July, I'm expecting the stock market swoon to correspond with the dollar rallying out of that major bottom. So my best guess is in late June or early July we will see this artificial rally come crumbling down.
Let me emphasize that while I think the crash is going to occur later this summer, there is no guarantee it can't happen sooner.
On a side note: I heard a commercial yesterday in Las Vegas for a seminar on how to get rich flipping houses. Seriously? Are we really stupid enough to go down that road again?
