Tuesday, December 31, 2013
Sunday, December 29, 2013
BEAR MARKET BOTTOMS: ONCE-IN-A-LIFETIME OPPORTUNITIES
Last week I wrote an article on why I think the bull market in stocks is coming to an end. As usual the retail public is chasing a move that is extremely mature and ripe to reverse, while assuming that the current trend will continue. Amateurs always make this mistake at tops ... and bottoms. Their emotions tell them the move will continue indefinitely. It never does.
As you can see in this next chart, dumb money traders are becoming more and more confident the further this parabolic move progresses. Professional traders, on the other hand, get more and more nervous as the market stretches further and further above the mean.
Source: sentimentrader.com
I can assure you we are not done with the secular bear market in stocks that began in 2000. All the Fed has managed to do is blow another bubble in the stock market. And this bubble has again reached levels of overvaluation that will eventually collapse the market just as was the outcome in 2007.
The following chart illustrates that the stock market's P/E ratio is again at a historically extended level. The current reading of 26.30 is at a level where most bull markets top. Also, notice the extreme overvaluation in 2000 (P/E ratio of 45). This overvaluation was not corrected by one brief move back to the historical mean P/E ratio of 15; an overvaluation as extreme as what culminated in 2000 requires a corrective move that is equally extreme in the downward direction. An overvaluation as extreme as what occurred in 2000 is going to require a move just as extreme in the opposite direction before we finally clear this market of the excesses that were created during the tech bubble, and exacerbated by the real estate bubble.
I don't expect this secular bear market will be finished until we reach P/E ratios similar to 1932.
On the other hand, while retail traders are chasing the bubble, professional traders are looking for real opportunities. I think I can say without any hesitation, real opportunity is not going to be found in the stock market after a five year bull run.
Opportunities are found at bear market bottoms. For those emotionally capable of going against the herd, buying a bear market bottom is where the really big money is made.
As a matter of fact if one can pick a bear market bottom the initial surge will often gain 40%-100% in the first few months. These kind of gains certainly make it worth the frustration and whipsaws that are almost always incurred trying to pick a final bottom. The following three charts of the S&P 500 (1982, 2003 and 2009) illustrate this point.
Not surprisingly the more severe the bear, the more violent the rally is once the final bottom has formed, and the bigger the bull market that follows.
Here are two examples of extreme bear markets, and the initial rallies off of those final bottoms (HUI - Gold Bugs Index 2000 and 2008).
Now let me show you one of the most extreme bear markets of the last 30 years (GDXJ - Junior Gold Miners Index ETF).
While retail investors are blindly plowing money into an overvalued, overextended, overbought and parabolic stock market, professional traders are quietly accumulating massive positions in preparation for the end of one of the most severe bear markets in decades.
Once we have confirmation that the final bottom has been printed, I'm expecting at the very least an initial surge over the first 3-4 months to test the 2012 resistance zone. That would be a move of almost 100% (see HUI chart below).
I'll say it again; picking bear market bottoms isn't easy. Very few people have the patience, conviction and endurance that it takes to survive the volatility of a bear market bottom. Especially when everyone else they know is making money buying into the latest bubble. But human nature never changes, and those people always get caught when the bubble pops. Tech investors, real estate investors, and possibly Bit Coin investors come to mind.
In contrast, the few traders that can hold on and survive a bear market bottom become the millionaires and billionaires of tomorrow.
As you can see in this next chart, dumb money traders are becoming more and more confident the further this parabolic move progresses. Professional traders, on the other hand, get more and more nervous as the market stretches further and further above the mean.
Source: sentimentrader.com
I can assure you we are not done with the secular bear market in stocks that began in 2000. All the Fed has managed to do is blow another bubble in the stock market. And this bubble has again reached levels of overvaluation that will eventually collapse the market just as was the outcome in 2007.
The following chart illustrates that the stock market's P/E ratio is again at a historically extended level. The current reading of 26.30 is at a level where most bull markets top. Also, notice the extreme overvaluation in 2000 (P/E ratio of 45). This overvaluation was not corrected by one brief move back to the historical mean P/E ratio of 15; an overvaluation as extreme as what culminated in 2000 requires a corrective move that is equally extreme in the downward direction. An overvaluation as extreme as what occurred in 2000 is going to require a move just as extreme in the opposite direction before we finally clear this market of the excesses that were created during the tech bubble, and exacerbated by the real estate bubble.
I don't expect this secular bear market will be finished until we reach P/E ratios similar to 1932.
On the other hand, while retail traders are chasing the bubble, professional traders are looking for real opportunities. I think I can say without any hesitation, real opportunity is not going to be found in the stock market after a five year bull run.
Opportunities are found at bear market bottoms. For those emotionally capable of going against the herd, buying a bear market bottom is where the really big money is made.
As a matter of fact if one can pick a bear market bottom the initial surge will often gain 40%-100% in the first few months. These kind of gains certainly make it worth the frustration and whipsaws that are almost always incurred trying to pick a final bottom. The following three charts of the S&P 500 (1982, 2003 and 2009) illustrate this point.
Not surprisingly the more severe the bear, the more violent the rally is once the final bottom has formed, and the bigger the bull market that follows.
Here are two examples of extreme bear markets, and the initial rallies off of those final bottoms (HUI - Gold Bugs Index 2000 and 2008).
Now let me show you one of the most extreme bear markets of the last 30 years (GDXJ - Junior Gold Miners Index ETF).
While retail investors are blindly plowing money into an overvalued, overextended, overbought and parabolic stock market, professional traders are quietly accumulating massive positions in preparation for the end of one of the most severe bear markets in decades.
Once we have confirmation that the final bottom has been printed, I'm expecting at the very least an initial surge over the first 3-4 months to test the 2012 resistance zone. That would be a move of almost 100% (see HUI chart below).
I'll say it again; picking bear market bottoms isn't easy. Very few people have the patience, conviction and endurance that it takes to survive the volatility of a bear market bottom. Especially when everyone else they know is making money buying into the latest bubble. But human nature never changes, and those people always get caught when the bubble pops. Tech investors, real estate investors, and possibly Bit Coin investors come to mind.
In contrast, the few traders that can hold on and survive a bear market bottom become the millionaires and billionaires of tomorrow.
Friday, December 27, 2013
Thursday, December 26, 2013
Wednesday, December 25, 2013
ANOTHER BUBBLE LOOKING FOR A PIN
Well the Fed in its infinite wisdom has gone and done it again. They've created another bubble. And this bubble is arguably the 6th in the last 13 years (tech, real estate, credit, bond, oil, and now stocks - again). And let's footnote the Fed's creation of the present echo bubble in housing, for good measure.
If one steps back far enough they can see what's really happening. The Fed has now manufactured a parabolic move in the stock market. This parabola is much more aggressive (and thus even more unsustainable) than witnessed at either the 2000 or 2007 stock market tops.
Now here is the problem - parabolas always collapse. There are never any exceptions. When the pin finds this bubble it's going to take down not only our stock market, but unleash a destructive force on the global economy.
At some point profit taking starts as nervous professionals fearing a regression to the mean event start to lock in profits. As the big institutional money starts to come out of the market the selling begins to accelerate and the losses quickly mount.
The steeper the parabola the quicker the losses once the parabola breaks. It's not unusual to see 3-6 months of gains evaporate in the space of days when one of these structures collapses. I have a pretty good idea the level to which this market will fall initially, once the break begins; more on that in a minute.
The path creating this unsustainable market behavior began in 2011. If the Fed had just allowed the market to correct naturally and drop down into its 4 year cycle low in 2012 we would probably now be on a sustainable path into another secular bull market.
Unfortunately the Fed made a catastrophic mistake. Instead of allowing the market to function naturally they began operation Twist, then LTRO, then QE3 and QE4. The result as you can see in the first chart is they've created a huge unsustainable parabolic move in the stock market. Try as they have to prevent corrections, the longer they allow this to continue the more devastating the crash is going to be when the market breaks.
Based on the extremely stretched nature of the current intermediate cycle (week 27) I'm looking for a top and the start of the collapse early next year. Possibly as we begin earnings season. If one is in the market trying to catch the last few percent of this upside price movement, please understand we are not in an investor environment this late in the bull market. This is short term trading only and at the first sign the crash has begun, get out and stay out.
Margin debt and money market funds are at levels indicating retail investors are now all in like they always are at market tops.
I expect we are going to see the market fall precipitously to test the previous bull market tops and erase most of last year's gains in a matter of days or weeks. At that point Yellen will panic and all thoughts of tapering will vanish. As a matter of fact I expect the Fed will increase QE, maybe drastically, to try and reflate the parabola.
But the Fed's likely attempt to reflate and sustain the stock market will be futile, as the damage will already have been done. All they will accomplish is a violent echo rally common to all collapsing parabolas. From there the bear market will have begun and the more QE the Fed throws at the market, the more and faster the liquidity will leak into the commodity markets until inflation completely destroys the economy and the next recession gets underway.
The Fed thinks they are creating a "wealth effect". All they've really done is sow the seeds of the next crash.
If one steps back far enough they can see what's really happening. The Fed has now manufactured a parabolic move in the stock market. This parabola is much more aggressive (and thus even more unsustainable) than witnessed at either the 2000 or 2007 stock market tops.
Now here is the problem - parabolas always collapse. There are never any exceptions. When the pin finds this bubble it's going to take down not only our stock market, but unleash a destructive force on the global economy.
At some point profit taking starts as nervous professionals fearing a regression to the mean event start to lock in profits. As the big institutional money starts to come out of the market the selling begins to accelerate and the losses quickly mount.
The steeper the parabola the quicker the losses once the parabola breaks. It's not unusual to see 3-6 months of gains evaporate in the space of days when one of these structures collapses. I have a pretty good idea the level to which this market will fall initially, once the break begins; more on that in a minute.
The path creating this unsustainable market behavior began in 2011. If the Fed had just allowed the market to correct naturally and drop down into its 4 year cycle low in 2012 we would probably now be on a sustainable path into another secular bull market.
Unfortunately the Fed made a catastrophic mistake. Instead of allowing the market to function naturally they began operation Twist, then LTRO, then QE3 and QE4. The result as you can see in the first chart is they've created a huge unsustainable parabolic move in the stock market. Try as they have to prevent corrections, the longer they allow this to continue the more devastating the crash is going to be when the market breaks.
Based on the extremely stretched nature of the current intermediate cycle (week 27) I'm looking for a top and the start of the collapse early next year. Possibly as we begin earnings season. If one is in the market trying to catch the last few percent of this upside price movement, please understand we are not in an investor environment this late in the bull market. This is short term trading only and at the first sign the crash has begun, get out and stay out.
Margin debt and money market funds are at levels indicating retail investors are now all in like they always are at market tops.
Source: sentimentrader.com
I expect we are going to see the market fall precipitously to test the previous bull market tops and erase most of last year's gains in a matter of days or weeks. At that point Yellen will panic and all thoughts of tapering will vanish. As a matter of fact I expect the Fed will increase QE, maybe drastically, to try and reflate the parabola.
But the Fed's likely attempt to reflate and sustain the stock market will be futile, as the damage will already have been done. All they will accomplish is a violent echo rally common to all collapsing parabolas. From there the bear market will have begun and the more QE the Fed throws at the market, the more and faster the liquidity will leak into the commodity markets until inflation completely destroys the economy and the next recession gets underway.
The Fed thinks they are creating a "wealth effect". All they've really done is sow the seeds of the next crash.
Tuesday, December 24, 2013
Monday, December 23, 2013
Sunday, December 22, 2013
EARNINGS SEASON COULD BRING THE BEAR OUT OF HIBERNATION
It's been my theory for some time now that this QE driven bull market would top either in late 2013 or early 2014, followed by a multi-month stagnation process as liquidity leaked into the commodity markets.
At almost 5 years this bull market is right up there with the three longest bull markets in history. Sentiment and complacency have reached levels typical of a bull market top. We are clearly well into the final parabolic euphoria phase of the bull.
The Advance-Decline line has started to diverge.
Market breadth is deteriorating; this often happens at intermediate tops.
Money flows are also diverging. Another warning sign that is often seen at intermediate tops.
Even more concerning is the fact that this intermediate rally will be on week 27 next week. Most intermediate cycles bottom by week 20-24. QE 4 is stretching not only this intermediate cycle, but the previous intermediate cycle before it. This has in effect stretched the market extremely far above the mean, guaranteeing an exceptionally violent decline when this house of cards breaks. The Fed hasn't done us any favors by artificially pushing the market much higher than it should've gone naturally. All they have done is guarantee an exceptionally severe selloff when the market finally corrects.
We've clearly been in the euphoria phase of this bull market throughout 2013, and I expect this will continue through the end of the year and maybe into the beginning of earnings season. However, I expect we are going to see a very sharp move down in stock prices as we move through January and into early February.
For those inclined to enter short positions or long term put positions in preparation for the next bear market, I think they could do so when and if the NASDAQ reaches its initial 2000 recovery high of 4250.
I think 2016 puts on the QQQ or SPY could pay off 1000% or more over the next two years. Remember never risk more than 5-10% on an option position.
More in the weekend report.
At almost 5 years this bull market is right up there with the three longest bull markets in history. Sentiment and complacency have reached levels typical of a bull market top. We are clearly well into the final parabolic euphoria phase of the bull.
The Advance-Decline line has started to diverge.
Market breadth is deteriorating; this often happens at intermediate tops.
Money flows are also diverging. Another warning sign that is often seen at intermediate tops.
Even more concerning is the fact that this intermediate rally will be on week 27 next week. Most intermediate cycles bottom by week 20-24. QE 4 is stretching not only this intermediate cycle, but the previous intermediate cycle before it. This has in effect stretched the market extremely far above the mean, guaranteeing an exceptionally violent decline when this house of cards breaks. The Fed hasn't done us any favors by artificially pushing the market much higher than it should've gone naturally. All they have done is guarantee an exceptionally severe selloff when the market finally corrects.
We've clearly been in the euphoria phase of this bull market throughout 2013, and I expect this will continue through the end of the year and maybe into the beginning of earnings season. However, I expect we are going to see a very sharp move down in stock prices as we move through January and into early February.
For those inclined to enter short positions or long term put positions in preparation for the next bear market, I think they could do so when and if the NASDAQ reaches its initial 2000 recovery high of 4250.
I think 2016 puts on the QQQ or SPY could pay off 1000% or more over the next two years. Remember never risk more than 5-10% on an option position.
More in the weekend report.
Friday, December 20, 2013
Thursday, December 19, 2013
Tuesday, December 17, 2013
Monday, December 16, 2013
Saturday, December 14, 2013
Friday, December 13, 2013
Thursday, December 12, 2013
Wednesday, December 11, 2013
Tuesday, December 10, 2013
Sunday, December 8, 2013
BEAR MARKET BOTTOMS: SMART MONEY BUYING OPPORTUNITY
In this business there is no greater buying opportunity than at a bear market bottom. For those few investors able to control emotions, delay gratification, and go against the crowd, a bear market bottom is where millionaires and billionaires are made.
Unfortunately for the vast majority of traders, emotions are much stronger than logic. Most people when they see a market that has gone up for five years automatically assume that it's going to continue to go up. And because everyone else is getting rich and they don't want to be left out, they jump on board too.
In reality a market that has gone up for five years is all that much closer to a top and the upside potential is limited, not exponential. Unfortunately at market tops traders are unable to think logically and all they know is that the money is coming easy. Unfortunately when something is easy, it's usually about over.
By the same token when a market has gone down for two years dumb money investors automatically assume that it will continue to go down for the foreseeable future. Let's face it why would anyone want to buy something that is going down when you can buy stocks, that are going up forever, and get rich quick? (This is the same mentality that was prevalent in the real estate market in 2005/06.)
Again if one would stop and think logically, a market that has gone down for two years is all that much closer to a bottom. This is how smart money investors think, they think logically instead of emotionally.
In the chart below notice how the volume exploded at the 2009 low. This is a classic example of dumb money emotional selling, and smart money contrarian buying. Now after five years we have the exact opposite. Big money is slowly selling into the rally to the emotional dumb money investors. Volume is contracting.
So if smart money is selling into the euphoria phase of this bull market, one has to wonder where they are putting their money. One need look no further than the closest bear market.
Smart money understands that all bear markets eventually come to an end. They understand that recency bias is a trap that catches investors at tops and prevents them from buying at bottoms. They control emotions, delay gratification, and understand that bear market bottoms are where the greatest buying opportunities in this business are generated. As you can see big money has been coming into this market since June in preparation for a bear market bottom.
I am cautiously optimistic that gold is in the process of completing a successful test of the June lows. If I'm correct then this will turn out to be one of the greatest buying opportunities of our lifetime.
Let me stress that this isn't the time to swing for the fences. Picking a bottom in a bear market isn't easy. If you're wrong and get caught in another leg down it's going to be painful as these can often drop 15 to 20%.
At the moment I'm watching for signs that gold has formed an intermediate degree bottom. If that bottom can hold above the June low it will confirm that June marked a final bear market bottom, and I believe the start of the bubble phase of the secular gold bull market.
In a somewhat related vein I want to finish this article by talking about inflation. The general consensus at the moment is that there is none. That of course is nonsense. We have massive inflation right now. Inflation is an increase in the money supply.
What most people don't understand, including members of the Federal Reserve, is that inflation doesn't typically flow evenly into all assets. During the beginning stages of an inflation liquidity usually flows into financial assets, as that is where the Fed targets its efforts.
Typically during the first stage of an inflation liquidity will flow into stocks, bonds, and in our case over the last decade real estate. It's only during the second stage of an inflation when these bubbles become overvalued and pop that the inflation that's being stored in the financial markets begins to leak into the commodity markets. At that point we "label" it as inflation.
Notice in the chart below that from 2002 to 2007 inflation expressed itself as rising stock prices and a bubble in the real estate market. During this time the general consensus was that we had little to no inflation. The reality was that we had massive inflation, it's just that everyone was looking for it in the wrong place. Once the housing bubble and stock bubble began to deflate the inflation that had been stored in these markets began to leak into the commodity markets and the second stage of the inflation began. This culminated with a spike in the CRB and oil reaching $147 a barrel.
I would argue that we are now about to begin a second stage inflation again. It appears that rising interest rates have already pricked the echo bubble in the real estate market, and at five years the bubble in the stock market is almost certainly in the final euphoria stage. Once stocks begin to stagnate and rollover we are going to see that same process that we saw in 2007/08 as inflation leaks out of stocks, bonds, and real estate and moves back into the commodity markets
.
If I'm correct about gold forming a final bear market bottom then this second stage inflation is going to be an incredible driver for the next leg of gold's bull market, which I believe will probably turn into the bubble phase and top some time in 2017/18.
Unfortunately for the vast majority of traders, emotions are much stronger than logic. Most people when they see a market that has gone up for five years automatically assume that it's going to continue to go up. And because everyone else is getting rich and they don't want to be left out, they jump on board too.
In reality a market that has gone up for five years is all that much closer to a top and the upside potential is limited, not exponential. Unfortunately at market tops traders are unable to think logically and all they know is that the money is coming easy. Unfortunately when something is easy, it's usually about over.
By the same token when a market has gone down for two years dumb money investors automatically assume that it will continue to go down for the foreseeable future. Let's face it why would anyone want to buy something that is going down when you can buy stocks, that are going up forever, and get rich quick? (This is the same mentality that was prevalent in the real estate market in 2005/06.)
Again if one would stop and think logically, a market that has gone down for two years is all that much closer to a bottom. This is how smart money investors think, they think logically instead of emotionally.
In the chart below notice how the volume exploded at the 2009 low. This is a classic example of dumb money emotional selling, and smart money contrarian buying. Now after five years we have the exact opposite. Big money is slowly selling into the rally to the emotional dumb money investors. Volume is contracting.
So if smart money is selling into the euphoria phase of this bull market, one has to wonder where they are putting their money. One need look no further than the closest bear market.
Smart money understands that all bear markets eventually come to an end. They understand that recency bias is a trap that catches investors at tops and prevents them from buying at bottoms. They control emotions, delay gratification, and understand that bear market bottoms are where the greatest buying opportunities in this business are generated. As you can see big money has been coming into this market since June in preparation for a bear market bottom.
I am cautiously optimistic that gold is in the process of completing a successful test of the June lows. If I'm correct then this will turn out to be one of the greatest buying opportunities of our lifetime.
Let me stress that this isn't the time to swing for the fences. Picking a bottom in a bear market isn't easy. If you're wrong and get caught in another leg down it's going to be painful as these can often drop 15 to 20%.
At the moment I'm watching for signs that gold has formed an intermediate degree bottom. If that bottom can hold above the June low it will confirm that June marked a final bear market bottom, and I believe the start of the bubble phase of the secular gold bull market.
In a somewhat related vein I want to finish this article by talking about inflation. The general consensus at the moment is that there is none. That of course is nonsense. We have massive inflation right now. Inflation is an increase in the money supply.
What most people don't understand, including members of the Federal Reserve, is that inflation doesn't typically flow evenly into all assets. During the beginning stages of an inflation liquidity usually flows into financial assets, as that is where the Fed targets its efforts.
Typically during the first stage of an inflation liquidity will flow into stocks, bonds, and in our case over the last decade real estate. It's only during the second stage of an inflation when these bubbles become overvalued and pop that the inflation that's being stored in the financial markets begins to leak into the commodity markets. At that point we "label" it as inflation.
Notice in the chart below that from 2002 to 2007 inflation expressed itself as rising stock prices and a bubble in the real estate market. During this time the general consensus was that we had little to no inflation. The reality was that we had massive inflation, it's just that everyone was looking for it in the wrong place. Once the housing bubble and stock bubble began to deflate the inflation that had been stored in these markets began to leak into the commodity markets and the second stage of the inflation began. This culminated with a spike in the CRB and oil reaching $147 a barrel.
I would argue that we are now about to begin a second stage inflation again. It appears that rising interest rates have already pricked the echo bubble in the real estate market, and at five years the bubble in the stock market is almost certainly in the final euphoria stage. Once stocks begin to stagnate and rollover we are going to see that same process that we saw in 2007/08 as inflation leaks out of stocks, bonds, and real estate and moves back into the commodity markets
.
If I'm correct about gold forming a final bear market bottom then this second stage inflation is going to be an incredible driver for the next leg of gold's bull market, which I believe will probably turn into the bubble phase and top some time in 2017/18.
Friday, December 6, 2013
Thursday, December 5, 2013
Wednesday, December 4, 2013
Tuesday, December 3, 2013
THE NEXT BLACK SWAN: A DOLLAR CRISIS
Analysts everywhere appear to be wondering what could possibly be the catalyst to turn the gold market around. I maintain it's the same catalyst that drove the gold bull market from 2001 to 2011. Out of control currency debasement.
Does anyone seriously think that we can print trillions of dollars out of thin air for five years and not eventually have something bad happen? The next the black swan is already staring us in the face. It's going to be a collapse in the purchasing power of the US dollar.
Since the beginning of the year the dollar has been showing signs of extreme stress as it began to oscillate violently back and forth in what is known as a megaphone topping pattern. When this pattern breaks to the downside it is going to initiate the beginning stages of what will likely be a fairly severe currency crisis by next fall.
In this environment I think it's going to be impossible for the manipulation in the gold market to continue. As a matter of fact I got a signal last Tuesday that indicates to me that the forces trying to manipulate gold down to $1000 have probably thrown in the towel and given up, realizing that an impending dollar crisis is about to begin.
On a cyclical analysis basis, the intermediate cycle is now running out of time for a move all the way back to the $1000 level. As you can see in the chart below the average duration for an intermediate degree cycle is between 20-25 weeks. Currently gold is on the 23rd week of this cycle.
On a smaller time frame you can see the current intermediate cycle already has four daily cycles nested within it. I don't believe there is time for a fifth daily cycle, and a fifth daily cycle would be required if gold were going to make it all the way down to $1000.
On top of that the current daily cycle is now stretched to 34 days which is already longer than 90% of historical cycles. What this means is that gold is very late in its daily cycle and a bottom is due at any time. The logical trigger would be on the employment report Friday, although I think the market will be expecting that so we may get a bottom earlier in the week.
Last week's sentiment polls are also suggesting that bearish sentiment has reached levels where the market is at risk of running out of sellers. I expect when the current weekly sentiment poll comes out later this evening we will see sentiment in both gold and silver at levels comparable to the June bottom.
Source: sentimentrader.com
To top it all off I'm starting to hear some of the usual clichés that always appear at major turning points.
"The charts are pointing down"
Folks, at bottoms the charts will always say the market is going lower. And at tops the charts will always say the market is going higher.
Then there are the numerous calls for completely unrealistic targets. I'm now starting to hear $700 price targets for gold.
I believe we are within days of a final bottom in this intermediate cycle. I think an initial 10-20% position can be taken anytime this week. Then once we get confirmation of an intermediate bottom one can start adding to that position.
I'll say it again, if one can pick, or even get close to, buying at a bear market bottom the initial move out of those bottoms are where the biggest gains in this business are made. The first two months out of the 2008 bear market bottom miners rallied 100%. I don't think it's unreasonable to expect something similar this time as this bear market has been every bit as severe as the one in 2008.
And one final confirmation before I forget. Oil appears to have put in a final intermediate bottom. Look for oil to lead the commodity complex out of this bottom.
Does anyone seriously think that we can print trillions of dollars out of thin air for five years and not eventually have something bad happen? The next the black swan is already staring us in the face. It's going to be a collapse in the purchasing power of the US dollar.
Since the beginning of the year the dollar has been showing signs of extreme stress as it began to oscillate violently back and forth in what is known as a megaphone topping pattern. When this pattern breaks to the downside it is going to initiate the beginning stages of what will likely be a fairly severe currency crisis by next fall.
In this environment I think it's going to be impossible for the manipulation in the gold market to continue. As a matter of fact I got a signal last Tuesday that indicates to me that the forces trying to manipulate gold down to $1000 have probably thrown in the towel and given up, realizing that an impending dollar crisis is about to begin.
On a cyclical analysis basis, the intermediate cycle is now running out of time for a move all the way back to the $1000 level. As you can see in the chart below the average duration for an intermediate degree cycle is between 20-25 weeks. Currently gold is on the 23rd week of this cycle.
On a smaller time frame you can see the current intermediate cycle already has four daily cycles nested within it. I don't believe there is time for a fifth daily cycle, and a fifth daily cycle would be required if gold were going to make it all the way down to $1000.
On top of that the current daily cycle is now stretched to 34 days which is already longer than 90% of historical cycles. What this means is that gold is very late in its daily cycle and a bottom is due at any time. The logical trigger would be on the employment report Friday, although I think the market will be expecting that so we may get a bottom earlier in the week.
Last week's sentiment polls are also suggesting that bearish sentiment has reached levels where the market is at risk of running out of sellers. I expect when the current weekly sentiment poll comes out later this evening we will see sentiment in both gold and silver at levels comparable to the June bottom.
Source: sentimentrader.com
To top it all off I'm starting to hear some of the usual clichés that always appear at major turning points.
"The charts are pointing down"
Folks, at bottoms the charts will always say the market is going lower. And at tops the charts will always say the market is going higher.
Then there are the numerous calls for completely unrealistic targets. I'm now starting to hear $700 price targets for gold.
I believe we are within days of a final bottom in this intermediate cycle. I think an initial 10-20% position can be taken anytime this week. Then once we get confirmation of an intermediate bottom one can start adding to that position.
I'll say it again, if one can pick, or even get close to, buying at a bear market bottom the initial move out of those bottoms are where the biggest gains in this business are made. The first two months out of the 2008 bear market bottom miners rallied 100%. I don't think it's unreasonable to expect something similar this time as this bear market has been every bit as severe as the one in 2008.
And one final confirmation before I forget. Oil appears to have put in a final intermediate bottom. Look for oil to lead the commodity complex out of this bottom.
Monday, December 2, 2013
Saturday, November 30, 2013
Thursday, November 28, 2013
Wednesday, November 27, 2013
Wednesday Morning Report
Because it's my birthday today I'm going to publish the Wednesday morning report.
It's time for a pep talk.
Folks bear market bottoms are the single greatest opportunities one ever gets in investing. The initial move out of a bear market bottom is where the really big moves occur, and occur fast. Look at what happened as miners came out of the last bear market.
Considering that this bear market has been artificially induced and has severely damaged the physical market this bottom has the potential to be even more aggressive than the 08 bottom. Throw in a dollar crisis next year, and a bubble phase that's due to start anytime and it gets even more bullish.
Folks we've got everything on our side. We have an intermediate cycle that is 22 weeks long. That is smack in the timing band for a bottom. We have a daily cycle that ran long at 29 days. We have sentiment that is at levels typical of intermediate bottoms. We have a dollar cycle that has rolled over in a left translated pattern and a three year cycle that has topped. We have a massive volume spike in NUGT. A sure sign that smart money is positioning for an impending bear market bottom. And now we have insiders buying. All of our tools have lined up to give a buy signal.
This is why we sat on the sidelines, so we would have the mental capital to pull the trigger when the time came. The time has arrived. It's time to pull the gym bag out of the trash can and get back to work.
Gary
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Tuesday, November 26, 2013
BUY, BUY, BUY
The buy signal for gold triggered today. Every down day should be bought from here on. This almost certainly takes $1000 off the table.
I will elaborate in tonight's report.
I will elaborate in tonight's report.
THE NEXT CRISES
I see many analysts lately wondering what the next catalyst will be to send gold higher. Isn't it obvious?
Without fail throughout history, every crisis eventually occurs in markets where excesses developed. From 1990 to 2000 the misallocation was in the tech sector. We all know how that bubble ended.
In order to halt the tech bubble implosion and economic recession, the Fed cut rates to 1% and held them there long enough to create a bubble in real estate and the credit markets. Not surprisingly this is where the next crisis hit.
Panicking at the 2009 bottom the Fed again resorted to the only game plan they know and begin printing money at absolutely mind-boggling rates. This has continued nonstop ever sense and along the way virtually every other major economy in the world jumped on the printing train.
Isn't it obvious where the excess is? It's in the currency markets. And just like every other time in history when the crisis hits it's going to hit where the excesses occurred. The next crisis is going to be in the currency markets.
It began last year with the Japanese yen.
The next in the line to get in trouble will be the US dollar at its three year cycle low, due in the fall next year.
After that I expect rolling currency crises as one after another of the major global currencies begin to collapse under the strain of insane Keynesian monetary policy.
At the moment it seems to be fashionable to use the commodity markets has an indication that deflation is taking hold in the world. Nothing could be further from the truth. As a matter of fact we have massive inflation right now. It's just that it is being stored in the stock market, bond market, and to some extent in the echo bubble in real estate. Once the inevitable currency crises began, inflation will start to drain out of stocks and bonds and into the commodity markets.
Let's face it, it's obvious where the next crisis is going to occur, and currency crises are not deflationary. They are massively inflationary.
Without fail throughout history, every crisis eventually occurs in markets where excesses developed. From 1990 to 2000 the misallocation was in the tech sector. We all know how that bubble ended.
In order to halt the tech bubble implosion and economic recession, the Fed cut rates to 1% and held them there long enough to create a bubble in real estate and the credit markets. Not surprisingly this is where the next crisis hit.
Panicking at the 2009 bottom the Fed again resorted to the only game plan they know and begin printing money at absolutely mind-boggling rates. This has continued nonstop ever sense and along the way virtually every other major economy in the world jumped on the printing train.
Isn't it obvious where the excess is? It's in the currency markets. And just like every other time in history when the crisis hits it's going to hit where the excesses occurred. The next crisis is going to be in the currency markets.
It began last year with the Japanese yen.
The next in the line to get in trouble will be the US dollar at its three year cycle low, due in the fall next year.
After that I expect rolling currency crises as one after another of the major global currencies begin to collapse under the strain of insane Keynesian monetary policy.
At the moment it seems to be fashionable to use the commodity markets has an indication that deflation is taking hold in the world. Nothing could be further from the truth. As a matter of fact we have massive inflation right now. It's just that it is being stored in the stock market, bond market, and to some extent in the echo bubble in real estate. Once the inevitable currency crises began, inflation will start to drain out of stocks and bonds and into the commodity markets.
Let's face it, it's obvious where the next crisis is going to occur, and currency crises are not deflationary. They are massively inflationary.
Monday, November 25, 2013
GOLD: BRIEF PAUSE, OR FINAL BOTTOM?
Something may have changed today in the gold market. For one I think gold probably formed a minor daily cycle bottom today. But what I'm really talking about is the complete recovery from another middle of the night attack. For most of the last year these late night attacks have worked wonders for sending gold crashing through technical levels and triggering stops. Today however it simply didn't work for the first time.
It's been my opinion for months now that the forces behind these take downs were trying to push gold back down to the 2008 C-wave top at $1030. At which point I expected they would flip sides and go long for the bubble phase of the bull market. After watching gold fight off the manipulation today I'm starting to wonder if gold has been pushed as far as it's going to go.
At some point all artificial markets finally say "enough is enough" and the fundamentals regain control and take the market back in the direction it was meant to go. Usually more aggressively than would have happened naturally. We saw this in spades in 2008/09.
If gold is finally ready to break free of the year long manipulation then we may have printed a final bottom today. The next couple of days should tell the tale. If gold can rally $40-$50 tomorrow or Wednesday, and the miners 5% - 10% on heavy volume that would in my opinion be a strong signal that today was more than just a minor daily cycle low. If gold can deliver a powerful follow through surge off of this reversal then we may just have a final intermediate bottom, and maybe, just maybe, the bubble phase of the bull market is ready to begin.
I told my subscribers this afternoon, miners have the potential to form a 2b reversal (a technical signal that sometimes spots an exact bottom or top of a trend). One could take a long position at the open tomorrow and put a stop right below today's intraday low. If the 2b reversal is valid then the low will hold and the stops will not get triggered. If nothing else it's a low risk setup with a minimal loss but huge upside potential if we did print a bottom today.
If the manipulation is going to continue it will probably try to regain control tonight. If we see another premarket hit tomorrow then step aside and wait to see if gold can fend off the attack again.
As of 7 O'clock this morning the attack on gold has begun. The intervention is going to try and hold gold below $1250. If gold can fight off the attack two days in a row, that would be a strong sign the daily cycle has bottomed and maybe the bull has finally broken the manipulation.
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It's been my opinion for months now that the forces behind these take downs were trying to push gold back down to the 2008 C-wave top at $1030. At which point I expected they would flip sides and go long for the bubble phase of the bull market. After watching gold fight off the manipulation today I'm starting to wonder if gold has been pushed as far as it's going to go.
At some point all artificial markets finally say "enough is enough" and the fundamentals regain control and take the market back in the direction it was meant to go. Usually more aggressively than would have happened naturally. We saw this in spades in 2008/09.
If gold is finally ready to break free of the year long manipulation then we may have printed a final bottom today. The next couple of days should tell the tale. If gold can rally $40-$50 tomorrow or Wednesday, and the miners 5% - 10% on heavy volume that would in my opinion be a strong signal that today was more than just a minor daily cycle low. If gold can deliver a powerful follow through surge off of this reversal then we may just have a final intermediate bottom, and maybe, just maybe, the bubble phase of the bull market is ready to begin.
I told my subscribers this afternoon, miners have the potential to form a 2b reversal (a technical signal that sometimes spots an exact bottom or top of a trend). One could take a long position at the open tomorrow and put a stop right below today's intraday low. If the 2b reversal is valid then the low will hold and the stops will not get triggered. If nothing else it's a low risk setup with a minimal loss but huge upside potential if we did print a bottom today.
If the manipulation is going to continue it will probably try to regain control tonight. If we see another premarket hit tomorrow then step aside and wait to see if gold can fend off the attack again.
As of 7 O'clock this morning the attack on gold has begun. The intervention is going to try and hold gold below $1250. If gold can fight off the attack two days in a row, that would be a strong sign the daily cycle has bottomed and maybe the bull has finally broken the manipulation.
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Saturday, November 23, 2013
A MAJOR TURNING POINT MAY HAVE OCCURRED
Something happened on Friday that I didn't expect. And it has the potential to signal a major turning point.
On Friday the dollar continued to drop. Why is this important you ask? It's important because it probably confirms that the daily cycle low has now begun and we are not going to get one more push up in the dollar index like I was expecting. We needed that next push up to clearly form a right translated cycle. As of Friday the dollar cycle has topped on day 10. That isn't blatantly left translated, but it's certainly not right translated. Let's put it this way, it has the potential to become a left translated cycle. And I needed to see a clear right translated daily cycle out of an intermediate bottom to confirm the strength of the rally. We are not getting it.
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Friday, November 22, 2013
Thursday, November 21, 2013
Wednesday, November 20, 2013
Tuesday, November 19, 2013
Friday, November 15, 2013
Thursday, November 14, 2013
GOLD: WILL IT DROP TO $1000 OR WAS THE BOTTOM FORMED THIS SUMMER?
The blogosphere seems to have gotten the idea that I am predicting $1000 as a sure thing. Nothing could be further from the truth. I've said many times in the past that I think there are parties trying to push gold to that level. Will they succeed is anyone's guess, but I think they are clearly trying. I also believe that the bear market this past year was an artificial and manufactured move.
If gold does drop below $1251 in the next few days it will confirm that the current intermediate cycle did not bottom in October and is still in progress. If this scenario comes to pass then the odds are going to go up significantly that gold will have a full test of the June low at $1179.
I also think if gold gets anywhere near $1179 we will have another one of those middle of the night attacks where 200-300 tons of gold are dumped on the market to run stops. Traders will wake up to positions already underwater, and the selling pressure will cascade until gold reaches the next major support zone. That support zone is the $1030 level that I have been talking about for months.
On the other hand if gold can rally back above $1361 then that would make a higher high and a higher low. That would reverse the down trend and it would also confirm that the low in October was a higher order intermediate degree bottom, and not just a minor daily cycle bottom. If gold can recover $1361 then I think that is the all clear signal and it's time to jump back in the pool.
As it stands today there is just no compelling reason to trade gold either short or long. The correct position is to sit in cash until we see which line is going to break first.
$1250 = bad times continue, and high odds of seeing $1030.
$1362 = the good times are here again. The bull has broken the manipulation.
Any directional trade while gold remains between those two lines is just a coin flip in my opinion. It could go either way. I just don't see any reason to risk capital on a coin flip when all one has to do is wait patiently for 5-10 days and they will have an answer with a high degree of certainty as to which way gold is going.
I've been very clear. On Sept 3 I recommended everyone exit all long positions in the metals and go to cash until gold either confirms that the bottom was formed on June 28th, or it makes it back down to $1030. That is the point where one could back up the truck so to speak.
In order to confirm that the bottom was made on June 28th gold needs to reverse the pattern of lower intermediate lows and lower intermediate highs. So far it hasn't even come close to doing that yet.
The first step in that direction would be for gold to form a higher daily cycle high. It had a chance to do that during the last daily cycle if gold could have moved above $1375. That cycle failed when it was only able to reach $1361 before the daily cycle rolled over and began moving down into its daily cycle low.
At this point the door is now open for gold to make another lower low if it drops below $1251.
The first step in that direction would be for gold to form a higher daily cycle high. It had a chance to do that during the last daily cycle if gold could have moved above $1375. That cycle failed when it was only able to reach $1361 before the daily cycle rolled over and began moving down into its daily cycle low.
At this point the door is now open for gold to make another lower low if it drops below $1251.
If gold does drop below $1251 in the next few days it will confirm that the current intermediate cycle did not bottom in October and is still in progress. If this scenario comes to pass then the odds are going to go up significantly that gold will have a full test of the June low at $1179.
I also think if gold gets anywhere near $1179 we will have another one of those middle of the night attacks where 200-300 tons of gold are dumped on the market to run stops. Traders will wake up to positions already underwater, and the selling pressure will cascade until gold reaches the next major support zone. That support zone is the $1030 level that I have been talking about for months.
On the other hand if gold can rally back above $1361 then that would make a higher high and a higher low. That would reverse the down trend and it would also confirm that the low in October was a higher order intermediate degree bottom, and not just a minor daily cycle bottom. If gold can recover $1361 then I think that is the all clear signal and it's time to jump back in the pool.
As it stands today there is just no compelling reason to trade gold either short or long. The correct position is to sit in cash until we see which line is going to break first.
$1250 = bad times continue, and high odds of seeing $1030.
$1362 = the good times are here again. The bull has broken the manipulation.
Any directional trade while gold remains between those two lines is just a coin flip in my opinion. It could go either way. I just don't see any reason to risk capital on a coin flip when all one has to do is wait patiently for 5-10 days and they will have an answer with a high degree of certainty as to which way gold is going.
Wednesday, November 13, 2013
Friday, November 8, 2013
Thursday, November 7, 2013
QUEST UPDATE
Well the crazy metals managed to whipsaw us for another loss. As I suspected it's going to be very hard to make money in this environment.
Current total $2167 up 700%
Current total $2167 up 700%
Wednesday, November 6, 2013
Tuesday, November 5, 2013
GOLD AT A CROSSROADS
At the moment gold is at a critical crossroads. If it can move above $1375 it will confirm that an intermediate degree bottom occurred last month at $1251, and start a pattern of higher highs. If however gold continues lower and breaks below that $1251 level it will confirm that an intermediate degree decline is still in progress and the recent bounce was nothing more than another bull trap to work off the short-term oversold levels.
Actually based on my cycles analysis I think we can even narrow the band a little tighter. If gold can move above the October 28 high at $1361 over the next several days it would confirm that this daily cycle has become right translated and complete a new pattern of higher highs and higher lows.
If however gold moves below Friday's half cycle low of $1305 it would confirm that the daily cycle has topped in a left translated manner and the odds would then be very high that the October low at $1251 is going to be broken over the next 2-3 weeks.
Until one of these lines in the sand get broken, there is just no compelling reason to place a directional trade in the precious metals market.
More in last night's report.
Actually based on my cycles analysis I think we can even narrow the band a little tighter. If gold can move above the October 28 high at $1361 over the next several days it would confirm that this daily cycle has become right translated and complete a new pattern of higher highs and higher lows.
If however gold moves below Friday's half cycle low of $1305 it would confirm that the daily cycle has topped in a left translated manner and the odds would then be very high that the October low at $1251 is going to be broken over the next 2-3 weeks.
Until one of these lines in the sand get broken, there is just no compelling reason to place a directional trade in the precious metals market.
More in last night's report.
Monday, November 4, 2013
Saturday, November 2, 2013
WEEKEND REPORT: DOLLAR SURGE
Dollar:
A rather interesting development occurred on Friday, and one that I wasn't really expecting. The dollar sliced right through its intermediate trend line on its first attempt. I thought for sure we would see some kind of pullback from that trend line before a break. In my opinion this signals that there are a lot of people caught on the wrong side of this market.
The ferocity of the first five days out of this yearly cycle low has me wondering if the megaphone pattern isn't still in play and we're about to see a test of the upper trend line area over the next 1-2 months.
If we take a look at the euro chart we can see that the daily euro cycle is only on day 12. That implies it still has another 8-13 days before finding its next daily cycle bottom. The dollar should have those same 8-13 days to rally before this daily cycle tops.
Originally I thought we might see a test of the 200 day moving average over the next 4-6 weeks. But the explosive nature of the first five days, and taking into account this daily cycle still has another 8-13 days to go before topping, we could see a test and break of the 200 day moving average over the next 1-2 weeks. I think we would then have at least one more daily cycle higher before the intermediate cycle tops. Two daily cycles of this kind of behavior could definitely send the dollar back up to test the upper megaphone trend line over the next 2 months.
I'm starting to get the feeling that this rally out of the yearly cycle low is going to be a lot more powerful then almost anyone is expecting, including me. In order to turn this back down it may require a fundamental change in the market such as an increase in QE. I don't believe that is politically feasible at the moment unless the stock market really starts to tank in front of the Christmas holidays.
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Friday, November 1, 2013
QUEST UPDATE
Another step backwards yesterday. I thought gold would at least test $1375 before the cycle topped. Alas it was not to be. Current total dropped back down to $2650. Up almost 900%.
Tuesday, October 29, 2013
Monday, October 28, 2013
Friday, October 25, 2013
Thursday, October 24, 2013
TIME TO SIT ON THE SIDELINES
Stocks:
My best guess continues to be that stocks will extend this consolidation on Friday and then deliver one more push higher into the FOMC meeting next week. I expect the Fed will confirm no tapering which will likely trigger a big rally and probably reversal as smart money traders sell into the emotional move. Barring an immediate Fed intervention, that should give us the drop down into the half cycle low.
At that point one could enter long positions and use the half cycle low as your stop.
Dollar:
We should be coming down to the final few days in this yearly cycle decline. As you can see in the following chart the dollar is rapidly approaching that major support zone we talked about between 78.90 and 78.60.
Again I think the FOMC meeting next week will be the trigger to put in this bottom. As I said earlier I expect the Fed will confirm no taper this year. That would likely cause a final spike down in the dollar where smart money traders will cover shorts on the news and reverse position to go long, leaving emotional retail traders holding the bag again.
Most bear markets will make one final test of the 200 day moving average before really starting to accelerate to the downside. I think this is probably what is in store for the dollar index over the next 4 to 6 weeks. A final counter trend move back up to test the underside of the 200 day moving average along with a resurgence of taper talk as traders try to rationalize some reason for the rally.
Gold:
I'm going to start off today by revisiting the one-year gold chart. As I have noted on the chart, there are several key levels where we saw blatant manipulation in the gold market. Back in late May and early June gold was clearly capped at the $1425 level to set up the final June crash. Not surprisingly this intermediate rally was also capped at that exact same level even though the dollar still had a long way to fall in its intermediate cycle low.
The next blatant manipulation came almost immediately after the September FOMC meeting where it was confirmed that tapering was off the table for the rest of this year.
With the dollar rapidly approaching its yearly cycle low, and gold chewing through a lot of days in this daily cycle, I suspect we are going to see a concerted effort made to hold gold at or below that FOMC top over the next week. If one is holding long positions I think that is the level where I would sell.
If on the other hand gold can manage to break through that $1375 manipulation zone, there is very little chance it is going to make it past the $1425 level and 200 day moving average before this daily cycle tops. At that point gold will almost certainly drop down into a daily cycle low that will retest the $1350-$1375 level before making another attempt at penetrating the $1425 zone.
What I'm trying to say is that there is no compelling reason to risk capital right now under the assumption that we are moving higher, because we will almost certainly make this same trip twice. With a major dollar bottom probably only 3 to 4 days away, and manipulation likely to return at $1375 level, it doesn't make a lot of sense to roll the dice right here and hope the rally continues.
If it does continue, then great, it will confirm an intermediate cycle bottom occurred at $1250. But the buy point will still be at the next daily cycle low, which will likely be at about the same level as we're at today.
I know it's hard for many people to sit on the sidelines, but there are times when that is the correct investment strategy. I suspect more money has been lost in the markets due to impatience than just about anything else. With the multiple threats of the $1375 manipulation level and impending dollar rally hanging over this market, I think it's important to not let emotions force one to make a mistake that one logically knows doesn't have to be made at this point.
This market isn't going to runaway from us. Runaway moves occur during a third or fourth daily cycle, not a first. Sentiment is still too depressed during a first daily cycle to generate a runaway type move. And after the kind of bear market we've seen, the bears aren't going to roll over and die easily. They most certainly aren't ready to give up yet. I expect they are going to return in force at the $1375 level while at the same time a lot of savvy longs are going to take profit at that level.
Wednesday, October 23, 2013
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