Tuesday, February 15, 2011
Saturday, February 12, 2011
SILVER BULL
I've pointed out in the past how consolidation size is usually predictive of how large a move will be once a breakout occurs. I thought I would take a quick look at the silver bull today using that criteria.
As most people know I'm mostly interested in silver during this bull market. I really doubt that I will ever buy another oz. of gold again.
So let's start by taking a look at the long term chart of silver.
As you can see the consolidation principle works perfectly in the silver market. So far we've had three major consolidations and each one as been followed by a powerful rally driven by the size of the preceding consolidation.
The relevant fact is that the longest consolidation has also produced the biggest breakout. If that continues to hold (and I think it will) then the current rally is probably only half over.
A meager 46% breakout is way too small for a 30 month consolidation. If I had to guess I would say silver might be in the process of forming a triangle consolidation pattern, especially if gold has one more drop down into a final intermediate cycle low.
Ultimately I expect this breakout to launch silver to somewhere between $43 and $50 before the next consolidation phase begins.
As most people know I'm mostly interested in silver during this bull market. I really doubt that I will ever buy another oz. of gold again.
So let's start by taking a look at the long term chart of silver.
As you can see the consolidation principle works perfectly in the silver market. So far we've had three major consolidations and each one as been followed by a powerful rally driven by the size of the preceding consolidation.
The relevant fact is that the longest consolidation has also produced the biggest breakout. If that continues to hold (and I think it will) then the current rally is probably only half over.
A meager 46% breakout is way too small for a 30 month consolidation. If I had to guess I would say silver might be in the process of forming a triangle consolidation pattern, especially if gold has one more drop down into a final intermediate cycle low.
Ultimately I expect this breakout to launch silver to somewhere between $43 and $50 before the next consolidation phase begins.
Thursday, February 10, 2011
1-2-3 REVERSAL
While I don't think gold is likely to head back down and make a lower low I'm going to lay out a simple strategy to protect against getting caught in case it does.
It appears likely that we may see our first reaction against the new uptrend. This is the #2 test of the lows in a 1-2-3 reversal.
If gold then reverses and breaks through the pivot it will complete the 1-2-3 reversal and it will have begun a pattern of higher highs and higher lows.
That would be the signal that the down trend has been broken and one could add in full positions or leverage (don't get carried away) as they see fit.
The downside is of course one will lose some profit potential waiting for confirmation and if gold reverses the early morning weakness you will just have to immediately buy back.
The action would be to lock in some profits this morning and then wait for the pattern of higher highs and higher lows to complete before putting positions back on.
It appears likely that we may see our first reaction against the new uptrend. This is the #2 test of the lows in a 1-2-3 reversal.
If gold then reverses and breaks through the pivot it will complete the 1-2-3 reversal and it will have begun a pattern of higher highs and higher lows.
That would be the signal that the down trend has been broken and one could add in full positions or leverage (don't get carried away) as they see fit.
The downside is of course one will lose some profit potential waiting for confirmation and if gold reverses the early morning weakness you will just have to immediately buy back.
The action would be to lock in some profits this morning and then wait for the pattern of higher highs and higher lows to complete before putting positions back on.
Tuesday, February 8, 2011
Sunday, February 6, 2011
SUMMER BREAK
It has been my contention all along that the Fed would print until something breaks. Once that break occurs we will enter the next leg down in the secular bear market. This time I don't expect it to be the credit markets, although we will almost certainly have trouble in the municipal and state bond markets. Some may even default.
I actually think the greater risk is from massive layoffs by state and local governments in an effort to cut expenses and avoid default. When that begins we will see unemployment levels start to spike again.
The real danger is going to come from inflationary pressures unleashed by the Fed's QE programs. We are already starting to see severe inflationary pressures in food and energy and it's already causing social unrest in many third world countries. Expect this to continue and intensify as we move into the summer months.
Besides starting an inflationary spiral QE is also stretching the stock market cycles.
To explain; The `09 yearly cycle low occurred in March. The 2010 yearly cycle low should have arrived in the early spring roughly 12 months after the March `09 bottom. We did have a decent correction in early February. That should have marked the yearly cycle low. However, because of QE1 that cycle stretched into July, and was more severe that it should have been absent Fed meddling. We even witnessed another mini-crash. A direct result of the extreme complacency generated by the QE driven rally in March and April.
Under normal conditions the cycles would adjust and we would get a shortened cycle this year that should have bottomed right about now. Obviously that isn't going to happen since we don't even have a top yet.
It's now clear that QE2 is going to stretch this cycle also. I now look for the next intermediate bottom to arrive this summer sometime around July (roughly 12 months after the 2010 bottom).
This should correspond with a violent rally in the dollar index as it blasts out of the three year cycle low.
This should mark the beginning of the next leg down in the secular bear market. Confirmation will come if the correction is severe enough to test the July 2010 lows. In a healthy bull market each intermediate correction should bottom well above the prior low (higher highs and higher lows). A move down to the 1050-1000 level will be a clear sign the bull is in trouble.
We should also see the dollar rally out of the three year cycle low force the CRB down into it's 3 year cycle low (actually the cycle runs about 2 1/2 years on average).
And gold down into a severe D-wave correction. (We still have one more parabolic leg up before the D-wave starts.)
Even though I have been expecting the market to correct (into the normal yearly cycle timing band) I've been warning subscribers not to short the market because the dollar is dropping down into a major cycle low. I suspected there was the possibility the dollar collapse would stretch the cycles and make selling short very risky.
The time to short will come once the dollar puts in the three year cycle low and all markets begin the move down into the timing band for the next yearly cycle low this summer.
I will be watching for signs the dollar cycle has bottomed sometime in April or even as late as early May. At that point one might consider looking for a sector, or sectors, that are extremely stretched above the mean to sell short. (Not precious metals though. I never short a bull market.)
Until that time its still too early to play the short side. The odds are better positioning for the final leg up in gold's massive C-wave advance.
I actually think the greater risk is from massive layoffs by state and local governments in an effort to cut expenses and avoid default. When that begins we will see unemployment levels start to spike again.
The real danger is going to come from inflationary pressures unleashed by the Fed's QE programs. We are already starting to see severe inflationary pressures in food and energy and it's already causing social unrest in many third world countries. Expect this to continue and intensify as we move into the summer months.
Besides starting an inflationary spiral QE is also stretching the stock market cycles.
To explain; The `09 yearly cycle low occurred in March. The 2010 yearly cycle low should have arrived in the early spring roughly 12 months after the March `09 bottom. We did have a decent correction in early February. That should have marked the yearly cycle low. However, because of QE1 that cycle stretched into July, and was more severe that it should have been absent Fed meddling. We even witnessed another mini-crash. A direct result of the extreme complacency generated by the QE driven rally in March and April.
Under normal conditions the cycles would adjust and we would get a shortened cycle this year that should have bottomed right about now. Obviously that isn't going to happen since we don't even have a top yet.
It's now clear that QE2 is going to stretch this cycle also. I now look for the next intermediate bottom to arrive this summer sometime around July (roughly 12 months after the 2010 bottom).
This should correspond with a violent rally in the dollar index as it blasts out of the three year cycle low.
This should mark the beginning of the next leg down in the secular bear market. Confirmation will come if the correction is severe enough to test the July 2010 lows. In a healthy bull market each intermediate correction should bottom well above the prior low (higher highs and higher lows). A move down to the 1050-1000 level will be a clear sign the bull is in trouble.
We should also see the dollar rally out of the three year cycle low force the CRB down into it's 3 year cycle low (actually the cycle runs about 2 1/2 years on average).
And gold down into a severe D-wave correction. (We still have one more parabolic leg up before the D-wave starts.)
Even though I have been expecting the market to correct (into the normal yearly cycle timing band) I've been warning subscribers not to short the market because the dollar is dropping down into a major cycle low. I suspected there was the possibility the dollar collapse would stretch the cycles and make selling short very risky.
The time to short will come once the dollar puts in the three year cycle low and all markets begin the move down into the timing band for the next yearly cycle low this summer.
I will be watching for signs the dollar cycle has bottomed sometime in April or even as late as early May. At that point one might consider looking for a sector, or sectors, that are extremely stretched above the mean to sell short. (Not precious metals though. I never short a bull market.)
Until that time its still too early to play the short side. The odds are better positioning for the final leg up in gold's massive C-wave advance.
Wednesday, February 2, 2011
ENERGY? NO THANKS
Seems like everyone has now jumped back on the energy band wagon.To be precise energy, solar's, uranium and rare earths. I hear it constantly in the media.
However if something has gone up long enough and far enough to garner the attention of the media it's usually closer to a top than a bottom.
For instance, the oil service ETF is now stretched 33% above the 200 day moving average.
One has to wonder how much upside potential is left after a 5 month rally.
What I don't hear anyone talking about anymore is gold or mining stocks (unless it's to tell us that the bubble has popped).
While virtually every other sector has gotten extremely stretched above the mean the precious metal sector, the only sector in the world that is still in a secular bull market, has quietly moved down into an intermediate degree correction.
So when you hear the countless analysts spouting nonsense about the gold bubble bursting, or the fear trade coming off, or any number of ridiculous reasons they dream up for why gold has moved down, you will know the real reason for golds pullback is nothing more complicated than the average run of the mill profit taking event. An event that happens like clockwork about every 20-25 weeks on average.
These intermediate degree corrections are the single best buying opportunity one ever gets during a C-wave advance.
Also in the bullish column, sentiment in the sector has now reached bearish extremes. Even better is the fact that most of the sector has pulled back to long term support, and or tested a major breakout level.
The upside potential in many of the mining sector ETF's and bell weather stocks is now huge, even if they were just to get back to the recent highs.
One has to ask themselves whether they think the profit potential is biggest in a sector where everyone is falling over themselves to buy. A sector that has already had a huge move and is incredibly stretched above the mean.
Or if the odds might be better buying a secular bull market that has experienced a nice pullback. A sector where a return just to the old highs would already constitute a huge gain, not to mention gold should still have one more parabolic move higher this spring as the final leg of this two year C-wave finally tops out.
My money is on the area where no one is looking.
Buffett said it best. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
However if something has gone up long enough and far enough to garner the attention of the media it's usually closer to a top than a bottom.
For instance, the oil service ETF is now stretched 33% above the 200 day moving average.
One has to wonder how much upside potential is left after a 5 month rally.
What I don't hear anyone talking about anymore is gold or mining stocks (unless it's to tell us that the bubble has popped).
While virtually every other sector has gotten extremely stretched above the mean the precious metal sector, the only sector in the world that is still in a secular bull market, has quietly moved down into an intermediate degree correction.
So when you hear the countless analysts spouting nonsense about the gold bubble bursting, or the fear trade coming off, or any number of ridiculous reasons they dream up for why gold has moved down, you will know the real reason for golds pullback is nothing more complicated than the average run of the mill profit taking event. An event that happens like clockwork about every 20-25 weeks on average.
These intermediate degree corrections are the single best buying opportunity one ever gets during a C-wave advance.
Also in the bullish column, sentiment in the sector has now reached bearish extremes. Even better is the fact that most of the sector has pulled back to long term support, and or tested a major breakout level.
The upside potential in many of the mining sector ETF's and bell weather stocks is now huge, even if they were just to get back to the recent highs.
One has to ask themselves whether they think the profit potential is biggest in a sector where everyone is falling over themselves to buy. A sector that has already had a huge move and is incredibly stretched above the mean.
Or if the odds might be better buying a secular bull market that has experienced a nice pullback. A sector where a return just to the old highs would already constitute a huge gain, not to mention gold should still have one more parabolic move higher this spring as the final leg of this two year C-wave finally tops out.
My money is on the area where no one is looking.
Buffett said it best. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
Be sure to sign up for the free webinar this weekend.
Tuesday, February 1, 2011
SUNDAY NIGHT WEBINAR
If you'd like to learn more about trading, gold and the
secular bull market… here's an invitation to a private event.
A long time SMT subscriber has convinced me to go
on a live call and answer your questions about gold, cycles, the stock market and the economy…
Here's what you need to do.. Go here:
http://www.AskAboutGold.info
Enter your name, email address and whatever question
you have for me.
There are less than 150 seats left so register now to get all the details. We will be looking at massive gains from the gold bull in the next few months so don't miss out: http://www.AskAboutGold.info
secular bull market… here's an invitation to a private event.
A long time SMT subscriber has convinced me to go
on a live call and answer your questions about gold, cycles, the stock market and the economy…
Here's what you need to do.. Go here:
http://www.AskAboutGold.info
Enter your name, email address and whatever question
you have for me.
There are less than 150 seats left so register now to get all the details. We will be looking at massive gains from the gold bull in the next few months so don't miss out: http://www.AskAboutGold.info
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