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Thursday, October 28, 2010

ALL THE SIGNS ARE IN PLACE

There are three things I watch for as a sign that a correction is imminent. They are in order of importance, cycles, sentiment and money flows.

The current cycle is already stretched to 45 days. Usually this cycle bottoms between 35 and 40 days so you can see we are now overdue for a top. That covers the cycles part of the equation.

Sentiment has now reached bullish levels (contrary sign) that should be enough to force at least a daily cycle correction. We haven't yet reached the extreme level that is normally required to turn the larger intermediate cycle. In bull markets it usually takes a push to new highs to get to that kind of extreme sentiment level.

Finally I like to see some sign that smart money is exiting the market in preparation for a correction. For me that sign comes when we see a large selling on strength day in the SPYDER's ETF. 

Today we got that final sign.

Not surprisingly we now have a volatility coil forming on the S&P chart.


As most of you probably remember the initial move out of a coil is often a false move even though it is usually very aggressive.  Typically the initial move will run 3 to 5 days and then reverse leading to a much more powerful and more durable move in the opposite direction.

Since we are 45 days into the current cycle and we now have all three signs for a correction lined up I think the odds are strong this coil will break to the downside. There are implications for the dollar and gold if this unfolds.

I went over them along with a game plan in tonight's report so I won't repeat it here but I think we will likely see a correction soon and since we still haven't eclipsed Monday's intraday high it may have already begun.

130 comments:

  1. Gary, in your recent report you no longer mention $1315 as a make-or-break level for gold. Has that gone by the wayside and now you are completely keying off the dollar? If the dollar is still between 76.14 and 80, and gold break $1315 anyway, what then?

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  2. Closed silver and gold futures from earlier in day (around midnight). Some profit. Nothing crazy.

    Things looked good midday, but we never made it over resistance and started running.

    As a general I don't hold futures overnight on a tight stop if I didn't make money and have profit buffer earlier in the day. Usually you just get taken out in thin trading.

    Still seeing how these congestions play out.

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  3. Gary,
    why isn't the recent low on the 19th considered the daily cycle low, the daily cycle correction can last 1-2 days can't it? maybe we're in a wave 5 push towards the april highs before any decent pullback?

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  4. Fubsy,

    Thanks for sharing your lessons with us in your earlier post. Much appreciated.

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  5. Gold going up with the USD early in the morning. Perhaps we'll see stocks break lower next week, dollar higher, gold higher?

    The Fed really messed up the charts, signals, and cycles with this QE event conveniently the day after elections, thus helping keep markets afloat.

    Our government and the unelected officials is so corrupt I can hardly stand it anymore. Just one thing left to do, crank up the inkjets. No wonder cotton is going through the roof!

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  6. The amount of news and major events in the next 3 trading days makes things incredibly difficult here.

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  7. Marc Faber video:

    http://marcfaberblog.blogspot.com/

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  8. Hey Gary, you're leaving comments on the old post, in response to comments on this post.

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  9. I'm sticking with the plan, but don't like being on the other side of Marc Faber's bets. Faber's timing frequently off enough to put one out of business, although he is eventually proven correct.

    Fed really screwed the free markets these last few weeks.

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  10. Can you specify what 'bet' you are mentioning?

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  11. Gary,

    Would you say gold is also coiling, and that gold's coil works similar to stocks, with a breakout one way to be followed by a bigger move in the opposite direction?

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  12. Don't let me interpret his comments for you, check out the video.

    I take it that he thinks commods are temporarily overbought, but you might come away with another interpretation.

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  13. For me, it'll be difficult to stay heavily long gold if the move is higher after the QE bs next week. I'll take some off the table at that point.

    I much prefer a pullback first so that the move up later will be sustainable.

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  14. Gary, Gld & USO show bull flag?? right?

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  15. I wouldn't mess with USO. Stick with the bull market.

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  16. SB,
    Gold isn't coiling. I just sent out an intraday alert. This morings move was significant.

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  17. Gary

    Without elaborating on proprietary info, Tim Wood sees gold as having made an intermediate high, and thus expects a failed daily cycle here. But he also sees the dollar as still needing to go lower to make it's interm/yearly low, which is hard to square against the gold picture.

    We know the the intermarket relationships can decouple at times. But it's really hard to see gold going down if the dollar is making a dive to an intermediate/yearly low.

    He's always seemed to have a bit of bias against gold though, and that creeps into his expectations picture. But then this is based on a weekly swing high and his indicators pointing down, so it's an objective view point, I suppose.

    At least we now have a firm cycle picture and levels to watch and act upon. So no need to make predictions here.

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  18. GARY,

    Can I recap your current call on gold cycles:

    1)intermediate low end jul
    2)first daily cycle low 8/24 or 9/10?
    3)a daily low on 9/28?
    4)a daily low on 10/22 (you just confirmed)

    #2 and #3 are where I go fuzzy

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  19. The middle cycles are fuzzy. One or the other has to be a long cycle. It's a toos up as to which one it is.

    For our purposes all we need to know is where the last cycle low occurred.

    Onlooker,
    That is the problem with relying on oscillators like Tim does. You can get whipsawed to death.

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  20. You see little to no chance of a second decline segment in gold down to 1300 or so next week with that being a daily cycle low? And then we resume up for one more daily cycle?

    How can you be as certain about the CURRENT daily cycle low if you date of the previous low is unknown?

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  21. Because there was nothing fuzzy about this cycle low. It's obvious when you look at the chart.

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  22. TZ,
    Just lighten up on your leverage and I think you will find you won't have any trouble entering.

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  23. Feel the need to share. This stock could be going places..

    GRC.TO

    Good resource just had some management issues that are being sorted.

    Nice chart.

    BTW I just signed up for a year - hope you are as good as my initial impressions, Gary.

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  24. I do believe the market is ready to dip and have increase my shorts/hedges against my miners so I am not somewhat net short. Just shorted Q's and SMH this morning to go with my FXI, EEM, and IRL shorts. I hope to win both ways, but if we really tank and the miners get dragged down, I should at least stay even. It's been a while since i have posted about the SPCX, but it's nice to finally have an opinion again as I've gotten tired of sitting on my hands.

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  25. OOPS. Bad typo in my last comment. Should be "So I am NOW somewhat net short."

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  26. DG,
    don't you think eem & fxi already corrected? need to correct more?

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  27. Gary, do you think GLD may go up to hit the gap @134?

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  28. John Embry (from Sprott) sees silver hitting $50 before long.

    Btw, their Silver Trust priced last night, trading under PSLV.

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  29. Re FXI and EEM: If the Dow drops 200 points or so there's no way those won;t go down as well. RS is important and I like shorting things that are already acting poorly. The other thing to short is items that have gotten sop stretched they really "can't" get more stretched if a decline is coming (like the Q's). I almost never short the stuff in the middle. Besides, it is my opinion that China is going to blow up at some point, and if this is the start of something bigger than we think, I may get lucky. Everyone thinks China is fantastic (remember Japan was going to take over the world in 1980?) and I like fading over-confidence.

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  30. OOPS. another typo (it's too early in the a.m. to be blogging!) Japan was supposed to take over the world in *1990*. Time magazine ran a cover story about it called "Japan Inc." Now it''s China. Consensus didn't turn out so well for Japan.

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  31. Sounds like a 10 year hold on that trade, DG, but it might pay big. :)

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  32. GARY,

    >Just lighten up on your leverage and I think you will find you won't have any trouble entering.

    Yeah, i know. Thanks.
    Part is that, but also never getting a clear bottom like a spike down or an A-B-C type pullback from the highs. We only got sorta an A-B correction and then we've still got elections/fed next week to loop things.

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  33. (no, I'm not an elliott waver. But still pullbacks tend to drop-PAUSE-drop. We seem to have only gotten the drop-PAUSE so far)

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  34. SB---I'm too much of a trader to hold for that long (unless Gary coverts me, which he has on gold) but I will be taking chunks out of lots of intermediate moves. I was short China during the April decline and got a nice chunk out of it then. I am hoping to do so here as well. But 10 years? You are probably right, but I don't know if this pig can learn to roller skate.

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  35. I still hold that the last equity cycle low formed on the 19th. The dip you described could push equities into a failed daily cycle.

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  36. TZ,
    I assume you got the morning alert. You have a very clear stop below $1315. Just take a large enough position that allows you to use $1315 as your stop.

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  37. TZ,

    I think we are in wave 4 correction and this correction may not happen as A-B-C. I think A-B-C will happen after strong wave 5.

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  38. With everyone and their grandmother assuming that 1315 was the low, wouldnt having everyone puts stops right below that, encourage big money to run the stops in a pull back?
    Me thinks yes.

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  39. As far as I know the only ones who consider $1315 the bottom are the readers of the SMT newsletter.

    I'm really not all that popular that we have to worry about the big boys fading us :)

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  40. You underestimate your own popularity Gary :)

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  41. I know the exact number of readers of the blog and newsletter and we are no where near the level of popularity that we have to worry about smart money fading us.

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  42. Gary, its more about how much money these subscribers invest, rather than how many subscribers you have. A few heavy hitters, and it can easy change.

    Anyway, there are indeed too many conflicting issues affecting gold...Chilton's announcement and the law suits filed yesterday, are def playing a role in helping Silver fight off any pull back in my opinion.

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  43. The more contrarian views there are-- the higher the Bull can go!
    Gobble Gobble

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  44. This comment has been removed by the author.

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  45. Gary,

    Can you envision a drop to around 1300 on gold, calling THAT a daily low, and STILL seeing one more daily cycle up from there? Or is that completely against all sense and pattern for you?

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  46. TZ,
    At this point with a higher high a move below $1315 would most likely be the beginning of an intermediate cycle decline. So no I don't think your scenario has very high odds.

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  47. I'm taking a break and gonna go clear head with some lunch outside.

    A treat for you guys here. Amazing:

    http://www.youtube.com/watch?v=bioYs6oAD8g

    Make sure you watch in 480p and full screen it (four arrow icon lower right). First few minutes he shows how he puts it together.

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  48. that was good TZ. Thanks. BTW, its time to take the plunge .. or at minimum, dip your toes in the pool. join the party. big picture, you wont lose.

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  49. I've got a large core already. This jawboning and whipsawing on my part is for a leveraged addition to that. Thanks.

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  50. Big movements in NG last three days. Look at huge volume spike last two days between 10am-11.30am. Up $1.60 (17%) in 3days!

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  51. I gave up on TBT, allowed my funds 3 days to settle thus letting me add to my SIVR and FRMSF.
    Elections around the corner and I wonder what that will say for mr. market...

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  52. Big move unfolding now, fake?

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  53. TZ , wasnt aware, so, its irrelevant. You are making your $ either way .

    thanks for the link.

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  54. Good to see gold close above 1350...providing it holds...

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  55. I can't believe how the miners (GDX and SIL) are moving. It's parabolic!

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  56. what is the news? GLD went vertical..

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  57. I think SPX joins the party this afternoon heading to 1250 next week or the week after. Then we get the correction everyone has been waiting for.

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  58. Hardly parabolic. They haven't even made new highs yet.

    There's a very strong posibility the next leg up has begun and it could tack on as much or more than the rally from July to Oct. did.

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  59. TZ,

    Your youtube link reminded me of this one, almost looks like the same plaza in santa monica..

    http://www.youtube.com/watch?v=Us-TVg40ExM

    man, looks like HL kicked CDE out of the dog house and now owns the house :)

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  60. Gary, I appreciate the way you 'reason' on things to keep us level headed during the more emotionally charged sessions. And I agree , I feel this nxt leg up will have the profit takers jumping back on...and...those who missed july to Oct jumping on.

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  61. This comment has been removed by the author.

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  62. Gary,
    So you don't think this move up today constitutes a false break higher from a crawl on HUI, to be followed a breakdown (possibly on underwhelming QE size)?

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  63. HL was in the doghouse? It went from $4.75 in Aug to $7.27in 6 weeks and thats about a 55% move . no?? :) EXK looks like a good deal now as well as axu, ssri, slw etc etc etc ...seems like you could throw a dart and do ok..time will tell

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  64. Nice! I just got back from being out and see FXI is down, EEM is down, QQQQ is down, and the PM's are up a ton. I mentioned I might get "lucky' and win on both, but certainly felt better about having some shorts for the expected dip and, well, what do you know...

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  65. Gary,

    I am still holding with core position and wanted to ad leverage back.
    I know this leg will lead us far beyond $1400. But what do you think about stock and USD cycle? Will they drive gold into another leg down? Do gold prepared for new high?

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  66. GE,
    Quit worrying about the stock market and dollar and focus on what you are buying.

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  67. TK is bragging about shorting GLD today. I think he proves the adage "we are our own worst enemy".

    Cheers!

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  68. TK is the single best fade in the business. Much higher prices to come!

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  69. What ever happened to TK's GDX short??

    Doesnt look so good today!

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  70. For some reason Tim has an uncontrollable urge to short bull markets and it doens't matter how many times he gets burned he continues to try.

    I never understood why one would do the same thing over and over always expecting to get a different result.

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  71. Not to pile on TK, but it's amazing to me that anybody would follow him into any of his trades.

    Since I haven't sen his site in months, thanks for the heads-up that he's shorting gold.

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  72. I just took a peek, and QQQQ is up 23% since beginning of Sept. Amazing.

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  73. SB: Wow! Anything with that much momentum must be a good buy, eh? (Don't you dare...) Better stick to printing. I'll bet a Chinese dinner it's not up another 23% over the upcoming 60 days (enough with the burritos already.)

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  74. Nahh, I wouldn't do that to you. In fact, I've been entertaining your idea of the short side of stocks (but with ES futures) to offset my long miners and gold.

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  75. Hmm...I think I may have to head down to the local cantina for lunch. Maybe I'll get dangerous today and go with fajita's.

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  76. Gary said: "There's a very strong posibility the next leg up has begun and it could tack on as much or more than the rally from July to Oct. did."

    So I assume you no longer see much of a threat that gold and miners will lose much strength during the imminent correction in the broad stock market....

    I thought the idea was to wait till that correction is over before going all out[?]




    BTW, Shalom, I read this quote from Faber:

    10.28.2010
    A Correction Is Overdue, But Don`t Expect A Bear Market
    "A correction is overdue, but I would not think that a bear market is around the corner. The correction will be a buying opportunity and then we will have a boom in stocks and in commodities like we had between the end of 1999 and March 2000 when markets went up very strongly."

    in Bloomberg.com

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  77. Gary,

    I now have a large AGQ position. I'm leaving for the Sierras shortly and was wondering if a stop would be wise and if so at what lower level. Thanx.

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  78. John,
    I think we will follow the second scenario in last night's report.

    Even if the coil breaks down in the S&P they drop usually only lasts 3-5 days. If gold is in a solid uptrend the miners might suffer a miner dip for 2 or 3 days. I can live with that.

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  79. bail,
    I explained in the recent intraday alert where stops need to be placed that would signal that we are wrong. If you didn't get the alert it is also posted on the website.

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  80. Gary,

    I'm not margined so figure a 3% drop in silver would equal 6%, roughly, AGQ (98.7). Sound right?

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  81. correct except don't forget silver is more volatile than gold. A 3% drop in gold might be a 5% drop in silver.

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  82. Great typo Gary: The Miners might suffer a minEr dip. I guess that's what you'd call it

    SB: That's part of why I like being short FXI and EEM. If we tank they will surely go down, and if we rally (like today) they can go down anyway. I can't see them rallying if the SPX gets hit. And if China reverses their policies and stimulates---unlikely---the OM's will pop big.

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  83. Then I'll set it at 94.5. Thanks again.

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  84. You would be better off setting a trigger to stop out of positions if GLD hits $128.

    Or you could just watch the spot price of gold on kitco.com

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  85. EGO decided to sit this one out. What's wrong with this one? I've got a small position in it and 16.50 looks like good support...I thought it would rocket along with ANV today.

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  86. I see they missed by a penny. Whopdedoo.

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  87. These pesky underperformers are what decided me on just going with GDXJ. Plus I like a nice neat portfolio with only 4 positions.

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  88. Great idea with the conditional order entry for stopouts. I have rarely used them on my platform but just re-learned how to do it.

    Frees up my time to do something else! I normally don't mind watching the markets, but these last couple weeks have been torturous.

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  89. Gary,

    I'll be off the grid so can't monitor. I hate to reveal my ineptitude but don't know how to set up a trigger from one ETF price to sell stop another.

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  90. Bail,
    In ameritrade its called a trade trigger. If you are using a different platform you can just call your broker and ask him how to do it.

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  91. I'm using Merrill Lynch (30 free trades per month) but don't see that option available.

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  92. I just can't get over how impressive Silver is performing. I know it can draw-down rapidly, but it's action the last 10 weeks has just been so consistent and rock solid.

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  93. Wasn't the all time high for silver $50 when the Hunt brothers tried to corner the market? Gary, to you think we could reach $50 in the current C wave (before next spring)?

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  94. a better question .. where do we feel Silver ends this phase of the C wave .. 30$ ?

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  95. You think somebody knew something about EGO's quarterly earnings release? (i.e. the poor relative performance of the last month or so) No insider trading anywhere, right? Naw!!!

    That said, it's been a very good company that's performed quite well. This may be a good opportunity to take advantage of Wall Street's short sighted, earnings release-focused tendencies.

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  96. $34 would be asking for a lot, but that would put AGQ at around a nice even $200. I guess we could live with that. :)

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  97. Higher than $30, I expect. We could take out $30 in two weeks at this rate.

    $50? Tricky. We could tag $50 at the very top, but keep in mind that we could easily fall back to $25 in the D-wave that follows. We may see $50 in spring, then not see it again for another year or more after that.

    My guess would be somewhere between $40 and $50.

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  98. What is going to do better in the next while? Any opinions welcome.

    HGU.TO (200% XGD.TO - S&P/TSX Global Gold Index)

    or

    ZJG.TO (same as GDXJ)

    Majors are still lagging and due for a big breakout, will the juniors still do better?

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  99. I expect the juniors will continue to outperform for the remainder of this C-wave.

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  100. They should outperform 2x majors? I don't trade a lot so I do suffer on the leverage when there is a drawdown.

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  101. I expect them to do 125% to 150% of what the majors do.

    So if the HUI rallies 1% I would expect on most days the GDXJ to rally 1.25 to 1.5%.

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  102. Thanks, I'll think about it, I might be better off with juniors.

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  103. Gary or anyone else,

    I came across this yesterday evening.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/10/28_James_Turk_-_Silver_%2430_in_Less_Than_18_Days.html

    Anyone know who James Turk is how accurate he has been in the past?

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  104. $ down near 77 again. Pretty soon it's going to stop testing that level.

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  105. Bam,
    I think we are starting the next leg up, but don't kid yourself, none of us can see the future

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  106. Gary,

    Here is another i just came accross from he same website. Looks like it was written up today.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/10/29_Gold_%26_Silver_Commercial_Signal_Failure_Today.html

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  107. Gary,

    you made this statement...( Toby Connor said...
    Gold is in the most powerful C-wave of the entire bull market. There are no patterns that one can depend on other than gold is going up. ) ---
    and I am wondering ..is this because all c-waves are bigger than the last and on until a parabolic blow off top , due to 'recognition' of the bull mkt as time goes on...or did you say this due to another thought. please share if so.

    I was invested in the 2003 and the 2005-2006 runs and they were sweet. thx

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  108. The C-wave do get bigger as we go along. The size of the previous consolidation also has a lot to do with how big a C-wave will be.

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  109. Sometimes you have to just laugh at the statistics. Since 1980:

    The first trading day of November is
    21-9 (wins-losses).

    The first Monday in November is
    21-9.

    The first week of November is
    21-9.

    The month of November is
    21-9.

    Go figure.

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  110. rate adjust the $50 an ounce for silver back in 1980 for today and it should be $120 an ounce or more from one of the articles I've read few months back.

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  111. Hi Gary,
    I currently have 25% of my PM portfolio in GDX and 25% in GDXJ. Do you think I will be better off just converting it all to GDXJ?
    Todd R

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  112. I personally think the percentage gain will be bigger in GDXJ. Even if it doesn't outperform it will certainly match GDX so I don't think you risk much by putting it all in GDXJ.

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  113. GARY,

    Does a near future intermediate cycle low in gold mean the end of the C wave or can it go past that into spring? I think you are saying it can.

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  114. Ignore, realized that is already answered; we had intermediate pullback a few months ago and we've been in C for a long time now despite it.

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  115. TZ,
    I'm expecting this C-wave to unfold in three phases instead of the two that has been normal up to this point.

    The reason being that the dollar should have one more intermediate leg down into the 3 year cycle low this spring.

    I expect gold to get very stretched above the mean by the time this intermediate cycle tops. Then it will consolidate for a couple of months as the dollar bounces out of the yearly cycle low. Then when the dollar rolls over again into a full fledged dollar crisis we will see the final leg up in this C-wave.

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  116. Gary

    I never studied the wave counts , but I just read your last comment saying this c-wave would be 3 phases unlike others.

    I thought I counted on the HUI in the 2003 run a leg up, pause, leg up 2,pause,and final leg...also in 2005-2006 same thing. so maybe I dont understand the phases.

    can you just briefly explain where THIS c-wave started?? I thought (wrongly obviously) that we were already now entering the 3rd leg up of this c-wave. this cwave started on what date??

    thank you

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  117. While waiting for my flight this morning at Laguardia just out of curiosity flipped through the pages of Kipliger's, The Money mag and Smart money. None of the three so little as mentioned the world "GOLD". Atlantic Monthly had an article wondering why, in the age of massive deficits, the government is sitting on $300 billion worth of gold. Some douche who penned the article could not get a single govt official to comment on the US policy regarding its gold reserves. Does that sound like a bubble to anyone?

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  118. We are so far removed from a bubble. Everyone I know who I speak with about gold either a) shows no interest as in its too wacky/foreign of an idea to buy gold/silver or b) thinks its way too expensive or c) has a negative emotional reaction and thinks I'm crazy for being involved in this market as its too unpredictable. In other other words, they aint buying. I love it.

    For those of you who responded to my post a few days ago about my sell off. I appreciate the feedback, and I realized my mistake the next morning got back to a 50% position and have built that up to 65% through the next couple days. It has turned into a couple thousand dollar error...a cheap price for a valuable lesson.

    Gary's weekend report got me thinking about bringing myself up to my max exposure of 78% Monday. My strategy until I read the report was that I would buy the next block when either the coil on the S&P broke down and the PMs with it, or on a break of the dollar below 76.14 or whatever the magic number is...I'm not looking at my charts right now.

    Mitch

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  119. Alex,
    You don't count the HUI you count gold.

    This C-wave began in April of 09 when a very weak B-wave bottomed at the 1980 high of $860.

    Currently we are in the middle leg of this Cwave. The first leg took gold from $860 to $1265.

    This leg will go from $1265 to $1400-$1600 (best guess).

    And then I'm expecting a final leg up this spring as the dollar collapses into the three year cycle low and the first of what will likely be several currencies crisis.

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  120. Gary

    Did you mean to say 1226 vs. 1265 as the end of the first leg of this c wave? Just wondering as that seems like the more likely end point as it got pretty stretched above the 200 DMA, as opposed to 1265, which was not really an extreme top at all. And we also had a lengthy consolidation after the 1226 top.

    Not that it matters too terribly much, but I just wanted to clarify my understanding of this.

    Thanks

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  121. So the D-wave in this case was the collapse in gold in 2008?

    Where do you think the next D-wave will take us down to? I think I read something where you said it would erase all the gains of the prior C-wave.

    Presumably, then, it makes sense to exit all positions prior to the D-wave.

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  122. I thought you might enjoy this:
    http://fora.tv/2010/07/28/Niall_Ferguson_Empires_on_the_Edge_of_Chaos#fullprogram

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  123. David,
    A D-wave will retrace 38 to 50% of the preceeding C-wave.

    It will almost always drop back down to or slightly below the 200 day moving average.

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  124. Gary,

    76.14 is the "line in the sand. The dollar has solid support at the 77 level.

    The fact that the dollar hasn't broke below the 77 level yet on this cycle, let alone the 76.14 line in the sand has me wondering.

    I think that the foregone conclusion of the republicans winning the house is bullish for the dollar and now it looks like QE2 will be QE lite.

    this 1-2 combination will cause the dollar to rally this week and will help to contribute to the now overdue daily cycle correction.

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  125. Ike,
    That's the theory. The question is how long before the market comes to it's senses and realizes even QE lite is still billions of extra dollars being thrown at the market and that causes the dollar to crash down into the yearly cycle low and the market to quickly reverse higher out of any correction.

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