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Wednesday, December 15, 2010


I've noted before that at intermediate turning points we will usually see breadth diverge from price.

The McClellan oscillator is now showing a large negative divergence and has moved back below 0 despite the market making new highs.

On a slightly more serious note we are also starting to see a divergence in the advance/decline line for the first time since the cyclical bull began.

The last time this happened the market was entering the final topping process of the last bull market.

I think that is probably the case here also as I believe we are already in a very large topping pattern.

As you can see on the chart the next four year cycle low is due sometime in 2012. 

Bernanke has massively increased the monetary response in the attempt to halt the secular bear, and we know how the last attempt to control the market turned out (we got the second worst recession since the Great Depression and the second worst bear market in history). I fully expect the next leg down in the secular bear to be even worse that the last one. Not only in the stock market, but also in the economy.

Greenspan already proved that you can't meddle in the markets without eventually causing bad things to happen. Unfortunately Bernanke doesn't seem capable of learning that lesson and has now made the same mistake again only on a much larger scale. I'm confident it will only lead to a much larger collapse in the end.

We will almost certainly dip below the `09 lows at the next 4 year cycle low, probably in nominal terms and certainly in inflation adjusted terms.

Once the impending intermediate degree correction runs it's course we will get what I believe will be the last rally in this cyclical bull market. That rally may or may not make marginal new highs before rolling over into the next leg down in the ongoing secular bear market.

I expect by this time Bernanke's insane monetary policy will have spiked inflation high enough to collapse the economy again and the global stock markets will begin the trip down into another devastating bear market.

In 2012 they won't be calling it a Great Recession they will be labeling it by it's true name; The next Great Depression!


  1. Yep, unfortunately I very much agree with your last sentence. There have been little tiny hints of acknowledgment, at the very margin of mainstream, that what we're going through just may be depression-like.

    The full recognition will come over them in time. I just wonder if people, on the whole, will finally understand, and acknowledge, what terrible folly monetary policy has been over the last 25 yrs or so (at least).

  2. Gary, what does this mean for miners? Surely they won't be able to resist the pull of such a devastating bear market

  3. Gary,

    I agree with your hunch of the future and believe there is a high probability of an outcome similar to what you outline in your blog.

    Nevertheless I must admit - with all the respect I have for you - that in my eyes you begin to damage your creditability with the typical error of overconfidence when you predict 2012 now.

    You obviously have a great understanding of the trends of the gold market and made some very good market calls during the last months - you deserve a lot of credit for that.

    But predicting the stock markets performance of 2012! with a tone of certainty seems to be typical overconfidence to me. And overconfidence always gets punished by the market - as you well know I am sure.

    Believe me, there is a large and extraordinary list of theoretical events that might happen during 2011, that will change the outlook completely - even without expecting a true black swan.

    Therefore I will still follow your short and mid term analysis with interest and respect - but will take the future one step after another.

    And thats my best advice I can give anyone here. Be prepared for the unexpected and unthinkable !

  4. unexpected and unthinkable....

    the masses are not expecting the stock market to crash and it is unthinkable that another great depression will occur given the government just adverted the last one....sooo...with that in mind, Gary's predictions are pretty spot on.

  5. chart looks like Nov, 2009 to me..

  6. Gary-

    You're a ray of sunshine this morning!

    Need to make as much as possible in 2011/2012, and get some of it offshore against gov't mandated treasury purchases and/or exorbitant taxes on 'speculation'.

  7. Ollie,
    Look at the 2000-2002 bear market and tell me if you think miners can resist a bear market in stocks.

    Or you could look at the Nov. 08 to March 09 period when the stock market was collasping into a final low and see what happened to mining stocks.

    I would be willing to bet a burrito that the stock market will be in severe trouble by the middle of 2012 :)

  8. Dick Arms is saying the Arms index (TRIN) is the most overbought ever. This is in almost 50 years.

    Since he invented the index, I'll take this as a reliable signal.

  9. Gary,
    If it holds up today, we now have a swing in the dollar. Where is day 10 considered in the cycles timing band? Can a bottom be left or right translated or is that only relating to tops in failed cycles?


  10. This market has been treading water for two straight weeks, all under very bullish news. Will there be anybody left to buy it if the news turns?

  11. T.J. Rand,

    I live in Europe and believe me - the same thoughts as yours are thought here by many.

    Germany and Switzerland had a buying stampede for gold/silver coins in 2010 - driven not by institutionell but by private persons - the guy next door that is obviously more aware of the possible future as in other countries, where that stampede did not happen yet.

    So this leaves a serious question for your concept:

    What is a good "offshore" place to be in 2012 if it isnt US or Europe ? Switzerland it isnt - believe me.

    Dont tell me Bermudas, Luxembourg or some other mini-country like that. In a *great depression*, originating from the western heavyweights, they all get washed away - believe me. Look what happened in the twenties and dont underestimate the risk of political instability in this theoretical hideaways. Even condemnation is something you should have on your radar in these hideaways !

    Also physical gold under your pillow is not an option as it might get confiscated by the government.

    If you ask me and want to secure your wealth in a great depression, DONT leave the political stable US oder Europe with your wealth and invest instead in farmland, wood, physical silver and so forth. And stay in the US.

    Silver cant be that easily confiscated by government, as it has use in many important applications.

    Never underestatimate the political risks outside your homeland - you typically cant really grasp that from inside of your country.

  12. Since this is basically an epic global monetary event it seems inevitable that gold will make an historic comeback, monetarily speaking.

    This could mean massive regulatory and taxing of gold mining companies and possibly even nationalization. I hope to be out of mining shares before this occurs as should anyone with a troy ounce of sense.

  13. Mag,
    The swing in the dollar in theory represents day one of a new daily cycle.

  14. not sure anyone should be betting a burrito in 2012.....i imagine they could cost $5000.00 or so by then ;)

    call me crazy, but have been making little trades here and there for a day/ two//etc based on large volume increase nearing breakout area....

    ex bought 3000 CGR at close yesterday...still open

    bought VTO last wk, closed 1/2 position

    closed PZG and NAK after run up

    risk is high , but watching closely..yesterdays discussion board here was easily avoided :)

  15. mistake...bought VTG last wk...4000 shares, sold 1/2

  16. and for honesty sake... :)

    and bought GMO @ 5.70 for a quick trade last week with volume surge...held on too long and am in losing position.

  17. King World News Interview with Victor Sperandeo (Gary has recommended reading his book "Trader Vic"):


  18. Gary never stops to surprise me! he can even smell when the market has bad breath.

  19. alex, if you bought BBX will get you some burrito ...

  20. Gary, I take your point and agree that miners showed relative strength in those periods vs other stocks however between July 2007 and Nov 2008 many miners have lost a lot of value...

  21. In 2008 after the Lehman collapse Todd Harrison at Minyanville predicted that the fall of 2010 would see an all time market bottom.

  22. The SnP seems to keep fighting this down trend, its truly impressive. When it breaks though, it should easily pull gold down with it...
    The question is though, from what level...

  23. Alex: A "trade" that turns into an "investment" (because you wound up in the hole) is a great way to lose money. Cut the losses short! If you are in the hole, get out. You don't want to lose money waiting for a bottom in gold. It will cost you not only what you lost, but the loss of gains on that amount that is now gone, as well. If you bought for a reason ("this is the bottom") and are in the hole, the mkt showed you you were wrong. Why hold on? One of my favorite mkt aphorisms is: "It is fine and expected to be wrong. It is criminal to stay wrong." Good luck!

  24. Ollie,
    08 represented an 8 year cycle low for gold. It's no surprise the sector got beat up but it's also the only sector that bounced right back iand is trading at new all time highs.

  25. Revan-

    Agreed on many points...however I believe the most economically stable countries in the future will be Asian- so assets in Singapore, Hong Kong (assuming the PRC doesn't have it in for US Citizens) even Australia or NZ might be prudent. Or simply buy bullion offshore through GoldMoney, BullionVault or Perth Mint.

    Residency is a different matter - much depends on the cultures you are comfortable in - but there are options in South America and Asia, even Europe.

    If you're interested, there's a blog that covers a lot of this ground- Sovereign Man, run by Simon Black, who advocates diversifying citizenship, residency, business location and asset location among various jurisdictions. Agree or disagree, it's excellent food for thought.

  26. 92000

    yes, thats impressive volume for a bank stock (at 10.30 a.m. has 2 million)...maybe they invest in burritos for the future price increase?? :)

  27. DG

    I believe what you are saying 100% and thx for that. I actually am not planning on holding much longer (tho if the mkt falls apart my losses will increase)

    I am holding for loss no bigger than 8 to 10% on that trade. Volume was light on pullback , so i didnt panic...but its getting close to a sell. it is oversold here a bit, but again..if the MKT tanks anddrags it down, I am out quickly.
    thx for your insights though.

  28. Thank you T.J for that link. A very interesting blog!

  29. OEXers buying tons of calls again today. They have really nailed this whole thing. Maybe the market will simply never go down again! I do not plan to short until they do.

  30. DG,

    Historically have OEX options buyers generally been on the right side of the market? Going back how far?

    What is your data source to get this info?


  31. T.J. Rand:

    Asia ... maybe, maybe not.

    Singapore had a run recently and is identified by many (too many ?) as a "safe haven". On the other hand Singapore is a rigid - one party - political system dealing with a multi-religious population. Not a good basis for long term stability by all historical means.

    My problem is, I have no idea what is really going on under the hood in Singapore or Hongkong far away here in Europe.

    My sceptizism is driven by the observation, what even well educated people or media like the NYT know and understand about Germany for example.

    And with Germany we are dealing with a western country with at least similar culture and basic believes as in the US. And Germany is the 4th largest economic power in the world, so some understanding should be expected.

    Nevertheless what is written and known about Germany even in a NYT or WSJ is "shallow" to say the least - far from what is really going on.

    Now transport this awareness to a complete foreign culture as in Singapore and you understand what I mean.

    I believe we are drastically underestimating the risks in such "safe heavens" because we simple dont know them and are overestimating the risks in our own country, as we understand them well and are annoyed about them every day.

    To say it in a simple sentence : the gras is always greener, on the other side of the fence ;-) I dont say, there isnt "green range land" somewhere, just dont underestimate all the risks you cant even formulate from thousands of miles away.

  32. hey guys ,

    Freaky Friday is this week...otherwise known as triple witching.

    It is rumored (no link, because i didn't just read it, I have heard it...) that in most cases , the December triple witching regains all losses for that week.

    anyone else have opinion on this Friday??

  33. I was told, by a financial adviser, that we can have a simultanealy drop of US$ and €uro, in the next few days, that will take a high move in Gold.

    As any of you heard about that. These actions are rare but had already happened.

  34. Pima: got to
    Scroll down to "half hourly volume" then look at "S&P 100" call and puts. More calls than puts is bullish, and the more, the more bullish. It can change a lot at day''s end (like SoS) so check for the final here:

  35. don't guess, it is all about $USD...

  36. carols, "I was told, by a financial adviser, that we can have a simultanealy drop of US$ and €uro, in the next few days, "

    did he say any reason? I look at macd for US$, it looks like going to drop, but who knows, anything can happen.

  37. Thanks, DG! How much weight do you give this info (the OEX put/call ratio) in your trading? For example, if your system gives a signal to short the market, but OEX options are heavily weighted on the Call side, would you not take the signal?

  38. It depends (sorry for the mushy answer, but it really does). How lopsided is the PCR (put/call ratio)? How lopsided is the other stuff? I use a "weight of the evidence" approach. Right now there is so much stuff calling for a drop, if the OEX stuff were even neutral I'd short anyway if we started down. But I would wait if the OEXers were buying tons of calls. I expect to be short by 1/1. And maybe today if we can start down...?

    Gary: your example of an 8% drop and missing the entry and exit, and several false starts, which whittles away at your gains down to 4% assumes equal amounts. The probes I have made so far have been tiny and I have lost less than .5%. When we start down I expect to be there in size. And, yes, I know it's not easy, but almost nothing worthwhile is easy, nor can good things be done without practice, discipline, and expertise. Weightlifting is not "easy" but you have worked at it, have some talent for it, and love it. Trading is that way too. As always, I will let you know how I fare.

  39. Hey Pima! Take a look. The OEXers just switched to a lot of put buying in the past 1/2 hour, with now more puts than calls. They are no longer arguing against a decline. Interesting.

  40. eur/usd placed a gravestone doji yesterday reversing all the gains made throughout the day which indicates a bearish outlook. The break of resistance without any follow through also confirms the head fake.

  41. Thanks for the heads up, DG, on the put buyers coming out in force now.

    Have you given any thought as to why the OEX put buyers generally get it right, while overall options buyers are usually a fade?

  42. The OEX traders are professionals using options to hedge their portfolios. Most options are bought for speculation and thus prone to buying calls when excited or puts when depressed. It's a little like SoS being smart money. And it's a bit self-fulfilling like SoS: when the big boys start hedging their longs it means they are no longer buying...so down we go as that support is removed.

  43. Carlos, Currencies trade in pairs, i.e. EUR/USD, EUR/JPY. They could both drop against other currencies, but not against each other.......

  44. Notice that it is barely more puts than calls. I'd expect to see it somewhat lopsided before we start down, but no indicator is always right. At least it's not arguing against a decline any more.

  45. Gary -
    large BoW in the SPY +357.. I wonder if this reverses the SoS from last week?

  46. DG

    Did you have an opinion or feeling about triple witching this Friday?

  47. Following is a link to a partial interview with a supposed London Bullion market insider about Asians presently buying huge amounts of paper gold and silver w/o causing a spike in prices.

    If this is true it might be what's holding the market up. It seems to me that when paper starts bidding for physical, which doesn't exist above ground, the prices will skyrocket.

    I'm not talking about market manipulation here, just the fact that there's far less physical PM than paper PM.

  48. Link:


  49. slw hang tough , it just does not want to drop.

  50. Not really, as it's not something I have studied much. Expiry day tends to be non-volatile (small moves like today) and the Monday after expiry tends to be weak, so Monday is likely to be down, other things being equal (which they rarely are.)

  51. Thx for your thoughts DG

    this link made for an interesting read on institutional index of core holdings


  52. 2:30 p.m. eastern time...movement in $$ and Gold

  53. so far this doesnt feel like a 'real' move or sustainable one, even tho the dollar is rallying ( up .70)

    Gold stocks not really selling off with added volume (as of yet) and almost really look ready to bounce.


  54. Gary: That IS a big BoW number. Assuming it holds after the close, does it mean anything to you?

  55. slw did not see big number sell yet??

  56. The dip buying is relentless. Until these guys get burned, there is likely to be little downside.

  57. DG,
    From time to time a big number misses entirely. However I think this is probably a sign that big money will continue to buy dips until at least Christmas.

  58. So we have slightly conflicting signals in stocks: large BoW on SPY indicating more upside is likely, and more OEX puts bought than calls indicating a move down is likely.

  59. Welcome to the world of massive Fed meddling.

    Now you see why I suggest not getting tangled up in the stock market.

  60. Could be that the big boys are supporting the main indeces while their selling other stocks in the background

  61. i think i am closing my short positions...it is becoming too stressful

  62. Pima: the OEX numbers are really neutral, not bearish. It needs to be lopsided to indicate much. All we can say is that the OEX number is not arguing against a drop (as it has been lately with tons of calls being bought). I do not agree that it is indicating that a move down is likely. Today's reading is like a +25million BoW number would have been: slightly interesting but not saying very much. But let's see what the late after-the-close posting is (around 4:30 ET)

  63. And yes, the Fed meddling is definitely screwing up a lot of indicators.

  64. 20 DMA is strong support for SLW & SIL... been down since Dec 6, maybe it is time..

  65. "BOW numbers are huge "
    how do you define huge?

  66. second on the list was nova gold...

    i've never seen any miner with 50M BoW ever before...

  67. Who cares about the BoW number? We had a huge SoS number few days ago and it hasn't meant a damn thing, yet.

  68. Nice move in the dollar and the heat on the Spanish bonds only just beginning to heat up again. 2 day European meeting appears to hold the answer to where the dollar is heading.

  69. Can someone clarify what (sos) and (bow) means. Thanks

  70. SOS is the Morse code distress Signal.

    BOW stands for Becoming an Outdoors Woman.

    We are pretty cryptic here and are planning for Armageddon. We'll be using SOS and the women here are training to BOW.

    Don't get mad at me guys for telling this guy our abbreviations, I felt bad, and he needed to be informed. I still don't think this will ruin our future getaway plans.

  71. There is a lot more details on our SOS and BOW plans in previous post's comment sections. You should look back at all of them if you're going to join us in our survival procedures when the time comes.

  72. Lol, that was funny

    Seriously though. What do the abbreviations stand for

  73. Bow = Buying on weakness
    SoS = Selling on strength

  74. http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html

    BOW here is the link

  75. To argue against the BoW in SPY today, we had a monster -527 SoS in Apple, a monster -293 Microsoft, and a baby monster -189 in Proctor.

    Now I know Gary will say that these numbers prove to be insignificant, but I beg to differ. I've looked back at alot of the bow/sos data and you rarely will see three mega SoS's not near an IT top.

    We could chop sideways for a few weeks like Gary said, but I don't see us exploding higher to SP5 1270+ with where we sit right now with volumes, dumb money confidence levels, the dollar cycle, and the stock cycle.

    I would be surprised to see anything more than one more dip down in the dollar with gold and stocks bouncing prior to the move down into the IT low. I never put anything out of the question though.

    Right now I'm short the Russell and energy.

    I'm looking forward to a 80.5 dxy/

    It also is very satisfying watching silver miners drop steeply when your on the sidelines :)

  76. Final OEX numbers: 19,000 puts and 16,000 calls. Inconsequential---barely above 50-50.

  77. Forgive missed apostrophes you academics.

  78. Once the big money becomes convinced the cyclical bull is over we should see a huge SoS day where not only the SPYDER's are dumped but every bellweather stock is sold heavily.

    It hasn't happened yet but I expect it will during the next intermediate cycle.

  79. The Russell 2000 Index Fund (IWM) shows volumes as follows for EOD today:

    Calls: 16,751
    Puts: 41,340

    A nice 2.47 put/call ratio. That will PUT me to sleep pretty nicely tonight :)

  80. "Big bull markets are rare, particularly bull markets that span the years or even the decades. Such bull markets may arrive once or twice in a lifetime. If you're lucky enough or intuitive enough to spot one, you have the makings of a fortune.

    It's extremely difficult to identify what could be a great and extended bull market. It's just as difficult to enter early in such a bull market and ride it all the way to somewhere near the top. But it can be done. My old mentor, the great George Schaefer, identified the beginning of the fabulous bull market of 1949 to 1966. George entered that bull market in June of 1949, the very month that it started, and he rode it, along with his subscribers, to somewhere near the 1966 top. George used every correction in that bull market as an opportunity to add to his portfolio, and he reinvested all incoming dividends. As a result, he made many of his subscribers wealthy beyond their wildest dreams.

    Now we're witnessing another such primary bull market. This bull market in gold started around 1999 when gold was selling for 259 an ounce. I did my best at the time to push my subscriber into buying gold stocks (which, at the time, were selling at pitifully low prices) and into buying gold bullion. At no time since then have I ever suggested that we sell our gold items. Nor do I suggest that now. "

    - Richard Russell - Dec 15th 2010.

    Although we're bopping and weaving this bull to some extent, I thought you would at least get a kick out of this passage by Richard today, along with some big picture inspiration.
    Let the good times roll and enough of the doom and gloom, hoard water, canned soup and bullion nonsense!

  81. I shorted some ES (S&P) and TF (Russell) today with the negative close on S&P. Just a little to get my feet wet.

  82. "At no time since then have I ever suggested that we sell our gold items. Nor do I suggest that now."

    I've been a subscriber of Richard Russell for over 10 years. This statement is false because in 2004-2005 he suggested investor lighten up on Gold stocks and stick to the metal instead. He did the same in 08.

  83. He views selling a miners to buy bullion as still being invested in gold. He never recommended moving to cash

  84. Robert: You wrote,
    "The Russell 2000 Index Fund (IWM) shows volumes as follows for EOD today:
    Calls: 16,751 Puts: 41,340 A nice 2.47 put/call ratio. "
    Are you suggesting that these are smart money buyers? Have you run a study on this? Every option group (except OEXers) is usually wrong. I'd have guessed this was dumb money loading up on puts, which usually happens before a rally...?

  85. DG,

    No studies. I just started looking at the OEX after you started pointing it out the other day. All I know about the OEX data is pretty much what you've been saying. I actually give that data no credibility because I have no history with it, but it seems you do, yet your convictions at the moment seem to be unguided. This indecision in the short-term (weeks) direction of the market concurs with seasonality combined with cycles. Right(?), cycles point to a IT top and seasonality points to continued upwardness.

    I just see the down side with a greater extent than I do the upside right now, especially with the Russell, which has almost gone parabolic the last few weeks. I have yet to find a more stretched index right now than the Russell. I have a 4/1 short ratio of the Russell/Energy.

    I don't like to talk exuberantly about any position besides gold or silver because those are the only Bulls around. Any other bet has much less likely odds than long gold or silver, as we all know here.

    I'll just watch how this plays out.

    Side note. All the money I've ever lost in realized losses in the market were from shorting. I was gritty and wanted to quarrel with bull markets in the past. Lesson learned at 21. Hopefully I'll be alive until 41 so I can make some real money :)

  86. Right now it appears gold/silver are showing weakness, the dollar strength, and equities indifference (arguably minor weakness). All of these indicators (yes I know things looked much different yesterday) seem to coincidence with Gary/Doc predictions about an IT low coming in gold and silver, and a daily cycle or two up in the dxy, then once finished with that a 3-year cycle low in the dollhair, with a c-wave top in gold silver. Can we get a $2000 gold, $50 silver next Spring/Summer? That would be quite sweet wouldn't it? ;)

  87. Yes I am biased with Gary/Doc predictions but it would be dumb not to be. That said my remarks I think still ring true: dxy flirting with 80.3 today, and gold 137X's.

  88. Robert,

    What were those comments you are talking about regarding the dollar and gold? Thanks.

  89. Robert, I rely on Jason at sentimentrader.com for most of those type of studies. he's the best sentiment quant there is. He tracks OEX traders on a daily, 10-day, and 21-day moving average basis. He has never indicated that any other specific group (like Russell Index traders) is of any value. Overall PCR's are of value as a contrary indicator. Right now most dumb money PCR's are showing tons of call buying (so bearish) and the OEX guys are neutral on every time frame.

  90. DG,

    Thanks for that insight. I plan to subscribe to sentimentTrader soon, but am just too busy with work right now.

    OT: Would anyone here like to share their viewpoint on LASIK eye surgery? At the moment I'm leaning towards not getting it because of dry eye, loss of visual quality, etc. I may just have to bite the bullet and find a relationship with contacts.

  91. Steven, what I said I'm sure was very confusing. I'm talking very very short term weakness in gold/silver, and very very short term strength in the dollar. These are talking daily cycle shortness and if taken out of context can be totally and utterly false (which they are). Silver weakness at 28.89 one would say! Hell it was 18 three months ago!

  92. Regarding safe havens. I think Brazil, India & South Africa are the best bets. They have democratic systems where systemic changes can not occur overnight; you are unlikely not have an "All Your Base(and PMs) Are Belong To Us" kind or moment there which can easily happen in China/Russia. Singapore is too small and is not immune to the "All Your Stuff..." kind of ruling.

    In India the reach of the government is limited (huge underground economy) and no one is going to part with their gold. The Indian economic growth story is primarily an internal organic growth story with comparatively little dependence with the global economy. Both Brazil and South Africa are resource rich and there is an implicit underlying backing of "stuff". Both have large enough local population to be viable economies even if the rest of the world is in trouble.

    Australia is too tied economically to China and politically to the Anglo world to escape unscathed.

    I have heard that land is cheaper in Latin America compared to the fertile parts of India. So that might be one place to look for. The problem is that there are no Brazilian REITs or other partnerships which can take interest in land holdings etc. for the average investor to put their money in.

  93. I apologize for the length of this my first post to your blog. I had to vent a little bit though bcause all this doom and gloom talk is so pervasive today. I have been trading equities since the mid 1970's. Whatever the predictions for a coming collapse in 2012, the belief that the USA is going to end up a third world is pointless right now. The amount of doom and gloom in the market since 2008 is enormous and if anything tells me we could continue to grind higher, but who cares as long as I have protection in place. The nice thing about having been an investor for so long is the experience it gives you. I saw the same doom and gloom in the mid 1970s when oil hit the unheard of price of $30.00 a barrel and we lined up to buy gas on weekends. Stocks fell 50% in short order. While the market recovered, it took years for investors to regain their confidence. Same thing in 1982, 1987, 1990, 1998, 2000, 2001, and 2002. Investors still do not seem to understand that markets move both ways, up and down and the important thing is to trade what is presented and learn to use the enormous arsenal of tools that are available to every investor, today. These tools offer the opportunity to make money both in up and down markets and protect positions. Yet investors still lose huge sums of money in equities. Instead of trying to second guess the market, follow the market trend and learn the dozens of tools that today are available to every investor. Think protection and risk. Whatever the market is going to do by 2012 is best guess at this point. Yet the level of fear in this market is thick enough to cut with a knife. I can tell you I do not have a clue what 2012 will bring, what gold will do or (perhaps more important) silver will do, but I can tell you that no one else does either. Trade with protection in place and forget worrying about 2012 and stocking up on canned beef. Learn to take advantage of the opportunities markets such as ours present.

  94. following a trend is easy to say but what you are saying would involve picking a point and longing or shorting and just sitting there until the trend reverses. Problem is, most can't determine the best entry point for the full ride and many others don't know when to get off before the ride is over.

  95. @ aviat72,

    I agree with your analysis - except South Africa which is extrem unstable (politcally) under the surface. Btw one reason why I am very sceptical regarding South African Gold Miners like Gold Fields - although the stock looks cheap from a fundamental perspective.

    Yes buying farmland in South America is not easy, but at least there is one stock that comes near:


    With Cresud you buy farm land, crop production and beef cattle Production in Argentina and Brazil.

    Not the worst idea to protect in a "great depression".

  96. The problem with CRESY is that it is publicly traded equity which will follow the ups and downs of the stock market. The liquidity is good but the correlation to the equity markets not so good. Some what like the miners versus the PMs themselves.

    Regarding South Africa, though there is social instability due to the checkered past and economic disparities which it created, I am not sure how much it would translate to economic/political instability, in the BIG picture. A riot in a ghetto does not translate to anything major on the economic front. OTOH it may not take long for a CCP general to start reading the "All Your Precious (and Base) Metal Belong ...."; they have already started the trend with Rare Earth Elements!

  97. MARIA...

    Thanks for sharing your thoughts , but isnt once enough?? JUST KIDDING haha :) we used to be able to remove our own posts, but I noticed you cant on here anymore.


    LASIK...I have 3 friends that all got together and had it done together. Their eyes were bad , "I cant see the clock in the morning , your face is blurry without contacts,' etc

    Today all 3 see just about perfectly, but all 3 also have A NUISANCE problem seeing at night with 'halos' glowing around car headlights and streetlights. despite this, all 3 say they would do it again...best thing they ever did.
    so I guess you hear the stories of good vs. bad , pro's & cons and just imagine that if they all happen to you (because they can)--can you live with the good & bad.

    just my thoughts, hope it helps

  98. Maria..

    there is a little trashcan at the bottom of my last post (only the sender can see it) and I can remove my own post clicking on it.

    so if you log back in, you can remove your own posts ;)

  99. Maria,
    Actually sentiment is hardly bearish. It is in fact more bullish than at almost any other time in the last 10 years.

    And I'm just pointing out the obvious fundamental downside. The fact remains the world created a credit bubble in the vain attempt to halt the bear market that should have followed the bursting of the tech bubble.

    It's happened many times in history and every time it has been followed by a depression. This time will be no different than any of the others other than the form the depression might take.

    If central banks continue to print massive sums of money we will eventually destroy the currency markets and that will lead to a hyperinflationary depression instead of the deflationary one we should experience.

    But yes, as you point out we will eventually get through this. Humanity always finds a way eventually no matter how many wrong turns we have to take to get there.

  100. Before 'aviat' buys farmland in South Africa he might want to see the pictures of what is happening to farmers there.

    Raped, gutted, and all sorts of disgusting stuff. Even the police raped a woman who was seeking to make a report of her rape earlier in the night (and in front of her husband).

    Genocide of the Boers is in full force.

  101. Gary,

    I have heard Bernanke say that they are injecting liquidity , and will remove it at the right time to prevent hyperinflation.

    Any idea if they could possibly do this or if they've revealed how they plan on doing this?

    I'm just wondering if the 3 yr dollar low comes and goes without flushing everything down the toilet , as your 2012 commentary feels we are headed. thx

  102. Alex,
    When has a central bank ever got it right?

    In order to withdraw liquidity in time Ben would have to start way in advance (think turning the Titantic) That means he would have to start withdrawing liquidity while we were still in the recession.

    What are the chances that happens? I think we all know it's politically impossible.

    So we will of course have a serious inflation problem develop (I dare say it's already developing).

    The real problem comes if unemployment doesn't improve but inflation starts to get out of control. What does Bernanke do in that situation. Does he really risk exacerbating the employment problem by slowing the economy to control inflationary problems and thus running unemployment over 20%?

    I say he's backed himself into a corner there is no escape from. Printing money won't create jobs. I think we've already proven that. Only a new industry can do that.

    So all Ben's printing efforts are going to do is just continue to raise commodity prices while unemployment stays high.

    Eventually rising inflation will destroy the economy again and we will suffer another deflationary spell.

    It's a vicious circle that can only be broken by either allowing the world to suffer through a deflationary depression and cleanse debt from the system or by the next new industry coming online that will supply the productive capacity for us to "work" our way out of this mess.

  103. Thanks Gary

    Thats quite a catch 22 with the inflation during an unemployment crisis. A vicious cycle where no one can afford to buy , spending halts and goods (inventories) pile up...so more lay-offs. Cant even picture 20% unemployed!!!
    Even now the 'normal citizen' falling on hard times is getting more and more violent/protesting , etc.
    remember when extended credit & refinancing seemed more like a gift-- than a noose?

  104. Gary,

    I hate to say that, but the US is not the world.

    I am sure you are basically right with your analysis, at least from an US viewpoint. Nevertheless there are huge historical forces at work in the present world, that superpose the effects you correctly described. One to two Billion people moving from poornees to middle-class prosperity is one of this major forces nobody should underestimate.

    Although Helicopter Ben surely thinks he is the master of the universe, he definitly isnt.

    I dont say a worldwide "great depression" as you describe isnt in the cards. It is in fact, with the insane Ben at the helm. But this scenario is by no means that definite as you seem to believe.

    Never ever in the history of the world, there were such powerful diverging forces at work at the same time. And that is the reason, why any comparision with the past should still be respected, but not blindly followed.

    As I said above, be prepared for the unexpected and unthinkable.

  105. I tend to agree with Maria.

    Even though sentiment could be bullish right now, it is a very fragile bullish sentiment, as it has been since the rally started in march of 09. What I mean is that any correction that lasts more than a week or so and/or drops more than a few percentage points is enough to bring back extremely bearish sentiments and everyone starts running for the exits. I don´t see how we could have any sustained decline while the trauma of 2008 is still very much alive inside everyone´s head. The feeling that I have, talking to lots of people in this business, and to lots of retail investors, is that most people are still very much afraid and very alert. I don´t see any complacency.

  106. Rav,
    Some will surely fair better than others. (countries with little or no debt like China) but if the largest economy in the world rolls over into a depression it is going to drag everyone down with it especially since most of Europe is in the same debt situation if not worse.

    China won't be able halt the laws of economics any more than Ben has been able to.

  107. David,
    You are just describing basic human nature. We are very short term oriented. That's why markets go down differently than they go up, and why intermediate declines tend to last 1 to 2 months most of the time.

    It takes about that long for sentiment to completely reverse to bearish extremes.

    A bear market starts when something fundamentally breaks. In 07 it was the subprime market that damaged the finacial system.

    This was then exacerbated by Ben spiking energy prices and the credit markets collapsing in the fall of 08.

    The next bear market will probably be caused by soveriegn debt problems in Europe escalating beyond the ability of Germany to bail them out and again will be exacerbated by the Fed's easy money policies spiking inflation pressures into a high unemployment environment.

    I expect Spain will be the tipping point as we already have oil running up over 100% in a year. When the dollar moves down into the 3 year cycle low that should be the final nail in the coffin to send the economy back into the next recession.

  108. gold has been very weak the entire nighT, It looks like it is set to break 1370!!

  109. Gary, I know at least as of late it's been dollar up everything else down and vice versa. At some point once the dollar exhausts its short term move higher do you think there is a possiblility if not a probability that the relationship changes so that as the dollar moves down although gold continues higher the general equity markets move lower? That's exactly what happened in the bear market of 2000.Dollar down Dow down gold up. The bear market in stocks begun and I wonder if we are on the edge of the same situation developing again.

  110. Gary, since we are below 1372...does this mean we have a failed cycle?

  111. Gary, recently you have mentioned several times that the markets are due to go down into the "half cycle low". Which "half cycle"? The daily, intermediate? Please explain "half cycle" as I did not see it in the terminolgy doc. Thanks!

  112. I was intrigued with the discussion of looking at the SOS numbers for GLD in relation to the Gold cycle.

    However, I am visual and needed to see it.

    The evidence is compelling that as gold gets deeper into the timing band for an intermediate correction, the SOS numbers pop up.


  113. Thanks, Ike. Interesting. Were there false positives? That is, were there times the SoS numbers happened in a clump and gold did not top out shortly thereafter?

  114. Gallo,
    Yes once inflation becomes a real problem the stock market will stop responding to a weaker dollar just like it did in 08 with oil trading parabolic.

  115. Options,
    The daily stock market cycle usually dips at about day 20. This is due to the dollar cycle being shorter than the stock cycle.

  116. Aaron,
    Yes we should now have a failed daily cycle in play for gold. The odds are high the intermediate decline has begun.

  117. Gary,

    Now that we are clearly breaking your level of 1373 on Gold, do you think that the stock market is going to follow?

  118. IKE, that's good work appreciate. I think DG's question is very important, you would want to see every GLD SOS instance on that chart to back the theory.

  119. DG, Poly

    I was just looking at the times when Gold was in the timing for an intermediate correction.

    Going forward I will pay attention to it.

    But if there was a false SOS and not in the timing for a correction - I would just watch it

  120. Any day now we will start seeing stories about the "cartel" taking down gold :)

  121. Just closed the trade i posted yesterday

    3000 CGR @ $1.66, was up 20% today alone . Closed at $2.10

    VTG hit $2.25 yesterday, closed at $2.10 also

  122. This stock market is beyond ridiculous, Fed Ex, GMills, and BestBuy all disappoint, yet it stays afloat! Who cares about fundamentals anymore!

  123. It always takes a while for the market to roll over, especially after such a strong rally and in Dec. Dip buying has worked for a long time.

  124. Thanks, Ike. Good point. I guess it makes sense to ignore the SoS days if in the middle of an up cycle.

  125. ~1345 target

  126. Is strong $$ really bad for stocks??

  127. the GLD has 10 million shares in the first hour , and has sliced through the 50dma (so far). this will alert tech traders i.m.o.

    stocks are not selling of too bad (3% on avg) , but we've all seen reversals and we've all seen waterfall sell offs that just pick up and cascade down.

    I"ll watch for volume to pick up :)

  128. I suspect gold will trade down to at least $1300 and maybe $1265 if the stock market correction is intense.

  129. Gary,

    And for Silver, do you have a potencial target for the bottom in this correction ?


  130. It will bottom when gold does. All we need to do is watch gold.

  131. Gold is the cyclical driver of the sector. Everything else follows gold although one or the other can show relative strength like silver did recently or Platinum during the last bull market.

  132. Gary, the miners are getting closer to the 50 DMA which has acted as support for the daily cycly lows during the recent runup from July. Can we expect the 50 DMA to be broken through if we're in an intermediate decline and use the 200 DMA as a rough target to start stepping back in (if, of course, we're in the right timing band as well) ? Thanks

  133. Thanks Gary for fixing my previous comments. When I mention the bearish sentiment I am talking about the overall investing climate. Most investors just look at the VIX or newsletter sentiment. Instead look at trade volumes since 2007 and read in trade papers such as WSJ, etc and you can see that the vast majority of investors are waiting for the "second shoe" to drop and refuse to get into this market. They have little faith in this market. Every move higher is met with skepticism and any selling is called the beginning of the next bear cycle. When your brother-in-law or barber are in the market, that’s the time to sell. In this market, when the fed stops printing money, that will be the time to step aside and see if the market can “hold its’ own”. If not then it would be a waste of capital to stay long. It’s not rocket science, it’s investing.
    For those who doubt the ability to trade the trend, it is simpler than most think. It’s not a matter of going long and short the market, but following the overall trend and trading a variety of products, sometimes daily but often, weekly. When I started investing there were very few of the terrific tools now available. Today everything from derivatives to options to ETF’s and 2X and 3X funds, etc., offer the investor terrific returns if you are willing to learn how to use them. Paper trading is the easiest way to develop your strategy and perfect it. Then start small. There are some excellent books available on trend following, on derivatives, options, etc.. There are also some excellent websites. Instead of preparing for the end of the world and stocking up on provisions, learn the today’s exceptional investing tools and as Warren Buffet would say “embrace the bear” when it happens and it will happen, because it always does.

  134. Ollie,
    We will get back in when gold forms a swing low in the timing band for the next cycle bottom. That's still at least a month away.

  135. Gary

    I respect and appreciate your cycle analysis and this blog..it has helped me to better time my trades (I was unaware of cycles).I use charts/volume/and a few special indicators I have developed and now I add cycles (with your help & Doc) to my toolbox :)

    I would like to share this idea with you and your bloggers too...
    nothings ever etched in stone but just please notice what I have seen/done in prior corrections with gold.

    2yr chart daily of gold...April 2009 low, July /Aug 2009 low, Feb 2010-April 2010 low , and July 2010 low--

    each correction bounced right off the 150 sma...and I slowly entered positions...beforeI found you (Toby) in July of this yr.

    see link...it also gets us just below $1300 (currently 1275, but moving up).


    just an added visual :)

  136. Maria,
    Actually it's not quite as simple as that.

    Whether or not the public is in or out will be irrelevant (most are still in to some extent in their 401K accounts or they are invested in bonds).

    We as traders need to watch for something to "break". When it does the next bear market will start and it won't matter whether Joe Six Pack is in the market or not.

    We already have the dynamics in place for that to happen as the economy is weak and mostly being supported by government spending and Ben's printing press.

    If Spain were to crash the European debt market and Ben spikes energy too high then the next bear will begin.

    I expect that exact scenario to unfold as the dollar drops down into the three year cycle low this spring.

    The market should then begin the next leg down in the secular bear market bottoming in the timing band for the next 4 year cycle low (sometime in 2012).

    I can't tell you how many people have ignored these cycles to their detriment. The 4 year cycle will come and it will bring another leg down in the bear market. All the Fed can do is exacerbate the problem which they are doing with flying colors.

  137. Alex,
    I suspect if gold can make it back to the 150 dma it will be very close to a bottom. I would wait for the swing though before jumping in.

  138. Precious metals breakdown and market rally is what the bulls love to see!

    2011 and 2012 will be great years for the market.

  139. got 3k SLW , just for a bounce trade

  140. silver will lead


  141. Maria

    I agree with you that we should go with the flow but it's possible to do this while having essential provisions stored for a SHTF scenario. They do happen and people do panic. Why not have the added insurance for a black swan event (low probability.....high consequence). Grocery stores have about one day worth of shopping before empty shelf time, in a panic. Most provisions are shipped in over highways that could easily end up bottle necked. Can you explain your problem with other people storing up food/ammo/etc?

  142. Beanie just showed up as a contrary indicator, market will probably start rolling over soon, my guess is it will start in earnest Friday around noon.

  143. LOL Beanie does have a talent for picking the top of intermediate cycles.

  144. Gary: Do you have a sense of what will be happening that may spur you to switch to physical gold (from miners and AGQ)? I am not expecting or predicting collapse, but I have to admit it seems quite possible. I find that dramatic events take some emotional forethought to get them right as they unfold, so I am asking now, though I wouldn't expect its necessity for at least a year, even if it were to happen. Have you thought about what clues will get you to sell miners and buy coins/bullion?

  145. Just my opinion, but I think it's quite possible the stock market will correct very little here, with the pm's taking most of the hit.

    Institutions are taking profits now in winners like energy, basic materials and tech stocks so they can show clients how well they've done. Then they buy these same things back in January. We could get a down or flat market into January, then a sharp move up, while the pm's get taken to the cleaners.

    Take a look at stockcharts and key in $spx:$gold (daily chart) and you will see what I mean. The ratio is now in an uptrend. Although I never short anything, if one were to short, I think it would be more profitable to short gold/silver than the stock market.

    March has often proved to be a major seasonal low for gold. Maybe we will see it again in 2011 (not sure if this ties in with Gary's cycles).

    Best to all.

  146. ISEE Equity only call/put number just hit 577 on that spike up in the market. It's been high all morning, in the 300s, but that is definitely the highest I've seen intraday. That's almost 6:1 ratio among retail investors. Yikes! They're buying that dip hard.

    And OEX numbers are slightly more puts than calls, so nothing compelling.

  147. A little off-topic, but has anyone read Pit Bull by Marty Schwartz?

    Just finished reading it, simply amazing. RIght up there with Reminiscences of a Stock Operator.

    Pretty entertaining moments when he talks about the few occasions where he had to run to the bank and get all of his physical gold out, because of fear of being confiscated.

  148. If the stock market refuses to turn down, chances diminish for gold to go below 1300.

  149. Seems to me that, if it gets that weird, it'd be better to own silver as with its many industrial uses it cannot/would not be confiscated.

  150. DG,
    I would switch to physical if the gold:XAU ratio dropped below 4 or if I thought we were on the verge of a hyperinflationary event.

    Definitely a possibility but probably not in the next 5 years.

  151. DG,

    you know the gov't would make you have a permit to own silver if it came down to that...and you'd have to prove your manufacturing need for it lol

  152. Mam,
    Have no worries there will be a profit taking event in the stock market... there always is. Bernanke's money machine just guarantees the rallies last much longer than normal and the corrections, when they come, are just that much more extreme.

    We've now reached sentiment levels on par or even more extreme than last April. We all know what followed that.

    That doesn't mean we will see another flash crash, but I'm confident we will see a very severe correction.

  153. Tony Robbins certainly missed badly with his call for a bear market didn't he? :)

  154. On the topic of when to convert from paper to physical Fekete and A/FOA/FOFOA have written much on backwardization being a good indicator of when to shift. This, I'm sure is well known among SMT readers, is when immediate physical delivery is valued higher than future delivery. I think one year out backwardization rather than the normal contango is where I'm leaning as this would probably be a strong indicator of impending hyperinflation.

  155. Anyone know when the CFTC hearings are scheduled and whether these types of hearings are broadcasted?

  156. Apologies they are scheduled today I just meant what time.

  157. we have a SoS of 262M on SPY right now...and we had that huge BoW of like 300M yesterday...smart money is really working it and trying to trick the small investors..

    but hey we got Gary :)

  158. This market needs a catalyst for the correction. I think the catalyst will be the initial rejection by the House of the tax bill. Of course, it will pass later, but initially it will be rejected by the House, triggering profit taking in the market.

  159. Steven

    It looks like it will be webcast at 9:30 eastern.


  160. The catalyst is extreme bullish sentiment but the media will always manage to find a reason to explain why the correction happened

  161. ba humbug, have some christmas spirit my friends. :)

    buy the dip. Unsure? Refer to buy the dip.


    It's the only way to go for the next few years.

  162. Maybe Dawler Guy will come back too.

  163. Regarding SoS and BoW, don't forget it's not only Options Expiration Week, but also quad witching. This factor considers in for all the SPY BoW and SoS to a degree as well. That's also why you get sudden intra-day reversals, etc.

  164. Gary,

    I know gold leads the complex but do you think there is any significance to silver being up slightly with gold down? Could the silver attributes and/or other factors be in play that would cause the two to separate to some extent? Have you seen this happen in the past?


  165. Gary,
    Are you self-taught or do you have a background in finance?

  166. I've never seen silver sepearate from gold for any significant length of time.

    Self taught. If I was schooled I would be hopelessly lost by now :)

  167. Gary,
    Now I know I like your stuff, to me if you're not self taught you haven't had enough pain to know what's real

  168. I don't see the Qs on the list, yet. Maybe later.

  169. I've found the Q's to be meaningless. The professionals measure themselves against the S&P not the Nasdaq. So when they think an intermediate correction is coming they sell the SPYDER's.

  170. Yes, I've heard you say that before and it makes sense, but perhaps the high amount in the Qs a day or two ago may have been a little warning. Maybe they did their little dirty then as a first move.

  171. fwiw dept. I plan to buy Jan. puts on SPY sometime tomorrow as I believe since Friday is SPY ex-dividend day, market will still hang up higher, with the mini-correction actually starting Monday, lasting for just 2-3 days.

  172. Breadth is deterioating badly. Just noticed the spike in new lows recently with the market at new highs.

    If I'm not mistaken this is the stuff Hindenberg Omens are made of.

    Usually I wouldn't pay much attention to that and didn't this summer because the market was in the timing band for a bottom. But this time we are late in the timing band for an intermediate top.

  173. Gary: How do you reconcile the daily POMO injections with the intermediate correction? Sure there is huge SOS today and we are late in the cycle with sentiment @ extreme...but the Billions of $$$ via POMO is, I believe, a first in the history of the markets keeping it afloat...
    In other words, as long as there is POMO, the Bernanke Put or Fed Backstop, any correction will be quick and maybe 10-12% or so?

  174. There were even larger amounts of money being thrown at the market in `09 and early `10 but the market still dropped down into intermediate cycle bottoms.

    At some point the market will suffer a profit taking event no matter how much money the Fed pumps.

  175. This comment has been removed by the author.

  176. SOS at 577...sentiment is incredibly bullish and everyone expects this thing to go higher. Everyone gets proven right?
    Tis the season to be jolly I guess.

  177. Silver margins going up about 10% at close of biz on fri. No change gold.

  178. http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv10-507.pdf

  179. SoS on the SPY: -568 for the day. That's a big number. Maybe this IT correction is starting to get underway.

  180. Gary,

    It seems that a lot of blogs out there are calling for a top right now...how can everyone be correct??

    despite these SoS numbers, do you think that we will see a melt-up to maybe 1300 and then see that intermediate correction in stocks?

  181. Unlikely. It's taken 2 1/2 months to add the last 60 points. The chances of doing that again in a short time frame are pretty slim. The stock market is too liquid for big moves at the end of intermediate cycles. That's reserved for thinner marekts like gold or silver.

    Plus we will be heading into the timing band for the daily cycle low in a couple of weeks.

    Sentiment is wildly bullish right now. It's more likely that you just happen to be frequenting bearish blogs and mistaking that as "everyone".

  182. Take a look at the latest ticker sense poll if you think everyone is bearish.

  183. Gary,

    Do you think there´s any chance that the Dollar will resume the downtrend in the next few days?

    I know that you expect a correction in stocks and in gold, which would mean there is more upside to the dollar, but I really feel like the Euro has hit some kind of bottom.

  184. Pima: Final OEX numbe rtoday is 14,000 puts and 10,800 calls. This is a ration of 1.3 to one, which is just modestly bearish. I'd like to see a higher number to say the OEXers are really betting on a decline. 1.5-to 1 or more would start to be a real statement.

  185. FWIW, at least this time they are not just targeting silver as it seems like there are margin increases for many of their products. Copper's increase seems huge! Of course they increase whatever is moving the most I suppose and copper has really been moving lately to new highs.

  186. Thanks, DG.

    I bookmarked the link you posted yesterday, so I'm checking those numbers every day along with SoS and BoW. With a slight bearish bias on the OEX options and the large SoS number on the SPY today, it's tempting to short here, but I will wait for a little more confirmation.

  187. TZ,

    Do you know what time they posted the margin increases for these products?


  188. FXI 200 day is 42ish---go long gold stocks when FXI hits its 200 day

  189. FXI carries 20X more weight than the spy, when it comes to gold stocks...
    for all you trying to "force" a relationship between the spy and gold stocks.

  190. What is FXI? It's the Chinese DOW 30....


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