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Wednesday, January 26, 2011

DIVERGENCES ARE BUILDING

Warning signs are starting to build. To start we have a Dow Theory non-confirmation. Usually this is a sign of distribution.


Breadth is diverging. This often happens at intermediate tops.


Emerging markets have failed to make new highs.


China, the driver of global growth appears to be in a bear market.


Oil has now broken the pattern of higher lows. The odds are high that the oil cycle has topped.


Throw in the fact that the current daily & intermediate cycles are stretching and the risks are very high on the long side at this point.

152 comments:

  1. Gold chart seems to be flipping someone off today. The question is whether it to bulls or bears.

    http://www.screencast.com/users/Jayhawk1991/folders/Jing/media/2616f03b-d2d6-4e6e-b6fc-6463b065481f

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  2. Well it can't bottom here and make a three year cycle low. The last major intermediate low occurred in Nov.

    That occurred 6 months too early as the timing band for the three year low doesn't begin until March. That makes the odds very low that Nov. marked the three year cycle tough

    Thanks Gary, this is very interesting. I'm no expert in cycles (hence I'm a sub to your blog) however, now in hindsight it seems the Nov low in the dollar kind of coincided with a major top in Gold at the same time...

    So is there a slight chance we're in a D-wave?

    Disclosure: I've kept 50% core so getting slighlty nervous here :)
    Thanks

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  3. I have unlocked the archives for anyone wanting to browse past reports.

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  4. A very, very slight chance. One would have to make the assumption that the dollar's three year cycle occurred 6 months early.

    I'm not ready to make that assumption.

    It's also way to late in the intermediate cycle for a D-wave decline to develop.

    The odds are very high this is just a normal intermediate correction.

    A typical intermediate correction will retrace 50% of the previous rally. So far this correction is still very mild. Gold should at least dip down to $1290-$1300 if it's just going to be a "normal" correction.

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  5. gold and silver down, but miners are up.

    divergence signaling a change in trend for PM's?

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  6. This market is breaking and raping every last bear out there.

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  7. This may be the round numbers (12000 Dow) (1300 S&P) letting those big money guys get out. What are the SOS numbers?

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  8. Stocks up on a sideways dollar; boost from SOTU corp tax cut talk. Short-lived, my take.

    Have some company stock options due to expire end of year, thinking today might be a good time to cash out, convert to silver (in a little while, of course).

    Already feel wealthier, thanks to Gary's guidance since December. Yes, I didn't listen to my gut, got faked out after Christmas (like Gary), lost a couple percent; but that's nothing compared to happily missing the 12% decline since then. :)

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  9. I would like to point out an interesting observation for those following the blog.

    A few weeks ago, as we discussed an upcoming decline, the general talk was along the lines of:

    "....good chance of a drop to 1300 or so. *MAYBE* 1265 if lucky..."

    about a week or two ago, the roaming discussions were:

    "...1300 DEFINITELY, but i think we wait and REALLY pick up things at 1265..."

    within the last week it has become:

    "....1300 in a day or to. we MIGHT HOLD at 1265, but Mr. X is talking about 1100 and what about a possible END of the C wave. maybe it's over already...."

    I have found interest in watching this progression. I'm curious how many others have seen it. I also encourage those who have the time and want to obverve it to go back and review past posts of all of us if you want to see this in action.

    I have found this highly entertaining and moreso instructive. I haven't said much lately cause I wanted to let it take its course for a while and sort of observe it without influencing.

    The racheting down of targets is of course an indication that we are getting closer and closer to a bottom.

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  10. PS: the troll indicator will be difficult this time because the blog doesn't have ANON posting and by it's nature the jib posts of that sort and the emotional trigger (of market declines) which causes them are NOT compatible with thoughtful registration and posting under a name with repercussions if wrong.

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  11. This is that phenomenon I referred to when people said at the beginning of the correction that they would back up the truck if gold ever reached such and such a level.

    The reality is that in real time it's very very tough to do because one's emotions take over and all one can see is more downside and a deathly fear of a draw down.

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  12. Yesterday's declines on stocks like GDXJ and SLW had *significant* volumes. We *are* blowing out accounts and long positions here in great quantity. The low may not be here yet, bit I suspect it is very close.

    I would suggest looking at volume spikes on big selloff days compared to past lows if last summer and before to see the level of excess volume (beyond an 'average' day) whereby panic selling is clearly occurring and bottoms are made.

    We are getting that kind of selling on the last 2-3 moves down.

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  13. I suspect we wouldn't get anywhere near as many trolls even if anon posting was activated.

    I suspect most trolls are subscribers that bought at the top then get caught in an intermediate correction.

    Other than one small fakeout no one has gotten caught this time so there probably isn't going to be much troll action.

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  14. Option expiration for gold and silver futures is 5:15pm today. In addition, the gold futures contract begins the "notice" and delivery process as of the end of the day THIS FRIDAY. Feb gold is a large delivery month and thus it will be important for the people rigging the system to push down and squeeze out as many longs as they can by then.

    A push below 1320 and even 1300 if they can manage it would work well.

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  15. Gold should be putting in a temporary bottom but I still think it's likely we see one more leg down when the stock market correction hits bottom. The selling pressure generated when stocks drop into a final intermediate cycle low can be extremely intense.

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  16. OEX options traders buying nearly 2 calls for every put. SPX likely to melt up.

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  17. Feb is NOT a large delivery month for silver futures. The inclination to push lower is not as strong.

    Gold and silver futures often have different high open interest months.

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  18. from the previous poster who mentioned divergence between the miners and the metals.

    i agree we see it today, which makes me wonder if the miners have already bottomed?

    if you look at HUI you see it has successfully tested its 500 level breakout.

    it would seem unlikely that if gold bounces from here and retest the 1300 level then HUI must do the same. It must rise and then fall again below or near the breakout of 500.

    Does not seem likely.

    So i'm thinking maybe the miners have already bottomed?

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  19. The OEX traders haven't even been close for quite some time. I really have no idea why anyone even bothers to watch that data.

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  20. This from Doug Casey's letter about China and Gold.

    Jeff Clark, BIG GOLD

    There’s some compelling data coming out of China this month about gold and silver. As you’ll see, it paints a very bullish picture.

    According to the General Administration of Customs in China, the country’s net imports (imports minus exports) of silver quadrupled in 2010, to 122.6 million ounces. This equals 13.7% of global silver production. This is especially noteworthy when you consider that China was a net exporter of silver for decades, and only became a net importer in 2007.


    Several analysts are reporting that demand for physical gold and silver this month has been surging. This is largely due to the start of Chinese New Year, which begins on February 3 and ends on the 18th. Orders have been described as “phenomenal” and shipments as “heavy.”


    The operating profits of China National Gold Group Corp, the country's largest gold producer, hit 3.2 billion yuan (US$483 million) in 2010. This is more than five times the profit of 2006.


    China Investment Corp., the country's sovereign wealth fund, is opening an office in Toronto, only its second outside the mainland. The reason seems clear: they want to diversify their reserves by investing in Canada's natural resources. The CIC has $300 billion to spend.


    According to estimates from the Ministry of Industry and Information Technology, gold production will be 8% higher in 2010 than the year prior. The numbers aren’t final yet, but the agency predicts mainland production will hit 11.9 million ounces. China is already the world's largest gold producer.


    When you add China’s mine production to imports, the final tally on the country's overall gold consumption in 2010 will likely reach 21 million ounces or more. This is roughly one-quarter of worldwide mine production.


    Just prior to his meeting with President Obama, Chinese President Hu Jintao called the U.S. dollar-dominated currency system a "product of the past" and described moves to turn the yuan into a global currency.
    The conclusions to draw from the data are nothing new: gold and silver production continues growing; demand, including from Chinese citizens, continues rising; and diversifying out of the U.S. dollar is a major priority.

    And when you consider the baked-in-the-cake inflation that has yet to hit, along with the ultimate direction of the U.S. dollar, these trends are not going to change anytime soon.

    I think this quote from Cary Pinkowski, CEO of Astur Gold, sums it up pretty well: “It’s really simple,” he said. “China banned gold ownership for most of the 20th century, and that’s over. China has a savings rate of more than 30%, and an official inflation rate of 10%.” No wonder they’re buying.

    One could argue that you can’t reach any solid conclusions about precious metals without looking at China. If that’s true, the bull market in gold and silver is far from over.

    To whatever extent you agree that the trends in China are a valid indication of gold’s future for at least the next few years, buying any dip in price seems a pretty safe bet.

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  21. BTW I covered my ZSL short yesterday and bought more mining shares :)...bottom or not, I would rather own gold in the ground than worthless paper.

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  22. Gary,

    Why do you use the 75 Week MA as an indicator on SPY vs. another time frame, say 40 week?

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  23. I closed out the little relief rally bet I put on yesterday. I'm not trusting the miners here when the metals are not confirming.

    I remember how intense the selling got in Feb10 at the yearly low in stocks. It was relentless! Not anxious to get caught up in that movie again.

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  24. Pima: I do think you are putting too much emphasis on the OEX traders. They have historically been correct (though Gary is right that they have been wrong lately), but it's just one data point. I have often fallen prey to over-weighting the value of a statistic because some statistic or other because is new to me and easy to get. Maybe this is happening for you in this case. On a daily basis I don't pay much attention unless I am expecting a reversal for other reasons and see 6 or 8 to 1 over a 1/2 hour period trading in my expected direction. The market may indeed melt up, but the OEX reading would not be the reason, IMO.

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  25. Intern,
    Pull up a 10 year weekly chart of the S&P with the 75 week moving average on it and you will see why.

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  26. Addendum: The early morning reading are especially volatile because the denominator is small. It just dropped from over 2-1 to below 1.5-1.

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  27. It's all good. Any dip is still buying opportunity. SPX 2800 in 2013 is what some analyst say, which kinda jives with my Dow 36000 prediction by the end of the decade.

    Have a great day.

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  28. If the Dow is at 36,000 by 2013 then a loaf of bread will cost $50. That would mean you lost over 60% of your purchasing power.

    Let's all pray the Dow doesn't get to 36,000 any time soon.

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  29. When priced in real things like gold, gasoline, oil, copper one had already lost about 1/3 of their purchasing power at the 2007 top as compared to the 2000 top.

    Not much of a bull market when in real terms one is losing money is it?

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  30. If we can get a significant close in the red today we will have a key reversal in play.

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  31. Indeed, Kevin Depew at Minyanville believes the correction everyone has been looking for starts today. Modest new daily highs in Dow and SPX - check! Depew is still bullish longer term, tho, and is focusing on individual stocks, not indices. Fed days have been notorious lately for tops in the market. FCX qualified a down break today, so expect more downside here - it has to go through a 9-day setup, followed by a full sequential 13 countdown, so we are looking for at least a month to consider touching FCX to the long side.
    Copper has recorded a WEEKLY sequential sell - so this is good for a 12-week (3 month) sell period there.
    Short-term, Gold futures are recording a DAILY buy setup, so look for a 1-4 bar reaction starting tomorrow - conveniently after the Fed cha-cha. 1350 is now resistance, then we should see some more downside whether we like it or not!

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  32. Gary,
    two days ago when I wrote here that we might be headed towards a Dow Theory sell signal (repeat: headed towards, not there yet), and that we have the first step, which is a divergence i.e. non confirmation between DJIA and DJT, you declined. Now two days later you write we have a Dow Theory non confirmation. I don't know what happened in the last two days, but now you're starting your post with declaring a Dow Theory non-confirmation.
    I see a 'know it all' tendency, which I believe is a sure bet that you will get it terribly wrong at some point. An I already know your call that's going to turn out wrong.

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  33. Now we are getting somewhere! Thanks Basil!

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  34. Basil,

    What's your point?
    Is it that your ego is bruised?

    If you had a fraction of the humility that Gary has you wouldn't have posted.

    P.S. start your own blog...

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  35. The Beanie/SPX divergence is growing stronger today.

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  36. Basil,
    There is a world of difference between a Dow Theory non-conformation and a Dow Theory sell signal. BTW I never claimed we were heading for a Dow Theory sell signal. That's too far off in the future to know at this time.

    In order to get a primary trend change Dow Theory sell signal both the industrials and the transports must close below a secondary low point.

    The last secondary low point occurred in July.

    The market has a long way to go before we have an official Dow Theory sell signal.

    A non-conformation can occur any time one average makes new highs that isn't confirmed by the other average. Usually it is a sign of distribution. But that hardly means it will lead to a sell signal. the vast majority of the time it leads to nothing or just a run of the mill intermediate correction.

    That's what I am expecting right now.

    However if the correction turns into something more serious and significantly penetrates the 75 week moving average then we could get a sell signal at some point.

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  37. whitebear,

    your response, not so bright. Run my own blog, why would I do that?
    Your answer is typical for some one who only wants to hear one opinion. It's as if I'd say, why don't you start a fanbook site on facebook for Gary, which in fact might not be such a bad idea for you?
    As for humility, Gary responds to comments in a gentleman way, everyone knows that; but why would that stop me from posting my opinion when it differs from Gary's or when I make an observation that might not be flattering?
    Also, I don't think that is offensive if I say that Gary is always very insistent that he's got it right and even being wrong a few times since I have followed this blog hasn't changed that.
    I have seen many bloggers who did exactly that, some times not as gentleman like as Gary, but at the end of the day it was the same 'know it all' attitude that cost many of their followers a lot of money.
    Regardless they would just cheer all the way. You seem to be such a candidate. I rather use my own brain, thank you very much. You are critical of my post? You have a bruised fan ego? Don't be a baby please.

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  38. DG,

    I'm looking at OEX options traders because you stated that in the past they are the only group of options traders that usually gets it right.

    In the more recent past, over the past few weeks and months, have they been wrong more than not?

    If so, then you and Gary are right, it's useless information and I won't bother with it anymore.

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  39. Many miners finding some bounce on their 50% fib levels. Some blew past it and are bouncing (PAAS, SSRI)

    GDXJ with a perfect touch yesterday.

    http://www.screencast.com/users/Jayhawk1991/folders/Jing/media/de7bde28-bdcd-4d15-a410-3fd7dc904c00

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  40. IMO, the daily DJIA appears to be a parabola which is as of today bent more vertically. When the angle of ascent increases, one takes notice.

    Either this is a top, which is a meow rather than a panicked roar, or it's the start of an Obama rally, leaving the RSC in the dust.

    Based on my meager backtesting, what I call the wide W reversal back in 09, which could be seen as an H&S in 08-10 on a daily basis, is just now completing by the rare but yet historically real blow off rally.

    14000 is a resonable projection, with 13000 pretty much in the cards. The next few days will tall what's what. That would also whack gold, btw, as all eyes will be on the feeding frenzy. Irrational exuberance just changes ponies; it doesn't go away. Only a shotgun blast to humans will make that puppy leave the stage.

    Gold and silver, maybe, but I think it's just the dumping of money by the feds that's filling the equity inflation stocking. And this long rally, seen only a few times before in the 5 min and longer S&P has today captured the thrill seekers and blind greed is imo about to enter the stage in that one, just as it did in silver and gold. Is it time to shift musical chairs?

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  41. Basil,
    I do believe I clearly stated that gold threw me a curve ball that I couldn't hit last month.

    I've also stated that at almost every intermediate top I get caught at least once.

    In December of last year I clearly entered too early.

    I've never tried to claim 100% accuracy. That would be stupid, No one ever bats 1000%. Just like everyone I miss entries and exits from time to time.

    So I'm not really sure what you are referring to when you say I'm insistent on always being right.

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  42. Pima: It is neither useless nor perfectly accurate. MOst indicators are grey. As a class OEX traders are the only "smart money" option traders. Every other group should be treated as a contrary signal. That is still correct, but that doesn't mean they are always right, though they usually are. They have hit a bad patch since november, however. I believe Gary's dismissal is way too strong, but he tends to discard anything that he isn't currently using (like $BPGDM, which perfectly called the top...again!) I sue a "weight of the evidence" approach of which OEX traders are one item. If a whole bunch of things agree I take that side. Right now, there's a ton of accurate things calling for a decline. We just need momentum to die. Also, some indicators are hot for a long stretch and then cold for a stretch (in terms of accuracy). I always underweight what is cold lately, until it starts to work again. OEX traders are neither to be discarded nor to be ignored, IMO.

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  43. Typo in last post: I meant "OEX traders are neither to be discarded nor followed unquestioningly."

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  44. You've got to admit, Basil, that there was a fair bit of hostility in your verbal jab at Gary.

    This was your comment the other day to which you've referred:

    "DJIA and DJT look like they are headed for a Dow Theory Sell Signal. Dow continuing up while the leader, the DJT has broken an upward trend line to the down side. Anyone?"

    That was just flat out incorrect. And Gary just went on to explain that. Your misunderstanding of Dow Theory is contributing to your perception that Gary has dismissed you unfairly, IMO.

    Dow Theory is widely misunderstood and misinterpreted. A sell signal (which isn't really that at all, but instead a confirmation primary trend change) is much different than a non-confirmation, which is just a warning sign that the market's trend may be getting ready to change (whether primary or secondary trend). Much depends upon the degree of said n-c and whether there is any follow through. Much like divergences.

    You can't point to a small non-confirmation like this and jump to the conclusion that the primary trend is about to change, any more than you would about a neg div on a daily chart. Intermediate, or secondary, maybe; but not primary.

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  45. Actually I dismissed the OEX data because I took a look at it on sentimentrader for the last year and other than a brief period in April and June it has shown very little predictive ability.

    That data is so volatile as to be almost useless. I'm not sure what these traders are using the options markets for, perhaps arbitrage, but it looks like they are rarely using options as a directional bet on the general stock market.

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  46. Gary,

    what I mean is that whenever I come across a post where some one is unsure about something you wrote or wants to suggest a different view you always brush it aside, politely so, but that doesn't change the fact. So this is just a general observation.
    We all see on CNBC and in other financial news outlets one expert after the next stating their opinion as if there couldn't be a doubt in the world. As we all know, at least 50% of them are wrong all the time, and then the ones who got it right this time are usually wrong the next time. That is an observation made over the years and can hardly be argued with. For that very reason I am always skeptical if some one like yourself is or pretends to be dead sure about the trend in the markets. So again, it is just a general observation. But to give you an example of some one who handles it in the exact opposite way. Jim Rogers always says that he's a bad timer, he says he could be wrong, and he says he's not smart enough for some calls to make. He still makes his calls, but not with such bluntness as to say, for example, we are still in a bear market and will break the March 09 low to the downside.
    I am not arguing about your calls on the PMs as I am bullish on PMs myself. I am startled about how steadfast you are in claiming that we are already in the next leg down in the bear market or will soon be, and that we'll break the March 09 lows. Seriously, knowing all your arguments for your thesis, how can anyone be sure? Lots of stock market geniuses are not, so why make such a blunt call? That has a high percentage probability of backfiring.

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  47. Onlooker,

    no I don't admit to any hostility towards Gary. My post just states my observation.

    You are quoting my statement from the other day. You overlooked my second statement from the other day in which I am talking about a first step in a line of various steps, in which Dow and Transports are going in opposite directions. If you take these two posts together I don't see how I was wrong. Anyway, this is all just semantics, it seems.

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  48. Basil,
    Again you are misquoting me. I've clearly stated that in order to confirm that the stock market is headed down into the next leg of the bear we would have to test the July lows.

    I'm laying out the conditions for confirmation. Until they happen nothing has changed. We are still in a cyclical bull market

    I think you need to read my posts and comments a little closer.

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  49. Gary: You need to smooth the data. The 21-day MA is neither volatile nor useless. The OEX'ers are less good when blasting out of a bottom (that is, they short too early). If it were useless Jason would not post four variations of it on his site. Can it be "somewhat helpful" or "another thing to watch" rather than "useless' or "the Holy Grail?" You really like black and white! I just don't think things are that simple. ("Bernanke is an idiot" "This or that indicator is useless" 'You always lose shorting a bull market" etc.) If only life were really that simple!

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  50. From your post the other day:
    "I fully expect by fall the economy will be heading back into recession/depression and the global stock markets will have rolled over into the next leg down in the secular bear market that began in 2000 with the bursting of the tech bubble."

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  51. DG,
    OK I looked at the 5, 10 and 21 day moving average of OEX data.

    I don't see where that is any more useful than the raw data. As far as I can tell it's pretty much random and not much use as a timing tool of any sort.

    Are you seeing something that I'm not?

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  52. basil

    It's not just semantics, it's a fundamental understanding of Dow Theory. But clearly you're not interested in learning here, just taking shots. I'm done.

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  53. Gary: If the daily cycle low was just put in, and the cycle goes 20-30 days, then the next low will be late Feb/early March, but I think you are expecting it sooner than that. What am I doing wrong here?

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  54. Gary:

    A couple of days back Ike posted a scenario of a runaway move in SPX - your thoughts?

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  55. Basil,
    Yes I do expect the economy to be back in a recession by fall. That doesn't mean it's there now. Certain conditions have to happen first.

    I've laid out those confirmations.

    BTW I base that on the next 4 year cycle low being due in 2012.

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  56. Gary: Click on the chart and it will convert it to a 13 year chart. You are right that they have been cold the past year. That's why I underweight indicators that have been bad recently. maybe something has changed with all the derivative stuff now available. But if you look at the put-buying spikes you will see that they started buying near the top in 2000, and the top in 2007. not precisely but they sure put you on notice that all was not well in stock-land. They tend to be early when there's a blast off like out of the 2003 bottom. They also nailed several the bottoms in 2001, 2002, 2003, 2009 and twice in 2010). I am just saying this is not "useless" information.

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  57. DG,
    Daily cycle low in what? Stocks, Gold, or the dollar?

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  58. This is definitely worth a read. From the article:

    "Contrary to popular opinion, Quantitative Easing is actually a deflationary event because it takes an interest bearing instrument out of the private sector’s hands and replaces it with a non-interest bearing deposit. QE is a term that is used by people who want to scare you into thinking that the government is being reckless with their money. The reality is that QE is just an asset swap. Nothing more. Debt monetization is another tool of the fear mongerers who don’t understand that debt monetization is actually impossible so long as the Fed has a target rate. Anyone who uses such terms to invoke inflationary fears simply does not understand how a modern monetary system works."

    According to the article, a monetary system that is not backed by gold (on not a collective system like the Euro) is a completely different animal than one that is backed by something. Looks like 99 percent (or more) of politicians, lawyers, even accountants, do not understand the distinction.

    Here's the link:

    http://pragcap.com/resources/understanding-modern-monetary-system

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  59. Nick,
    I don't see anything that looks like a runaway move yet anyway.

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  60. basil

    Regarding Gary's assertions, I think you need to familiarize yourself with the word "conviction"...

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  61. From the price action, everybody is short stocks and getting squeezed...I really don't know when it is going to stop....

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  62. Nothing that I can tell. The way the stock market is going and if both gold and stocks bottom reasonably close then mid to late February sounds about right to me.

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  63. Sophia,
    Seems like I remember seeing something the other day that short sells were at the lowest level in many years.

    I think it's safe to say very few people are selling short here.

    It just looks to me that the collapsing dollar is supporting stocks. But it is losing it's ability to force the market higher.

    The collapse over the last two weeks has only managed to push the S&P higher by 20 points.

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  64. Sorry for my depressed texto, I feel that the stock market has been squeezing everybody. All bloggers seem to wait for a correction to happen, and we have all been waiting for 4-6 weeks, so it is becoming tedious...

    Economic news are better than they were in September, QE2 and Ben seem unstoppable, Europe is healing, WHAT is going to take this stupid market down??????????

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  65. sorry Gary, just saw your last reply, it crossed mine...I guess that you are right, it is just feeling very tedious and nerve racking....

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  66. Sophia,
    After 30 years in the market I can tell you this. As long as there are more buyers than sellers, no matter how insignificant the volume, the market melts up. When the sellers outnumber the buyers, we go down. There is nothing magic about it.

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  67. yep, RC, you might be right....

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  68. Sophia,
    Eventually there will be a profit taking reaction. Anytime the market gets this stretched above the mean big money starts to get nervous.

    If big money isn't buying, or worse they start selling, then it shouldn't be long before a correction begins.

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  69. Well technically the number of buyers and sellers is always the same. For every transaction there has to be a buyer and a seller.

    What changes is whether buying or selling pressure is greater.

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  70. Pima: It's Bullish Percent Gold Miners, and measure the number of gold mining stocks that are above their 50 day line. When it gets over 90 and then turns down it's a sell signal. Below 30 turning up is a buy. It is quite good. $BPFINA, ENER, TRAN are good for financial, oil/energy, and Transports. This indicator is worth following. See $BPGDM below: (note the bottom in Feb and top in November)

    http://img402.imageshack.us/img402/376/66762309.png

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  71. Gary: Gary: If the daily cycle low in Gold was just put in, and the cycle goes 20-30 days, then the next low will be late Feb/early March, but I think you are expecting it sooner than that. What am I doing wrong here?

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  72. Gary,
    Can you clarify a thought on the short term direction of Gold.
    One comment was that a stock market correction and rising dollar would drag gold down too.
    But then you mentioned that in the event of a correction in stocks that money may flow to gold and we could see a bounce?
    As of today which do you see more likely?
    And I suspect you might tell me not to care and just sit tight but I am still curious. :)

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  73. Dan,
    It's at the end of a selling climax that the selling pressure tends to bring everything down. We could see gold rise during the initial move down by stocks but once the move reaches the true fear stage it should drag everything back down as margin selling takes its toll on everything.

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  74. Gary, that is exactly what happened on during the flash crash last May -- pm shares went up that day, and I believe the next day, but the following few days they cratered.

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  75. pimaCanyon, if QE is "deflationary" then why did it cause stocks to go higher?

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  76. Gary,
    Touche'. All shares bought are sold and all shares sold are bought. Selling and buying pressure will cause directional moves. :)

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  77. Don't get into a debate/discussion about MMT. It'll make your head explode! ;-)

    And it ends up being alot like the inflation/deflation debate. Unproductive and rancorous. (And it'll make your head explode.)

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  78. Gary,Gold may be forming the cycle low today leaving us with a stretched daily cycle of 27 days. Do you think the next cycle will now be shorter, in the 18-20 day time frame and be left translated with the possibility of topping late next week?

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  79. My guess is they sell it somewhere between here and 1305.

    It's so late in the daily cycle and the market is having so much trouble making headway even with a collapsing dollar 1328 seems unlikely.

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  80. JReality,

    So you know the cause of stocks going higher? One and only one cause?

    IMHO the reason stocks move up or down in price is due to investor sentiment which results in buying or selling pressure. Of course, the follow-on question is what drives investor sentiment, and there you open a whole nother can of worms, everything from how investors perceive both short and long range fundatmentals to the weather, sunspots, and the movement of the planets. Who can say for sure what drives investor sentiment and group psychology??

    The article on MMT (the link I posted) makes sense in a lot of ways. However, --IF-- QE is truly deflationary, then even Ben has it all wrong because one of the reasons given for QE was that inflation was too low.

    I'm still trying to digest the article and understand some of it (all the while trying to keep my head from exploding), so unfortunately I cannot either defend or dismiss their assertion that QE is deflationary.

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  81. How is this possible??

    GLD is showing up on the BoW list.

    GLD is up on the day, so how can it show up on that list?

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  82. Pima-
    that list is delayed and GLD was down when the data was provided! It will disappear if GLD stays positive!

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  83. thanks, Daniel. I see that now.

    GLD moved slightly below yesterday's close right on the half hour. The list is updated every 15 min, so I assumed when I did a refresh I'd get more current data. Not sure why it gave me date that was from the prior 15 min period.

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  84. pima

    Look at the time stamp on the upper left side under the title. At 2:33 GLD was negative (.03 as it shows on the page).

    I'm sure you're saying "Doh!" right about now. :-)

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  85. I said something wrong this morning. Actually, FCX is already on Buy Setup 8 of 9, so almost ready to bounce. However, with the qualified break of 113.71, this is now resistance in this stock. After the 1-4 day reaction, then we can expect a full TD Sequential countdown of 13 bars, which may or may not be consecutive days in this case. So, expect at least 2 weeks of downside following the 1-4 day reaction which will finish up by Wednesday of next week.

    Go go go GDX - I have a small speculative position given all the Buy Setups occurring in Demark land in various precious metal-related issues and with the Fed event, thought it was a good risk-to-reward. But once again, given the qualified break of Gold futures at 1350 - this is very short-term!!!

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  86. MDW took out that high we have been watching

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  87. DG, do you still have your short trade on (shorting stocks)?

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  88. Brian,

    Do you know anything about the company MDW? It traded as high at 4.5 back in 2008, but has been trading for under a dollar for more than two years, during which time gold has rallied a bunch? Why would this mining stock mark time for so long during the long runup in gold?

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  89. any buyers for AZC?

    it's about to break above its high as well..

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  90. coolkevs,

    sounds like you're seeing the possibility of a rally in PM's lasting at most 4 days, right? Is that based solely on DeMark?

    I believe PM's may rally into the first week in Feb, possibly until Feb 4.

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  91. fwiw, doc seems to think we'll have a blowout in PMs very soon that will end the intermediate cycle. Is anyone else seeing that as a possibility? I am skeptical but he did load up on ssome miners yesterday, so I guess he sees something the right way.

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  92. We talked about it a couple weeks ago. I bought a position based on the long base and 3 months of very heavy volume (ck monthly chart). They have some early stage projects that are getting attention. No big news that I know.

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  93. Nike, I have shares in AZC and will add if it breaks out.

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  94. Long-winded spoiler alert

    I know I have differed from some on the timing of this doozy of a correction in the general market. But we are setting up for a doozy of a drop, which I still think is not now. I think the Fed has plenty of tools and ideas to make things even worse and more stupid.

    But as for now, Bonds are fighting with reality(finally)...the fed has zero intention of raising rates(not that it would do much at this point).....The Fed announced its intention to maintain QE...I would have expected some mention that QE was working and that QE payments are doing the job needed to hint to the market that QE is stopping. Without any FED hinting QE3 or the continuation of QE2 becomes more likely.

    Even the massive commodity inflation has been dismissed. So the lie before was there was zero inflation...now Joe blow understands food and energy has gone up, so the new strategy is to say we are a wage based economy that only buys houses to justify things.

    It seems the growth definition of the economy is based upon the stock market. Also the stock market is the perfect method to suck in foreign suckers. It just feels as though the FED is stepping on the accelerator; it wants to go all offence and blow through obstacles. The artificial wealth effect of the stock market and the perpetual lies about inflation are temporarily working from what I can see.

    I was doing some observation research on WWI spending and its cause to the 1929 crash, as well as the money supply increase as a cause to the 1987 crash. Theory simple poises that excess money raises prices, but floods into the most liquid and price increasing items. Leverage in the stock market is attractive, as well as its apparent liquidity (As we know is a farce when everyone wants to run out the door at the same time).

    Basically, with this logic, I am viewing stock market bubbles as elastic bands, it takes more and more suckers to stretch the band the further it gets pulled. The FED seems to like its strategy of using its printing press to solve all problems. After all the Great Depression was solved by printing more money…Reality is that we still haven’t paid for WWI, WWII was just an excuse to print and all this served to do with kick the can to the 70s, which just served to kick the can to now.

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  95. Part 2 of 2
    In this way the arrogance of the Fed since being established has always been to print problems away. With the FED purposely intervening in the stock market, I have a feeling that it is poised to rise higher than any one expects, before coming down very sharply and quickly. If the FED believes it can honestly avoid a depression by increasing the stock market, much like it believed it could negate recessions during the 70s, I really believe that we are setting up for something extreme in the near future. The flash crash in May seemed to have the makings of 1987…It should have ended there with a massive correction to reality….somehow the correction stopped…hmmm…with further arrogance and somewhat of a limited ability to control the stock market for now, I can only imagine the repercussion of the FED maintaining the market up stupidly beyond fundamentals.

    All accounts of FED meddling have only served to create massive inflation, until we were returned to some sort of gold standard(don’t call me a gold bug—this is the way history shows it.. We go on a gold standard, we go off as a war starts, we try to go back on, we fail, and then say screw it to the gold standard again. We have been off a gold standard for some 40 years, and the massive money printing is fairly obvious.
    As nutty as it seems to some, I have increased my personal belief as a probability that when the real shit hits the fan that a new system based upon gold will be established. The world goes in and out of the standard, I don’t see why this time will be any different. Again this is a probability of an event, not an absolute…I don’t think in that way. After the USD tanks and the belief in the world’s reserve currency dies, what will we do to justify its replacement or refurbish the USD? The past response has been to re-introduce a gold standard. Of course something else can be used, but gold has been the major tool. But in order for this to happen, gold would need to be priced sharply up from this current point. I believe the MS was backed by 40% of gold reserves, I can’t recall. I guess I could try to figure out the dollar amount today, but likely many of you I have no clue what the real money supply is…This credit driven world is nuts, as it creates money out of thin air like a virus. Unfortunately I don’t see how a gold standard would actually work without destroying our credit creation society…so any move to a gold standard would be temporary at most…I would sell into any established standard and leave the gold bull at this point.
    I may start my leverage portion sooner than later. :) Ah probably wait a bit…don’t need to do anything stupid and have leverage kick me out of this gold bull.
    Either way this turkey just grew a couple more feathers. :)

    Alright no more for me...hit my writting quota.

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  96. pimaCanyon, stocks were stuck in the sub-1100 range until Ben started hinting about QE2.

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  97. I am very lightly short and actually long more SIL and GDXJ (as of yesterday) than I am short. Just waiting for some real SPX weakness. If we drop 10% there is plenty of time and guessing the top at this point seems futile.

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  98. JR,

    So?

    Investor and trader sentiment changed at that time, likely due to a collective view re the effects of QE. If 99 percent of traders believe QE will be inflationary, that would create of lot of buying pressure.

    I don't know whether QE is inflationary or deflationary. What I do know that whatever causes investor/trader sentiment to change is far more complex than one and only one thing.

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  99. Keys,

    I think you underestimate the importance and the influence of the stock market and other capital markets on the economy. On his book The Alchemy of Finance, George Soros talks about this a lot. His so called Theory of Reflexivity.

    The economy is largely influenced by people´s perception of the economy and the future. Self-fulfilling propecies happen all the time in the economy.

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  100. My most relable indicator told me yesterday that the miners were close to a bottom. Yep, my client/friend called me up to yell at me for his account losing 17% since the end of Q4. Whenever he panics I know we're close to a bottom :)

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  101. David,

    You said "I think you underestimate the importance and the influence of the stock market and other capital markets on the economy."

    Can you eloborate your thoughts?

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  102. Boy you just gotta hate being underinvested on a day like this in the PMs. I took on some positions yesterday but chickened out too early. Made a few bucks but it hurts to watch this melt up.

    Sure hope we're setting up per the plan and we get a nasty beat down in a few days to a new low with a nice pos div. I really hope I don't have to chase.

    You better be right Gary!! j/k ;-)

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  103. David K: I believe the wealth effect of the stock market is a lot less than for housing. People took out a home equity loan because they believed real estate would never go down. No one with even the slightest brain uses their margin account that way because stocks are too volatile. Sure people feel better when stocks are up, but 2008/9 is way to recent to have it affect spending decisions much, IMO. There are other effects of a rising mkt of course, but I hear about this one and don't buy it. Maybe if we go up another two years or so and people forget the crash...?

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  104. Keys,

    very basic explanation would be that most people seem to think that the fundamentals influence the price of stocks, but this is a 2 way street. The price of stocks also influence the fundamentals of the economy by influencing people´s expectations of the future.

    a very good lecture by Soros on this subject:

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

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  105. DG, Do you put an RSI inidcator on your BP charts. I find that very useful for identifying possible intermediate tops on $BPSPX. Not so much on the miners, although still helpful.

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  106. This is the follow up to the previous lecture:

    http://www.youtube.com/watch?v=RHSEEJDKJho&feature=channel

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  107. This comment has been removed by the author.

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  108. Some Sos on SPY , 90 milions today vs 350+ last week

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  109. Thanks for the vid...I will take a look.

    My overall feel is that economies from time to time must revert to their fundamental placement. In the last 100 years, I have no clue to how much of our growth is due to real growth, since I have no clue to what real inflation is except to say it is a heck of alot.
    We basically started with 2 billion in US debt and in 100 years went to 15 trillion. Dollar has debased to almost nothing too.

    In terms of perceptions, the 20s were a time of advancement, but a large amount of the perceived wealth created was based upon money running into real-estate, stock market etc. (WWI did something like a 10x to country debt levels, and wholesale prices 3x). After WWI, people were happy and making money thinking WWI was the war to end all wars...I guess this is a self-filling prophesy...

    My view is that the party can't keep going forever, despite perceptions. Eventually, reality kicks you hard in the ass and the economy must purge itself. Using your logic, I would only guess that people's perceptions would only further distort things from reality, and cause stronger crashes. If DG's comments are correct about a wealth effect from the stock market, this would dampen the severity of a correction. In other words the more people believe something will last forever, the more severe the crash.

    I will take a look at your vid, and see if anything modifies my views. Thanks.

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  110. I've been checking SOS throughout the day and I haven't seen SPY on the list, and it's not there now. Are you sure?

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  111. Yes, it just changed to -83.5 from -89 m, but still the first on the list

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  112. I agree SPY didn't show up on the list before the close....

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  113. hi onlooker

    i'm all in since yesterday.

    the reason i did not want to take a chance that the PM will break down following gold.

    It may/may not happen. I see HUI successfully retested the 500 level. So I see no reason for it to come back and fall through the 500 level and then rise.

    I would like to hear thoughts on this.

    Thanks

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  114. Last thing on SPY SOS, when you look at the block trades, the selling amount is more than 2x bigger than the buys. It may tells you what some bigs guys are doing...

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  115. James,

    I do know a lot of people were waiting for gold to drop to 1300 before they entered...if we bottomed here, all those people are going to have to chase now...it will definitely get interesting.


    this is where having a core, like gary suggests, helps...

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  116. Keys--
    You really take my thoughts and put them on paper very well! I tend to see it your way almost all the time! Lots of variables can sway things in the short run but it all comes back to Fundamentals. Onee reason I like Gary so much is he also puts on paper very clearly many of the beliefs I have developed over the decades! Anyway-- I concur--

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  117. Nike Boy,

    Right, I did not want to chase it, if that was the case. Also if the PM do start to show weakness I can always sell and then wait again til it bottoms.

    It will definitely start to look interesting to see how this unfolds.

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  118. Brian. I do use RSI but not heavily. What period would you recommend for $BPSPX?

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  119. Expect GC to bounce to 1353-ish and GDX will be capped at 56.44 if it even manages to get there. Don't fall in love with the bounce IMO.

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  120. DG, I have it on a daily 2 year chart with the SPX in a window same size just below the $BPSPX line chart and RSI on top, so I can put vertical through all 3. As with many systems, it hits bottoms great if RSI goes below 30. It gets the tops most of the time. Occasional whipsaw. We now have RSI dropping below 70 and BP rolling over.

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  121. Bountchac

    Yep, sure enough there it is now. Weird because I checked it right then after you posted that and didn't see it. Must have been a cache thing or something. Sorry I doubted you.

    Good to see it. Sure would like to see this play out the way Gary sees it. Waiting patiently.

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  122. Daniel,

    Feel free to add or differ on anything...I am not married to anything. Always interested from hearing from another fundie guy.

    Cheers

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  123. Lance Lewis at Minyanville:

    "The GLD gold ETF puked up 31 tonnes (or 2.48% of its bullion holdings) yesterday to bring its holdings down to 1,229 tonnes.

    Now, a bullion puke of that size is interesting, because as we’ve noted before, one-day declines in the holdings of this ETF of over 1% have tended to be capitulatory in nature and have typically occurred near important lows in the gold price during gold’s secular bull market.

    Consider that, since the GLD ETF’s creation back in 2004, it has seen 1%+ one-day declines in its bullion holdings only 41 other times. When one goes back and looks at where these declines in bullion holdings have occurred, virtually all of them occurred “at” or were “clustered at” important lows in the gold price."

    "Has gold seen another important low this week? These extreme readings would seem to indicate that it has, but as always with bottoms, you don’t know for sure until after the fact. One thing is for certain though: A hedge fund body of some size literally “floated to the surface” over the past two days in the gold market after relentless short selling by bears (COMEX large spec shorts exploded to their highest level since June of 2005 over the past three weeks) and finally claimed a victim. The good news for the bulls though is that the surfacing of such bodies also tends to correspond with important lows, too."

    http://www.minyanville.com/businessmarkets/articles/gold-gld-etf-gold-price-gold/1/26/2011/id/32403

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  124. All the boys are salivating over this little bounce, from extremely over sold positions.
    Just go back to a weekly chart to see the damage, which is not going to get reversed over night. Patience and prudence is required, you've waited this long.

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  125. Poly,

    I don't think the above indicates a bottom yesterday. It's just another data point to throw into the mix, along with sentiment (26% hgnsi), Gary's cycle theory, etc. We are clearly getting closer to a bottom, day by day.

    My feeling at this point is that all arrows are lining up toward a bottom somewhere around Feb 7 at XAU 185.

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  126. http://stockcharts.com/h-sc/ui?s=$BDI&p=D&yr=3&mn=0&dy=0&id=p55620457122

    Typically not a good omen for commodities

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  127. Today's bounce suggests metals/miners have more upside short term, regardless of whether or not they make one more low before resuming the C-wave. What I have is working well, but I still have much more I'd like to put to work.

    And with regard to the SPX,I'm finally getting interested in the short side, for more than just daytrades. There is plenty of time to get involved, however, as I plan to miss the first few % downside.

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  128. DG,

    http://www.marketwatch.com/story/a-contrarian-take-on-golds-big-drop-2011-01-20?reflink=MW_news_stmp

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  129. I will outline a very simple plan for precious metals in tonight's report.

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  130. Brother, that certainly had the feel of a lock out move. I know these have been way over sold, but dang! Maybe 1325 was it.

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  131. Gary:

    Looks like the stock market correction and its effect on Gold is out of the window atleast for now?

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  132. Gary,
    Why the change in thinking that this isn't just a temporary bounce before the final decline (as described in the 1/25 report)? I know we have a specific stop loss, but is it too soon to call the end of the intermediate decline? This just doesn't feel scary enough yet. :-)

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  133. Gary:

    Going through the terminology document : Looks like there are 2-3 daily cycles in an intermediate cycle for the SPX.

    So, albeit this cycle in the SPX is stretched, how about 1/20 marking low of the 2nd daily cycle (1st being in Nov), and we have one more daily cycle (another 40 odd days) to go before the intermediate correction?

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  134. Nick,
    There was nothing about Jan. 20th that suggests a daily cycle low.

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  135. Hi Gary!

    Do you still think there will be a big market correction soon but gold and silver wont follow the market down? If the market goes down the dollar will go up.

    Why did you change you mind about gold? Earlier your thought was that gold will go down with the market..Or will the market dont correct now and the dollar plunge will continue with gold and stocks going higher..?

    /Patrik

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  136. Read the report again. I'm not changing my opinion I'm protecting against both scenarios.

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  137. I read it twice. I know that you protecting us against both scenarios but it feels that there is something that happend tonight that change your mind a little bit..?

    Do you still think the stockmarket will fall soon?

    Personally I think that there will be big problems for the S&P500 to force 1300 without any kind of correction. What will drive the stockmarket higher at this point..?

    Must have a cup of coffe..Its very late here in Sweden.

    Take Care!

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  138. There was very heavy volume on the move in all areas of the sector. Not really what I was expecting from a move destined to roll over quickly. So I'm going to protect against both outcomes.

    If volume starts to peter out and it looks like gold is going to roll over I think I will probably be able to get out with a small gain anyway.

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  139. Oki..Thanks for your answer.

    Will buy some in the morning then..Will be very interesting to follow the stockmarket to see what happends next..

    Take Care Gary!

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  140. Gary

    Loving the daily commentary at the moment. our valuation showed last week that gold and silver stocks were very undervalued and a bounce was due, seeing many of the large Dow 30s at extreme overvalued levels so were expecting a correction now until mid March. Kep teh updates coming rgds PPA

    http://pressurepointpivots.blogspot.com

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  141. Poly,
    Sounds reasonable but I still don't want to play :)

    I'll just wait till we get to the bottom of the three year cycle low. That should correspond to another brief deflationary period.

    Much safer time to sell short IMO.

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