February will mark the one year anniversary of the last yearly cycle low. So we are now deep in the timing band for that correction.
Gold is now in a down trend so perhaps it is working its way down into that major cycle low now. In order to jump in front of that trend we either need to see something that looks like a major yearly cycle low OR we need to see the down trend reversed.
As of last week gold had formed a weekly swing high.
That swing has to be reversed before gold can continue higher.
Barring a severe correction we would need to see the pattern of lower lows and lower highs reversed in the sector before it is safe to jump back in the pool.
Patience is called for right now. Ideally we would see gold continue down into an obvious yearly cycle low. If that happens we will try to enter as close to the bottom as we can.
Barring that the sector would have to break the pattern of lower lows and lower highs before we reload positions.
DG,
ReplyDeleteYou need to computerize your system so you can take your emotions out of the equation. You had the big winner if you would have just followed the rules. :)
Of course that is the problem with mechanical systems. Too often our emotions get in the way and we lose discipline.
Unfortunately if one violates the rules they more often than not turn a positive expectancy into a negative one.
Most of the time that doesn't mean you turn a winning trade into a loser. It means you take profits too soon and you abort a large winner. Those large winners are critical for the system to work. You need the occasional big win to offset the losses.
As counter intuitive as it seems violating the rules and taking a small winner will usually cause the long term system to break down.
The Bollinger band crash trade will go from a positive expectancy and a plus 90% win rate to a negative expectancy if the rules are violated.
This site lists all the main commodities like the periodic table, and continually updates the prices. If you put the mouse on a specific commodity, it will give you a current chart. It also uses color to show how the price of the commodity is doing that day (green for up and red for down).
ReplyDeletehttp://www.finviz.com/futures.ashx
Gary,
ReplyDeleteYou had to mention patience AGAIN!!! Sheez! Sitting on hands waiting for confirmation. : )
Frustrating I know.
ReplyDeleteIt's going to be 60 and sunny here in Vegas tomorrow so I can at least get back out and go rockclimbing before I go stir crazy.
Yup, this is like watching paint dry. Glad to hear weather will allow at least one day for outdoor activities.
ReplyDeleteGary, you are wrong. I do not "more often than not" turn a possible gain into a tiny one when I "violate the rules" (which you don;t even know). You are just using this as a forum to push your point again. You really think your way of trading is the only way to trade. That is simply false. That is not to say that there aren't a lot of wrong ways to trade, but you go way too far. I don't know if you believe what you say or are saying it as a pose to encourage your readers who don't need inconsistency or "noise" weakening their resolve. Yesterday you referred to someone using another a approach as "flipping coins" and "they may as well go to Vegas." This is patently silly. Are you really saying that every approach that is not yours is random? Ridiculous. You may say that longer term beats trading (true for most people, but also false if said universally. Read Market Wizards) but even if true, that doesn't make other approaches random and like flipping coins. I see the value in your consistency, but I for one feel it's time to give the bashing everything else stuff a rest.
ReplyDeleteDG,
ReplyDeleteI meant no such thing. I was just pointing out that you have a fully tested system that has a very profitable expectancy. If you had followed the rules as you stated them (you've said many times that the trade should produce at least a 1% profit 80% of the time with a risk of losing 1% 20% of the time.)
Doesn't that mean that you have to hold the trade until either that +1% is met or you take a 1% loss?
Of course it has to mean that because there is no way to test the system by guessing where you might have exited. So in order for the system to work as you describe and as it was tested one has to play by the same rules as it was tested.
Am I missing something?
Please don't be so touchy, DG, Gary is correct on this even if it's an uncomfortable truth.
ReplyDeleteDG, I don't think it is bashing by Gary. I too read what he read. You said your mechanical system had a big win rate and put on a winning trade recommended by your program. In a later post you said you closed it out because you wanted to be short. Which is the mental thing Gary spoke about. Did your system tell you to go short or close the trade? Do you automatically close at 1% even if the potential is larger?
ReplyDeleteWes: Iposted late last night and wanted to be sure you saw this from the previous string:
ReplyDeleteIt appears to me that the shorter OEX PC ratios hve been bearishoff and on for a little while now (November was very bearish), and the 21-day has been bearish every day since late November. Below is the link for the OEX charts at Jason's sentimentrader.com
http://img524.imageshack.us/img524/4259/image004en.gif
By the way, if metals and miners close around these levels or lower today, my indicators suggest we have more downside ahead. Today should have seen a gap higher and when it doesn't materialize it means the original direction (lower) is not finished.
ReplyDeleteDG, I tried that link from the last post and this one. Both say it is a broken link.......
ReplyDeleteI do very little that is "automatic." I also do not trade based on emotions. It happens to be the case that a signal failure most often follows the pattern that was traced out yesterday. One thing that happened was especially telling. As I believe we are going to get hit big time soon, the risk/reward was not there. I do not take the 1% gain if I am bullish, but do if bearish. It is false to assert that if you are not trading mechanically, you are trading emotionally. I have spent my entire trading life working to contain emotions so they do not screw up my trading and am quite content where i have gotten to. It is ridiculous to say that if you do not follow "rules" your trading will be based on "emotions." Certainly if you do slavishly follow rules it won;t be, but the reverse is not true. Trading in a rule-bound way is sufficient to eliminate emotions but not necessary.
ReplyDelete95% of my trades are not off the system because the signals are rare.
Correct me if I am wrong, but it would seem that the slope of the 200 and for the 150 are about $25 a month. Which implies as each month goes by, we are actually correcting in the form of consolidation. Gary's report prompted some thoughts. My position is still at 100%, so I am not one to care too much either way. But it is food for thought. The 150, which seems stronger than the 200(for the last couple years), is currently at 1300, and the 200 is at 1270. I of course rounded; I still don't get all the penny and cents analysis so no point pretending that I do here.
ReplyDeleteMy point is the longer that this correction takes, the less severe it may become. Another month and we add another 25$ to our averages. A bird's eye view observation, not to be tied to any timing accuracy.
DG, I like what you write most of the time but you are off base with Gary on this one. He was NOT bashing your system (how could he? ... he doesn't even know the rules) he was merely suggesting that you may not have followed your own rules and turned a winning trade into a break even trade at best. You exit post yesterday sounded like an emotional decision ... we all read it wrong.
ReplyDeleteWhere has MLMT gone?
ReplyDeleteWhat you are missing is that when the system fails it does so in one of two ways, and after tracing out a certain trading pattern, one of which happened yesterday. That reduced the odds of 1% being reached to much less than 80%. Given that I was not prepared to sit there while very bearish. And I probably would have gotten out at the close yesterday to avoid gap risk, so the lost opportunity was tiny.
ReplyDeleteBy the way, my "emotional" way of trading has me down less for the year than probably virtually everyone on this blog. I guess I'll live with that for now. And i will make a pile on the way up. The $BPGDM reading (I know, which is "random" because it is not yours) had me ready for the correction in gold even after you had sounded the "all clear" so I "emotionally" cut back early when it seemed gold was destined to fail. I will still make a pile on the long side thanks to your guidance and encouragement, I expect.
Corebuilder
ReplyDeleteThats a great link, Thanks! That went into my favorites immediately. I love the way charts pop up when you scroll over the prices.
Gary
You really are 'Still The voice of reason' here with your new post. If and when ( and I DO think it WILL) the Gold correction resumes , this post will be looked at as just that.
I know I trade often ( and it works for me , but it's not for everyone), and looking at charts of all the other IT lows, reminders of where we are in real time is a helpful counter-balance...keeps my trades short term only.
ALSO, I looked back at a chart you posted (for subs only )in Sept-and you drew fwd what path you thought Gold would take then...you nailed it really.check it out...
http://www.screencast.com/t/Ss3b9o1qA
Gary,I have a theoretical question.Let's say that gold goes to 2,300 dollars in a huge spike later this year and you were a long term holder of physical gold from close to bear market lows.Would you sell all and pay taxes or continue holding and hoping that was not the top?What would cement your thinking that a final top was in? I'm sure a lot of players thought gold would go to 2k-3k in 1980.
ReplyDeleteDG
ReplyDeletewhen you say -'By the way, my "emotional" way of trading has me down less for the year than probably virtually everyone on this blog'...
do you mean 2011?? :) I have no red. j/kidding , trying to lighten the heavy moment.
Avann: Perhaps I wasn't clear. I did not think Gary was bashing my system. That would be silly as it has already been proven. I was saying he bashes every way to trade that is not his. I think the $BPGDM is a good example. It has been very accurate for years and when someone pointed out it was on a sell in gold, it was summarily dismissed. Instead of calling everything else "useless" he could say" "There are a lot of ways to do this, many of which are actually useful, but mixing systems will leave you prey to your emotions. It's better to be disciplined and stick to the plane." He does say things like that, and maybe bashing everything else is just to get people to stick to the plan, but it seems intellectually dishonest, and i guess after reading it about 100 times I wrote back about it. Maybe I shouldn't have but, what the hell, there are no trades to put on lately!
ReplyDeleteDG,
ReplyDeleteI think the best way to test your overall system is to ask does it work overall? Are you ahead overall? Mistakes in anything will happen along the way...timing mistakes, system mistakes, emotional mistakes. It would seem your system is working, so I don't get the issue.
Thanks for the continued insight on the blog BTW. Your approach is so far the other way from mine, it is nice to see how you see things.
Cheers
It is interesting how platinum and palladium are leading the PMs higher here. Silver also showing strength.
ReplyDeleteGood for you, Alex. I think most people went leveraged or 100% long when Gary said to and are down, I suspect. I have seen some of your trades and can see why you are not down. Be sure to post 'em early ;-)
ReplyDeleteGary-
ReplyDeleteDo you see a bear flag on gold's daily chart? Rough target 1276.
Keys: Signals rarely given,so the vast majority of what I do is not system driven. It is best used with options (A 1% move in SPY ain't worth much). The %27/%9 is achieved by buying calls, but I don't trade options.
ReplyDeleteHmmm, interesting chart Alex. I had forgotten about that projection. I still feel like that could play out here, and it would very much resemble previous, analogous situations in the past; like '05-'06 & '07-'08.
ReplyDeleteThe real bugaboo, of course, is the stock market. But it could just keep stretching it's cycle too, I suppose, if the dollar goes into it's 3 yr cycle low plunge. Kind of like 05-06, though it would end up being much more stretched than that was.
It's a tough situation here for those trying to trade it. Hopefully we'll end up doing better than just a holding-tight strategy will end up doing.
Gary, Gary, have a look at MUB! Since Meredith Whitney talked today, MUB is down and will probably reach the target you metionned of 98.50 before sunset!!
ReplyDeleteAnother thing that falls into place....
DG:
ReplyDeleteRegarding "%27/%9 is achieved by buying calls."
Do you have call prices going back to however long your simulation runs? Would be interested in where you get the data. Also, what transaction costs assumptions do you use? I've also built an options trading model but I've found transactions costs to be the killer.
DG,
ReplyDeleteI guess my word "system" may have been misunderstood. Even I use a system(basically buy and plug my ears). I guess the word "approach" should have been used instead of the word "system". My notion of system was and is, whatever approach you are taking.
My point was if whatever you are doing is working for you, then what's the issue. If you are profiting and doing well, keep at it.
DG,
ReplyDeleteI think there was a little misunderstanding due to the way you presented your system.
You presented the system as a purely mechanical system that has been back tested all the way back to 1980 and it has an 80 percent winning trades record.
Then you went long based on a signal from your system.
Now most of us would conclude that that trade would be a system trade for you because it came out of a signal generated by that very successful and profitable system.
What Gary did not understand, nor did I, nor did most readers here (I would guess), is that even though your system has this amazing track record, you do NOT follow it mechanically. That is the part that you did not make clear. And that would have brought up a whole nother discussion if you had.
My point is that you presented the system as a mechanical system, you took a signal from the system and went long, and then you closed the trade early. Pretty much everyone who had read about your system and your going long because of it would have assumed that you violated your own systems rules by closing the trade early. So I don't think Gary was at all off base by calling you on that.
Now that you've explained in more detail how you trade--and that you don't even use your own system in a mechanical way--everyone NOW understands that your system is just one more data source for you for making your trades, but you're not using it the same way your new hedge fund will use it.
Dollar down and Gold down today.
ReplyDeleteGold is calling a bluff here on dollar weakness...
Quant. The hedge fund did the testing. They are primarily an option trading hedge fund and have been at it for 15 years, so I assume they know what they are doing, as option trading, dealing with transaction costs, spreads, etc. is most of what they do. As well,their costs are small because of their size and volume. I can't personally vouch for the numbers.
ReplyDeleteInteresting to look at the gold chart upside down. Would you go long or short this chart?
ReplyDeletehttp://www.screencast.com/users/Jayhawk1991/folders/Jing/media/5dea59f7-7923-4ae4-abd6-17c84ac10153
Onlooker
ReplyDeleteyes, that was Garys chart -it was quite accurate!!(any others in that library are mine)
When you wrote..
'It's a tough situation here for those trying to trade it.'-
thats exactly how I feel. I kept trading through Nov & Dec (when others said it was extreme sentiment & crash was coming) because I saw good set ups for what I look for as a trader.
However, when this mkt turns down , it should fall fast. My problem is that if this market stretches up ,say,into march due to POMO & dollar down for its 3 yr low, there are more trades and they're quite profitable. I dont short often, Its my weakness , so I like to make hay when its time to...I am patient in the downturns. for now , I love the look of Solar stocks and a few others at this time.
PMs and dollar down, but oil up. Hmmm. . .double top for drop or breakout?
ReplyDeleteIs this the final push?
ReplyDeleteDG
ReplyDeleteMy BORN (bought Monday)just went red , you jinxed me!! :)
Its light volume pullback and still above the 20sma , so I am holding for now. But you said "post before you buy"...well , you can get it for pennies less than me now if it looks ok to your 'specs'.
macd is about to go positive (but is this market gonna hold up)???
proceed with caution , no recommendations here ;)
Pima: Fair enough. I never did say I follow it (or anything else) mechanically when trading (or in my life). I have spent my life trying to develop trading, as well as doing my life, by "feel" (intuition if that word works for you. I can;t tell you how m any times I have avoided either a trading disaster or a life disaster by just "knowing" it didn't feel right. I am very happy to miss a trade to keep that sense honed. There was a guy in Mkt Wizards who traded solely by feel. I am not even close to as good as he was---not fit to tie his shoes, as they say---but my approach is integrated with my life and I like it that way. The big trick is keeping emotions out of your decision making if you do this, and it is even hard to tell whether you are being clear-minded or whether your emotions have snuck in and convinced you you are. but I like this battlefield and value it even more than making a few extra bucks in the market. If the proof, as Keys said, is in the pudding when trading, maybe that's so in life too. I have a 30 year great 1st marriage, lots of money, love my work, have lots of friends, am in good physical shape, etc. Many of the large decisions I have made over the years made no "sense" (starting my business for example by moving to the Silicon Valley with no income and not much savings), but they felt right and have all worked. Maybe I am lucky, but I am not changing my approach now---in trading or in my life.
ReplyDeleteWHOA! DG , did you do that?? It was $11.54 when I was writing that at 11.09a.m.
ReplyDeleteAlex: If I jinxed you I will take myself out into the courtyard and shoot myself. But surely you don;t win every trade, so maybe it's not me...I hope.
ReplyDelete:-)
Alex: Nope not me.
ReplyDeletejayhawk, in your upside down chart of gold, it does look like it has a bull flag, so short term it looks like you'd go long that chart (short the right side up chart).
ReplyDeleteHowever, I am still suspicious of the triple bottom (on the upside down chart, triple top on the real chart). That will get resolved in a way that it will no longer be a triple top in the real chart IMO. 'course, it could take several weeks or more before that happens and we could see lower gold prices in the short term (which fits with Gary's expectation of a lower low ahead). But longer term that triple top's gotta go (and go it will as long as this bull continues being a bull).
Alex: BORN does not look as good to me as the others. It hasn't really made a new high above congestion so there are loser still selling to get out even. The pop up came on good but not great volume. The pop took it right to, but not through, it's declining 50 day line. At least this is my read on it, but you may be a better chartist than I.
ReplyDeleteJayhawk
ReplyDeletethat was awesome! Thinking outside the box! I use volume mainly , so upside down (as posted)...I would pile in--a great surge off the bottom on volume , then flag , aye??
It even looks like a double bottom cup w/Handle from Nov 22 onward...MAN!!
BUT-if its inverse , an upside down chart...as posted...LOOK OUT!! Time to sell.
Thanks!
Jayhawk: What an interesting idea---to look at GLD upside down! Looks telling, I must say.
ReplyDeleteIn Prophet Charts you hit control U (hold it down) to see a chart reversed. I've been starting to do this and it's a interesting perspective.
ReplyDeleteDG
ReplyDeletethats a good read on BORN , and yeah, there are prob many waiting to break even and bail out along the way. I agree.
My problem is that (like REE) I rode this up before huge in oct, so I looked for the pullback to semi-bottom and bounce. I need discipline not to 'fall in love' with a stock ( ya know?). I'm still dying to get back into REE , but I just know better :)
Origionally I thought quick trade on Born, broke its downtrend-line off tops of 10/18 2010 and 11/09/2010..and re tested that line on 12/27 2010
not the best set up, but i was thinking , good volume pop /short trade/keep an eye on it.
clarification:
ReplyDeleteBy the way , I didnt ride either down..i posted my sell on ree @ $17 , but when you get those crazy gains...you fall in love with that stock ( If you arent disciplined)...
so I sell, then keep them on a watch list for a retrace , and a bounce...and try not to cling to the bounce :)
Jayhawk: Cool. I wondered how you did that. I am a stockcharts.com subscriber but they don't have that feature.
ReplyDeleteWell thanks for sharing Jayhawks, that was cool
ReplyDeleteThanks for this blog again, GARY...I learn everyday from it.
(DAX and CAC both closed up @ 2%)
DG,
ReplyDeleteHere's the Stockcharts version:
http://tinyurl.com/6zv64t2
GDX trend still up, may have to touch 200 ma or ema.
ReplyDeleteYea, I guess you could just look at the inverse ETF for the same view. :)
ReplyDeleteThat 50 DMA is now resistance on gold (support on that inverse gold fund).
Bede: Thanks. Seems like a neat feature when no inverse ETF exists.
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=SLV&p=D&b=5&g=0&id=p50202334022
ReplyDeletegary,
slv still has 50 ma as support, gld has it as resistance. so which we watch?
Well for those that like nice long flat bases MDW has been trading between .5 and 1.00 for 2.5 years. Volume is now coming into this stock in a big way. Breaking out above the present levels would be very pleasant.
ReplyDeleteFor those wondering, I do own this.
ReplyDeleteMDW looks good.
ReplyDeleteMUB just broke the 98.50 level!
ReplyDeleteBrian: Thanks. I do love seeing charts other people find interesting.
ReplyDeleteBrian,
ReplyDeleteWhy do you own it? Chart or other analysis?
Hi oa92000,
ReplyDeleteIn the last rally, the support for GLD is 50 SMA while for SLV it is 20 SMA. They now are resistance. So the price action in both are consistent.
Rebecca
"Rod said...
ReplyDeleteMUB just broke the 98.50 level!"
Didn't bill gross say it is time to buy muni?
Bede, It is strictly a technical buy. I have to limit my fundamental time to silvers. For the kind of volume that is happening here on the weekly chart, somebody seems to be expecting a change in fortune for this outfit though. If anybody wants to give us a fundamental report, I would sure like that.
ReplyDeleteDG,
ReplyDeleteI'm even more impressed with your system in light of the extremely bad seasonality results for yesterday and today.
Thanks for the chart. I've subscribed to Jason on your and Gary's recommendation. I gave Gary credit on the "where did you hear of us" question.
I use two levels of bearishness on the 15 dma of the OEX. The first, "bearish", is at 1.4 and the other, "very bearish" is at 1.7.
We just hit the 1.7 level for the first time this trip. Yesterday, it fell back to 1.69.
But, like you, I don't think it will work.
So far, I haven't made a trade in 2011, and I'm just going to wait the market out. "Longer than you can remain solvent" just doesn't apply when your trading account is all cash.
I'm still looking for my pitch. So far, my best time on the expert setting of "Minesweeper" is 183 seconds, but I'm getting better. :)
Rebecca, where do you see the support for SLV now?
ReplyDeleteWes: A few things about Jason. His raw data is superb. His trading is not my style. He said he views himself as a retail store owner. Lots of modest transactions leading to good profitability. The problem is, as I see it, that when the market trends very strongly (as it has this past year), up or down, he has trouble. This year has been extreme, but trends that just won't stop do happen from time to time. He is great in choppy markets. To his credit he has backed off shorts bowing to the momentum, until there is some price weakness. Again, data is great but use your judgment on his buys and sells.
ReplyDeleteAlso, regarding the OEX data, he uses standard deviations rather than absolute levels, which i think is better (those are the dashed lines on the chart I posted). Some indicators trend for years so 1.4 might have meant something in the past and not now. Using SD fixes any bias we might not notice.
I've made a few trades. Some have worked (I caught the 3 day downdraft last week with FXP and OIH. Three days! Yippee!) I am about even and waiting. Let me know if/when you do anything.
And congratulations on Minesweeper!
thanks Rod for noticing MUB! I think it is a big one....
ReplyDeleteWhy doesn't that triple top in gold look like a perfect head and shoulders to anyone ? It does to me.
ReplyDeleteBrian
ReplyDeletestepped out and just saw your post... I love that chart ( as you said...on a wkly volume , and daily too). they seem to be explorer (not producer yet) have found gold , could be buy out target for nevada property?
http://www.marketwatch.com/story/midway-finds-higher-gold-grades-and-new-gold-zone-at-pan-project-nevada-2010-11-08
Wes, doesn't the head in a head and shoulders need to be at a higher peak than the shoulders? (I don't know, just asking...)
ReplyDeleteOEX options traders back to buying more calls than puts today.
ReplyDeleteAlso, SPY is nowhere to be seen in the SoS list today.
Both of these do not bode well for an imminent downdraft. The meltup continues... SXP 1300? Who'd a thunkit?
There are some things about Jason's site that need improving.
ReplyDeleteFirst, there is quite limited historical data, or maybe I just don't know how to get it.
Second, there is no way to see the actual day that an event happened. "Near the middle of May" just doesn't cut it for trading. Again, maybe I just don't know how to get it.
Third, there is no actual historical numerical data that I can find. Again, "near 125" won't do for people wanting to construct moving averages or other indicators.
So far, I'm neutral on the site. It really needs improving IMHO.
Wes: If you go the the page showing all stock market indicators there are Excel icons next to an individual item that allows you to download historical data. OEX data is every reading for the past six years, Up Issues rattios are back 11 years, etc. At this link:
ReplyDeletehttp://www.sentimentrader.com/subscriber/subscriber_indicators_complete.php
Not sure what you mean by "the middle of May." or "near 125." Clarify and I may be able to help.
I think the Euro has put in a major bottom. The breakdown from the huge trading range seems to have been a major shakeout. If that is the case I see it going up at least to 1.46-1.47.
ReplyDeleteHi oa92000,
ReplyDeleteThe support for SLV for now is 50 SMA at $27.66, followed by $24.49, then 200 SMA @ 21.14. Hope that helps.
Rebecca
Someone asked how to see inverse charts in stockcharts.com. Type $ONE:SymbolName on stockcharts. That will give an inverse chart.
ReplyDeleteLet me say this again because for some reason it never seems to stick.
ReplyDeleteYes there are 1000's of ways to make money in the market. Yes many people can make money by trading, either with a mechanical system or by gut.
Hell I'm pretty sure I could consistently make money by trading (although not day trading, that is a skill I have no desire to try and master).
I wouldn't have made anywhere near the kind of money I did last year by trying to constantly time the market though.
So in order to make those big gains I'm willing to suffer drawdowns from time to time. If I can avoid an intermediate decline I will with at least part of my position and I will do everything I can to avoid a D-wave.
So yes I do attempt to time the markets to some extent.
I think the point of my comment was quickly lost in the assumption that I was knocking a different trading style (which I wasn't).
I was just suggesting that you computerize your bread and butter trade. That would take any and all emotional decision making out of the equation. Doing so would have kept the trade alive yesterday and it would have captured the rally today.
There's no need to read something into my comments that isn't there.
David K. What makes you think it's a major bottom? Dollar and sentiment are both neutral (COPT, Rydex, and public sentiment are all nowhere). What are you looking at?
ReplyDeleteWes: I use Jason for sentiment on commodities a lot. Got me short oil, long gas, and short euro when everyone was bullish.
http://www.sentimentrader.com/subscriber/subscriber_indicators_commodities.php
The dollar is falling apart and the euro is rallying. Every commodities are rallying but not gold and silver?
ReplyDeletePalladium and copper and any other metal is rallying.
What do you guys say about that..Quite odd to me but also very interesting?
It feels like gold and silver dont want to go up and the weak dollar are forcing them to at least stand the ground.
Take Care all. Sry for my english..Im from Sweden so that maybe explain things..:-)
DG,
ReplyDeleteI am seeing a classic shakeout, or false breakdown from a huge trading range/consolidation. It's what Vic Sperandeo calls the 2b reversal.
Euro barely made a new low after breaking down from the trading range a couple of days ago, and now it is reversing pretty hard. From my experience, major bottoms are usually formed like this. A big trading range forms, then the market attempts to break down, shaking out the weak longs and inviting shorts to play the breakdown, but then the market quickly reverses up and trades all the way up through the top of the trading range.
The next Fed POMO schedule is out. Free money for all!
ReplyDeletehttp://www.ny.frb.org/markets/tot_operation_schedule.html
You want em you got em. RBY went from 4.00 to 6.00 on a new mineral find. It has consolidated those gains for 2 months. Volume is starting to ramp up. Disclaimer. I do own it.
ReplyDeleteDavid K. Thanks---interesting. but I think you need the right sentiment background to make the case more compelling that it's an important bottom. If people had been terrified during that breakdown that the bottom was falling out I'd be more convinced but sentiment-wise it was met with a yawn. The stops got triggered and then it bounces, but a big rally...? Still I hope you're right. I made a lot of money shorting the euro at 148 last time, so I hope it gets back to the mid 140's because it ain't worth toilet paper, IMO.
ReplyDeleteThe buyers keep coming and coming, where they come from, nobody knows.
ReplyDeleteWe know it's not short sellers covers anymore, they're all gone!
http://www.bloomberg.com/news/2011-01-12/short-selling-against-s-p-500-companies-drops-to-one-year-low.html
Brian: That chart is a great example of when it's right to buy a stock for a BB crash trade. It ramped up on big volume. then sold off slowly on much lighter volume. When it touched the lower BB was the time to buy it, at about 5.10. Let me know if you see others like this. For me now it's up in the air at 5.80 and risky for my tight-stop style.
ReplyDeletePoly: yeah it's amazing isn't it? I often think of markets like bookends: the 2009 crash went further than anyone imagined, so the rally has too also. Butt still, Geez! I sure hope Gary catches gold right because I'd like to do something of consequence this year!
ReplyDeleteThe Fed is gonna be buying 112 billion in treasuries in the next month. With all this printing going on, and all this extra "funny money" making its way into the equity market, I'm very concerned we might only get another measly 5% correction, like in Nov, rather than a REAL correction withe a pullback to the 200 DMA in SPX. Is anyone else concerned about that as well?
ReplyDeleteWe've got people like GreenSCAM going on TV saying that higher equity prices are the best thing that can happen for the economy to recover. It seems the Fed itself WANTS higher stock prices. Can we still get a REAL correction this winter?
Gary also hopes he catches the gold bottom. I'd like to have another year like last year.
ReplyDeleteThe extreme interventions going on in the currency markets are making these very tough markets.
DG,
ReplyDeleteThanks for directing me to the data. That makes Jason's site a lot better. Again, thanks.
I was making reference to the lack of grid lines on Jason's charts. I guess we can go to the historical data (now that I know where it is), though.
The corrections will come , but When , huh??
ReplyDeletethese markets are just getting bought up.
I got out of PAL (Palladium)a while ago and wanted to re-enter at the gold bottom, but it worked its way up to the high again and someone just stepped in big today all around 1 p.m...now its breaking out WITH VOLUME.
1 day 15 minute chart says it all , and 3 month daily does too.
SWC moving up too
Last year the flash crash happened immediately after the POMO party stopped. A little wall street message to brother Ben. Probably be the same way this year.......
ReplyDeleteThe extreme currency interventions are definitely stretching the markets but they haven't stopped the cycles. We did get a normal drop into the daily cycle bottom in November even though the cycle stretched to almost 60 days.
ReplyDeleteWe are probably going to have to elongate the normal timing band from 35-45 to 45-60.
I agree with you DG. It is in middle ground, but I have an alert at 6 and if vol is good, I will add on the breakout. I owned this for a long time. It was a dog and I was contemplating a sale when it made the discovery. If this is a true T1 pattern, it should see 8 shortly. BTW it now looks like the breakout could be close.
ReplyDeleteI keep noticing the comments on the flash crash and just wanted to post some information on it.
ReplyDeleteDTN IQ feed has data and a study that shows why the crash happened.
It is based on HFT and quote stuffing. If you are unsure what quote stuffing is then feel free to read the article.
BTW - DNT IQ feed is one of the best data streams out there.
http://www.nanex.net/FlashCrashFinal/FlashCrashAnalysis_Theory.html
1394-96 in NYSE Hours. I posted this more than a week ago. Some things do not change and are almost like "law of nature". I expect gold to tag 1394-96 and end the day around that level or close to that - either today or tomorrow.
ReplyDeleteOnce 1388 gets taken out (which already has been), there could be a quick short squeeze up.
As everyone knows, there is a lot more to the stock market than sentiment and the other indicators that I collectively call psychology indicators.
ReplyDeleteThere is also monetary conditions to be considered as well as valuation metrics.
I've recently posted that my psychology readings collectively score a 4 on a scale of 1 to 6 with a 6 being most bearish.
The monetary indicators I monitor score a 2 on the same scale. This is almost the ideal monetary environment for stock market gains.
I score valuation on a 1 to 5 scale with a 5 being most overvalued. Current valuations score a 1, the most undervalued score, and it's a very low 1, nowhere close to a 2.
Now before you flame me about valuation, this has been a 1 since before the end of the bear market, Every time I post this, people flame me. And for the entire nearly 2 years, those flamers have been wrong.
Just look at the market results over those nearly two years and ask yourself if you would have disagreed with me on valuation a year ago, six months ago ? Well you would have been wrong, too.
Thus, stock market conditions have been and remain almost perfect for continued upside, with the exception of psychology, which is really about neutral on a scale of 1 to 6.
Even so, a psychology reading of 4 usually leads to a correction, as it did eventually when it turned to 4 on March 15th.
But, sometimes, the darned thing just won't correct for months. And months. And months.
here is an interesting read on gold
ReplyDeletehttp://www.moneyweek.com/investments/precious-metals-and-gems/money-morning-gold-price-correction-10105.aspx
In fact if gold is around 1388 level at NYSE close, then it would be a good time to unload long positions IMO for those who were waiting for a bounce. Not a wise thing to try and catch the last few dollars in this gold bounce (we will likely go to 1394-96 IMO)
ReplyDeleteWes, I don't understand how valuation would still be a 1 out of 5 even after stocks almost doubled. How do you derive your valuation level?
ReplyDeleteWes: Do you know of Jeremy Grantham at GMO. For my money he is the best valuation guy around. His track record on all asset classes is amazing (He orders ten classes 1 through 10 for the next decade. last time he got every one IN ORDER of returns except #7 and #8 were reversed, if memory serves. Amazing.) He thinks we are quite overvalued, which is not to say you are wrong, just that I rely on others for such questions. What do you use for valuations, if you can say. As for monetary, Zweig always made his number one rule :Don't fight the Fed. We have the steepest yield curve in history. That's why I am not short and I hate flaming people who have been right. But then, why are you looking for a short entry and not long?
ReplyDeleteAlex, I followed you into SOLF, so far so good. The solars have based and look like they want to catch up to the oils.
ReplyDeleteI too, did not like the look of BORN nor CDE, which apparently *was* a good short at the time...
MDW looks promising but I don't have a position.
Over the 100 year history of the Dow when dividend yields have been this low (and they are microscopic right now) the long term returns have been very poor.
ReplyDeleteOf course that doesn't say anything about today or even the next week or month but one can't buy and hold at these kind of valuations and expect to make any money over the next 10 years.
These same dividend levels levels or lower were active in 2000. I think the 10 year returns during that period make the case pretty clearly.
JReality,
ReplyDeleteAs I indicated, valuation is a low 1. It has been a lower 1 when the market was lower. I don't think the model ever contemplated a business environment this favorable. Zero employees and blow-out earnings.
It is highly dependent on interest rates and business activity (earnings). The latter are improving daily.
It has nothing to do with the infamous "fed curve".
Having said all that, it is not my model and I don't know the exact parameters. I do know that it has been back tested into the 1920's, and prior to every bear market the model has recorded a 5, and usually for some time before the bear market starts.
Hope this helps.
Blammo
ReplyDeleteI am glad to hear that about solf (funny thing, I JUST sold mine :)
I hoped it would go to that gap at $10.00 ( and it may), but volume got lighter each day, so I will sell for a gain and not wait & see on this one.
It looks like SOL was maybe the better buy (better volume/price)
so I will keep solars on my watch list for possible re-entry on any pullback.
yeah, CDE...sorry Jayhawks , really. looked too risky 4 me, I do feel bad saying I wouldnt short it to you.
Wes, If you don't mind my asking, whose model is it? Thanks.
ReplyDeleteThe miners are sure quick to sell off today. Getting the feeling no one wants to hold them over.
ReplyDeleteGary,
ReplyDeleteIn spite of your protestations, average P/E ratios are highly dependent on interest rates. Not just a little dependent but highly dependent.
Since 1970, the last 40 years, the trading lifetime of most traders, the average P/E ratio of the S&P has been 20.85 .
Now, calculating average interest rates as the T bill rate + 2yr bond +10 yr bond, all divided by 3.
When the AIR (avg int. rate) has been between 0 and 5 percent,
the average P/E has been 23.86 .
When the AIR has been between 5 and 10%, the average P/E has been 19.44
When the AIR has exceeded 10%, the average P/E has been 9.35.
Now these numbers are not my opinion, but are the same numbers you will get if you care to run them. They were run in May.
Alex's old friend NAK is still making waves.....
ReplyDeleteAlex, Do not encourage Jayhawk to short silver!
ReplyDeleteJReality,
ReplyDeleteThe model was developed by Mark Dodson. He is a partner/chief data guy for Don Hays.
The web site:
www.haysadvisory.com
Brian
ReplyDeleteI saw that , still wiping the tears away :) I sold that on that long candle up,,,now its like $5 or $6 plus higher!!
same with NG today ,sold around $13+... I was going to re buy that at the $12 gap :)
PAL, broke out with volume today too.
Well I closed some more miners today, and now I am at my core. I am holding only GDXJ for gold, and silver juniors and uranium miners.
ReplyDeleteJust closed the beast NAK, in which I rode from $5.00 and AEM from $59.00, I held OTM Jan sold calls on it which I closed today as well.
I hold MCP and CMG short, both profitably. I will now attmpt to be patient.
Did we get a SOS day today.
ReplyDeleteWes: Gosh, Don Hays! I know his stuff very well. He got completely creamed in 2008 and changed his model (cost me a pretty penny to because I listened to him and violated my own discipline, like a complete ass.) I do not believe that Hays is prepared to handle what is coming if we have a currency crisis or series of deflationary events. That's why they got creamed in 2008. Their stuff is very good in "normal" times but this isn't. They now use as a fail safe that if the market breaks down below some moving average or other they get out regardless of how "cheap" things are. Things were cheap the whole way down in 2008, and the yield curve was positive. They stayed 100% long the whole way.
ReplyDeleteDG,
ReplyDeleteThat's why they hired Dodson. He had nothing to do with their failed model.
His model came later.
Wes,
ReplyDeleteI didn't say anything about P/E's I said dividends. Earnings can be whatever accountants want them to be.
BTW we are in a rising interest rate environment not a declining. The bond bubble has burst. Just like I said it had.
Dividends can't be faked like earnings. You either pay them or you don't. The last 10 years has clearly demonstrated that this basic valuation model that has held up for 100+ years is still alive & well in the modern markets.
Aloha Bob
ReplyDeletenice trades , especially NAK!!
Uraniums do still look pretty good (URZ, URG, etc)
DG
I hate to trade miners this late in the game , but I am looking at (see 6 month chart) VGZ, GOOD volume on recent recovery...and Maybe it forms a reverse H&S if it pulls back. waiting, watching.
BTW I heard all this valuation nonsense in Oct. `07 also. It was baloney then and it's baloney now.
ReplyDeleteNo matter how grossly overvalued the market is someone somewhere will devise a system the "proves" it's not.
Then of course it's not long before we learn ...again ...that it's never different this time.
DG,
ReplyDeleteOur fail safe is much higher than theirs, at least mine is. I don't follow Hays' investment advice at all, and never have.
Sorry to hear about your experience with him. I use them as a cheap data collector.
Gary,
ReplyDeleteYou have been critical of the P/E's in the past just as you are of the valuation metrics.
It's like DG says, if it's not your idea, you give it little budget.
My total profits last year were 73.9% with no PM's and no commodities. These alternate theories actually do work, sometime.
P/E and div valuations against S&P going back 100yrs:
ReplyDeletehttp://www.decisionpoint.com/TAC/SWENLIN.html
(first chart)
Draw your own conclusions. I have. And it's that stocks are horribly overvalued.
Note the valuations now compared to peaks in 2000, 2008, and 1929.
Thanks Alex. This is a great use of this blog; that is, posting actionable ideas for people. That's why I post my buy signals and other setups. Hopefully sharing ideas will make us all better off!
ReplyDeleteAfter the drop in dollar today and the rise of gold closer to $1400 and silver closer to $30, i raise my odds of last friday being the low (and a resumption higher to the $1600+ top) up to 33%.
ReplyDeleteIf gold breaks $1400 and silver $30, my odds would prob rise to 50/50.
I think the gold *might* be in a up sloping channel consolidation, that friday was a low on the lower end of that channel and that we rally to the top line and up-and-out soon. Seems to me not many people are prepared for that possibility and it would continue to cause the chasing situation we've seen for months.
I haven't taken any positions based on my comments here. I'm just saying for now and being open to the alternate scenario.
Wes,
ReplyDeleteThose aren't my valuations. I'm just pointing out 100 years of historical data. The last 10 years have proved the point.
You didn't make 70+% because of valuation. The market only rallied a little over 11% last year. You made those returns by timing the market moves. That has nothing to do with valuation.
PS: you guys using GLD or gold ETF's to draw a flag chart pattern are making a mistake. Gold is a 24hr market and the prices/behavior OUTSIDE of US hours are just as valid to taking into account.
ReplyDeleteWhen you use a chart includes the full 24hr pricing you don't have such a magical 'flag' continuation pattern like you think. You have a spike low through an uptrend line and a recovery within hours leading to straight up action of three days at this point.
We could still go down. I said 66% on that option a moment ago, but you aren't gonna sell me using that US hours only, crippled 'flag' formation.
Same comment goes to people claiming 'gaps' on a gld chart too. Use a chart with 24hr data and there are no gaps. And if you reviewed historical GLD you would see the gaps remain open more often than not because they aren't real in the first place.
Wes: Glad your fail-safes are tighter than theirs. It had been many years since I have had a bad year, with lots of good years between...until 2008. It was a cheap lesson (a lot cheaper than my 1983 one) and I dare say it will never happen again. Never. I have made enough now that I do not have to shoot the lights out any more. To try to do so and then get over-confident is just greed in my book. Like these guys worth $25 million who get caught insider trading. What the hell were they thinking?!
ReplyDeleteTZ,
ReplyDeleteThe easy way to find out is to see if the pattern of lower lows and lower highs is broken.
With the stock market on the 39th day of the cycle I certainly wouldn't jump into to anything this late.
Wes,
ReplyDeleteValuations are almost meaningless in the short term.
Over the long term -- 7-10 years -- dividend yield has a rock-solid statistical correlation to investment returns.
As for interest rates, if we were to apply your logic, then 1980-1982 would have been a terrible time to buy stocks, as interest rates were hovering around %15. As it happened, this was the best time in a generation to buy stocks.
By the same logic, stocks in 2000 would have been much more attractive than in 1980, because interest rates were much lower than in 1980.
In 2000, based on a dividend yield of 1%, stocks were expected to generate a 0% return over ten years. They delivered just that.
As it stands, based on the current dividend yield, an investor can expect a 3% annualized return on the S&P 500 over the next ten years.
David,
ReplyDeleteI have no idea how any of what you are saying relates to what I have posted here. Please be more specific.
Gary,
ReplyDeleteLower highs and lower lows is simple/easy, but if making money was easy everybody would be rich. I'm still in the waiting mode, I'm just throwing this out for discussion and saying I'm prepared for a run higher.
SEE this chart for my view of what has a reasonable chance of happening. An up-pause(channel)-up move is not uncommon in the market.
http://img502.imageshack.us/f/goldf.gif/
Time will tell. I'm betting money on your scenario for now, NOT this one.
TZ,
ReplyDeleteBelieve me if the PM sector reverses the down trend I'm more than ready to go :)
Oh..and with that channel I just posted, here is an intraday closeup of gold dropping down to the lower line, bouncing on it for about an hour, faking through the bottom for LESS THAN TEN MINUTES and taking out about 25,000 contracts on the move and recovery. From there we have climbed up pretty relentlessly.
ReplyDeleteThat is a sign that i'm gonna at least *consider* friday being a low that holds. Like I said, I got no money on it yet though.
http://img217.imageshack.us/f/goldbreak.gif/
TZ,
ReplyDeleteI'm sure you're aware that stocks don't trade off of trailing earnings. The projected future earnings determine current price to a large extent and the economic outlook seems to influence multiples that the market is willing to assign.
Using trailing earnings and P/E's based on them will mislead you badly. They will particularly be misleading when coming out of recessions because future earnings are rising very quickly.
Now, the projected future earnings are ultimately determined by managements estimates for each stock, and can be wildly misleading on occasion. I only use them for companies where I'm familiar with management's past track record.
Using P/E's for buying stocks or the general stock market is treacherous business, and I don't do it. But, obviously, the projected P/E for the entire market will be much more accurate as misses and blowouts tend to cancel.
Wes, More important than any of that is the law of regression to the mean.
ReplyDeleteCurrently profit margins are as high as they've ever been. That will regress to the mean just like it always does. As it does we will get a compression of profit margins.
As soon as that happens the stock market that is already overvalued will become extremely overvalued at current prices. Throw in spiking energy prices, municipal & sovereign defaults and you have the recipe for the next bear market.
That's true, but wouldn't compressed profit margins be reflected in projected earnings ? Managements don't intentionally mislead analysts.
ReplyDeleteWhere do you get profit margins and their comparison to past history ? That is important information to have and I wasn't aware it was available.
Forward earnings has to be the biggest joke I've ever heard. I've had numerous business in my life and I've never been able to predict my forward earnings with any accuracy.
ReplyDeleteWall street is no exception. They can't see into the future and predict what soaring energy prices are going to do to profits. The have no idea what multiple defaults from major US cities and states will do to demand.
There is no way to predict what the effects on consumer sentiment will be if the stock market suffers through a vicious yearly cycle correction.
Forward earnings are just a cruel scam Wall Street pulls in order to sell stocks, nothing more.
O.K., but where do you get the profit margin information ?
ReplyDeleteHenry Blodgett has been pointing it out lately on tech ticker.
ReplyDeleteI expect you could google it and find the raw data somewhere.
This comment has been removed by the author.
ReplyDeleteHere is the NAZ100 index going into the tech bubble blowoff top of 2000.
ReplyDeleteSame channel formation. Just an example for fun.
http://img199.imageshack.us/f/ndxchannel.gif/
When the buying pressure becomes extreme and everybody wants in, then a correction period can turn into a running congestion or channel. Might gold have enough buying pressure to cause this? No idea. We wait and see.
Wes,
ReplyDeleteYou were asserting that stocks are presently undervalued.
I countered that they are not, based on a number of valuation models, including dividend yield and case-shiller p/e. Both of these models can be back-tested to the 19th century and are quite robust.
Forward p/e is not predictive, precisely because at important inflection points earnings estimates usually turn out to be wrong.
Maybe I'm crazy here, but I think there's an elephant in the room we're not addressing. Maybe this time it IS different. Look, I've been around the block. I knew the "new area of tech" in 2000 was BS. But we never have had this kind of monetary pumping before as a concerted effort around the world. This IS in fact, different. Doesn't mean the law of gravity has been repealed, but analysis like, "Since 1957 every time X has happened Y has happened" are worth a lot less. Wes, for the first time in 30 years we were up Tues and Wed after the payroll report after a previous up month. Why? That's exactly the kind of analysis I have used my whole investing life, but we really are living through something no one has seen before. Who the hell knows how it'll affect things? We will decline at some point, but the standard methods for measuring when that might be can't help but be affected by what's going on at all the CB's around the world. It's a new world. Adapt or die. maybe gold breaks up. Maybe the cycles get so stretched they are not worth as much. I am not predicting it, but do think it is worth considering. There is a danger of allowing such concerns to freeze you when it's time to place the trade, but then deal with that hesitancy and figure out a strategy, rather than pretending we are in normal times. We aren't. This has been too damn weird to pretend it isn't.
ReplyDeleteDG,
ReplyDeleteWe have actually seen this before.
When the economy started to drift down into a recession in 06 the Fed debased the dollar mercilessly. Ultimately all it did was spike oil to $147, put the finishing touches on the credit and real estate bubbles, and briefly drive the stock market higher.
But all the printing in the world can't reverse the cancer growing under the surface. In fact it will just speed it up. This time there is no housing bubble to blow so all that liquidity will just leak faster and faster into the commodity markets until inflation finally breaks the economy again.
Despite what the Fed, government and Keynesian wackos would like to believe there really is no free lunch in this world.
The more they stretch this the harder and more vicious is going to be the fall.
I agree with that completely Gary, but "eventually" can be longer than we think, as in "the markets can remain irrational longer than you can remain solvent." I am not suggesting we'll be fine, just that trying to figure out what the hell to do has been, and will continue to be, hard due to all the fake-outs and crosscurrents. At least for me. Sigh.
ReplyDeleteThere really is no law that says one has to trade, especially in these conditions. Maybe now is a good time to take a vacation :)
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteInteresting look at precious metals by Chris Puplava, whose work I've come to respect:
ReplyDeletePrecious Metals update
It pretty much aligns with Gary's thinking, though he's less bullish on silver because of how stretched it has become. Suspects it may underperform gold over the next 6-12 months.
I can see the argument, but given the relative strength and the fact that silver has just caught up to gold (on a relative basis), maybe that won't come to pass.
This comment has been removed by the author.
ReplyDeleteWhat bothers me about Gold pulling back to 1300 or even to 1265, is that it will be a very easy trade to take when it gets there. Unless it gets there in a really nasty way - ex: couple of 3% down days in a row - it is just too picture perfect and too easy. I don´t know, but I feel like Gold taking off from where it is and never retracing back to 1300 is what will fool the most people.
ReplyDeleteMaybe Gary is right, and when gold starts to fall it will scare the hell out of a lot of gold bulls, but talking to people that I know, and reading things on the web, a drop to 1300 would be a dream come true for a lot of people.
The Fed was most certainly buying bonds in 06. That is how the Fed gets liquidity into the economy. They just weren't publicizing it.
ReplyDeleteWe've had QE in some form or other since 2001.
David,
ReplyDeleteI've been over that one many times before. It's easy to say one will buy something when it pulls back to such and such a price. The problem is when it actually does it in real time it's scary as hell and virtually no one can actually pull the trigger.
Believe me if gold makes it back to $1265 I wager less than 1 in 10 people who said they were going to buy will be able to.
GARY,
ReplyDelete>When the economy started to drift down into a recession in 06 the Fed debased the dollar mercilessly.
Yes, they lowered rates, but they didn't do the things they are doing now.
We have entered the *last phase* of a banana republic. The central bank of the US is now DIRECTLY buying and supporting the government's debt. The Fed is now the largest holder and has surpassed china.
The POMO (Fed printing) schedule posted earlier shows the continuing and increasing purchases. Those will not stop.
This will now continue as the last stretch of the phase up and until the currency collapses.
This really is the last stretch. There wont' be a QE3 either. QE2 is open ended *by design*. We print now until the end.
While I'm not convinced we never have large drops in stocks or metals again, I'm willing to at least consider that at SOME level of printing, there is enough cash to launch an economy into the final spiral up of assets (until the ultimate end point).
As SOME level.
Are we there? No idea. Am i betting on against a decline? Nope. Not yet.
But these are unusual times and yes the fed has lowered rates before in it's history. But it hasn't bought govt debt wholesale at over a 1 TRILLION run rate to prevent collapsed of the entire country. That cash is flooding in and it MIGHT alter the ability of things to sell off dramatically (till the obvious crash when this all burns up closer to the end).
Thanks, David.
ReplyDeleteI'm aware that dividend models, etc. are saying the market is overvalued. Of course, they've been saying that for a long, long time. And the market just keeps going up.
As for forward earnings not being predictive, they may not predict actual earnings accurately but they are predictive of future stock market performance.
Until the misses start coming, nearly everyone trusts the future earnings. Usually, it's not the earnings misses that causes the downturn, but the dislocation in the economy that causes the misses.
I guess that's why most computers are equipped with sell buttons. :)
According to Mark Hulbert, gold sentiment is very subdued already, with the average gold timer recommending an allocation of 33% of funds to PMs. This is historically quite low. Interestingly, this is also almost exactly in line with Gary's allocation right now.
ReplyDeleteThere has been intense skepticism throughout this rally, and I would argue that the recent headfake bruised sentiment even more. So a huge decline is hardly necessary. A big stock-market washout should do the job.
That is the ax hanging over the market right now. That illusive stock market correction.
ReplyDeleteGary,
ReplyDeleteWhat am I doing wrong. I tried just refresh but that doesn't email me all the comments. It seems as if I have to leave a comment.
Thanks
Refresh always works for me.
ReplyDeleteNot sure what you mean by email you the comments though.
DG,
ReplyDeleteYou make some good points and maybe it is different this time, but the people that thought that last time are usually not around for next time.
So far, I don't see anything all that unusual about the stock market. Has there ever been a stock market correction with QE, or it's equivalent, going on ? I think there have been many, but I certainly could be wrong.
Gary says that the QE equivalent was going on in 2006.
I mean to have all comments posted sent to me via email.
ReplyDeleteI didn't know the system could do that.
ReplyDeleteExcellent report tonight, G.
ReplyDeleteGARY,
ReplyDelete>The Fed was most certainly buying bonds in 06. That is how the Fed gets liquidity into the economy. They just weren't publicizing it. We've had QE in some form or other since 2001.
http://raymondpronk.files.wordpress.com/2010/01/fed_assets_dec_09.gif
This is a chart of the fed's holdings (assets). The chart continues to the left (2006 and earlier) pretty much in the same flat, slighly downsloping rate you already see. It goes back DECADES at that same slow decline back to the creation of the fed (with some minor bumps in the depression, wars, etc.)
I hardly think that the fed 'was also buying bonds in 06' is anywhere *close* to describing what has happened since 2008.
Very simply, it is off the charts and incomparable to anything in the history of the fed (although not in the history of other countries that went BK and collapsed).
GARY,
ReplyDeletehttp://www.econdataus.com/fedbal03.jpg
I found it. Here is the Fed's balance sheet of assets going back before my first chart which ended 2007.
Seriously, come on. Where is the comparable buying of assets in 2006 or 2004 or in any other time period in the history of the fed?
Remember, I'm still not arguing that we can never drop again, but I'm certainly saying it might be possible at some point and some level of printing.
TZ,
ReplyDeleteYou are making the mistake of comparing what happened in 01-07 to 09. What you need to do is compare 01-07 to the rest of history.
The Fed's nonstop liquidity pump began with the tech bubble bursting and was what caused the severe devaluation of the US dollar since 2001. Just because it wasn't at the present rate doesn't mean at the time it wasn't a historic rate of devaluation.
By the time 07 & 08 arrived the Fed had managed to push the dollar below multi decade support. Total global debt had reached astronomical levels never seen at any other time in world history.
By July of 08 the dollar was well on its way to becoming worthless. The difference now is every other country has decide to join the Fed in the money printing game.
Wes: It's not just some form of QE, but it is both around the world simultaneously and of massive size. Size does matter after all.
ReplyDeleteThere are also lots of "first time ever" or at least incredibly rare, stats. Lowest 30 day vix in 40 years, etc. (I may have that detail wrong, but you get the idea). Something is going on. I can't say this is not an unusual stock market period. No 1% down days for the whole month of December, etc.
At least that's how it looks to me.
My memory is that the VIX was shockingly low for a long time in 2007 -- it reached about 10. Right now it's at 16. But when it popped, it popped huge.
ReplyDeleteOne hallmark of market tops is when even bears begin to doubt their sanity and wonder if the game has changed somehow. But the game never changes for very long.
This may or may not be the top of this cyclical bull, but there is no question that we are in for a very sharp correction.
Remember the Fed was going to print money, buy bonds and hold interest rates down. It was going to be different this time.
ReplyDeleteHow's that working out so far?
A very convincing report tonight, Gary. Nice work.
ReplyDeleteI just checked, and NDX has been further above it's 200 dma for just 5 weeks in the last 9 years. And only just above today's 200 during those 5 weeks.
http://www.marketwatch.com/story/a-contrarian-read-of-the-gold-market-2011-01-12?siteid=nbkh
ReplyDeleteCurrent sentiment on gold. Pretty low fwiw.
DG,
ReplyDeleteI agree that size matters, and you may ultimately be proved right.
But, there are more than 10 Trillion dollars in MZM, a broad measure of money in the US. An extra 1 Trillion from the Fed is a lot, but hardly the Armageddon that this site implies.
The potential for inflation is certainly present with the banks holding this much money, but until they can lend it out through fractional banking, it is just that. A big potential.
Actually the gold sentiment is about neutral and the bullish percentage is still high for an intermediate degree correction.
ReplyDeleteWes: I was not predicting Armageddon, just that an extra trillion here and an extra trillion there might well extend SPX rallies beyond what's normal. It's the debt that has me spooked, not the printing. I don't see how we will ever pay it off without stiff growth, which isn't in our future. Countries ultimately default once it gets out of hand. That would be Bad.
ReplyDeleteDG,
ReplyDeleteWe can't default because we own the printing presses. I guess Congress could fail to increase the debt ceiling and cause a technical default, but they most likely won't.
We don't depend on other countries buying our bonds, even though they do buy some. We could raise the interest rates and sell them all domestically.
We will do what we've been doing for 60 years and inflate our way out of the debt. But it will most likely be a controlled inflation of a public 2% (CPI) which will amount to about 4% in the real world.
Einstein said the strongest force in the Cosmos is compound interest.
At 4% a year, in 10 years a $100 debt today will be worth $67. And we'll just keep doing it year after year. At least that will probably be the plan.
Many people are betting the plan won't work and we'll have runaway inflation. I'm not one of them.
Seems the bottom line is there is a terminal velocity attached to the money printing. We just haven't reached it yet.
ReplyDeleteWes, John Hussman has written extensively in his weekly letters about FOE and how one may address them. His writings are archived. Check it out.
ReplyDeleteIt was the same plan we used in the 70's to pay for the Vietnam war. It did cause runaway inflation.
ReplyDeleteIt took a man like Volcker to willingly put the country into two severe recessions and the invention of the personal computer to drag us out of that pit.
Now the problem is many multiples bigger than it was in the 70's.
We've had another 40 years to compound the problem and kick the can further down the road.
We will certainly default. Printing is just one form of default. The question is has the cancer grown so large that defaulting by printing will now destroy the currency.
There is a level of no return when debts get so out of control that to attempt to print them away destroys a nations currency.
Every empire in the history of the world eventually reaches this point. It's why every fiat currency in history eventually fails.
Humans just refuse to accept the fact that there is no free lunch in this world. Every empire in history has tested this irrefutable truth and not one of them overcame it.
Wes: Yes I was not clear. We can "default" either by not paying or by paying with worthless currency. I guess technically it is not a default then. The point is, however, that I believe no country has pulled off what we are trying to do. It seems to me that since no one has ever done it, the burden of proof would be on those who say it''s not a serious problem. It has been a problem for every other country in history, so why not ours?
ReplyDeleteI do agree about the money multiplier, but at some point as confidence in the currency fades, the multiplier will go stratospheric as who will want to hold dollars. They'll move around like a hot potato. I guess we'll see how this all unfolds...
"Every empire in the history of the world eventually reaches this point. It's why every fiat currency in history eventually fails."
ReplyDeleteExactly. This is the truth. History is littered with many empires over the span of 5,000 years where greed and the temptation to dilute/create money eventually kills the currency.
While we have computers and digital representation of money, the fundamental concept has not changed one bit. We are doing the exact same things that failed empires did for thousands of years.
We think that we are so smart and advanced now that we figured out a way to cheat the laws of economics.
Not true. That's exactly what all the old failed empires thought. And they were all wrong.
In the future, when people look back at this time, they are going to see just how stupid we were.
To actually think we can get away with it and create something out of nothing.
As Gary said, there's no such thing as a free lunch. That's the first concept they teach you in economics.
Gary, what do you make of the dollar falling hard this week?
ReplyDeleteThink you haven't mentioned the USD in last night's report
Thanks
DX getting hammered this morning, platinum up $25 an oz. Very interesting. One stock to own for a double here is PAL (over the next year). What do you chart readers make of CHGI -- Its a Chinese company that makes carbon used in batteries.
ReplyDeleteThere you go.. gold at 1392+
ReplyDeleteI expect gold to trade to 1396 or so... but not too much higher. It may retrace today itself.. I doubt that though. I expect gold to end the day around 1396 or so when NYSE close happens at 4pm. This may likely be the last chance for the longs to trim their position.
In SPX terms, I expect a dip down to SPX 1280 and then a late day rally to close green for the day.
Interesting,
ReplyDeletethe dollar just broke below its 20 sma and 50 ema and sma. Could be a fake-out/shake-out...too soon to tell.
Greg-
CHGI looks great, but its just too extended at this point ( but thats not stopping some other stocks).
That chart shows price almost 100% over its 50sma...THATS hard to sustain.
To be safe , I'd watch for a pullback on lighter volume (maybe 50% of the last move) , but if you stepped in here, you could lose 50% on that same pullback. If it really takes off upside, I apologize in advance ( it could go up and retest that high, since the stochastics is relieved from overbought a bit) but I would NOT buy it here . Bad risk/reward
Mlmt....sounds good, we'll be watching :)
After this morning's low, gold is now in a much clearer multi-day up channel which you guys were earlier referring to as a flag. I challenged it before, but it was more dubious without the drop this morning.
ReplyDeleteThe "flag" however, does NOT include the spike down low on friday, so it can easily be interpreted as a flag to the UPSIDE after turning around on that spike and NOT a flag waiting for us to continue DOWN.
Regardless, the Fed is printing. ECB is printing. Bank of England is printing. And bailouts all around. (See this morning's/week's news.).
I'm really not thinking we get a gold drop. Too many people want in this thing and the ever increasing slosh of paper needs a real (pun intended) home.
Top of that channel/flag is about 1396. If we rally above that and break $1400, then I think it is a flag to the UPSIDE and I raise my odds that last fri was the low to 50%.
I'm still core like gary and *not* betting money on the 'runaway upside' scenario yet. Just commenting and watching for now.
Poor jobs report
ReplyDeleteGreg,
ReplyDeleteSecond look (stILL WOULDNT BUY!!)..BUT-looks like it wants to go higher.
Pulled back on lighter volume and reversed yesterday. and a-b-c up would be huge %-wise , still wouldnt buy it though.
If it started down, the volume is so small, it would be hard to bail out on a sell off...again bad risk/reward
I keep hearing more and more people calling for a pull back in gold. I'm begining to think it'll keep going higher for the next 6 months and have everyone chasing it higher. Don't fight the Fed?
ReplyDeleteIf it breaks that pattern of lower lows and lower highs then I will have no problem taking another shot at it.
ReplyDelete>If it breaks that pattern of lower lows and lower highs then I will have no problem taking another shot at it.
ReplyDeleteThe tradeoff, of course, is the more certain you are of a direction by waiting, the higher the risk of the position entry and the lower the profit when you finally do. You know this. I'm just pointing it out as the reason some like me are trying to angle into things before your decision point. The contary risk, of course, is that entering earlier also means you can be wrong much easier.
In this environment with no obvious intermediate cycle low there's no other way that I can see to determine if the down trend has been broken.
ReplyDeleteI have no problem trying to pick the bottom of an obvious intermediate cycle and if I don't time it perfectly I just let the bull fix it.
But in a situation like this with no clear intermediate degree correction and no stock market correction and a clear down trending market. What choice do we have?
Sure one could just roll the dice and hope for the best but that's not really how I trade/invest.
You can sense the top in gold. USD getting beaten to the curb the last 2 days and gold is unchanged.
ReplyDeleteOne could maybe jump the gun a little bit if the HUI broke the down trend line. But that's still at about 570. At that point you might as well wait for a penetration of 580 and a clear reversal of the lower highs.
ReplyDelete@greg Watch what the popular media is talking about gold. They think it is headed to $5000. The people who think gold is due for pullback is the perma-bears (MLMT inclusive).
ReplyDelete@myself and everyone - we all see what we want to see. We all hear what we want to hear. Sentiment can NEVER be used to time entries and exits. Scale in and scale out based on whatever tool you have - be it cycles, be it moving averages, be it some vodoo.
For those who may not think what is happening is extreme: The SPX has now traded above its 10-day moving average for 30 straight day without once trading below. This has NEVER happened before in modern market history. This is not a normal merely "strong" market move. (from sentimentrader.com)
ReplyDeleteMLMT,
ReplyDeleteSo you are:
1) long gold
2) short gold
3) with low core position and waiting
?
Gold in on-dollar terms is down $20/oz today. The dollar drop is masking it. See the graphic on the left at http://www.kitco.com/
ReplyDeleteOops. That's "NON-dollar"terms
ReplyDeleteMLMT: Sentiment cannot be used as a precise entry or exit tool, but surely you are not saying that the sentiment background is irrelevant..? Or that all entry and exit tools are of equal value..? Interesting post you just made.
ReplyDeleteGary
ReplyDeleteYou have switched from focusing mainly on the dollar, as a timing tool, to nearly ignoring it.
Last focus in premium was the weekend report. Do you think it's becoming less meaningful due to euro volatility?