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Wednesday, September 21, 2011

THE NEXT SELLING WAVE IS ABOUT TO BEGIN

As many of you already know I expected the dollar index to put in a major three year cycle low sometime this year. The normal timing band would have been for a bottom in the spring. The recent breakout and move to new highs has confirmed that the May bottom did in fact mark the three year cycle low. As expected that also marked the top of the cyclical bull market in stocks.

It's widely expected that the Fed will announce operation Twist at today's FOMC meeting. Obviously if printing several trillion dollars didn't save the economy, then rotating the Fed's balance sheet from short-term interest rates to long-term in the attempt to hold down the long end of the yield curve isn't going to have any effect at all as the approaching recession intensifies. Interest rates are already at historic lows. 

Interest rates aren't the reason why people are not borrowing.With continued high unemployment There simply isn't enough demand for businesses to expand their operations.  The American consumer is so deeply in debt that he can't service  it. Unfortunately, we can't print money like the US government so it doesn't help us to go deeper into debt. The US consumer will not be borrowing money any time soon.

The bottom line is operation twist will be a miserable failure just like QE1 and QE2.

The stock market, and gold are now moving into the timing band for the next daily cycle low (selling event). The only question now is whether the announcement of operation Twist this afternoon will initiate a short term knee-jerk reaction higher, or whether the market will immediately continue to sell off into that next cycle low that is due to bottom sometime in the next 11 days.

I expect gold to bottom a little sooner as its daily cycle tends to be slightly shorter.

But gold also is at a critical stage. It must hold above the prior daily cycle low of $1705. If it fails to do that it will signal that an intermediate degree decline has begun. It would also signal a left translated intermediate cycle which would have high odds of moving below the prior intermediate degree bottom of $1478.

As you can see in the chart below gold began to struggle just as soon as the aggressive stage of the dollar rally began.


As the stock market moves down into the next daily cycle low and the selling pressure intensifies, this should drive the dollar index much higher. It remains to be seen if gold can reverse this pattern of weakness in the face of dollar strength, especially since the dollar will almost certainly be rallying violently during the intense selling pressure that is coming in the stock market.

All we can do now is wait to see what the initial reaction to operation Twist will be this afternoon. Will there be a temporary knee-jerk rally that quickly fails, or will the market just continue down after yesterdays reversal?

401 comments:

  1. Great commentary and charts Gary.

    Joseph Lemma said...
    "If silver negates the 2008 pattern to the upside, the highs of the years could be breached within a couple of weeks."

    It will be very interesting either way that's for sure. A moment of truth seems to be approaching for silver near term. Personally, I would love to see silver take a dump right here so I can buy more but it's just impossible to say for sure. My guess is lower, but it's just a guess.

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  2. Danno,

    My guess is lower as well, but it's exciting nonetheless.

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  3. JL--yes on opex--short night 4 me.
    tks 4 clarification.

    appreciate your poats

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  4. to lower---guess i will take highr then.

    Still think boyz want 40-41 on opex. Watch 4 break away early
    as clue to losing control.

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  5. Gary,
    Bernanke is a lame duck. He will never be reappointed. He doesn't come under political pressure. You have stated that he will fight deflation with all his might. He should see that dollar is rising and deflation is the worry. I think he will shock the market with more stimulus to combat deflation. He hasn't stopped believing his philosophy of monetary supply. I think he scheduled 2 days so he could have more time to establish support for his plans with other members. Just my humble,worried opinion.

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  6. Joseph-Our Great Teacher,

    So now PMs are going to go down? Weren't you just telling everyone here to "watch and learn" as gold goes to $1840 just a few days ago?

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  7. It is fascinating to see the level of power that Benjamin wields. Reminiscent of the power players in the Soviet Union but on a global scale. How can anyone call this capitalism?

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  8. Russell,
    I know that's what we all want to believe. I believe that myself until Jackson hole.

    With the market in freefall Bernanke refuse to turn the presses back on. A month later at the next Fed meeting with the market still under pressure he again refused to open liquidity tap.

    After listening to Dallas Fed Pres. Fisher's recent speech, it's become abundantly clear that the members of the FOMC understand the unintended consequences of further quantitative easing. At least for right now Bernanke appears to have grown a set of balls.

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  9. Beep Beep, glad to see you back Eamonn!

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  10. Above else I think that Ben is starting to get fed up (get it? get it?) of being the bad guy in the world. He will stand up and say: "Eeeeh, someone else can take this toxic shit pile we are in. You politicians, start reducing spending goddammit."

    All this talk about Ben wanting to avoid deflation and his academic background; the guy must also see quite clearly now what the previous two years worth of stimulus brought. Thats empiric research right there. I think he will take a step back and re-assess his thinking here, even if he keeps his core strategy.

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  11. with all this talk of operation twist, should I sell my TBT for a loss now? or sit it out...

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  12. This toxic shit pile (LMAO) we are in wouldn't have been possible w/o the fed keeping rates too low for too long. The easy money that politicians love was initiated by rampant paper and paper gold money creation.

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  13. Thanks Poly for your response on my previous question. If I understand correctly, you suggest buying ATM calls at IT cycle low and then as the cycle steam picks up somewhere at peak volatility (judgmental call), cash in on vega (and delta since, ATM calls go into ITM, there delta would increase from .5 to .8 or above) and convert the options to front DITM (with intrinsic value to capture remaining upside in the cycle. A followup question is, wouldn't the rotation to front DITM calls introduce more risk in case of downside price movement. The reason is delta melting, as the price drops delta melting would be faster for DITM calls compared to ATM calls. In short, if I worry about premiums due to high vega, I should switch to DITM calls, but if I worry about downside, I should be better off rotating into ATM calls. Any thoughts on this? Thanks again.

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  14. Gary,
    the physical demand for gold is exploding in Asia and Europe .That is why every time gold goes below 1800 it goes back up .I agree with you that gold could see the mid to low $1700's but it will just go back up.Physical demand only increases the more they drop the price.Look at the last month and gold has dropped down to the mid 1700 numerous time and each time it went back up over $1800 within days

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  15. Dan,

    Yes, I'm long gold. And yes, I believe that the next 7 days are crucial for silver. If these levels hold for a while and we don't see a repeat of 2008, I'm going long silver.

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  16. That said, silver holding up is a low probability event.

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  17. Gary,
    I hope for the Country's sake that you are right. If he was so decided against easing, could he not have accomplished this in a 1 day meeting? The 2 days seems to suggest that time is needed for arm twisting.

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  18. Robert,
    So does that mean that gold will never suffer another profit taking event again?

    There will never be another D-wave?

    The bull market in gold will never end?

    This kind of mentality is what gets people caught in bear markets.

    I saw it during the oil bubble. The rational was that demand from Asia would never allow oil to drop below $100.

    It went to $35

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  19. "the physical demand for gold is exploding in Asia and Europe .That is why every time gold goes below 1800 it goes back up ."

    this is a bunch of crap. There was a better story about physical demand outstripping supply when silver went to $50 but that did not stop it from dropping 30%
    Everyday there was a story about the Comex going belly up and Jp Morgan going bankrupt. It is amazing how quickly it has been forgotten.

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  20. The only thing that we know for sure is that it's *not* going to be like 2008 because so many people keep from so may walks of life constantly keep using it as a reference point. There are some rhythms which rhyme with the current charts for example in the big sell-offs in 1994 (resolved down and sideways) and 2001 (resolved sideways and up)worth exploring.

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  21. Death crosses on a few of the indutrials I follow. The market has to start to tank again.

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  22. Gary,
    Of course not. but gold is not in a bubble and sure people will take profits .All your poiints are valid but i think we will see gold over $2000 before we see a big decline you are talking about.I still go back to the physical demand--its exploding every where but in the U.S--as long as that demand stays strong gold will hold up--

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  23. JL

    still think silver $40-$41 opex;

    if blastoff comes likely after experiation--but if before they have lost control.

    someone here hates hlv and can see why but they have linked dividend to pos.

    NEM did as well.

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  24. It is possible that Benjamin might announce some effort to stabilize the European situation that would include the creation of massive amounts of liquidity.

    One man wielding such grand powers, an academic puke with no real life experience in anything but book reading. Everyone from Soros to the lowest novice investor hanging on his every word.

    If this doesn't frighten you concerning our future nothing will.

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  25. never proof can see i should but will not. sorry. lower case a health thing. my bad.

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  26. hui--tough to take down--this post shoud do it?

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  27. It might be interesting to note this is exactly where silver popped up one last trading session (on July 31, 2008) before it began to plummet. Silver popped over its 50MA, then it collapsed.

    No two charts follow each other exactly so it may not mean anything. It's just interesting.

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  28. Whether gold goes to 2000 before it profit-taking event or not will depend on where the next daily cycle low occurs at.

    I will say this though, at $2000 an ounce gold will again be stretched over 30% above the 200 day moving average. It's pretty unlikely that it will be able to gain significantly above those levels. Even if there is one more leg up the big profits have already been made.

    The real money isn't going to be made trying to catch the last penny of the C wave. The big money will be in buying the bottom of the D-Wave.

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  29. FWIW, Razvan;
    http://www.reuters.com/article/2011/09/14/silver-pricefixing-lawsuit-idUSS1E78D21620110914

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  30. Can gold rally in the face of a rising dollar?... or more like can the dollar sustain a rally in the face of an explosive final gold rally?
    Hard for me to believe that this will play out the same as 2008

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  31. still going to attempt an /es long in the 1173 area, hopefully on a kneejerk plunge.

    no positions otherwise but am suspicious of the dollar here. no one has been buying it since it peaked out. is it really just going to consolidate here for 2 weeks on such a monumental breakout?

    probably find out very soon

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  32. the big banks too big to fail. charts say problems. will helicopter benie throw them a bone or shoul i say more bone.

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  33. The dollar isn't influenced by the price of gold. It is influenced by the stock and bond markets. If stocks are accelerating down into a daily cycle low the dollar should rally violently.

    If gold can hold up in the face of that rally then we almost certainly are in a consolidation with probably one more push slightly above $2000 before the D-Wave sets in.

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  34. Actually operation twist would be a negative for banks as it would raise short-term borrowing costs and lower long-term interest rates... theoretically.

    That would squeeze bank profit margins.

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  35. Gary,

    Do you follow any of the better-run regional banks like Bank of the Ozarks and First Niagara?

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  36. I just track the banking index BKX.

    I almost never buy individual stocks.

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  37. i look at gbci a mountain states bank and looks pukey. worse than majors. i would guess many others pukey---internals pukey. i have wanted to shord but will not---that too is pukey. especially jpm.

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  38. I thought Benny and the Feds were due to perform at 11:15?

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  39. Tajir,

    The strategy is much more detailed than the explanation afforded via a blogs comments section.

    But yes your review is correct, to add, volatility swings in gold are rather high and you want to avoid sitting in calls as gold chops sideways in the latter parts of an IT cycle, as it often does once the intermediate cycle reaches the midpoint.
    As for downside risk and holding high delta, owning stock, ETF's or leveraged ETF's are a good option. It's also where the protection of cycles play a key roll, they provide tight stops for the remaining positions. Also knowing how to roll out of the initial positions towards a daily cycle top and adding back a DCL, all within the existing IT cycle is a key component.

    Big day today, to say the least.

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  40. Divergence in UUP and SPY getting wider? One of these is wrong...

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  41. less money in /dx now than at its lows at 76.6 and there has been above average selling all morning.

    going to be hard to push it lower than 76 but my spidey sense is tingling like a mofo.

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  42. The SPY charts say sell but uup says buy. hmmmm

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  43. This comment has been removed by the author.

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  44. That little doggy sure can type!

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  45. GDX advancing. Seems to be advancing more than Gold. Maybe this is what Gary was talking about a few weeks ago. HUI to Gold ratio needs to catch on...

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  46. Toby is the pen name I publish under.

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  47. question,

    if the Feb says " get lost, no operation twist" which of those will sell off faster: Stocks, PMs or Treasuries?
    I guess Treasuries..

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  48. Bank of America downgraded by Moody's.
    I wonder if Buffett still wants rich-boy taxes?

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  49. as long as europe is a mess i can't see USTs falling much further than the inflation rate.

    just bought UUP puts. nov 23's.

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  50. Gary,

    so who's the white-haired guy with glasses in the photo?

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  51. This comment has been removed by the author.

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  52. Trend,

    Dan is a conspiracy hack. I wouldn't listen to his reasoning.

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  53. Just keep wingin` `er in there Joey LOL!

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  54. Just peeking in for a moment, as Fed day is always a waste of time and energy.

    It's now clear that the "failed breakout" in the HUI that brought it back down to 585 has failed itself, and was nothing more than a shakeout. Textbook example, IMO.

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  55. Like, business partner or partner partner?

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  56. You have to specify these days!

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  57. It does look that way. Now we just need to see if the HUI can continue to hold the breakout as gold puts in it's daily cycle low.

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  58. Gary, whether we get one more little spike here for the big boys to sell into, it would appear you're anticipating a top to this int cycle this week (Week 6), which would make it extremely left-translated. Correct?

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  59. Harry, Jesus Christ,even I find that rude.

    I'll be looking for a dip to add some GDX.

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  60. I wish these pernicious expletives would cease

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  61. As long as the stock market doesn't make a higher high after the Fed meeting then yes this is a left translated cycle.

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  62. I consider all breakouts more of a range than a line in the sand. By this approach, HUI's breakout never failed.

    In fact, buying the perceived failure is one of the best trades in the book for me. Had we not been in Sept, with a 2-day Fed meeting announced weeks before (keeping people from getting involved), I would typically have raised my total risk substantially.

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  63. The setup is getting very exciting. Too bad I only have physical silver at this point. Not seeing the numbers on a screen is just not the same...

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  64. Gary,

    I thought the only reason you would ever ban somebody was if they used foul language? lol

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  65. Joseph,
    I thought you were 100% in gold 10 days ago, you sold all?

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  66. This comment has been removed by the author.

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  67. I went to an estate auction yesterday evening, was lucky to pick us some "junk" silver coins at roughly $26/ounce.

    Also scored a dandy 1847 seated liberty silver coin in excellent shape for $16. I'm not a coin grading expert, but the guides say it's worth a minimum of $250, and probably closer to $500 if I'm reading it correctly.

    Physical is great b/c you seldom get the inkling to take profits, allowing one to ride the secular bull for all it's worth.

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  68. Miyagi,

    I can add cash or go over 100%.

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  69. I would be wary of that seated dollar...

    Have you weighed it?

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  70. No, I only got one. I'll take a $16 shot with upside like that any day.

    Gimme a call in 2015-16 and I'll let you know if it was real or not after I sell. :)

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  71. I did give it the silver ping test after my bid won. Sho sounds like silver!

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  72. This comment has been removed by the author.

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  73. This comment has been removed by the author.

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  74. Lots of dimes, quarters, and 40% silver Kennedy halves, with an old Spanish coin frequently used in the original 13 colonies (dated 1788).

    That last one was the one I would've guessed was worth the most, but I was wrong. It's only worth around $70, but I paid $16. Has 26 grams of silver in it.

    Like I mentioned, I'm not a coin expert although I have been lucky. I just buy for the silver content.

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  75. DXY right at the 10 DMA (75.85). She's making me nervous here, I'd like to see a fast rebound off this level.

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  76. Trendfriend,

    No, I knew the people who's estate was being auctioned, as well as the auctioneer who's a friend that gave me a heads up. Otherwise I don't typically take too much time to visit events like that. I'm not a collector of other people's junk, just their junk silver. :)

    Yes, the dimes and quarters were in their own bags and we were allowed to peek at them. With my friend the auctioneer, I wasn't worried about getting scammed. I know where he lives! lol

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  77. It also didn't hurt that it was on a Tuesday night, not too many people their to bid.

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  78. IF the dollar fails here i'm liking that GDX trade a lot.

    stocks too.

    gold should rise as well but i feel it will be the laggard of the three.

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  79. The Sunday before the big fall from the top in silver I went to a local fair where a teenager and his dad were going to every single coin seller and offering what was at the time 15% over spot. They didn't even ask for prices, they just made offers straight away. They were clearly people who had just heard about the white metal.

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  80. Sold my TZA here, just being cautious and banking a decent profit.

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  81. Joseph,

    I wonder if they got scared out by the decline? 15% over spot, and a 30% pullback in metal put them down by almost half, right outta the gate.

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  82. Harry--
    that was a rebound! at 76.90 now!
    Was that fast enough/ or high enough for you?
    I am curious-- not being a smart aleck!!

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  83. Markets holding in surprisingly well after BAC/WFC downgrades. As I pointed out yesterday, there are quite a few BUY setups for the banks in Demark land.
    Could this be a buy the news??? And I don't have to tell everyone that if the financials catch a bid, everything else will follow.
    Here's a summary of all the Demark BUYs that are showing up:
    MS DAILY BUY on 9/20 - good for 12 days
    MS WEEKLY - Combo BUY - currently active, but needs a bullish price flip (close above the close 4 weeks previous)
    - Sequential BUY - Week 11 of 13
    GS and JPM - WEEKLY TD Combo 13 BUY this week, good for 12 weeks (3 months)
    - Also, overlapping WEEKLY BUY Setup - 1 to 4 week upside reaction starting next week.
    - DAILY Sequential BUY records today 9/21 - good for 12 days, but needs a bullish price flip

    BAC - WEEKLY TD Sequential 13 BUY is already in place, but awaits a bullish price flip
    - DAILY TD Sequential 13 BUY recorded on 9/20 - good for 12 days, and needs a bullish price flip

    General Market: SPX is on DAILY Bar 9 of 13 of sequential. This requires more downside to record, but can be erased by a SELL setup. Essentially, a minimum of 4 more days of potential downside and then we are emerging from the 1-4 month SELL window once September ends. Followed by the emergence from the 12-year SELL window come December 31 ...

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  84. SB,

    No idea, but I told the dad "That's not the right way to accumulate silver" and he just told me that it was going to the moon a a sure bet in these uncertain times so he was buying all the coins he could get his hands on. They are probably back on the market by now. Picked up 2 5 reichsmark coins for 30% under spot today. Almost no coins to be seen at the antiques market. They are being melted left and right, which means there's more upside.

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  85. Harry--Ooops-- that did not last:(
    Never mind !!

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  86. Note to self for the 27th time: go long spy when there's a tell in uup.

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  87. you said uup was a buy and spy a sell about an hour ago.

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  88. But I didn't act on it did I? And that was a hour ago. This is day trading.

    The only things on my trigger are gdx and a few regional banks.

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  89. And short spy would have been profitable for me.

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  90. Gary,
    With dollar down today already... any concerns that we get stopped out on our dollar trade if stocks rally up higher after Ben talks.

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  91. GDX is saying the top is in for today. Does that mena the market now thinks QE3= NO GO?

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  92. Deluise,

    when did I say uup was a buy?

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  93. I am an optimistic....I cannot help but think tgat tge economy is actually slowly rebounding...so stocks higher in the next 3-6 months from thid level

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  94. Daniel, only 20 mins to go before Benny and the High Priests emerge, so I think this is just pre-announcement nervousness. We'll see a more significant move very shortly.

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  95. Anyone in EUO? Any thoughts on the move today?

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  96. Regardless of his past comments, with all of the bank downgrades, it may be tough for Bernanke not to announce more easing of some kind. The dollar move may be anticipting this.

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  97. Long euo to anticipate a sell the news event? Seems like a good trade.

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  98. *refreshes zerohedge 8 more times*

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  99. I guess they haven't finished looking at the chicken entrails.

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  100. All dressed up and nowhere to go.....

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  101. Eamonn,
    you Beeped and I almost came out of my hide!!

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  102. My perennial position short eur/usd,
    long gld is looking good here.

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  103. what was it, can anybody tell us?

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  104. Fed to Shift Treasury Holdings to Longer-Term Securities in Stimulus Step

    The central bank will buy $400 billion of bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less, the Federal Open Market Committee said today in Washington after a two-day meeting. The action is intended to “put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the FOMC said in a statement. The Fed will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries. Three officials dissented, the same as at the prior meeting in August.

    Chairman Ben S. Bernanke expanded use of unconventional monetary tools for a second straight meeting after job gains stalled and the government lowered its estimate of second- quarter growth. Today’s action, dubbed “Operation Twist” by economists after a similar Fed action in 1961, may lower interest rates and avoids reprising the money creation that sparked Republican criticism last year.

    http://www.bloomberg.com/news/2011-09-21/fed-to-shift-treasury-holdings-to-longer-term-securities-in-stimulus-step.html

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  105. Burrito time again--Great call, Gary!
    (and Doc too, if you're in the vicinity.)

    Gee, looks like I might be able to get a .5% mortgage if I just be patient . . .

    Ugh.

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  106. Vonda,

    If you can be patient, you might not have to pay your mortgage at all. :)

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  107. getting long the spy here

    uup still short. we'll see how that one goes.

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  108. bot tiny qqqs options. likely day trade win or lose.

    opex goes down---just maybe silver explodes up

    4 now da boyz want 40 41 sllver

    1750-1790 gold

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  109. The Fed didn't ease as total balance sheet did not change. 400B short terms will be converted to 400B longer term. I think that is why stocks and gold were disappointed. The dollar seems to like the news.

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  110. Sad but true, SB -- on the macro level.

    For me, I should be so lucky. I could get chickens! Store my physical under their bunkhouse . . .

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  111. Huge $USD gap up move just now.

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  112. It is a rip off! The Fed has just start doing nothing

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  113. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

    Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.

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  114. The best regional banks are getting killed. The action in treasuries is gonna destroy margins. I never thought it would come to this. What a nightmare.

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  115. Deluise,
    Why would you go long stocks as they move into the timing band for a daily cycle low?

    And why would you go short the dollar on the fourth day out of a daily cycle low?

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  116. Ben (and Gary) just made me rich. It's after 12 here on the west coast, I'm turning off my computer and heading to the pub...

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  117. bot qqqs call at 2.14---sold 2.24

    take it---i likka

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  118. gary,

    because that's what i see the money doing. that can change in a heartbeat but right now that's still my take.

    tremendous hourly bar in /dx but there was less buy volume in it than then 6 hours of sell volume preceeding it.

    time will tell. definitely not going to be stubborn about cutting these loose.

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  119. It won't be long, maybe another 2 weeks before I start shorting treasuries.

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  120. on a whim bot options on aussie $.

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  121. Is it just me or does it seem like the Qs have much further to fall than S&P?

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  122. qs are have better internals imo at least now.

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  123. FOMC trades 1.3780 short SL 1.3810
    hits target 1.3650
    CAPITAL3X.COM

    7 other trades. SPY short 1212 from 4 days back closing in on target 1775.

    Try these guys out. they are brilliant.

    They give 7 trial and they have made some 1700 pips in sept and 1400 in augu and 1100 in july. It all on their performance page. over 150 clients.

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  124. SB,

    Please tell me when you do...I have an itchy finger on this one

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  125. My take,

    I understand why Gold and Silver are lower, but I don't get why the stockmarket is lower...No QE3, but they are helping the long end sort of...

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  126. Sophia,

    Long bonds need to show some weakness first, but I intend to get short. :

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  127. sophia,
    People are realizing that without outside, artificial influx help, the economic state is very weak.
    Or something like that...

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  128. Ok SB, will follow your lead

    Thanks Miyagi sensei....

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  129. Casinos now in the red, the ones I track anyway.

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  130. But Earnings seem ok so far, so my guess is dollar up, stocks up, Gold down, treasury down...
    Just because we are going to come very soon to the realisation that it is not as bad as feared during the summer

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  131. We might get the last good buying opportunity in miners if stocks can puke out into the first week of October and bring them down some.

    Get your buy list ready and stay patient. I'd love to see 2 weeks of lower stocks while miners drift lower in sympathy.

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  132. Sophia,
    stocks are weak because the dollar is rallying. There is no true productivity in the global economy at this time. The only way for stocks to rise is by debasing the currency.

    Since the global economy is rolling over into recession that is unleashing deflationary forces. In a deflation the value of currency rises.

    Stocks should have roughly 5 to 10 days before they bottom. That would suggest that the dollar is going to rally for the next two weeks.

    This is the period that is critical for gold. It must hold above $1705 during the next two weeks.

    You are making the mistake of looking in the rear view mirror. as the economy slides deeper into recession those earnings are going to evaporate. The stock market is starting to price that in.

    The fact that we couldn't even get a decent bear market rally suggests that this is going to be one of the most devastating bear markets in history.

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  133. The best bank in the country is now down 4.6% and possible retesting very important support. Congratulations Benny B, you just destroyed the freakin yield curve.

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  134. Gary,

    don't you have a list of favourite stocks to buy at the bottom?

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  135. Lower trendline of bear flag on the Nasdaq is around 2500, a daily cycle low should break the lower trendline of this upward channel I would assume, and possibly spiral below the august low.

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  136. And silver just went negative on the day. Wow. Talk about an underwhelming performance.

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  137. sophia,
    What Gary said. He types quicker than I do.

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  138. The markets are either going to put in a new low and stage a serious bear market rally marginally higher than the 200sma, or things are about to get really bad fast.

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  139. Joseph,
    I suggest you just buy a subscription if you want to know what I'm doing with the model portfolio.

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  140. WW,
    You said 3 weeks ago markets go down after Benny or Bammy speak. Right again.

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  141. Ok, I will after I let go of the latest gold trade. Let's see how this goes.

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  142. Thanks everybody for your answer...Miyagi san, I think that Gary has a machine that type when he speaks, that it why he is beating you!

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  143. Buying back my short gold and silver ...need to sleep tonight

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  144. This announcement is extremely unexpected in that it decapitalizes the banks. Does Bernanke really want to undo so many months of debt monetization? I'm either extremely confused or things are really, really bad. Like six sigma bad. :)

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  145. Notice how SLV's stochastic indicator was moving up out of oversold but is already rolling over again. Not a good sign.

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  146. Sophia,
    Rule number one:
    Never, never, never, never, never, never short a bull market.

    The surprises come on the upside and it's also getting late in the cycle so your potential gain by shorting gold and silver is small and would require you to time a perfect exit.

    If you want to short something short the stock market as it drops into its daily cycle low. At least there you have the cyclical trend in your favor.

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  147. Miyagi,

    Take a look at a daily of the Nasdaq, its locked in a perfect upward channel and reversed at the upper trendline, if this channel breaks to the downside, which I cant see it not happening at this point, any chance of a bear market rally i would say may evaporate. I guess we will have to see how this DCL plays out.

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  148. yyyyyeah i got stopped out of those longs on the new low.

    looks like ol' deluise got straight moded today. might try once more in the morning.

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  149. sophia,
    Nah, Toby types with 4 paws.

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  150. Ok Gary...will do...
    Closing for the day...have a good evening all!

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  151. Nasdaq lost the 10sma, still holding the SQQQ, added more today before Ben dropped the news.

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  152. ibkr never sells off on extreme down days...

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  153. Gary, your analysis is continuing to make me a better trader. Thanks for sharing your thoughts with us.

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  154. Again, gold looking strong here. This could go either way.

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  155. Thanks Gary,

    I wanted to buy GDX yesterday. I wanted to sell UUP this morning. I wanted to buy UUP this afternoon. I managed just to sit tight in my appropriately sized UUP position thanks to you.

    Best,
    Le Fou

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  156. If we enter into a period of stagflation the only thing that will gain in value is gold...

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  157. Hack -

    That's what I have my money on.

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  158. There will be nothing stagflationary about what's coming.

    We are in a major deleveraging process the same as the 30s. Barring the government printing enough money to mail every man, woman, and child a check for $100,000 we are facing a severe deflationary period ahead.

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  159. Check deflation during the thirties, it was very low and short lived. FDR eliminated it immediately upon taking office by cranking up the printing presses.

    The nominal value of things we want (bought on credit) will go down and of things we need (bought with cash) will go up.

    The only reason Ben isn't initiating another QE is that inflation is high and rising presently. And that is the official inflation number which anyone with half a brain knows is bullshit.

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  160. As measured in 1980 the current inflation rate is right around 12%.

    The official numbers by month (CPI-U): 2011 1.63% 2.11% 2.68% 3.16% 3.57% 3.56% 3.63% 3.77%

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  161. http://www.kitco.com/ind/Conner/sep212011.html

    what's the deal with Toby Connor?

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  162. Gary said...
    Toby is the pen name I publish under.

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  163. No argument with the current real inflation rate, but it's about to change.

    The CRB is headed down into its three year cycle low, and the stock market will probably put in one of the worst bear market legs down in November in history.

    The global economy is rolling over into what will almost certainly be one of the worst recessions/depressions in human history. That is deflationary.

    You are making the same mistake that almost all humans make. They project the past into the future.

    I can assure you our impending future is not going to look anything at all like our recent past.

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  164. I think Ben has a better handle on the future inflation rate than either of us and he has decided to worry about inflation. Beleive me, he will do everything within his power, which is substantial, to prevent deflation. It has been the obsession of his life.

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  165. Stagflation means that imported goods will cost more while stuff we export will be more expensive to other countries hence low demand. Wages will remain flat to lower and inflation will grow. This happened under Carter, it is happening now. And just as with Carter, we are in a leadership crises which will be easily remedied in 2012. Right now we know that Obama's economic experiment has failed. ObamaCare, SOX 404 and DoddFrank will be repealed, then we will pick up the pieces and resume our normal course to prosperity.

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  166. "As measured in 1980 the current inflation rate is right around 12%."-High5

    Sounds about right. And Benny will always print more, even if he takes a breather every now and then. It's script, and the $ is already worth far less than people believe, and 12% a year starts to wake people up.

    I also agree we'll see some of Gary's deflation. As far as the inflation/deflation debate, it'll depend where we look.

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  167. For example, food can skyrocket while real estate declines. Either way, it is very good for metals.

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  168. Whether it's massive inflation, or deflation with the Fed onlyprinting more confetti to burn, gold loves both scenarios.

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  169. Nice call on the dollar Gary.

    With a deadlocked congress, 3 FED dissenters and seemingly the last bullet fired, and the Europeans following each other over a cliff, the logic call now is the dollar.

    Gold still can go either way, never to be discounted, but it's now a wait and see. It will need to produce the results but will certainly have dollar headwinds.

    Stocks, well they have shown they can not move forward in the weeks of this new IT cycle. They are certainly headed much lower by the end of this cycle, likely significantly lower. Looking to add the 2nd short position now in very short order.

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  170. Thanks Harry, I figured but the fake picture really just threw me off. who is that guy - looks like my uncle after thanksgiving dinner!

    Well said Gary. I think your second to last word is where the meat is at. RECENT is important, because there are numerous sovereign debt crises to compare to (ie almost all nations have been through them, just not at the same time - other than 1930/1). the question is how can countries differentiate themselves and who will emerge as the front running power. It has to be the producer countries and or countries with hard assets.

    for one thing, i don't want to be holding paper when the music stops, but i agree over the near term USD is the place to be.

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  171. Depression/inflation are not mutually exclusive. Check Weimar Germany and Zimbabwe if you doubt this.

    There are many other examples but photographs of these periods show that times were not very peachy and inflation rates were scary high.

    Remember that US annual deficits are now 1.5 trillion plus and climbing higher as the economy slows. If anything we have the opposite of deleveraging because this same over leveraging is occuring throughout the world by sovereigns.

    As inflation climbs the governments expenses skyrocket while revenues drop, causing greater deficits, more money creation (borrowing), etc.. Bernanke is walking a tightrope.

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  172. Actually gold is not a one-way street. In a deflation the purchasing power of gold increases but the nominal price can drop sharply.

    We experienced this during the deflation of 08 and 09.

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  173. Poly et al,

    Thinking of shorting the SPY or QQQ's with a portion of my stash that's currently in el dolar. Any ideas? A chance of a snapback rally tomorrow?

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