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Saturday, October 15, 2011


As many of you know who have read my work in the past, the dollar put in a major three year cycle low back in May. It has been my expectation all along that the rally out of that major bottom would coincide with another deflationary period and the next leg down in the stock secular bear market. So far this has been the case as stocks topped in May at the same time the dollar bottomed. 

After a 15 week consolidation the dollar has initiated its first powerful thrust up out of that major bottom. As you can see in the chart below the rally out of a three year cycle low generally lasts at least a year and turns the 200 day moving average back up.

I've also noted that once the rally out of a three year cycle low rises above the 200 day moving average, it shouldn't dip back below that level, at least not for the next year to year and a half.

Sometime in the next few days the dollar will put in a daily cycle low and bounce. My expectation is that it will either bounce off of the 200 day moving average or bottom slightly above that level. It's what comes next after that bounce that is absolutely critical.

Bernanke is now about to make the most important decision of his life. The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would  facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years. That is the correct decision. It is also a very hard decision because it will lead to severe short-term pain and undoubtedly another depression on the same scale as 1932.

However if Bernanke chooses to kick the can down the road again and continues his failed policy of monetary debasement then  the dollar is at great risk of forming an extreme left translated three year cycle.

For those of you that are new to cycles analysis, a left translated cycle is generally associated with a bear market. Left translated means that the cycle tops in the front half of its cycle timing band. In this case any top that forms prior to 18 months would signal a left translated three year cycle. Furthermore the more extreme translated a cycle is the more severe the decline tends to be, simply because the cycle has a lot more time to move lower.

If Bernanke decides to avoid short-term pain and kicks the can down the road again with further currency debasement, then the dollar is at great risk of having already put in the top of this three year cycle.

The unintended consequences of a three year cycle that tops in only four months are, to put it mildly, horrendous. That would indicate that the dollar is going to head generally lower for the next three years culminating in a hyper-inflationary event at the next three year cycle low in 2014.

The next couple of weeks and months are going to be of grave importance. The dollar needs to find support at the 200 day moving average and resume moving strongly higher. That would of course put pressure on the stock market and probably terminate the current bear market rally somewhere around the 200 day moving average (roughly SPX 1270ish) before the next leg down begins.

If however the bounce out of the now due daily cycle low is weak and the dollar rolls over quickly and moves back below the 200 day moving average then all bets are off. Stocks could even rally back to marginal new highs. However that would also guarantee that the CRB has put in its three year cycle low and we are now at the very beginning of an inflationary Holocaust.

If Bernanke makes the wrong decision then gold is on the verge of moving into the bubble phase of the secular bull market. That being said gold should still experience one more move down in the next couple of weeks as the dollar rallies out of its impending daily cycle low. After that, everything hinges on Bernanke's decision whether or not to continue his failed monetary policies.


  1. Gary,

    Thanks for the detailed explanation.

    It almost sounds like some kind of strangle might be worth consideration.

  2. Gary,

    Good weekend post. What I take away from it is anything could happen.

    Better get and hold onto some metals/miners if we get a dip so you can afford those $40 Big Macs abroad!

  3. In 08 we seen the dollar rally out of a 3 year cycle intermediate low and then roll over into the next low at pretty much the same amount of days the we are witnessing now. The dollar retraced to the 50 day moving average slightly higher than the 200 before resuming it's rally. The current 50sma is right above the 200 and slightly below Friday's low, it's likely we see the 50sma tagged on Monday and a reversal day put in. BTW, in 08 the market was trading sideways while the dollar blasted out of the 3 year cycle low, when the dollar pulled back and bounced off the 50sma and resumed it's rally the market began to tank. If the dollar bounces violently off the 50sma this bear market rally in stocks may end sooner then later.

  4. WW,
    Thanks for pointing that out.

  5. provocative post but i don't agree that the US will ever be in a hyperinflationary scenario. that's not how our monetary system works and i don't correlate QE with "money printing" to the degree most people seem to.

    though i am confident that over time they will continue to weaken the dollar (and all currencies) to slowly erase all this debt. perhaps at times the inflation rate will get out of hand but again, not in any "hyper" sense.

    that said, i think this dollar rally will continue.

    /dx daily with 233 & 1597 day MAs with effective volume equivalent in the subgraph.


    big/herd money has decided that this break is for real. if the EV fails the 233 day, then yes we're in for a brutal drop. but i think we see 81 first, at least. /dx tapped its 233 day on the nose friday and the news AH was then that the US would be diminishing its role in the IMF/euro crisis.

    not to mention that there is no reason to print right now


    as we are not experiencing deflation at all, let alone anything like 08.

    time will tell. for now fairly confident the dollar puts in a new high (81+) but these rallies seem to be getting weaker and are definitely getting less relevant as the currency war escalates.

  6. I'm not really sure one can use the "it's never happened before so it won't happen this time" argument.

    Housing had never collapsed before but it did this time. The global credit markets had never imploded before but they did this time.

    History is crystal clear. Never in the history of the world has a country come back from a 100% debt to GDP ratio. If one factors in SS, Medicare and off balance sheet items like the last two wars it's more like 800% of GDP.

    Just because this is the United States doesn't mean the laws of nature don't apply to us. Rome was the greatest empire the world had ever seen and yet they couldn't defy the laws of nature either.

    The unfortunate fact is that we have now gone past the point of no return and a depression is unavoidable. Our only choice is whether it will be deflationary or hyper-inflationary.

    I think the the next month or two will tell us which it will be.

  7. The EUR will stay weak and might collapse, that's what FED is waiting for so they can start printing without driving USD to the ground. The assumption that a QE3 will somehow ignite a 3 year long crash in the dollar, well, I'm doubtful.

  8. Continual monetary debasement has triggered a 10 year collapse in the value of the currency.

    Why would a continuation of the same policies all of a sudden have a different outcome?

    Isn't that Einsteins definition of insanity. Doing the same thing over and over but expecting a different result?

    The Fed has debased the currency aggressively since 2001 and it created a housing bubble, credit bubble and $147 for a barrel of oil. It seems a little illogical to all of a sudden expect the same policies to deliver a different result.

  9. BTW the value of the dollar against the Euro is meaningless. It's the value of the dollar compared to commodities that is the determining factor as to whether we experience severe inflation.

    If the Fed and EU debase at the same pace the dollar index could remain stable but the price of all commodities could skyrocket in both currencies.

  10. Gary

    good post--with Presidential elections coming up next year i doubt very much Bernanke and Obama will let the markets tank...the democrats want to get re-elected and they need at least the stock market to keep going up--the Fed will print money as that is the only thing they can do.
    From john williams

    The root source of current global systemic instabilities largely has been the financially-dominant United States, and it is against the U.S. dollar that the global markets ultimately should turn, massively. The Fed and the U.S. Treasury likely will do whatever has to be done to prevent a euro-area crisis from triggering a systemic collapse in the United States. Accordingly, it is not from a euro-related crisis, but rather from within the U.S. financial system and financial-authority actions that an eventual U.S. systemic failure likely will be triggered, seen initially in a rapidly accelerating pace of domestic inflation—ultimately hyperinflation.

    The financial markets still are roiled by deepening crises of confidence in the U.S. dollar and in the long-term outlook for U.S. financial, economic, systemic and political stability. For those living in a U.S. dollar-denominated world, regardless of any further near-term extreme volatility in the U.S. dollar—in either direction—versus the stronger major currencies and gold, the stronger currencies and precious metals remain the fundamental hedges against what lies ahead.

    Massive, fundamental dollar dumping and dumping of dollar-denominated assets could start at anytime, with little or no further warning. With a U.S. government unwilling to balance or even to address its uncontainable fiscal condition; with the federal government and Federal Reserve standing ready to prevent a systemic collapse, so long as it is possible to print and spend whatever money is needed; and with the U.S. dollar at risk of losing its global reserve currency status; much higher inflation lies ahead, in a circumstance that rapidly could evolve into hyperinflation.

  11. The largest obstacle blocking a one world government is the existence of the United States. It has to fall. The event can be postponed, but not indefinitely.

  12. Great report, Gary. Have always wondered why people say it couldn't happen here. Seems to me that at the end of the day, part of the hyperinflationary route is psychological and what people believe/perceive about the relative value of goods and money. What I've come to appreciate by looking over history is the seemingly never ending succession of generations who basically think the folks before them were unsophisticated and/or crazy. Human nature is what it is. It certainly hasn't changed in the last few hundred years. Why are many so sure that it has now?

  13. for those who like fundamental correlation (or causation for true believers) here's an interesting take by Zero Hedge on the latest surge in euro. And why it won't last.

    The last 2 weeks have seen the paradox of just how ugly the European funding and liquidity situations have gotten, on the one hand, confirmed by the blow out in French bond yields (the French-Bund 10 year spread just hit an all time record yesterday) as well as continuing deterioration in credit spreads across core European nations.

    Yet, on the other hand, the euro, especially in that critical pair the EURUSD, has seen one of its most explosive rises in recent history.

    Deutsche Bank explains that a pervasive European, though mostly French, scramble to procure liquidity at any cost by dumping various USD-denominated assets, has been erroneoulsy interpreted as a risk on signal.

    Europe (the French) are selling Dollar Assets to get Euro cash.

    Having sold the Dollar assets they need to sell the Dollars and buy Euros to meet Euro liabilities. The EURUSD goes up, fooling the robots to buy stocks.

    Bottom line ZH takeaway: "Expect all of this to promptly, and very violently, correct once the market understands what an idiot it has been in the past two weeks."

  14. I don't understand how recession wipes debts unless it is bankrupt companies not paying debt and the lenders writing it off.

  15. Exactly. Default is one way to service debt.

  16. FYI in case anyone is interested. My new job is in pharma so I've become interested in the possibilities of other realms of investing heretofore unknown to me...



    I think in another article the Bayer CEO said he's looking at $2.5 billion a year in sales.

    From another article:
    "Warfarin (Coumadin) is the most frequently prescribed oral anticoagulant, the fourth most prescribed cardiovascular agent and the overall eleventh most prescribed drug in the United States, with annual sales of approximately $500 million."

  17. So how does a depression cleans debt?

  18. And will hyperinflation cause high interest rates?

  19. Sounds like were talking about Biblical type stuff, like the "year of Jubilee."

    In Wiemar Germany, if I recall my history, debt was eliminated in big chunks when those who held any assets in marks were liquidated by hyperinflation. Farmers did OK, they just kept growing food and selling to those with something to trade or gold/silver. The poor and indebted did well, as their debts became tiny and they lived paycheck to paycheck anyway. The middle class of savers was crushed. The rich who "knew the signs of the times" and invested in gold/silver were megarich after this thing was over. If I understand correctly, your $100,000 signature loan looks smaller every day in a hyperinflation, and nobody will loan money at any reasonable rate. Interest rates would have to skyrocket, as everyone wants to borrow $100,000 that morphs into $1 million tomorrow. Am I remembering correctly?

  20. PS Please feel free to correct my mistaken thinking if that is the case!

  21. I have to agree with Robert. You don't need any cycle analyzis to determine what is going to happen next year being an election year. Ben is going to do what he did at the end of QE3. Pump up the stock market.
    They do not want another 2008.

  22. Interesting stuff if you take the time to read it.


  23. What's going to happen is going to happen.

    With or without Ben Bernanke.

    I should think that fact is elementary.

  24. Gary, great post. And nice follow up discussion. Regarding Weinmar, I've read it argued once that it can't happen now because of the bond market, which is far larger than the stock market. I'm not smart enough to know if that's true or not.

    I also wonder, too, if China slows (or worse implodes) due to a) low demand for products in the US/Europe, and b) over building/heating/lending, way beyond demand needs (empty buildings, towns, etc.), then I wonder how the falling price of copper/oil will dance with the falling dollar - sort of like a massive reboot of the entire financial system - the price of 1 bbl of oil is how much, if no one is flying, building, or driving? - type thing.

    I also watch with high hopes that cycles work here. In the interim, I remain a trend follower.

    There are just too many people on the planet, is the root cause of this all, in my view. Compare to 100 yrs ago, before electricity, gas-powerd auto's, etc. Just coal and horse manure was all we worried about. What will the next 100 yrs look like?...

    Time for a beer.

  25. Great post,

    Ben will be under tremdous pressure to kick the can and that complicates his decision.

    Why do I feel that if both choices were clearly defined right in front of as "This is the right choice" and " This is the wrong choice" that Ben would choose the one labeled "the wrong choice"?

  26. We won't know, which way Ben will turn, as political winds are blowing at him from both directions. It just depends on what he chooses as his final legacy.

  27. I don't Bernanke cares about the upcoming election. Obama does and that's why he is pushing his jobs program. The GOP will shoot down any form of stimulus because they don't want him reelected, but that's just politics. He will try to throw it back in their faces next fall, politics again.

    Gary, won't Bernanke just raise interest rates if it looks like inflation is getting out of control or do you think it will be too late?

    Paul Volcker in the late 1970"s raised rates to control inflation pretty much ensured Carter would not be reelected.

  28. We've already had gasoline go from $1.60 to almost 4 dollars again. A barrel of oil went from $35 back up over $100. If that wasn't enough to get Bernanke to raise rates how much inflation do we need?

  29. Gary, unfortunately I think we all know what Bernanke is going to do
    :( If gold has an up week next week and stalls at the 50% retracement at 1720's and then has a violent correction down to low 1400's the bubble phase very well may get started as this would be following other bubble fib formations that have occured in recent years.The trouble I have in reconciling such a scenario is that the bubble would probably end much sooner than 2014. It may well be a good time for some major old turkey holding if this scenario unfolds, and that will be a tough thing to do.I will have to write my price targets down and study them every day to avoid selling early:)

  30. Given the choice, and there are only two stark ones, he will choose hyperinflation over deflation, since HI favors the big banks & 1% elite who controls most of the wealth. Deflation will kill the big banks, as well as Obama's re-election chances, and since the choice between hyperinflation & deflation is ultimately a political one...HI it will be.

    So the risk of a deflationary spiral that goes out of control is too great (at least from Bernanke's perspective) - he will print to prevent that from happening and try to maintain some semblance of "order". (See his famous helicopter speech).

    Other factors such as bailing out Europe (i.e., Wall street banks exposed to euro sovereign & bank debt), while a sideshow to the main event, also favor printing.

    just my 2 cents

  31. No Sunday night surprise In the metals

  32. I would not assume that Bernanke's employers care one bit about Obama's political future. If his handlers cared about Obama, they would have taken the pain early in his administration and not have shot their load so early in the romance.

    Nor do they seem to care about the social unrest and hunger that commodity inflation has caused and is causing.

    Benanke's actions to date suggest that they care primarily about preserving the system for their short-term benefit. Operation Twist is consistent with Bernanke's mission - as it generates fee income for primary dealers as debt is rolled over and over and over.

    Keep short rates low and generate a lot of fee income for the bigs. What else can Bernanke do for them in the current political environment with protests and with Republican candidates calling printing "treasonous"?

    I'm guessing that things will have to get very bad (deflationary, lower stock prices), before QEIII.

  33. Operation twist raises short term rates and lowers long term rates which squeezes profit margins of the banks.

  34. Perhaps this stock can be shorted to zero.


  35. In a high-inflation environment, caused by too much money, profit margins can get squeezed just as interest rates are rising and P/Es are falling.

    But in a hyperinflation, which is caused by counterparties refusing to accept the currency, stocks rise because it isn't about profit margins or earnings, it is about assets.

    I don't think there has been a hyperinflation in history where stocks didn't rise dramatically (as well as PMs, commodities, real estate and any other real asset).

    I believe the end game is hyperinflation. However, Gary has convinced me that before that hits, there could be a period of squeezed margins and compressed valuations. So there will be a time to sell stocks, and then be ready to load up on them (and PMs) before the hyperinflaton hits.

  36. The equities market is headed to the moon, starting now.

    Hedge funds will now collectively "let" the market rise, just so Occupy Wallstreet doesn't get out of hand and morph into something dangerous.

    A strongly rising market fixes all problems - economy, jobs, protests, etc.

    And so it shall be.

    The inverse is also true: A massively declining market will cause many economic and societal problems thru a negative feedback loop. George Soros explains this via his theory of reflexivity. http://www.smartcompany.com.au/the-intelligent-adviser/20100712-george-soros-theory-of-reflexivity.html

  37. "The equities market is headed to the moon, starting now.

    Hedge funds will now collectively "let" the market rise, just so Occupy Wallstreet doesn't get out of hand and morph into something dangerous."

    The equity markets explosion from the March 2009 lows has not created jobs.

    Rather, an equity explosion to the moon coupled with no jobs being created is the perfect recipe to make occupy get even angrier with the rich getting richer and them still getting no jobs.

  38. gary,

    can oil fall back to 1990's price $40?

  39. .....inflationary Holocaust.....
    sorry Gary but that is just bad taste !

  40. But as far as the markets are concerned, I would like to share some observations from friday. It is important for me to point out that as opposed to most blogs and professional services that charge for their opinions and usually give you two opinions and subsequently claim the best one post history. I present my view, it is merely a view but is a focused one. I have never found that I can make money in the markets by flip flopping…I don’t have time to waste doing that…either I am wrong or I am not. In the case that I am wrong, I want to determine it early and manage that condition proactively...the most effective tool for proactively managing risk is proper allocation.

    Hence, my view and posture has not changed at all since my last post…the market was SOLD by institutional traders especially into the short squeeze at close on Friday. In fact, it looks to me like the primary activity in the markets has once again been a roller-coaster of leverage becoming de-leverage…longs became shorts after blowing out of their trades and now they are blowing out of their shorts. In addition to that, you have all the asundry liquidations by the various insolvent and liquidating financial institutions around the world. With all their crazy derivative and leveraged risk positions this does not imply that asset prices must go down...and can indeed imply quite the opposite. The most ridiculous thing is that NOW that we are above that trendline…most will likely look at it like a breakout which will likely further their whipsaw. I am quite confident that this breakout will be a retest overshoot and thus a failure.

  41. Gary,gold is going to start to trade in yuan/renminbi on the hong kong exchange how will this affect the dollar vs the yuan??

  42. I believe the tables have turned Mr. Powers

  43. Gary

    Just to check the #'s. We need >77.56 for a swing low on USD? Then the fireworks should begin.

  44. The dollar made a lower low this morning. A swing can't form today.

    It sounds like you are preparing to leverage a short trade. I would strongly recommend you don't.

  45. i can still see /gc getting up another $20 here with the bearish case remaining valid.

    seems to respect its 610 hourly MA fairly religiously, currently at 1706. expect it to test this eventually but not sure at what price.

    added 3 shorts since 1645 at around $15 intervals. will add my last at 1705 if it gets there.

    similarly first SDS long added on the close friday, will add to that at /es 1230 (got up too late this morning)/45/60 or when the 233 day is grazed, currently 1267.

    this morning /es hit both its 89 and 1597 day and repulsed hard. and it did hit a marginal new bounce high so the jan-may '08 analog would predict a down to around 1160 followed by a rally back up to the 233, then dowwwwn. if we're in the macro 'deflation scenario' which i think currently has the best odds, if only just barely.

    nice /dx bounce but nothing proven yet.

    seemingly nothing to do today otherwise (for me at least), good luck everyone

  46. St Deluise,

    sold Nasday on Friday night...of course not really happy this morning when I saw 20 points on my face, but now we are back to where I sold it and it is Opex week, so it could be a nice trade

  47. "It sounds like you are preparing to leverage a short trade. I would strongly recommend you don't."

    Thanks Gary.
    Le Fou

  48. Gary

    Nope. Just asking a question. Nice try.

    Your reports have been focusing on the dollar and I was just trying to follow along.

  49. Gary so do you think that dollar is going to make another low or double bottom at todays lows should do it ?

  50. no green on my screen, except tza

  51. Apparently I have been "savaged", got out of both AAPL and GOOG, knowing they may go higher. But don't want to risk losing.

    Savage-style: manage your risk and the profits will take care of themselves.

  52. Bernanke will NOT let the dollar appreciate and the market go down. That will bankrupt every States' retirement fund. Debasing the dollar and creating inflation is part of his Housing fix... 50% inflation will inflate the value of housing... and fixes the upside down mortgages. Of course the unintended results will be ignored.

  53. The dollar is set up nicely to form the swing low tomorrow.

  54. /gc at wedge trendline support now. /dx just needs to break north now and i believe we can wheel out the fat lady.

  55. Gold resisted the $USD move all morning, but finally cracked. We need to see some solid follow through over the next few days to confirm the trend though, still wait and see mode here.

    In terms of probabilities, I like our current framework of a gold daily cycle top and then a sharp move into a ICL. The cycles age lends itself well to these interpretations occurring right here.

    Anybody who picked up that short SPY position on Friday as I suggested now have a solid no loss ceiling stop to work with.

    Time to kick back and watch the action, again.

  56. Agriculture stocks soon to be slaughtered.


  57. Gary, does 20% inflation qualify as hyperinflation in your worst case scenario? Or what?

    Also, do you think the fact that the latest 3-yr low in the dollar was *higher* than the prior 3-yr low in the dollar in '08 means that it's more likely to have a severely left translated cycle this time? With all the printing since '08, it did seem a marvel of financial engineering that we didn't see a lower low.

  58. Ben

    If everyone else is printing then I think that would prevent a print of a lower low ( this time)

  59. Holding SPXU (last add was at SPX 1217ish, the 75dma) and considering not taking it off unless I see that the dollar has no intention whatsoever of rallying for another 4-5 weeks. Looking to see if the dollar regains the 10sma and it supports a move higher, or fails to hold. As I mentioned in my last post (Oct 15th) I was expecting to see the dollar put in a reversal day today (looks possible), and we may see an end to this bear market rally sooner then later. The dollar's 50 day moving average has crossed over the 200, so lets see how things go from here.

  60. Anybody thinks gdxj forming Inversed H&S??

  61. W2,

    Thanks for your post...you might be very right about the dollar today...let's hope for a last woops before year end rally!

  62. What a surprise - not! (Bernanke lying) Are we going to have massive global inflation? Will there be nowhere to hide?

    "Tuesday, October 11, 2011
    Jim Rogers: Bernanke Is Lying to Us
    Jim Rogers tells it like it is.

    In the EPJ Daily Alert, I have been pounding away at the fact that no new QE is required, that the money supply (M2) is exploding. Rogers correctly points to this money growth in the clip below.

    Also, Larry Kudlow is correct in his view that the European Central Bank is likely to join the Fed in the money printing. If they do, it will be the first time ever that the world could face a massive global inflation.

    Kudlow is correct that the stock market will skyrocket under these conditions and Rogers is correct that commodities will soar.

    Prepare yourself for climbing prices like you have never seen before, to differing degrees both Rogers and Kudlow know what is coming."


  63. potential engulfing daily candle on /dx

  64. WW,

    Thanks for your continued posts... I am still long DX via UUP and short S&P via puts... waiting for the end of the D-Wave... will be interesting to see if the rally terminates and DX holds here... good luck..

  65. Gary reports coming at me from all directions, this one below tucked in a Stansberry Porter daily update with links too...


  66. Or should I have said Toby's reports?

  67. Critical point Gary,
    Debt destruction (a "when" outcome) in EURO LAND will be deflationary.
    Money printing by ECB (not if but when) will be inflationary.
    IMHO the risks of both occurring are equal.
    Concurrently, the Fed has no immediate "debt destruction" to deal with unless the first part of the EUR unfolds (US Bank exposures and contagion resulting from that).
    So, isnt it feasible to conclude that the world can have some debt destruction (deflation) with money printing (mild inflation) ?

    In that scenario, hyperinflation would be difficult to achieve when the money supply is being replenished to a marginally greater degree than it is being destroyed.

    Indeed price inflation brought about via higher import prices are a given. Perhaps inflationary trends are contained sufficiently to keep interest rates low. The endgame is a very protracted period ( a decade or two) of mild inflation and minimal growth. Ultimately real rates are zero or below. The US finds a way out (as does EUR) of their debt quagmire by a slow and relatively painless inflation. In this way it avoids the extremes of deflationary scenarios as witnessed by Japan and Hyperinflation as experienced by many nations in history.
    (I say relatively painless as more acceptable as compared to the "Hyper" alternative ...which is an extreme). One could argue that US corporates/consumers have been the recipients of an overinflated currency for multi decades. An unwinding of that position can be achieved on an economically acceptable platform over a similar timeframe.
    Just some fodder for more discussion.

  68. LM,
    You are missing the point of the article. I'm not concerned with the short term moves.

    I'm just concerned that the current three year cycle may become extremely left translated. If it does this early in the cycle it would imply a severe currency crisis at the next three year cycle low.

    I tried to explain the concept of left and right translated cycles in the article.

  69. Gary,
    Maybe you can explain why gold/silver are usually up when they trade in the Asian markets ( physical market ) and why is it that when Wall Street and London open the prices are almost always taken down.Soon Wall Street (and London) will be left in the dust while Hong Kong will set up the real value of gold. This is what the Chinese are trying to set up and with the kind of cash they have I guess I know who the winner will be!!

  70. That one is easy. The dollar is down at night and this morning it reversed higher.

    Must be the evil cartel manipulating the multi trillion dollar currency markets in order to make a few pennies off lower gold :)

  71. Good response, yea I forgot currencies are not manipulated at all--Last night AN INTO THE EARLY MORNING gold was rallying with the stronger dollar and weaker euro.

  72. So I guess that proves it's manipulated??

  73. LM, your 'stagflation' scenario is probably the most likely. Good post.

  74. "The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years."

    Even if they did stop the printing, do you think that they would allow cleansing?

    Everything that both the FED and at Treasury have done has been consistent with avoiding that cleansing.

    If you're big and you eff up, you're too big to let fail.

    If you're small and you eff up, you're a victim of predators.

  75. Yep and that's one of the reason we have a bull market in commodities.

  76. I don't think silver is following 2008's playbook anymore. There should have been a large gap down by now and it didn't happen. Although I expect silver to revisit lower prices, maybe even its recent low, to be very short silver here expecting a 2nd sharp leg down ala 2008 is becoming more and more risky. There could still be a sharp leg down of course, but every day that passes now without one makes it less likely IMO.

  77. For what it's worth I've never seen much value in trying to compare current price action to past history.

    Every period of time in the market is unique, with different fundamental driver's.

  78. LM, I think that what you describe is the best that could be hoped for ...debt destruction and slowly inflating away obligations.

    But the bailouts and the failure to enforce fraud laws against the people who profited from our ruin, will make it very difficult for government to now reconcile the unrealistically high expectations of the masses with the necessarily lowered-expectations of a stagflationary world ...even if our leaders were suddenly inclined toward longer-term planning.

  79. If we were going into this with 30-50% debt to GDP we might be able to get by with stagflation. However that's not the case.

    If one factors in SS, medicare and off balance sheet debt like two wars the US has debt to GDP of about 800%. No country has ever come back from a 100% debt to GDP ratio.

    Most people really have no idea how large the debt spiral has become.

    History is crystal clear. Every time the world creates a debt bubble it always lead to a depression. There are no exceptions.

  80. And real estate never goes down. This time might be different.

  81. This time is never different.

  82. Gary, stagflation and a depression are not mutually exclusive.

  83. Gary: "History is crystal clear. Every time the world creates a debt bubble it always lead to a depression. There are no exceptions."

    For years, I've been watching the unbelievable development of parabolas on the gold 5 and 10 year charts. The rise is relentless. The setbacks drop back to the french curve "support line".

    Why? Dunno. Just it keeps grinding along, higher. Old Turkey is the way to go, painful as it is sometimes.

    Without a single additional indicator, the two PM's would be expected to rise faster and in 3 to 4 years be double and on their way up the then steeper and finally vertical wall... and this is happening on the 5 and 10 year chart patterns. This ain't weekly or monthly; it's the real deal.

    Outcome has to be hyperinflation, not due to any argument, but it's the thing that will support the completion of the parabolic rises.

    Illogical? Yes. Real? You decide.

  84. Slumdog,

    Are you still expecting that nasty down-side movement in gold that you mentioned a couple weeks back, or have you changed your outlook?

  85. If GLD closes below the lower trendline of its rising wedge, from what I understand that is considered confirmation to take a short position (if one dares).

    $GOLD also appears to have a rising wedge, and is currently trading beneath the lower trendline.


  86. Rob, I am distracted by my biz. I fight with guys in the most gross and subtle ways, with money thrown out like nets and used as knives.

    So, stealing money or losing it in this game is for when I retire, aka never.

    It's a diversion from the tough world of cunning in which I spend most of my time.

    The S&P reversal down is still forming, last month not being an inside month. So I stopped looking.

    As to gold and silver, it's obvious that they're weak right now and respond with blood gushing just by a mild bruise, as in the USD up what 15 cents now and gold and silver gapping down in the night session. Catharsis here, as still there are so many longs at higher prices, the newbies, who need to capitulate for the market to rise without them. That takes time and the grinding sense of defeat from down markets, just what we feel here seemingly endlessly. Answering directly, I don't see any chart pattern I recognize as very highly probable at the moment, on a weekly or monthly basis. Do well. Gone on biz for 2 weeks.

  87. Isn't 1647.40 a key support on Gold?

  88. Gary-
    Let's assume yesterday marked the daily cycle low in the dollar. Do you think that also marked the intermediate cycle low at week 24 or are we on week 9 due to a short previous cycle of 15 weeks? Thanks

  89. Like I said in the weekend report I have no clue.

  90. At ease

    Yep. Any move above Yesterdays high of 77.25.

  91. Danno

    I haven't run the numbers yet, but at what price of silver will ZSL have a higher price than AGQ?

  92. SF,
    Because of the way ZSL moves, it would take many down days in silver to really get ZSL rolling and I doubt any sustained move down consisting of day after day of silver losses will happen. When silver drops it seems to drop hard and fast, not slowly over a prolonged period. For that reason I doubt ZSL will ever again be higher than AGQ. As far as what price silver would need to be at, I haven't bothered to try and calculate. Then again... never say never.

  93. On wednesday gold briefly broke out of the c-wave channel and 75sma after multiple attempts over the last couple weeks, so I reluctantly took a shot at a long position in futures with a stop below the 75sma...gold immediately reversed back into the channel and back below the 75sma and triggered my stop at a small loss. On Monday gold was rejected once again at the upper trendline of the c-wave channel and the 75sma, it is also being squeezed now between the 75sma and the 10sma which usually leads to it being popped out the bottom. As many of you know I have been bullish gold above the 75sma and bearish below the 10sma. Gold has now lost the 10sma (which is actually a break of the 20sma and daily cycle trendline also), I expect to see gold put in atleast a new low (C-wave lower trendline $1500 bounce) being it has lost the 10sma again after having regained it, which has proven to be high a probability outcome... so im going to take a shot to the short side now.

    Short gold futures at the 10sma.

  94. St Delouise

    Nice call on Gold, are you adding to your shorts here?

  95. WW

    It look it's going to Gap down a little at the open, are you going to only enter that trade if it trades back up to the 10sma?


  96. Haggerty,

    I put on the short gold futures at the 10sma on a daily, 1660.

  97. these moves in /gc from the highs seem to be on a 20 day period.

    20 days from the top, 20 day bounce.. 20 more days until the bottom? that would put a low around the 11/4-7 weekend.

    /es has to bounce hard pretty soon, the degree gold wants to play along this time should be the final tell. it's actually shown relative strength (/es dropped 3.68% from the highs to /gc's 3.55)

    one thing that's different about this move lower is that the average /gc buyer (over the last 89 days) is already -2.76% in the hole vs. 7+% in the green when the last one began.

    my bull/bear line is now the 610 hourly MA currently just below 1700.

    now if you'll excuse me there is a squirrel loose in my house.

  98. haggy, maybe around 1660. definitely at the 610 hourly MA.

    i feel like i'm already "short enough" in terms of me sleeping properly.

  99. Good morning all.

    Quiet day yesterday with no changes on my end. Still long same amount miners and short some SSO. I probably won't be making any changes today, either, though I am looking to add to miners sometime soon, maybe if we close weak today and get a lower open tomorrow I'll add then.

    SSO short is working, but I'm on day 5 today of a 6-10 setup, so unlikely to get the chance to add unless we get a late morning rip higher. In that case I'll add, but still expect to exit entire position some time this week. I'd look to add to my short around 42.90-43 this morning, but keep overall risk on this trade to 1% of total capital.

    Good luck!

  100. St. D,

    Yup, I had a 20 day lower trendline on a 5 min. that I watched gold bounce off of every time it was rejected by the c-wave channel's upper trendline and 75sma (amazing the resistance that trendline offered) When gold broke below that 20 day trendline it back tested it and then began to free fall.

  101. so do you have any add / bounce targets WW?

    i'm almost thinking we don't get any and 1648 might have been it. i'm sure the longs would like a test of the lower wedge but they might have to just take a bite and swallow.

  102. Anybody short Oil here. Why isn't it falling?

  103. /cl has been one of the heavier "stealth buys" i've been watching over the last month.

    and one of the few commodities that makes sense to accumulate.

    haven't the foggiest idea why people would sell it! it is a rare valuable thing that the entire world needs more and more of every day.

  104. Haggerty,

    Long Dec Put on oil...

  105. St. D,

    Its possible we see some sort of back test of the 10sma, but I doubt it because like I mentioned on saturday I do think the dollar put in a reversal day yesterday. I expect we will see a bounce at $1500 which is also the c-wave channel lower trendline, but I believe that bounce may only be temporary and I will expect a final bottom on or around the 300 day moving average...$1460-80.

  106. The gold cycle is clear as day IMO. We're still deep in the July 1st IT cycle and we should now start the final decent into a DCL and ICL. I say gold gets busy quickly here.

    As for equities, the cycles are ambiguous, as this current (new) daily cycle has not done enough to cement it as part of a new IT cycle, IMO. Although it's certainly an "open option". For example, the current daily failed to pierce the prior daily cycle high of SPY $122.87. With a dollar ready to turn, we should be on guard for another failed equity daily cycle, part of and possibly the final daily of a June 13th ICL. For now, i will keep riding my shorts.
    My primarily interpretation still has June 13th as the ICL for SPY. Granted there are three plausible ICL options still open, two bearish and one bullish.
    I suspect SPY will come back down to the 50dma in fairly short order and the reaction there will provide solid clues to the equity cycle puzzle.

  107. Haggerty,

    I'm also holding Dec. Puts on oil.

    Looks like oil is now dropping....down 72 pts.

  108. sorry, I meant "cents" not pts.

  109. I remember who said the SPX could hit 950 by November options expirations yesterday... But I seem to forget who said it couldn't? The D-Wave resumes today with a target of $1500-$1400 and the SPX has a date with a 9?X handle by the third week in November. I'm looking forward to seeing what kind of selling pressure comes in (margin/forced selling in gold/silver/oil) when the SPX breaks the 1100 level and weak hand longs puke them. Better buckle up folks... Uncle Bucks getting ready to open a can of whoop @ss.

  110. Silver holding strong here IMO.....for now

  111. Let me point out that I don't know very much, lol, but I noticed that with the bounce in the indexes the miners did not follow them up.

  112. Doubtful the S&P can levitate silver indefinitely if gold and PMs want to go down.

  113. S&P's only hopes for a rally (Ben) will be coming up in 45 mins-ish...

  114. ...by rally I mean a continuation

  115. Wow...if I didnt know better, Id say word had leaked of a QEIII

  116. Yep got shaken out of my shorts, Gary is probably right again. Maybe we have some more room to run here.

  117. Lunchtime shenanigans. Shorting BAC here and buying some EUO calls.

  118. This comment has been removed by the author.

  119. Wav, his speech started 9 mins ago... apparently a non event. I think its just shorts covering ahead of earnings. Euro has failed to follow through to the upside... I think its a fail.

  120. The action in European utility stocks over the last few hands is warning of severe capital impairments ahead= major war.

  121. joseph,

    would you add a little more detail on what you're seeing and how it results in war?

  122. Feel,

    They are clearly discounting nationalization or outright destruction of capital. In contrast with those in the USA, they are one of the worst performers this year.

  123. Tom DeMark Says S&P 500 to Rise Above 1250 This Week Before Dropping 5.6%

  124. Eur weakness here. Going long sqqq

  125. Joseph,

    THAT was an explanation for how it would result in war?????

    Pretty weak.

  126. quite a pop in gold this morning. lost about 3/4 of my gains! oof.

    oh well. added final short at 1660.

    /es looking tempting again, but i think i'll just hold my SDS which now is basically 0. i'll add the next piece at 1230 if it can get there.

  127. Josephs back and still hitting the pipe

  128. ckpk,

    RWE and Eon for example are pricing in huge capital destruction. I'm sorry but the "Germany utilities will have to stop using nuclear" doesn't stick.

  129. NEK Mentioned few days back. Water better than gold. Big candle day.

  130. I got pretty darn heavy , but I was buying this morning when the Miners were still in the R E D .

    I know that GDX is still in the red, but look at NAK, NG, XG, BAA ,XRA, etc these are great reversals with all the internal indicators lined up ( If we close green). IF NOT, I can change my mind, but I am also seeing

    UUP...hit the 10sma and was rejected , looks to want to close red. This is also a reversal off the top. ALSO , MACD is weak & histogram negative.

    SLV was a sideways consolidation and just regained its 10sma and 20sma...which are now support. On a 10 day chart...SLV shows me that OCT 7 had a high volume sell off, and today retested the lows and recovered (successfull retest). The ACCUMULATION/DISTRIBUTION on the SLV 10 day consolidation shows that SLV was being accumulated , not sold off and esp today as it shot up .

    SeeSLV 10day 1/2hr or 60min chart with ACCUM/DISTR

    Plus C.O.T. and $BPGDM

    This Morning I bought XG, NG, NAK, SWC, TPLM

  131. Forgot to mention that MINERS I mentioned ...

    Pull up a chart with BOTH 10sma and 20sma . The 10 is crossing above the 20sma and the stock price briefly dropped below and then recovered both moving averages.

    The stocks mentioned (SO FAR :) Have reversals and have re -traced the last move up from Oct 4th 50% or less.
    Volume buying seems to be increasing , and again $BPGDM is UBER-BULLISH

    As always, time will tell.

  132. France and Germany ready to agree €2tn euro rescue fund http://www.guardian.co.uk/business/2011/oct/18/france-and-germany-move-towards-2tn-euro-fund?newsfeed=true

  133. DOW up 120 points in 10 minutes.

  134. wow that was fast. added piece 2/4 of SDS just now at 1230.

    frightening market. dollar better straighten up here.

  135. Crazy sh... AAPL is bound to push this up higher tomorrow.

  136. wow, putting the kids in bed costed me a little fortune! what a bummer!

  137. SPY AAPL QQQ top 3 of 4 on SOS.
    Don't know what it means these days...

  138. CNBC is saying that the Guardian article is rubbish

  139. The guys over at evilspeculator.com are expecting the spy to hit 125 soon en route to 137 by year's end.

  140. This looks pretty damn desperate, and the Euro barely reacted!

  141. i'll tell you that when /es tested 1230 again it did so with less buying volume than the last time.

    i don't know what THAT means either. the action is so fast and seemingly illiquid i don't know what to make of anything. it "feels" bullish here but just looking at a chart after the fact i'm not seeing anything technically damaging to the bear case.

    i know my gold short gains have been wiped basically completely and that stings.

  142. Either the dollar straightens up and flies right here or we are in for one big s*** storm.

  143. The sqqq I put on while ago is now considerably underwater. This sucks.

  144. ckpc,

    See this?

    I don't buy the anti-nuclear explanation, and you shouldn't be so naive.

  145. Was there ever any doubt the central banks would print more money? Even if this latest story is inaccurate, digital fiat costs nothing to create.

    The ONLY reason they pretend to have restraint is to keep the illusion alive.

  146. The piece above where I wrote about SLV on a 10 day chart had a highvolume sell off on OCT 7th , and it was successfully re tested this a.m. ...and the whole consolidation sideways saw accumulation

    Here is a chart to help see it better. SORRY it looks like I drew it with a box of crayons, I'm using a different app today.


  147. I'm curious what the CFTC voted today regarding position limits?

  148. wav_ridah,

    It won't matter if it's BS, they're coming back for more no matter what. Some things never change.

  149. Hedgies live by Demark---150

    Justsold spy call.

  150. sold tna---taking biggest gains while there Usually rallies on debate day

  151. Crazy insane last 30 minute swings these past week of sessions. No one wants to hold from the looks of it.

  152. Whee! Let's ban European CDS! Is this something already priced into the market?
    Be careful here. Demark analysis is showing Daily SPX, NDX, and Russell are all recording perfected SELL setups today. This means a 1-4 day downside reaction good from Wednesday through the following Monday. GS also recording a DAILY SELL. Kevin Depew at Minyanville yesterday said "Because the 9 (for SP) is recording below TDST Up resistance at 1321.20, we should anticipate a significant reaction to the 9 once it occurs, though doubtful we will see new lows". Also Mclellan Oscillator returned to nosebleed levels today showing an overbought market. Smita Sadana, who I respect greatly, on the Minyanville Buzz and Banter also pointed out the S&P Oscilllator remained at an elevated reading of 7.5 yesterday, so is probably more today - the highest since the market decline began in August and often works as a contrary indicator. So, caution in stocks is warranted for the next few days.

  153. Coolkevs,

    Thanks for your post, it is always very much appreciated

  154. I come to the same conclusion but because of the dollar forming a swing low in the timing band for a cycle bottom.

  155. I am thinking the opposite ( Crazy HUH?)

    There's a term called "Jumping the Creek", where mkts run up to previous resistance , then sits there...while many go short. Its building cause (cause and effect)and once all the shorts are in...it GAPS over resistance and runs , then as the shorts all cover , it really runs (right to that downward sloping 200dma).

    Looking at the SPY and DJIA charts...it looks just like that kind of a set up. We're at the top of the trading range, everyone has their short positions on...we've gone sideways here for a few days to allow all to think that its a "failure" and cannot break the top...add to shorts.

    lots of bearishness.

    A Gap open tomorrow would be "jumping the creek" and the short covering would be great.
    Usually COOLKEVS is pretty on the ball, so I now feel CRAZY , but its worth mentioning...the set up is there. (UUP rejected by 20sma? Head & Shoulders? Heavy volume, closed down? MACD .weak?)

    AS ALWAYS- Time will tell :)

  156. IBM got smoked today too... Hit $190 yesterday , $170's today --time for new leadership? :)

  157. AND CROX! wow...How did the Markets close green today ?

  158. http://www.zerohedge.com/news/apple-misses

    Apple misses! Whoa

  159. could be, alex. i think we're all expecting price to hit the 200/233 day at some point so wouldn't be a huge surprise, the question is just when and at what price.

    my roadmap has been the eerily similar analog in early 08. 40 day double bottom, new bounce high, week of selling, then another 4-5 weeks of grinding up to the 233 day sma (now at /es 1267).

    so since i don't know where the 233 will be 5 weeks from now, i'm just going to scale in now since we're only 40 points away from it. current avg price 1220, will add piece 3/4 at 1245 if it happens to get up there, otherwise will put the last half in when the 233 is touched.

    if /es breaks north with authority i will be in gold!

    gold still like as a short below 1697 (610 hour sma). today was very, very trying however. avg price around 1660 and expect new lows or until november 7.

    gonna go hit my head against the wall to cool off a bit, see everyone bright and early i'm sure

  160. Instead of trying to fight with a violently whipsawing market might I suggest going to cash and on vacation until we get a recognizable cycle low in gold.

    It likely won't be this week and probably not next week either.

    Trading just for the sake of trading, or because you're bored, is usually a good way to lose money. And when the market is as volatile as it is right now it's almost a guarantee of losing money.

  161. That was some afternoon move, wow. Those types of moves generally stink of desperation. Clinging to the same old Euro bailout news 2 years later only validates our thoughts.

    Granted the swings and volatility are massive, no place to be trading in and out.

    I see AAPL disappoints when they never do, if one company can move markets, it's AAPL.

    Spain just downgraded.

    Interesting times to say the least.

  162. haha rest assured, my posting far more dramatic and overblown than my trading.

    but not going to lie, got frustrated today. bad sign.

  163. SB,

    CFTC voted 3-2 in favor of position limits. Seems it was straight along party lines. Dems in favor, Repubs opposed. No surprise there.

    Interesting posts Alex. I added some mining positions, ( very small ) when Gary bought gdx a couple weeks back. Still holding. I think for me it is best to wait on gold cycle clarity before adding anymore. I can't be watching every hour so these will be old turkey plays..I think..haha

  164. Today's passing of the position limit rule was a big deal but don't expect it to end manipulation immediately. First of all, there's a 60 day waiting period allowing JP Morgan to further close out their big short position. Second that 60 day waiting period doesn't start until after the CFTC defines the word "swap", what ever that means

  165. GLD & SLV both closed below the lower trendline of their rising wedges.

  166. Thanks for the update on the CFTC vote, Natanarchist.

    I'm not making any trading decisions on the news, but was interested and had not heard the verdict.

  167. Natanarchist

    Thanks, and I agree..if you're not in front of a P.C. all day, where you are ( holding a few miners from the past couple of weeks is best...and GOOD FOR YOU not selling into the fear).

    As for my post ( this isnt to you Natan...Its more general)

    I am not posting here as a guess or just because I'm bored by any means , I bought the OCT 4th low in Miners and went in HEAVY at 3:30 P.M. ( and as a reference, I did Email ROB L and DG and POLY , so I'm not making it up).

    Then I got out for the pullback , and I also thought maybe Gold goes to $1530 area, and Miners maybe retest the Oct 4 lows?? BUT -today , I bought at 10 a.m. and think I see the bottom of a normal retracemnt .

    I'll try to post a chart or something later. ITS just the other side of the coin...but I really feel Bullish here , not Bearish.


    I love your stuff, but you said a sell on GS today.

    I see a screaming buy!Reversed off the 10 sma and the 20 sma..Breakout with high volume.

    Tomorrow is gonna be CRAZY

  168. Alex - Are you trading the miners or investing? I bought some recently on their way down. Now I am getting the impression (Gary: $ up) that the market will drop MORE. I can hold, but would like to get some more at a REAL low price. Thanks!

  169. At some point gold will give us a daily cycle low. That's when you want to be buying.

  170. I haven't seen a candle like that in a while.
    The SPX had an outside day that closed positive.. Don't know if there is any significance.


  171. This bottom looks like the 2009 bottom in everything: vix, volume, sentiment and actual chart candlesticks.

    I bet Ben does QE3 and loses control of money velocity, and that's what the market is telling us. There's no way the dollar would be as weak as it is without money velocity soon getting out of control.

    Batten down the hatches, people.

  172. diana said...

    Alex - Are you trading the miners or investing?

    Diana- I guess it's different at different times.
    I usually have a core of Miners and trade some when I feel they are maybe 'over extended' and others may be setting up to move higher.

    Right now I bought the Oct 4th low and sold last Friday and Monday morning...Now I am back in and looking back- I see that it's possible that Miners bottomed before Gold again, If Gold is going to put in a LOW soon.

    In Mid June (16th & 17th Miners bottomed first ) I bought Miners, and then Gold bottomed around 2 weeks later with a Low on July 1.

    SO I will hold a core here IF what I am saying happens, & Miners should run well here. Tomorrow should be a deciding point...I.M.H.O.

  173. This comment has been removed by the author.

  174. So this is a couple of things inside my head at this time.

    I am always told a market rally isnt real unless financials join in (or Banks lead). Without going into chart after chart of Miners ( they look like bullish reversals) ...what if We jumped the creek tomorrow? Could it happen? Is it time?

    Banks must lead--


    Goldman Sachs looks like a breakout..JPMorgan is identical, and so is BAC


    WHAT IF...?


    We'll see, right?

  175. This is why I use cycles instead of trying to guess based on chart patterns.

    The dollar is due to put in a cycle bottom. It formed a swing low today. The half cycle low usually occurs sometime between day 15-25. The top obviously has to occur prior to that by 4-5 days.

    In order for the markets to continue higher the dollar cycle needs to continue stretching.

  176. Since i bought the OCT 4th low and believe that may have been an important low...I also believe You may have been closer to correct when you said this 9 trading days ago-- : )

    Blogger Gary said...

    Folks we should now be in a period where there's just nothing to do for the next 4-15 weeks.

    Get out of the house and go enjoy your life for a while.

    October 7, 2011 7:56 AM[/color]

  177. If you managed to buy the exact low then even if we have one more leg down you got pretty close. The A-wave will rescue your positions anyway.

    But I don't want to be buying aggressively now that the dollar has formed a swing low and gold is pushing into the timing band for a cycle low which also happens to be the normal timing band for an intermediate low.

    The early morning weakness has already broadcast what's going to happen when the dollar rallies.

    Either way I will be a buyer at the daily cycle bottom whether it occurs above or below $1535.

  178. Gold and the dollar both going down at the same time! Any comments?


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