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Thursday, July 12, 2012

TOO CLOSE TO CALL

Is it a bear market, or is it a bull market, that is the question.

On one hand Europe is obviously in a recession. China is slowing dramatically, and the US economy is clearly in stall mode at best, and slowing rapidly at worst. That alone would suggest that a bear market has begun.

On top of that, the S&P broke through its daily cycle trendline today (although it did manage to rally back before the close).






A break of the trend line usually indicates that the daily cycle has started its decline into a cycle low. If this turns out to be the case, then this cycle would have topped on day 21 which gives it quite a few days to move down into the cycle bottom. (Average daily cycle length trough to trough is about 35 to 40 days.) If it does turn out that the cycle topped on the 21st day then there is a strong chance of testing the June lows at the next cycle bottom. 


As a matter of fact I think if we break below the June 25th half cycle low it will indicate that the intermediate cycle has topped and we should break below the June bottom if not during this daily cycle then probably a sharp break below that level during the next daily cycle.


On the other hand there are quite a few bullish signs that are popping up.


For starters this is an election year. Does anyone really think that the politicians won't pull out all the stops to try and keep the economy and markets inflated until the election?


Next; the advance decline line managed to make a new high even though the S&P was still 3% below its 52-week high. As Jason Goephert at sentiment trader.com has pointed out, this has almost always lead to new highs. As a matter of fact Jason noted that since 1940 there have been 13 similar occurrences and all but one led to the market making new highs within 3 months, on average within 18 days of the advance decline line breakout.




Another positive is that the CRB's rally out of its three year cycle low appears to be consolidating in a bull flag in preparation for another leg up. If stocks are caught in a bear market then the CRB should be rolling over rather quickly.




Oil is also resisting the short-term weakness in the stock market and appears to be consolidating the initial $10 thrust off of its intermediate bottom, and preparing for another leg up.




A different but related vein of thought is the US dollar index. Today was the 16th day of the dollars daily cycle (average duration 18 to 28 days). Which is just to say that it's getting late enough in the cycle that the dollar should start to move down again any time now. And a major concern for bears would be any move lower by the dollar as risk assets tend to trade inversely.


An even bigger concern is dollar sentiment. It's currently at levels that have generated intermediate tops almost without fail in the past.





The fact that we still haven't seen a left translated daily cycle out of the dollar makes me think that the dollar still has an intermediate decline ahead of it. Considering that this week would be the 17th week in an intermediate cycle that usually runs 18 to 25 weeks and there's a good chance that this sentiment extreme is going to force an intermediate top as soon as this daily cycle runs out of steam.

A possible negative is the fact that gold seems unable to gain any upside traction in this new intermediate cycle. If the CRB has formed a three year cycle low why isn't gold generating any upside momentum?

If gold were to drop below $1547 it would indicate that a left translated daily cycle is in progress, and as many of you know a left translated daily cycle often indicates that the intermediate cycle has topped as well.

Another negative is the fact that mining stocks as represented by the GDX ETF did move below their prior daily cycle bottom. The one small sign of hope is the reversal today, which if it holds above the May lows could indicate that miners are just moving through a 1-2-3 reversal and this was just the #2 test of the lows.



Of course we won't know whether this is in fact what is happening until miners either break below the May bottom or move back above the June high. For the bulls the S&P needs to move above 1375, The CRB must generate another leg up, and gold must make a higher high by reclaiming the $1622 level. Those are the bullish lines in the sand.


For the bears they need to see the stock market drop below the half cycle low of 1310, The CRB must break downwards out of the consolidation, and gold has to drop below $1547.


I think the appropriate position for traders at the moment is to stay in cash until we see which one of these lines are going to be crossed first.

62 comments:

  1. i do not see this as a #2 retest for the iners, it is a#1 retest. It seems for now the best mining index to use for the wave count is actually SIL. It clearly had a five wave move up and now a 3 wave ABC down, with A and C being equal in length. It shows better that this is the first retest, and we are seeing what we should be seeing on a retest in terms of the indicators and volume.

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  2. I think this is a very good and quite honest post Gary.

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  3. A 1-2-3 trend reversal has nothing to do with EW.

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  4. GS, you covered a lot of the psychology of the market at mo.

    Lots of consolidation patterns there...complex market indeed.
    Negative undertones across the board but without necessary capitulation(crb,oil,gold,miners).
    AND where does consolidation lead us to ? ...the sidelines..hmmmmm?
    Safety is scared money...waiting for confirmation....even if you miss the first 5% move...still ok.

    Otherwise useful blog entry.

    Need to answer the Q: what will light the fire to ignite the markets in those areas which have clouds/ ? hanging over them ?

    China, QE, FED/ECB, USD ???

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  5. Feels like the bullish scenario will win out, retail have been taking money out of equities and into bonds, nobody likes commodities, everybody loves the dollar, NOONE likes the EURO..
    Maybe one more decline to suck them in..and the Election rally kicks in...
    European indices feel like they want to move higher..notably DAX

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  6. The real line in the sand for GOLD seems to be closer to 1525...
    http://www.screencast.com/t/2JeXfbQIenf4

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  7. http://www.bloomberg.com/news/2012-07-13/singapore-s-economy-shrinks-as-europe-turmoil-constrains-exports.html

    Gross domestic product fell an annualized 1.1 percent in the three months through June from the previous quarter, when it climbed a revised 9.4 percent, the Trade Ministry said in an e- mailed statement today. The median of 14 estimates in a Bloomberg News survey was for a 0.6 percent gain.
    Pay particular attention to this.

    Today’s Singapore GDP report is based on advance estimates that are computed largely from data in the first two months of the quarter.

    By all estimates things got significantly worse in June compared to May. China may be landing really "hard".

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  8. EMINI/TNA



    http://traderjoed.blogspot.com/

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  9. Gary,

    I like your analysis. One indicator I would like to point out to you is the ratio of SPX / Mid, or SPX/russell 2000 or even spx/value line (geo). The relative performance of small mid caps to large caps is declining steadily, and diverging from large cap in general. This is usually quite a good predictor of underlying trend change. I do agree that SPX can make a new high before crapping out. Unless mid-small caps start to take part, we will fail in the coming 6 months.

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  10. http://www.321gold.com/editorials/moriarty/moriarty071312.html

    Nice article discussing the imaginary gold and silver manipulation.

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  11. I've been trying to tell this to the conspiracy nuts for years. They never listen.

    They need their excuse for why gold doesn't do what they want it to do in the time frame they want it to do it.

    In reality it's just one of the oldest scams in the book. Blame a scapegoat if the market doesn't do what you predict it will do and redirct subscriber anger to someone else. That way one never has to accept the blame for making a poor call.

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  12. Agreed Gary. Priceless quote from the article above....

    People shouting at the top of their lungs about “NAKED SHORTS” in a piercing shrill voice are doing nothing but advertising their ignorance. There are naked shorts and just as many naked longs and it simply doesn’t matter. The primary purpose of the exchange is to determine price, not move commodities around. If you look at the news and see record high temps in Iowa and buy a corn contract, you don’t really want the corn, you are merely speculating on the price of corn. The last thing you want is to have a railcar of corn dumped on your front lawn. If you sell a contract of corn, likewise you don’t expect someone to demand you show them your garden in the back 40.

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  13. Gary/Toby,

    I'd love to hear if you agree w/ most of the points of the following article.

    I believe you do. Starting around Point #10 in the article, do you think gold would drop because of the dollar strength or resist it due to the Euro collapse?

    Thanks Gary!

    http://danielamerman.com/articles/2012/FranceC.html

    ReplyDelete
  14. At the moment gold is locked in a triangle consolidation. It's anyone's guess as to which way it will break.

    But I think if the dollar continues higher gold is probably going to droop at least in dollar terms. It may make new highs if the Euro is your currency.

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  15. Bravo..Saif/Gary..your incredulous attitude, self interest, naivety and disdain serve but one purpose.
    ....support of the CB's and BB's. You are both servants of their cause. Reality check...mind your own back yard.

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  16. LM,
    If you can argue behind the logic of that article's numbers then you might convince someone. Otherwise you are making senseless objections.

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  17. In a world of infinite digits...one man's beliefs does not make an argument with validity.

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  18. This comment has been removed by the author.

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  19. Hello Gary,

    I found the KGC ABX news intriguing. While having zero info on KGC, I wonder if miners like KGC are attractive for takeover targets at this moment of PM market conditions. Thanks in adv for any input!

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  20. SW,
    Mining is such a risky business that I rarely ever by individual stocks. If one sticks with the ETF's they never have to worry about company specific news triggering a large gap down.

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  21. Thank you so much Gary for your advice. Sorry I had to delete the first comment as it was a double by accident. I know how much you hate that. I apologize.

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  22. "If one sticks with the ETF's they never have to worry about company specific news triggering a large gap down"

    That's why Gary invests in GDXJ wich is down 50% in 6 months

    ReplyDelete
  23. This comment has been removed by the author.

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  24. Silver is still holding $26 support but both Public Opinion and COT positions are extremely… and I repeat extremely negative.

    The current mood, based on sentiment surveys and COT futures positioning is lower than at any point in 2008. I am bearish on almost everything, including the overall global economy, but the worse that the news gets the more money will be printed and that I why I continue to hold Silver (not exit the market) and also purchase more whenever it sells down lower.

    One thing I find interesting is how close Silver is to its downtrend line (chart above). Obviously majority think support at $26 will give way, so I understand the bearish outlook quite well. Technically, I think Gold and Silver could break down, even if its only marginal break. Having said that, if Silver wanted to break upwards, it would only take a week to do so and move above the downtrend line... and breaking it bullish would all of a sudden flood the market with longs chasing really quickly!

    Just something I've been thinking about...

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  25. Pibe,
    And if we were in buy and hold mode then we would have lost a lot on GDXJ. I noted the top last Sept. and we avoid all of the decline and still managed a 9% gain during the time GDXJ dropped 50%.

    Not great since we mistimed the entry on the last trade but still way better than gold or stocks over the last year.

    ReplyDelete
  26. Tiho,
    I tend to believe everything is going to come down to the next Fed meeting. If we get QE3 then the bear will be delayed, The CRB will continue to rally out of it's three year cycle low and gold will break upwards out of the consolidation triangle.

    If Bernanke balks then we are probably in the early stages of a new bear market, The CRB will roll over fairly quickly and gold will break down out of the consolidation and move down to test the 2010 consolidation zone.

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  27. 9% gain? Can you please explain how you calculate that "gain"? I remember when you took a big loss on TVIX then another huge loss on GDXJ (with last entry near 24 and selling near 18) on top of another huge loss on SIL and another loss on GDX. All of them "safe" ETFs. Gary I understand that you are trying to sell subscriptions but(as an ex-subscriber) I realize that you are a terrible timer and most of your positions are under-water. Just please be honest and admit that your system does not work.

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  28. If you were a subscriber then you know that TVIX was only a 10% position so the loss was only 5% of total portfolio. You also know that we held through the draw down and exited at a much better level than the final bottom. GDX was actually 15% above the June low when we exited.

    You would also know that we were up almost 30% before hitting the cold streak.

    We've given back a chunk of those gains during this volatile period but still up over the last year.

    ReplyDelete
  29. LM,
    What kind of argument is that?
    His beliefs have nothing to do with it. He gave you pretty good figures about how losses were impossible for anyone.

    ReplyDelete
  30. So what is your side of the theory?

    According to US GOVT CPI increased by about 35% over the last decade.
    But we know that is crock.
    The real number is closer to 100%.
    Not price of commodities, retail price which includes rents/housing food etc. Although many commodities are up more than that, retail price is generally up about 100% over the last decade. Hell I will use 200% here just for fun.

    Gold had increased about 700% (trough to peak)
    So what you are saying is that Gold outperformed REAL inflation by over 500% and that was despite exceptionally high level of manipulation?
    Seriously? Exactly how much did it need to outperform inflation by for you to believe it was NOT manipulated? Or more importantly not successfully manipulated?

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  31. Saif,

    U really need to stop being so one dimensional(ur looking for an argument). Its not good for your health or your wealth.

    “Central banks stand ready to lease gold in increasing quantities should the price rise.”
    - Alan Greenspan 1998.

    Why...bcos the present monetary system is at stake. Infinite digits ensure that mandate is met. They care not about trillions....as we well know when they counterfeit.

    Numbers indicate an unsuccessful attempt to manipulate. Seems incongruous with the intention, but the only other choice is sound money and less govt. Heaven forbid we ever get to that point. They cant stop the bull market but they CAN try to keep the fiat game going. Also, Banks are back stopped by the govt. and bcos they act in tandem they have the ability to front run ( an illegal act based on inside information).
    By capping the gold price (govt) the banks are able to trade out of their positions. Simultaneously the Govt keeps the currency of choice in play.

    You are looking for evidence to support your beliefs/logic and challenge anyone who does not agree with you. Join the dots ....and open your mind.

    Mine is not to convince you of what may not be clearly evident (kept out of public view and behind closed doors). Every one is entitled to believe as they wish.

    The disguised USD debasement is proof of the ascendancy of Gold and the treacherous actions of the govt. That very same ascendancy is manipulatd.

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  32. Gary,
    Do you consider the Royalty companies any different from individual miners Vs. ETF's?

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  33. Definitely better than an actual miner but you still have management issues to worry about.

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  34. If I remember correctly SLW ran into this issue not too long ago.

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  35. LM,
    Maybe it is my poor English, but "argument" does not always have a negative connotation. I wanted a rational explanation for your belief.

    Actuallt the numbers presented by me and the article I linked are so compelling that they will force anyone to the second argument which is "Yeah...it is clear the central banks did not succeed, nor did the big banks lose money by being short Gold in the 1980's but the INTENT is what matters!"
    So u agree that if they tried they have been unsuccessful...broadly speaking and hence the price is more or less accurate....that is all I care about. AS to what they intended to do....I do not have divine knowledge, that only comes with a membership of GATA.

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  36. For what it's worth the statement by Alan Greenspan.

    "Central banks stand ready to lease gold in increasing quantities should the price rise.”

    was taken out of context, as so many are by GATA in order to fit their agenda.

    Greenspan was talking about the pre-1971 period when the dollar was backed by gold. During that time the price of gold had to be managed to fit the money supply.

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  37. Gary, thanks for the quick reply.

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  38. Agree or disagree?

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/13_A_Clash_Of_Two_Systems_On_A_Global_%26_Historic_Scale.html

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  39. No, they have NOT been unsuccesful...no govt in the world can stop this bull run, no matter how BIG they are.

    Their intention is to intervene, to cap or restrict the advancement not stop it altogether. In any other market where the govt, its CB and primary dealers "collude to distort pricing"...its called MANIPULATION. Pretty simple..yeah.

    "Success" is measured in the continuation of the fiat system NOT in %%%% or $$$$$. This is not a math class..this is the worlds monetary system that's at stake. Got that point...?

    How can the price be "accurate" if it is not allowed to function (via discovery) under normal market conditions ? Again ..still with me.

    Those are the critical points that U have failed to recognise. U cannot separate intention, actions, achievements...for that becomes misleading and leads to false conclusions.

    I see what u r attempting to do here...but I have demonstrated clearly what is truth as opposed to heresay. U are looking for validity to "others" work,combined with ur number extrapolation....
    WRONG....The formula,premise and conclusion....all of it. Clearly U havent done your homework. Stop relying on others to justify your cause. Think for yourself and moreover dont put words into my mouth.
    U have all the trademarks of someone who has an agenda...who works in the financial arena...
    more specifically a BANKING INSTITUTION...read protecting ones interests,diverting attention and shifting the blame.
    I stand to be corrected.

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  40. Looks like someone has been reading my posts...ty Gold Lion very timely.

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  41. LM lol. That was quite entertaining. Gary you should charge for the entertainment for this blog's comments as well.

    So u r saying that the continued that the continuing existence of the fiat system is a victory?

    I use references to other articles when they more eloquently explain my point without me having to do the hard writing work.
    Just like the John Hussman article, where I had originally on this blog stated why QE is doomed.
    Three weeks later John Hussman wrote something (quite beautiful actually). From now I will always reference his article. Does not mean I did not reach the same conclusion through an original thought process.

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  42. "I use references to other articles when they more eloquently explain my point without me having to do the hard writing work"...ok..
    what's more approp.is whether the cart is dragging the horse here...you find the article(s) and thrust it forward as your concept. That's lazy and commonly referred to as plagiarism. Btw..Sarcasm is the lowest form of wit...true colours are coming to the fore now.

    I am more concerned with the ultimate destruction of the fiat monetary system (which is inevitable)than to continue to make a mockery of your ridiculous attitude.

    If we have manipulation of the world's default currency then by simple deduction everything priced using that currency doesnt reflect true value. That is notwithstanding every thing else I said above.
    Keep reading...worst it will do is educate you.

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  43. LM,
    I think your comments are better suited to another fanatic's website.

    http://fofoa.blogspot.ca/

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  44. This comment has been removed by the author.

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  45. Pointless... bcos you still wouldn't understand Gold or Silver.
    Stick to trading ...safer for you (have more chance of losing less there).

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  46. Reality is ultimate arbitrator of who is right. We will find out.
    This is in reference to the fiat money system. Gold and Silver can and will over longer periods of time go up.

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  47. Reality is... u wouldnt know intervention if it slapped u in the face. When it arrives for u it will kick ur default/deflationist butt...and the short synthetic positions that u hold.

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  48. And if that happens I will lose my 10%. I see myself extremely glum at that prospect. BTW how much have Gold and Silver miners lost over the last few months? Oh but those are not real losses right, because they are caused my manipulation. And of course all of it will be recovered 10X.
    Like that idiot John Williams who believes inflation is running at 15% per year and we have been in recession for most of 30 years. I am sure I will not know intervention until it kicks me but your tin hat is informing you centuries in advance.

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  49. No, I understand intervention (just like Gary does - even though he contradicts himself (intervention = manipulation)..and a few others understand it too) and have acted accordingly.
    Losses are a factor of entry points and are realised only if u choose/forced to bail (like gary did last week)in a drawdown. I have conviction and NO Leverage and can sleep peacefully knowing that the greatest secular bull market will take care of my interests. Whether that comes next week/month/year/decade I am not phased. I am comfortable holding phys AU and AG (insurance)and miners (options into the bull market).
    No synthectic crap, no etf bs...ultimately someone will be left holding that baby...& that will be the retail investor. MFG was just a warm up.
    I'm glad you now realise that the deflationary bets that u have in place may not be the winning bets after all. AND that Gold shows how bad the manipulators are in not only debasing fiat money (11 years and counting) but also that it will take ongoing efforts on their part to restict its upside.
    Bend and twist the truth all u desire..as long as you keep in mind that...
    Intervention is ur enemy.

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  50. No it might be your enemy, I prefer a lower price on my purchases.

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  51. Gary -

    I'm sure you already know that the CRB index has broken north of its consolidation.

    For what it is worth, several of the grain commodities that are included in the index are under upward pricing pressure due to drought conditions, not the least of which is corn, which reached an all time high today of $8/bushel.

    My point is that the CRB might not be the best indicator at this time of where this thing is going to break because of obvious extreme influences that don't affect the non-ag commodities.

    Food for thought . . .

    SS

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  52. Gary -

    I'm sure you already know that the CRB index has broken north of its consolidation.

    For what it is worth, several of the grain commodities that are included in the index are under upward pricing pressure due to drought conditions, not the least of which is corn, which reached an all time high today of $8/bushel.

    My point is that the CRB might not be the best indicator at this time of where this thing is going to break because of obvious extreme influences that don't affect the non-ag commodities.

    Food for thought . . .

    SS

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  53. SS,
    This is what happens at major cycle lows. Events unfold to drive the trend change. If it wasn't the drought it would be something else. Notice how oil is also developing upside momentum despite oversupply and decreased demand.

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  54. So Gary -

    The gold pennant is coming to a vertex - and it doesn't appear to be trending either up or down much.

    Ever see a pennant that didn't break one way or the other at the vertex?

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  55. I'm more concerned that gold is 14 days into its daily cycle. It should begin moving down into a cycle low soon as should the stock market.

    The risk is that gold will form a left translated cycle and this is only the second daily cycle in the intermediate cycle.

    Basically gold is now at risk of entering a left translated intermediate cycle and taking out the Dec. low during the next daily cycle.

    However the CRB has clearly put in a three year cycle low so I have no idea why gold isn't following the rest of the commodity sector

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  56. The pennant has broken - to the upside.

    ReplyDelete

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