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Monday, January 31, 2011
Saturday, January 29, 2011
REGRESSION TO THE MEAN
All markets are subject to the forces of regression. Newton's basic laws of motion; Action and reaction.
At current levels both the S&P and Nasdaq 100 are stretched further above the 200 day moving average that virtually any other time in the last 10 years.
Not surprisingly the further a market stretches in one direction the harder it snaps back in the other once the forces of regression gets its hooks into the market.
The Fed is exacerbating this process with their constant meddling in the markets.
The flood of liquidity unleashed by Greenspan and Bernanke from 2002 to 2007 in the vain attempt to abort the bear market was directly responsible for creating the conditions that led to the market crash of 08/09.
The rally last April was pushed much higher than it would normally have risen by the forces unleashed during QE1. The end result; the correction when it finally came was much more severe than it would have been normally, even including a mini-crash in May.
QE2 has now driven the market even further above the mean than in April. Unless the law of action and reaction has been repealed we should soon see an extreme regression to the mean event .
I believe the Fed has put into place the conditions that will bring about the end of this cyclical bull market and usher in the next leg down in the secular bear.
During the next 3 months we should see the dollar begin to collapse down into the 3 year cycle low unleashing the currency crisis we've been expecting. This will drive a massive surge in inflationary pressure that will poison the fragile recovery and send the global economy back down into the next recession. A recession that should be much worse than the last one as it will begin with economic conditions much weaker than in `07.
The last time the Fed did this it produced a brief period of prosperity by creating a real estate and credit bubble. We all know how that ended. This time I expect the party to last two years tops, which means this cyclical bull should top by March. In their ill fated attempt to get something for nothing the Fed is going to cause a currency crisis and a massive surge in global inflation.
The price we will all pay when the house of cards comes crashing down again will be multiples more expensive than last time.
At current levels both the S&P and Nasdaq 100 are stretched further above the 200 day moving average that virtually any other time in the last 10 years.
Not surprisingly the further a market stretches in one direction the harder it snaps back in the other once the forces of regression gets its hooks into the market.
The Fed is exacerbating this process with their constant meddling in the markets.
The flood of liquidity unleashed by Greenspan and Bernanke from 2002 to 2007 in the vain attempt to abort the bear market was directly responsible for creating the conditions that led to the market crash of 08/09.
The rally last April was pushed much higher than it would normally have risen by the forces unleashed during QE1. The end result; the correction when it finally came was much more severe than it would have been normally, even including a mini-crash in May.
QE2 has now driven the market even further above the mean than in April. Unless the law of action and reaction has been repealed we should soon see an extreme regression to the mean event .
I believe the Fed has put into place the conditions that will bring about the end of this cyclical bull market and usher in the next leg down in the secular bear.
During the next 3 months we should see the dollar begin to collapse down into the 3 year cycle low unleashing the currency crisis we've been expecting. This will drive a massive surge in inflationary pressure that will poison the fragile recovery and send the global economy back down into the next recession. A recession that should be much worse than the last one as it will begin with economic conditions much weaker than in `07.
The last time the Fed did this it produced a brief period of prosperity by creating a real estate and credit bubble. We all know how that ended. This time I expect the party to last two years tops, which means this cyclical bull should top by March. In their ill fated attempt to get something for nothing the Fed is going to cause a currency crisis and a massive surge in global inflation.
The price we will all pay when the house of cards comes crashing down again will be multiples more expensive than last time.
Friday, January 28, 2011
Wednesday, January 26, 2011
The "PLAN"
I've posted a trading "plan" for the precious metals sector in tonight's report for subscribers.
DIVERGENCES ARE BUILDING
Warning signs are starting to build. To start we have a Dow Theory non-confirmation. Usually this is a sign of distribution.
Breadth is diverging. This often happens at intermediate tops.
Emerging markets have failed to make new highs.
China, the driver of global growth appears to be in a bear market.
Oil has now broken the pattern of higher lows. The odds are high that the oil cycle has topped.
Throw in the fact that the current daily & intermediate cycles are stretching and the risks are very high on the long side at this point.
Breadth is diverging. This often happens at intermediate tops.
Emerging markets have failed to make new highs.
China, the driver of global growth appears to be in a bear market.
Oil has now broken the pattern of higher lows. The odds are high that the oil cycle has topped.
Throw in the fact that the current daily & intermediate cycles are stretching and the risks are very high on the long side at this point.
Monday, January 24, 2011
50% PLEASE
I've noted in the nightly updates that gold is now deep in the timing band for a daily cycle low. My best guess is gold should tag the 38% Fibonacci retracement before bouncing out of that short term bottom.
However the stock market still hasn't moved down into it's yearly cycle low yet.Both gold and stocks are now due for a major yearly cycle low. This is a much higher degree correction than a daily or intermediate cycle pullback. So the corrective moves in both gold and stocks should be very severe. I would be very surprised if both don't correct at least to the 50% retracement.
Notice on the gold chart how the rally out of the yearly cycle low in the dollar halted (temporarily) the C-wave rally in gold.
The dollar is now moving into the timing band for another short term bottom. I expect the rally out of that coming bottom to drive the final leg down in gold and to power the move down into the yearly cycle low for stocks.
While I fully expect gold to bounce off the 38% retracement I doubt that will be the end of the correction. A yearly cycle low usually has to do more damage than that, especially if it's coupled with the massive selling pressure of stocks also moving down into a yearly cycle low.
Those that want to speculate could enter precious metal positions at around $1325, but be prepared to get stopped out if gold dips back below that point next week on it's way down to $1290.
Personally I'm going to wait until I think the stock market has bottomed before I'm ready to jump back into heavy positions.
However the stock market still hasn't moved down into it's yearly cycle low yet.Both gold and stocks are now due for a major yearly cycle low. This is a much higher degree correction than a daily or intermediate cycle pullback. So the corrective moves in both gold and stocks should be very severe. I would be very surprised if both don't correct at least to the 50% retracement.
Notice on the gold chart how the rally out of the yearly cycle low in the dollar halted (temporarily) the C-wave rally in gold.
The dollar is now moving into the timing band for another short term bottom. I expect the rally out of that coming bottom to drive the final leg down in gold and to power the move down into the yearly cycle low for stocks.
While I fully expect gold to bounce off the 38% retracement I doubt that will be the end of the correction. A yearly cycle low usually has to do more damage than that, especially if it's coupled with the massive selling pressure of stocks also moving down into a yearly cycle low.
Those that want to speculate could enter precious metal positions at around $1325, but be prepared to get stopped out if gold dips back below that point next week on it's way down to $1290.
Personally I'm going to wait until I think the stock market has bottomed before I'm ready to jump back into heavy positions.
Thursday, January 20, 2011
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