I have to wonder, are we entering the ending phase of this cyclical bull?
For sometime now I’ve noticed the similarities between the `02-`07 cyclical bull and what we’ve experienced since March of last year. The one difference is that this time we’ve truncated the middle phase of the bull. I suspect that was a direct result of the massive liquidity Bernanke … and all central banks have pumped into the system.

Both bulls exhibited powerful moves out of the bottom followed by a 9% correction separating the second leg from the third. In the `02 – `07 bull we then entered a 2 year phase were the market ground higher. That phase is missing from the current bull.

What followed the `06 correction was a powerful runaway move into the February `07 top. That persistent rally skewed sentiment extremely bullish at the time. We saw the exact same thing develop as the market entered the runaway move out of the February 5th bottom. At it’s peak sentiment had reached bullish levels exceeding what we saw at the top of the last bull market in the fall of `07.

In `07 the runaway move led to investor complacency and severely depressed put buying. The same thing happened at the recent top in April. Investors became terribly complacent. Protective put purchase fell off the chart. The market had no safety net under it. In that condition it was at risk for a crash if investors all tried to head for the door at the same time. They did, and we suffered a mini-crash in the spring of `07 and again in May.

In `07 the initial crash low was tested and broken followed by a 2b reversal.

Recently the S&P also broke to lower lows and bottomed with a 2b reversal.

Both markets experienced volatile swings as the market put in the intermediate term bottom.

Both crashes quickly moved sentiment back to extreme levels of bearishness. In `07 sentiment turned more dour than at any other time during that cyclical bull. At the recent bottom sentiment was blacker than at any time in the last 10 years as measured by a basket of intermediate term sentiment indicators.

These kind of extreme sentiment levels are the building blocks for powerful moves. In `07 the extreme bearish sentiment drove the market into a final double top that capped the cyclical bull.

If sentiment levels are any indication we should now be set up for at least one more explosive move higher before the fundamentals final overcome this market and drag it back down into the next leg of the secular bear.

The similarities are piling up:

Initial runaway move drives sentiment to extreme bullish levels? Check!

Protective put buying dries up leaving the market with no safety net and vulnerable to crash conditions? Check!

Mini-crash? Check!

Test and 2b reversal of the initial crash low? Check!

Sentiment depressed to extreme levels of bearishness? Check!

Volatile swings back and forth during bottoming process? Check!

If history is any indication we should now be on the verge of one more explosive move higher before this cyclical bull expires and heads back down into the next leg of the secular bear.

74 thoughts on “ENDING PHASE?

  1. Fear factor

    Gary, I already have friends cashed out from the stk mkt in these few weeks. They are not convinced the stk mkt can go up with so much bad news going on. They are afraid they will suffer losses again like in 08. The images are still so fresh in their mind. Therefore, I agree with you that the public has to join in before the stk mkt tanks. That’s how is works.

  2. Anonymous

    forget stocks and forget gold (for now) and bring some lovin’ to the only bull that’s been consistent since nov last year. Ride the hated dollar it’s the only bull worth riding until after stocks implode. Gold miners are going to get SMACKED! Let’s see where the DX is in nov 2010.

  3. Jayhawk91

    Wow, 569M BOW for SPY so far, that does seem pretty hefty.

    DX does look like it will retrace then entire move back to 89.71. That is one bullish chart for sure. Funny thing is gold is not even batting a eye at the move vs. 2008.

    Listen to this great interview with Felix Zulauf on King World News. I believe this time around we may have a deflationary event that will sucker many into bonds but they will not hold this go around. Huge bull trap waiting for these types, gold is the one thing that will weather the storm.

    King World News

  4. Alex

    Ah good to see that PM are getting hit again, i am getting used to it but its no fun, If they want my money, it wont take much more and they can have it. silver down 3% with no news, great. I Know still a bull, but nothing has happend since december , so its dead money i am looking at and its getting less. I need to vent cause i got the feel there will be much more pain and my confidens is runnig away. specially with the dollar outlook which i think will be at least another 5% higher vs the euro, it all doesnt look to good for the near term. Anyhow I am not giving up yet and will buy more silver if we cross the 17,00-17,50ish line.
    At least it looks like the gap of the 25.05 in gld got closed. on the other hand its an awesome trader market wich lukyly distracts me from this issue.

  5. Daniel

    Everything really dependent on Euro Dollar trade. Would love to see the euro rally somewhat. Seems like it is due for an oversold rally of some length?

    Any updates on the dollar, (which today means the Euro)?

  6. LowTax

    Jay, it dissapears from the list whenever the SPY goes positive, which it just did – it doesn’t mean the selling went away. You then have to switch to Selling-on-Strength to see if gets sold off there. More than likely the buyers are continuing to buy as it goes positive. Good for us.

  7. Anonymous

    Sellin/shortin more yeller today…neg tech signals…
    GL fellers

    D G out…

  8. kohai

    “Just noticed the SPY buying on weakness number is no longer on the WSJ site. (It hit 579M) Now nothing.”

    Had this exact question.. @ LowTax – thank you for explaining!

  9. Gary

    No I have no desire to mess with the stock market. I’m just oging to hold on to my miners and if this does turn out to be an intermediate level correction I’m going to transfer some capital out of savings and put to work at lower prices.

  10. Anonymous

    USD looking quite strong. Ascending triangle on the daily. It won’t take much of a push to hit new 52wk highs, and gold’s action today seemed to suggest the gold/euro trade might not be enough to hold gold up, short term. Today also seemed to signal a shift toward the Risk On trade, with equities up, Treasuries flat, yen and gold down. The dollar bucked that trend to the upside.

    I know you’re in it for the long haul, Gary, so the short-term squiggles are a lot of ain’t no nevermind. Those awaiting/trading a near-term breakout to new highs need to view the action since the May high with some caution, imo.

  11. Gary

    The handle part of the patten could take a while to form so anyone expecting an immediate move to new highs could very well be disappointed.

    Then again gold could just decide to rocket higher and the nervous Nellies could get left behind never to have this opportunity again.

    Like I always say there comes a point where you just have to take your best shot and then let the bull do his thing.

    Sometimes he follows a reasonable time schedule and sometimes he does his best to frustrate riders. Either way he’s still a bull, and bulls eventually go up!

  12. Anonymous

    The price of gold is falling relentlessly. This could be the start of the massive decline foretold by Robert Prechter of Elliott Wave fame. Indeed, Elliott Wave calculations indicate that gold is in a C wave down that will not be completed until around $620.

  13. Gary

    gold is down 1.80 over night and holding above $1200. How is that falling relentlessly?

    Geez can’t you people see this is how Precther gets subscribers. He predicts the end of the world. Shock and awe.

    It makes for sensational headlines but it’s worthless for making money.

    Hell this nut can’t even match a simple buy and hold strategy. Not exactly the guy you want to follow if you want to have anything to retire on.

  14. aviat72


    Looking at Gold chart; noticed that both the RSI and MACD diverged at the recent high from the Dec high. Also noticed MACD hist turned down today.

    This leg tested the Dec intra-day high around 1225 thrice before rolling over today. The previous slide was contained at the 50 Day EMA.

    The 150 Day SMA has been solid support during this bull run, and is not too far from the 200 Day SMA. I will be watching for a break of the 50 EMA on this downleg.

    The current leg-up in Gold was driven by the Euro-fears. If risk appetite as measured by Equities, Crude etc. is returning, then Gold may take another long rest, till fear duly returns in the market, in August perhaps.

    I personally feel that the moon-shot will have to wait until the USD/US Treasuries come under attack.

  15. Gary

    Gold is late enough in the intermediate cycle that it’s entirely possible we could see a further move down and another consolidation through the summer. However trading divergences is a losing game.

    There were divergences in late 07, and again as gold was breaking out in Sept. 09.

    A great many rallies start with a divergence that eventually gets negated as the rally progresses.

    Since we can’t see the future one just has to ask themselves are they more worried about missing an opportunity that will never come around again or are they more worried about a short term draw down that will eventually get corrected by the bull anyway?

    We have a powerful basing pattern in place and gold appears to be forming the handle part of the consolidation.

    If one isn’t in and a powerful breakout occurs ask yourself if you would be willing to chase. If the answer is no then it’s probably best to just stick with the old turkey approach and sit tight with the bull.

  16. Anonymous

    These, by far, are some of the MOST accurate yet elegant and simple graphs that forecast the next 1-12 months.

    THANKS Gary…

  17. Gary

    I certainly wouldn’t put a whole lot of faith in them. They are just a guess based on similar fundamentals and sentiment.

  18. Tom

    Gary, any thoughts on the weakness in silver lately? usually silver catches up after they both get whacked, but on the recent up-move it’s been lagging behind gold and equities…

  19. Anonymous

    Gary you said you were already 100% in!!!!! Now your talking about loading up again on corrections. What’s the deal???? What % do ‘savings’ make of your entire capital?is misleading to say your all in when the fact is your not!

  20. Anonymous

    Bonjour Gary

    Je suis francais et suis votre blog

    I m french and read you website.

    Have you an opinion about natural gas ?


  21. Gary

    I just have a bit of extra capital in savings that I don’t need. It’s not a big percentage. Just extra capital coming in from the SMT.

    I haven’t really paid much attention to Nat gas lately. Energy hasn’t been the big leader of this bull (and it won’t be as it led the last bull).

  22. Anonymous

    Non farm payrolls…-226 after backing out temp census and b/d adj…
    Look people…this is a very bad number…duble big dip here we cum…
    May you trade wisely…

    D G out…

  23. Gary

    Historically these large gaps either up or down get reversed.

    Cosidering the buy signal on breadth indicators and the weekly swing low right in the timing band for an intermediate low I think the odds are good this emotional gap gets reversed if not today then early next week.

  24. Anonymous

    You guys just go ahead and go shopping or whatever to buy stox…yall have been warned…
    This is a VERY bad number and with the euro falling apart…
    Go ahead knock yourself out…
    Gettin long stox is a foolish trade here…

  25. TenYear


    You might be right, this could be the end of the world. After all, rates can’t go lower, and we can’t print money any faster.

  26. John Fuller

    Most of the views I have encountered recently are of the broad market tanking.

    Therefore I like your approach here, as it seems a good contrarian one to me. Sentiment is very bearish, so I wouldn’t expect too much downside from here.

    Also, I take a certain Pastor Lindsey Williams’ words fairly seriously. He has had accurate information from an IMF insider several times over the years – all have transpired.

    He was told in Oct last year and in Feb this year that the market will be artificially climbing to an “impossible” level till next year sometime [late??].

    So, unless his source decided to tell him something which isn’t true [as Williams is getting a wider audience now], I don’t expect it all to end yet.

    When it does, it should be a humdinger.

  27. Gary

    Since we no longer even have to cut down tress we can print money at any pace the Fed desires.

    If they were willing to destroy the dollar the government could literally print enough money to mail every man, woman & child a million dollars.

    We’ve already seen this on a smaller scale with the tax rebates and if you think it won’t happen again if things worsen then you don’t understand Bernanke.

    He’s obviously commited to the printing press and he will print.

  28. Gary

    Folks this is why some of the smartest investors in the world are heavily long gold.

    They all understand Bernanke and know that any weakness in asset prices is going to just crank up the printing presses.

  29. Gary

    He has spelled it out as clear as day countless times.

    Heck he made the helicopter speech how much more clear does he need to be?

  30. Anonymous

    And it ain’t just Benny gone wild with the printing press, but in Europe also.

    Gold is the ultimate currency.

  31. Anonymous

    And who cares if stocks go down? I think they should, if based on fundamentals (S&P), but it still ain’t a good a bet as gold going much higher.

    bonds are also due for a mean bear mkt, but it’s too early, as they are still holding LT, and having sharp moves higher like today.

  32. Anonymous

    Hi Gary,

    I dont know if this is an appropriate question for the general comments section, but i was wondering…in your Premium Reports, when you say what your holdings are, does that mean that is all you are holding?


  33. Gary

    Here are Ben’s exact words in case you don’t remember the speech.

    “What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

    I think he’s pretty clear as to what he will do at the onset of any significant deflation.

  34. Anonymous

    He better warm’em up because its coming. The big D!!!
    How those long stox doing…

  35. Gary

    Do you mean do I think the bull market is over in silver? No of course not.

    Silver is just a thin market it gets hit harder when there is general selling. Of course on the other side of the coin when a C-wave really starts to go parabolic silver goes nuts. It will go nuts again don’t worry.

  36. Anonymous

    Ole yeller showing a little bark this morning … might be taking it out of euro’s hide.

  37. Anonymous

    Dawler boy here, getting smoked in my gold and bonds short. Im’s a gonna keep on averagin’ into more gold tills I blows out!

  38. Basil

    do you happen to have links to any historic data that supports your view, which I believe is that PMs and PM stocks will prosper even during the next leg down in the stock market. Is there any data including charts from let’s say the thirties and seventies that support your thesis?

  39. Gary

    I don’t know where to tell you to find charts but I do know that homestake mining rallied over 600% while everything else came apart.

    However I think everyone is making a huge mistake to assume this will be like the depression.

    We were on a gold standard at that time. The money supply couldn’t be expanded. That is why deflation set in.

    Just as soon as Roosevelt confiscated gold and devalued the currency deflation was halted.

    We no longer have any restriction on money creation. The Fed can halt deflation any time they want by just printing money.

    It won’t cure the problems because there is no such thing as a free lunch. It will just end up creating different problems…namely severe inflation or hyperinflation.

  40. Anonymous

    Look folks…these stox are going much lower from here…94-95 first stop in the SPY…and gold will follow…jest have a little patience…looking to short bonds again through TBT…
    OMG the dawler acting like a BULL market…who would have thunk that…

    DG out…

  41. Gary

    Even during the market crash gold didn’t deflate. If you tried to buy physical during that period you couldn’t. There was none to be had. On top of that the premium was over $100 above the paper price.

    Smart money knows that any hint of deflation and the Fed is going to start printing again. They knew it then and they know it now. That’s why gold isn’t going down.

  42. LowTax

    I agree Gary. But it sure hurts to see silver crumble like that. the only short term thing to look forward to is a filling of the gap…

  43. Todd R

    Hi Gary,
    Thx for this post. It helps me get a broader view of everything. I also hope you are right.

    I was wondering what you think about this market maybe having a bottom at the 75 week moving average on the S&P. I think you have pointed out the 10 year weekly consistently bouncing off the 75 week during the last bull market. Right now it is at around 1005. It also represents a 38% retracement on the current bullmarket. I am guessing we would have some pretty hard selling at 1040 which could push this market down to 1000 in a hurry. I appreciate any thoughts you have.

  44. Gary

    Anything is possible. I think Ben is getting the message that he needs to get the dollar moving back down. Now it’s probably just a matter of when we see QE 2.

    This is why I have no desire to trade the stock market. Fundamentally we are in a secular bear. But if it’s started again Ben is going to fight it and fight it hard.

    He already aborted a left translated 4 year cycle. All the rabid bears need to remember that.

    He’s going to turn that power loose again, no doubt about it. If one gets caught on the short side when he does they are finished. And I think we all know it will happen premarket so they can also expect to get caught in a big gap up.

  45. Anonymous

    QE 2 won’t come until the DOW starts to dip into the 8000’s. I think gold will weather this OK, the miners will take a beating. I think HUI will hit 350.

  46. Gary

    But are you foolish enough to bet precious capital on it?

    Remember this is an election year. And we’ve been scolding the Europeans for a month now about letting the problem get out of hand.

    Do you really think with the response we just got to the crappy jobs number Ben and the powers that be are going to take a chance and let the ball get rolling too fast to stop quickly?

    Why take that kind of risk for pitiful gains when we all know what the ultimate repsonse is going to be and what is going to benefit the most from it?

    Don’t you think there’s a reason gold is steadily climbing in the face of a spiking dollar?

    It certainly has nothing to do with safe haven buying. How ridiculous is that? I have to laugh when I see the media try to use that as the reason gold is rising.

    Gold is rising because it’s in a bull market and everything that is happening is going to strengthen the fundamentals and just goad the bull on.

  47. Ocean Forest

    A lot of people are calling for and waiting for a return to 1200 before they’ll go short.

    This was the situation in Sept/Oct of 2008. People kept waiting for rallies to short. Those rallies never came.

    We consolidated from Nov to Jan 2009 and then again the trend resume downward with people again waiting for big rallies to short. Those opportunities never came.

    I’ve had a 100% short position for more than a month. I’ve taken profits of course. But I’m not holding my breadth for big rallies before shorting more.

    Market never does what you expect. And when I see a lot of people expecting a return to 1200 before crashing. The market might just keep on crashing without giving you any opportunity to short.

  48. Gary

    Actually the sentiment levels are more depressed now than at any time during the previous bear market. That is not a recipe for investors looking for a bounce.

    The fundamental situation is also quite different than Sept./Oct 08.

    At that time there was about 600/700 billion in debt that the banking system needed to roll over. The fact that the credit markets were imploding and the debt couldn’t be renewed is what caused the crash.

    That’s not the case now. The EU has already agreed to print a trillion Euro’s so they can kick the can down the road for another year or so.

    The bottom line is if one was lucky enough to catch the exact top and shorted with their entire portfolio and managed to hold on through all the explosive rallies (doubtful) they would be up 12.7%.

    If one had managed to pick the exact bottom in the HUI a week ago and exited at the recent top they would have made 10.7% in a mere 7 days.

    Of course no one managed to short the exact top of the market or buy the exact bottom of the mining sector so those numbers are fantasy in both cases but it just shows how hard it is to make any significant money on the short side and how easy it is to make big money on the long side as long as there is a bull market somewhere.

    As I’ve pointed out before the second worst bear market in history only dropped 58%. While many stocks went up hundreds if not thousands of percent during the current cyclical bull.

    As long as there is a bull market it just doesn’t make sense to fight with a bear.

    You do the math. Fight with a bear for scraps or get on baord a bull to get rich.

  49. Anonymous

    It doesn’t seem like the European program has been a smashing anti-deflationary success thus far. The ECB bond purchases have been a few tens of billions, and they’ve made a big deal about sterilizing those purchases to ward off imagined inflationary pressure. Seems pretty silly, but there you go. The rest of the funding, I believe, must be approved and raised by the individual governments. Further, the worst hit countries all seem to be planning or enacting strict austerity programs. Deflation seems a much more persistent threat than runaway inflation as far as Europe is concerned, IMO. The currency/bond crisis does seem to have put a bid under gold. A shame the miners haven’t reaped greater benefits thus far as the hoped-for leveraged play on gold.

  50. Gary

    I’ve said before that silver is too thin of a market to try and make it conform to patterns or any normal kind of technical analysis.

    Jsut ignore the daily wiggles in silver and remember it is in a secular bull market just like gold and you will do fine.

  51. Anonymous

    I understand, but the chart shows daily candles across a two-year timeframe, so the short-term wiggles are smoothed out to a degree.

    I’m not saying silver won’t ultimately go much higher. Tanashian’s point is the GSR appears to have put in an inverted head-and-shoulders bottom and is working its way toward a breakout, which coincides with heightened market stresses.

    As a trading proposition, all of the current pressure appears to be on the downside. If the market is simply putting in a rather severe correction ahead of a move to new highs, there’s plenty of time to trade that swing after seeing some confirmation of renewed and sustained buying interest (consecutive closes above the 200dema would be a nice start). For now, the path of least resistance remains with the bears, imho,

  52. Gary

    I would hardly say all the pressure is on the downside. We’ve seen two 90% up volume days already. One of them was a 97% day.

    For the last two and a half weeks the market has just been swinging violently in both directions. That kind of action isn’t typically a continuation pattern. Usually that is a bottoming pattern.

    I really doubt one is going to get any kind of edge by watching the GSR. Like I said silver is just too thin of a market. It doesn’t take much selling pressure at all to cause big drops. On the other hand it doesn’t take much buying pressure to lead to huge rallies.

    I’ve been at this for a long time and I can tell you I’ve never been able to successfully trade silver. I doubt 1 in a hundred people can.

    Unless you happen to be that 1 you are better off just hanging on to the bull. At least that way you are virtually guaranteed of eventually coming away with a pile of cash.

    Trying to trade silver will 99 times out of 100 just guarantee you will walk away with little or nothing. At the risk of a little short term pain I have to go with the long term guarantee and just hold on.

  53. Anonymous

    You don’t find the action of the SPX along the 200dema to be a crawl, i.e., a continuation pattern?

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