NDX 1-2-3 REVERSAL

The Nasdaq 100 completed the 1-2-3 reversal today by rallying above the August high. We now have a confirmed trend change on the leading tech sector.
With the dollar breaking down it’s probably just a matter of time before the rest of the market follows tech. Then we can probably expect a test of the April highs before this daily cycle tops.

62 thoughts on “NDX 1-2-3 REVERSAL

  1. Anonymous

    Hey Gary,

    I think Increasing stops is a good idea right now.

    Oil producers have been extremely weak over the last month (or more)… XOM closed negative today??? If we do go down from here, shorting OIH/ERX would be the way to go. …

    Personally, I’m still long. I’d really like to see a breakout in this sector…
    pH14

  2. GK

    Aren’t bond traders supposed to “know stuff” before equity traders? If so, notwithstanding bonds being in a bubble, what is the drop in bonds for the past 2 weeks signaling?

  3. Perry

    I dunno if i’d put too much stock in the 1-2-3 reversal thing. I mean all countertrend moves tend to take an a-b-c form so that’s all this could be. It;s one of those things that is a prerequisite to a reversal but not a guarantee of one.

  4. Gary

    There are certainly no guarantee’s but it’s hardly confirmed that this is a counter trend move. It’s just as likley if not more so that this has just been a correction in an ongoing cyclical bull market.

    The bears that jumped the gun are already paying a heavy price for doing so.

  5. Perry

    Well topping is a process. I agree with what you said in previous posts that bears should wait for confirmation, but I’m just saying you may also be jumping the gun calling this a “confirmed” trend change. Due to the scope of the fall in July, I don’t think the bull market can be “confirmed” as still alive unless the April high is beat.

    Nice blog by the way.

  6. Gary

    True we would need to see new highs to confirm the bull is still alive.

    Strictly speaking until a Dow Theory sell signal is given the primary trend is assumed to still be in place and we certainly have no sell signal at this time.

    With the dollar moving into a major cycle low I suspect the April highs will be bettered.

  7. GK

    Thanks for the link Gary. The writeup is looking for a positive correlation between equities and the dollar as the dollar heads into its 3 year cycle low. On the other hand, you are expecting the negative correlation between equities and the dollar to continue till spring 2011.

    But yes, either ways, positive or negative between stocks and dollar, gold wins as dollar moves down.

  8. Gary

    The only way stocks break the negative correllation is if inflation gets out of control. If oil spikes too high then the economy will roll over again.

    Until that happens a falling dollar is going to support asset prices.

    Simple economics 101. To many dollars chasing too few goods = rising prices.

  9. thedocument

    I would note that most of the 2000-03 bear market unfolded with the dollar either moving sideways (2000-02) or plunging (2002-03). Since early 2003, stocks have basically been an anti-dollar (liquidity-driven) play. We all know this is a very unhealthy relationship. In healthy economies, a currency generally moves in tandem with the country’s stock market as funds either flow into the country to participate or out when a recession hits.

    That said, an unhealthy relationship can’t last forever. At some point a falling dollar is going to crack our financial markets. Perhaps we have to wait for some serious inflation as Gary notes, but I believe funds will flee dollar-based assets sooner than later. That’s why I’m keeping a close eye on the bond market… such trouble will show itself there first.

  10. Gary

    I would point out that the 2000 recession was caused by the same thing that caused the 07 recession…well the thing that finally tipped the economy over the edge in 2007. Spiking oil prices.

    From 99 to mid 2000 oil rallied over 200%. Whenever oil spikes like this it shocks the economy. It then took the Fed almost 3 years to debase the currency enough to halt the bear market.

  11. GK

    Yeah – I’d tend to agree with Gary’s theory. Dollar falls ===> Oil rises ===>Consumers have less discretionary income.

    And in the US economy, powered by 70% of consumer spending, stocks follow down as oil spikes up.

    The scenarios (long term) wherein I see Strong currency, strong equity markets unfold is:

    1. US reduces its addiction to oil and alternative energy (or some other industry) powers a revolution which leads to increased job creation.

    2. US consumers cut back drastically, consumer spending falls to 50% or so of GDP, manufacturing or some other industry takes over.

    Either ways, until we have a new industry leader, I think strong currency, strong equity markets will be difficult to sustain. As to which industry powers the economy and when it will happen is anyone’s guess.

  12. RA

    Hi Khalid,

    I am just wondering if you had misunderstood the purpose of this blog – it is to ride to gold bull and not to trade fx or the stock market.
    If you do not like this approach or style then I guess you will want to leave this blog. But I must say that your comments in the past have given me insights and I prefer if you remained.
    Gary’s analysis of the dollar is for the purpose of forseeing gold movements and not for trading fx.
    I am not certain why you so vehemently disagree with his fundamentals. The Japanese govt debt is internal unlike the US. The yen is not the world’s reserve currency unlike the USD.
    If confidence is lost in the most widely held currency, then other assets globally will go up as people dump the USD hence inflation in other countries. Someone mentioned that liquidity is global and pointed out the carry trade.
    Furthermore, as the USD is debased, other countries might follow suit to compete. In this event, the USD may not drop as much against other currencies but certainly it will and good for PMs.
    For me personally, my fundamental argument is that *all* major currencies will be debased and this is good for the gold bull. Whether the USD gets debased the most and breaks below 80 or not is not so material to me.
    But Gary’s argument has been that all C waves in gold have been accompanied by crashes in the USD. Sounds like a good argument to me 🙂

    All the best Khalid!

  13. Gary

    It is a bull market after all and bull markets tend to go up 🙂

    I see CNBC is still trying to label gold a bubble. When they start finding reasons for why it isn’t a bubble then it will be time to start getting nervous.

  14. Anonymous

    TZ is getting his second lesson about shorting a bull market.

    Just needlessly throwing cash away. Isn’t that TK’s specialty?

  15. Gary

    This is why I don’t recommend shorting a bull market. The surprises come on the upside and ultimately one will just end up whittling away at their cash.

    Shorting bull markets is a strategy with a negative expectancy. Heck one can just go into any casino and get those odds.

  16. Gary

    If one tries hard enough they can find a technical reason for just about any bias.

    A couple of months ago many chartist were finding all kinds of reasons for why the market was going to 950.

    If one is only going to rely on lines on a chart to make investing decision the odds are pretty good you are going to lose money in the long run.

  17. Gary

    It’s a bull market 😉

    If the HUI and gold breakout today or tomorrow anyone who took off leverage or took partial profits shold be prepared to put their positions back on as soon as the breakout occurs.

  18. Anonymous

    Hi anon,

    I’m 0.7% short on a reasonable bet.
    The other long portion (can you do the subtraction math on that?) makes your wallet look mighty thin indeed. Sorry you can’t read well with my previous comments. Thanks for contributing though.

    –TZ

  19. Anonymous

    RA:

    Without considering any other factors, I’d say the charts for gold and silver, physical and miners, all seem to be at the top of their recent channels. So I wouldn’t fault that guy whose chart u posted so much. If it wasn’t PM’s we were talking about, I’d be selling them now. As it is, I’m watching them carefully, and holding my positions, seeing if indeed a breakout comes soon. Just my 2cents.

  20. RA

    Hi Anon 5:22,

    You said “If it wasn’t PM’s we were talking about, I’d be selling them now.”

    I agree with you there. Yet the thing is the charts by this guy is used to specifically analyse gold which is of course a PM. He calls it Gold for Bears.

    Using charts to trade PMs can get you killed – I tried but somehow managed not to die 🙂

    But my main interest here is that he has made so many wrong calls for such a long time and yet refuses to even admit his mistakes or to consider that he could be wrong. Must have lost a bundle.

    I have no problems with contrary views or even wrong views. The question is what do we do when we have been proven wrong in our calls?

    I have been wrong more times than I care to count. And I am not that smart. But one thing that has helped me is to know that I have been wrong and I need to learn and change 🙂

  21. Anonymous

    So far a Comex low volume up move since the 1238 Dec contract recent low, with equity options exp this week and Comex next week. Is it too much to ask for one more downdraft to add more leverage? LOL!
    Frank

  22. Anonymous

    We have options ex week. Monday being up is not that abnormal, but there are a LOT of metal and mining securities with *large* values of calls in-the-money.

    Starting today and going forward, not dropping to take out many of those premiums would really really demonstrate strength in this thing. (Yes..I’m aware of the strength already, but backing off for this week would be normal after such a runup).

    As for target if we get an options pullback?… I don’t think we make 1200 anymore (that wedge I mentioned last week). It’s too low in light of recent action.

    1225-1230 would be the most optimistic ‘get more on a pullback’ point I now think. And that might not happen if we breakout as gary has suggested.

    It is a bull…and a strong one at that.

    –TZ

  23. Anonymous

    Option hits also sometimes start tues night/wed instead of tues day. There is a subtle advantage since any takedown actions don’t show up until NEXT weeks COT instead of this weeks by starting them after the close today.

    Finally, since the market is so stong, any takedown (*if* it occurs) will probably be done closer to fri to safe money. The longer the takedown the more people will likely go long into it. A sharp one closer to fri and not starting as early in the week saves cash. We’ll see.

    I’d like to get a place to load up on more too like others are saying.

    -TZ

  24. RA

    TZ,

    Like you I am also looking for another opportunity to load up.
    As it is I am invested 100% of my allocation.
    But my conviction has been growing and if we do get that pullback I will raise funds from elsewhere to put into PMs.
    Please share with us your strategy to get in when the time comes. Would appreciate that.
    But chances of a pullback do not look so good though…

  25. Anonymous

    Gary_UK here.

    Just want to point out that Gary has called for Nasdaq 100 to go up at exactly the time it has hit a top.

    It is sad that he continues to post ingorantly on equities, he really has no clue.

    Also, watch the dollar rally hard in the weeks and months ahead.

    I post here because I feel sorry for those that believe he has some expertise.

    Really, he’s just a gold bug, nothing more nothing less.

    S&P down to under 900 by Nov 21st, when QE2 will induce a rally. Watch it happen, get short now!

  26. DG

    O.K. guys…the market is way overdone again. We are now very overbought at significant resistance and are not going to make it through this time. I am lightly short and hoping to add more today if they look right to me. Not large like previous posts but at least hold off any buying for now. If we break through 1130 it’ll very likely be a false “run the stops” like G has talked about before.

  27. Anonymous

    I loaded up on comex contracts about $3 before the break to new highs.

    Important for anybody buying (me included) is to watch for this spike to cause a buying frenzy (20k contracts already traded) and for things to now reverse down.

    Would be a great way to make money if somebody was now ready to hit this thing going into fri.

    If we keep going up, I’m in and holding. If we reverse back below 1258 or so I’m out with managable losses.

    –TZ

  28. Gary

    Why would you want to sell for a loss? It is a bull market after all.

    Buying high and selling low is the only strategy that can cause one to lose money on the long side in a bull market.

    Just take a position and hold on. Perfect timing isn’t needed in a bull market.

  29. Anonymous

    I didn’t want to buy a breakout (actually slightly before…which is best), but I did because of that wedge I pointed out last week:

    http://img525.imageshack.us/f/goldpic.gif/

    We are above that wedge now and if it holds the move should be explosive.

    Gary thinking this is headed up strong and predicting the breakout doesn’t hurt.

    Obviously I would have preferred to buy 1155 or some kind of pullback this week. The BIG DANGER right now (warning to all!) is a reversal of this breakout into options fri.

    –TZ

  30. RA

    Gary_UK,

    I agree with you that Gary has “no clue” on equities…which is why I take his advice on gold and avoid stocks!

    And so far Gary’s lack of expertise has made me quite a bit of money!:-)
    I will just have to stick with his “lack of expertise” and forgo your expertise and that of Wall Street’s “experts”.

    And the dollar will rally hard, once it hits the 3yr cycle low early next year. That I also agree with you!

    Looks like we do agree on a couple of things:-)

  31. Anonymous

    Gary,

    I have a stop loss on the gold contracts and will exit them on a reversal down cause I’m trading leveraged. I mentioned this before. Leveraged positions have to have an exit point.

    My core doesn’t have a stop.

    -TZ

  32. Chubby

    GaryUK has nerve (to go along with his empty wallet) for coming around here chiding G-Train.

    UK’s only down about 40% since April, if he really trades.

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