TOO SOON TO JUMP BACK IN

It’s still too soon to jump back into the precious metals sector. Gold is now due for a yearly cycle correction. A correction of that degree  should take gold down to $1300 or lower. Maybe even as low as the $1265 breakout level.

February will mark the one year anniversary of the last yearly cycle low. So we are now deep in the timing band for that correction. 

Gold is now in a down trend so perhaps it is working its way down into that major cycle low now. In order to jump in front of that trend we either need to see something that looks like a major yearly cycle low OR we need to see the down trend reversed.

As of last week gold had formed a weekly swing high.



That swing has to be reversed before gold can continue higher.

Barring a severe correction we would need to see the pattern of lower lows and lower highs reversed in the sector before it is safe to jump back in the pool.




Patience is called for right now. Ideally we would see gold continue down into an obvious yearly cycle low. If that happens we will try to enter as close to the bottom as we can.

Barring that the sector would have to break the pattern of lower lows and lower highs before we reload positions.

477 thoughts on “TOO SOON TO JUMP BACK IN

  1. Gary

    DG,
    You need to computerize your system so you can take your emotions out of the equation. You had the big winner if you would have just followed the rules. πŸ™‚

    Of course that is the problem with mechanical systems. Too often our emotions get in the way and we lose discipline.

    Unfortunately if one violates the rules they more often than not turn a positive expectancy into a negative one.

    Most of the time that doesn’t mean you turn a winning trade into a loser. It means you take profits too soon and you abort a large winner. Those large winners are critical for the system to work. You need the occasional big win to offset the losses.

    As counter intuitive as it seems violating the rules and taking a small winner will usually cause the long term system to break down.

    The Bollinger band crash trade will go from a positive expectancy and a plus 90% win rate to a negative expectancy if the rules are violated.

  2. CoreBuilder

    This site lists all the main commodities like the periodic table, and continually updates the prices. If you put the mouse on a specific commodity, it will give you a current chart. It also uses color to show how the price of the commodity is doing that day (green for up and red for down).

    http://www.finviz.com/futures.ashx

  3. Gary

    Frustrating I know.

    It’s going to be 60 and sunny here in Vegas tomorrow so I can at least get back out and go rockclimbing before I go stir crazy.

  4. DG

    Gary, you are wrong. I do not “more often than not” turn a possible gain into a tiny one when I “violate the rules” (which you don;t even know). You are just using this as a forum to push your point again. You really think your way of trading is the only way to trade. That is simply false. That is not to say that there aren’t a lot of wrong ways to trade, but you go way too far. I don’t know if you believe what you say or are saying it as a pose to encourage your readers who don’t need inconsistency or “noise” weakening their resolve. Yesterday you referred to someone using another a approach as “flipping coins” and “they may as well go to Vegas.” This is patently silly. Are you really saying that every approach that is not yours is random? Ridiculous. You may say that longer term beats trading (true for most people, but also false if said universally. Read Market Wizards) but even if true, that doesn’t make other approaches random and like flipping coins. I see the value in your consistency, but I for one feel it’s time to give the bashing everything else stuff a rest.

  5. Gary

    DG,
    I meant no such thing. I was just pointing out that you have a fully tested system that has a very profitable expectancy. If you had followed the rules as you stated them (you’ve said many times that the trade should produce at least a 1% profit 80% of the time with a risk of losing 1% 20% of the time.)

    Doesn’t that mean that you have to hold the trade until either that +1% is met or you take a 1% loss?

    Of course it has to mean that because there is no way to test the system by guessing where you might have exited. So in order for the system to work as you describe and as it was tested one has to play by the same rules as it was tested.

    Am I missing something?

  6. Brian

    DG, I don’t think it is bashing by Gary. I too read what he read. You said your mechanical system had a big win rate and put on a winning trade recommended by your program. In a later post you said you closed it out because you wanted to be short. Which is the mental thing Gary spoke about. Did your system tell you to go short or close the trade? Do you automatically close at 1% even if the potential is larger?

  7. DG

    Wes: Iposted late last night and wanted to be sure you saw this from the previous string:

    It appears to me that the shorter OEX PC ratios hve been bearishoff and on for a little while now (November was very bearish), and the 21-day has been bearish every day since late November. Below is the link for the OEX charts at Jason’s sentimentrader.com

    http://img524.imageshack.us/img524/4259/image004en.gif

  8. Shalom Bernanke

    By the way, if metals and miners close around these levels or lower today, my indicators suggest we have more downside ahead. Today should have seen a gap higher and when it doesn’t materialize it means the original direction (lower) is not finished.

  9. DG

    I do very little that is “automatic.” I also do not trade based on emotions. It happens to be the case that a signal failure most often follows the pattern that was traced out yesterday. One thing that happened was especially telling. As I believe we are going to get hit big time soon, the risk/reward was not there. I do not take the 1% gain if I am bullish, but do if bearish. It is false to assert that if you are not trading mechanically, you are trading emotionally. I have spent my entire trading life working to contain emotions so they do not screw up my trading and am quite content where i have gotten to. It is ridiculous to say that if you do not follow “rules” your trading will be based on “emotions.” Certainly if you do slavishly follow rules it won;t be, but the reverse is not true. Trading in a rule-bound way is sufficient to eliminate emotions but not necessary.

    95% of my trades are not off the system because the signals are rare.

  10. Keys

    Correct me if I am wrong, but it would seem that the slope of the 200 and for the 150 are about $25 a month. Which implies as each month goes by, we are actually correcting in the form of consolidation. Gary’s report prompted some thoughts. My position is still at 100%, so I am not one to care too much either way. But it is food for thought. The 150, which seems stronger than the 200(for the last couple years), is currently at 1300, and the 200 is at 1270. I of course rounded; I still don’t get all the penny and cents analysis so no point pretending that I do here.
    My point is the longer that this correction takes, the less severe it may become. Another month and we add another 25$ to our averages. A bird’s eye view observation, not to be tied to any timing accuracy.

  11. Avann

    DG, I like what you write most of the time but you are off base with Gary on this one. He was NOT bashing your system (how could he? … he doesn’t even know the rules) he was merely suggesting that you may not have followed your own rules and turned a winning trade into a break even trade at best. You exit post yesterday sounded like an emotional decision … we all read it wrong.

  12. DG

    What you are missing is that when the system fails it does so in one of two ways, and after tracing out a certain trading pattern, one of which happened yesterday. That reduced the odds of 1% being reached to much less than 80%. Given that I was not prepared to sit there while very bearish. And I probably would have gotten out at the close yesterday to avoid gap risk, so the lost opportunity was tiny.

    By the way, my “emotional” way of trading has me down less for the year than probably virtually everyone on this blog. I guess I’ll live with that for now. And i will make a pile on the way up. The $BPGDM reading (I know, which is “random” because it is not yours) had me ready for the correction in gold even after you had sounded the “all clear” so I “emotionally” cut back early when it seemed gold was destined to fail. I will still make a pile on the long side thanks to your guidance and encouragement, I expect.

  13. ALEX

    Corebuilder

    Thats a great link, Thanks! That went into my favorites immediately. I love the way charts pop up when you scroll over the prices.

    Gary

    You really are ‘Still The voice of reason’ here with your new post. If and when ( and I DO think it WILL) the Gold correction resumes , this post will be looked at as just that.

    I know I trade often ( and it works for me , but it’s not for everyone), and looking at charts of all the other IT lows, reminders of where we are in real time is a helpful counter-balance…keeps my trades short term only.
    ALSO, I looked back at a chart you posted (for subs only )in Sept-and you drew fwd what path you thought Gold would take then…you nailed it really.check it out…

    http://www.screencast.com/t/Ss3b9o1qA

  14. vuvvy

    Gary,I have a theoretical question.Let’s say that gold goes to 2,300 dollars in a huge spike later this year and you were a long term holder of physical gold from close to bear market lows.Would you sell all and pay taxes or continue holding and hoping that was not the top?What would cement your thinking that a final top was in? I’m sure a lot of players thought gold would go to 2k-3k in 1980.

  15. ALEX

    DG

    when you say -‘By the way, my “emotional” way of trading has me down less for the year than probably virtually everyone on this blog’…
    do you mean 2011?? πŸ™‚ I have no red. j/kidding , trying to lighten the heavy moment.

  16. DG

    Avann: Perhaps I wasn’t clear. I did not think Gary was bashing my system. That would be silly as it has already been proven. I was saying he bashes every way to trade that is not his. I think the $BPGDM is a good example. It has been very accurate for years and when someone pointed out it was on a sell in gold, it was summarily dismissed. Instead of calling everything else “useless” he could say” “There are a lot of ways to do this, many of which are actually useful, but mixing systems will leave you prey to your emotions. It’s better to be disciplined and stick to the plane.” He does say things like that, and maybe bashing everything else is just to get people to stick to the plan, but it seems intellectually dishonest, and i guess after reading it about 100 times I wrote back about it. Maybe I shouldn’t have but, what the hell, there are no trades to put on lately!

  17. Keys

    DG,

    I think the best way to test your overall system is to ask does it work overall? Are you ahead overall? Mistakes in anything will happen along the way…timing mistakes, system mistakes, emotional mistakes. It would seem your system is working, so I don’t get the issue.

    Thanks for the continued insight on the blog BTW. Your approach is so far the other way from mine, it is nice to see how you see things.

    Cheers

  18. DG

    Good for you, Alex. I think most people went leveraged or 100% long when Gary said to and are down, I suspect. I have seen some of your trades and can see why you are not down. Be sure to post ’em early πŸ˜‰

  19. DG

    Keys: Signals rarely given,so the vast majority of what I do is not system driven. It is best used with options (A 1% move in SPY ain’t worth much). The %27/%9 is achieved by buying calls, but I don’t trade options.

  20. Onlooker

    Hmmm, interesting chart Alex. I had forgotten about that projection. I still feel like that could play out here, and it would very much resemble previous, analogous situations in the past; like ’05-’06 & ’07-’08.

    The real bugaboo, of course, is the stock market. But it could just keep stretching it’s cycle too, I suppose, if the dollar goes into it’s 3 yr cycle low plunge. Kind of like 05-06, though it would end up being much more stretched than that was.

    It’s a tough situation here for those trying to trade it. Hopefully we’ll end up doing better than just a holding-tight strategy will end up doing.

  21. sophia

    Gary, Gary, have a look at MUB! Since Meredith Whitney talked today, MUB is down and will probably reach the target you metionned of 98.50 before sunset!!
    Another thing that falls into place….

  22. QuantTrader

    DG:

    Regarding “%27/%9 is achieved by buying calls.”

    Do you have call prices going back to however long your simulation runs? Would be interested in where you get the data. Also, what transaction costs assumptions do you use? I’ve also built an options trading model but I’ve found transactions costs to be the killer.

  23. Keys

    DG,

    I guess my word “system” may have been misunderstood. Even I use a system(basically buy and plug my ears). I guess the word “approach” should have been used instead of the word “system”. My notion of system was and is, whatever approach you are taking.

    My point was if whatever you are doing is working for you, then what’s the issue. If you are profiting and doing well, keep at it.

  24. pimaCanyon

    DG,

    I think there was a little misunderstanding due to the way you presented your system.

    You presented the system as a purely mechanical system that has been back tested all the way back to 1980 and it has an 80 percent winning trades record.

    Then you went long based on a signal from your system.

    Now most of us would conclude that that trade would be a system trade for you because it came out of a signal generated by that very successful and profitable system.

    What Gary did not understand, nor did I, nor did most readers here (I would guess), is that even though your system has this amazing track record, you do NOT follow it mechanically. That is the part that you did not make clear. And that would have brought up a whole nother discussion if you had.

    My point is that you presented the system as a mechanical system, you took a signal from the system and went long, and then you closed the trade early. Pretty much everyone who had read about your system and your going long because of it would have assumed that you violated your own systems rules by closing the trade early. So I don’t think Gary was at all off base by calling you on that.

    Now that you’ve explained in more detail how you trade–and that you don’t even use your own system in a mechanical way–everyone NOW understands that your system is just one more data source for you for making your trades, but you’re not using it the same way your new hedge fund will use it.

  25. DG

    Quant. The hedge fund did the testing. They are primarily an option trading hedge fund and have been at it for 15 years, so I assume they know what they are doing, as option trading, dealing with transaction costs, spreads, etc. is most of what they do. As well,their costs are small because of their size and volume. I can’t personally vouch for the numbers.

  26. ALEX

    Onlooker

    yes, that was Garys chart -it was quite accurate!!(any others in that library are mine)

    When you wrote..
    ‘It’s a tough situation here for those trying to trade it.’-
    thats exactly how I feel. I kept trading through Nov & Dec (when others said it was extreme sentiment & crash was coming) because I saw good set ups for what I look for as a trader.

    However, when this mkt turns down , it should fall fast. My problem is that if this market stretches up ,say,into march due to POMO & dollar down for its 3 yr low, there are more trades and they’re quite profitable. I dont short often, Its my weakness , so I like to make hay when its time to…I am patient in the downturns. for now , I love the look of Solar stocks and a few others at this time.

  27. ALEX

    DG

    My BORN (bought Monday)just went red , you jinxed me!! πŸ™‚
    Its light volume pullback and still above the 20sma , so I am holding for now. But you said “post before you buy”…well , you can get it for pennies less than me now if it looks ok to your ‘specs’.

    macd is about to go positive (but is this market gonna hold up)???
    proceed with caution , no recommendations here πŸ˜‰

  28. DG

    Pima: Fair enough. I never did say I follow it (or anything else) mechanically when trading (or in my life). I have spent my life trying to develop trading, as well as doing my life, by “feel” (intuition if that word works for you. I can;t tell you how m any times I have avoided either a trading disaster or a life disaster by just “knowing” it didn’t feel right. I am very happy to miss a trade to keep that sense honed. There was a guy in Mkt Wizards who traded solely by feel. I am not even close to as good as he was—not fit to tie his shoes, as they say—but my approach is integrated with my life and I like it that way. The big trick is keeping emotions out of your decision making if you do this, and it is even hard to tell whether you are being clear-minded or whether your emotions have snuck in and convinced you you are. but I like this battlefield and value it even more than making a few extra bucks in the market. If the proof, as Keys said, is in the pudding when trading, maybe that’s so in life too. I have a 30 year great 1st marriage, lots of money, love my work, have lots of friends, am in good physical shape, etc. Many of the large decisions I have made over the years made no “sense” (starting my business for example by moving to the Silicon Valley with no income and not much savings), but they felt right and have all worked. Maybe I am lucky, but I am not changing my approach now—in trading or in my life.

  29. DG

    Alex: If I jinxed you I will take myself out into the courtyard and shoot myself. But surely you don;t win every trade, so maybe it’s not me…I hope.
    πŸ™‚

  30. pimaCanyon

    jayhawk, in your upside down chart of gold, it does look like it has a bull flag, so short term it looks like you’d go long that chart (short the right side up chart).

    However, I am still suspicious of the triple bottom (on the upside down chart, triple top on the real chart). That will get resolved in a way that it will no longer be a triple top in the real chart IMO. ‘course, it could take several weeks or more before that happens and we could see lower gold prices in the short term (which fits with Gary’s expectation of a lower low ahead). But longer term that triple top’s gotta go (and go it will as long as this bull continues being a bull).

  31. DG

    Alex: BORN does not look as good to me as the others. It hasn’t really made a new high above congestion so there are loser still selling to get out even. The pop up came on good but not great volume. The pop took it right to, but not through, it’s declining 50 day line. At least this is my read on it, but you may be a better chartist than I.

  32. ALEX

    Jayhawk

    that was awesome! Thinking outside the box! I use volume mainly , so upside down (as posted)…I would pile in–a great surge off the bottom on volume , then flag , aye??

    It even looks like a double bottom cup w/Handle from Nov 22 onward…MAN!!

    BUT-if its inverse , an upside down chart…as posted…LOOK OUT!! Time to sell.

    Thanks!

  33. Jayhawk91

    In Prophet Charts you hit control U (hold it down) to see a chart reversed. I’ve been starting to do this and it’s a interesting perspective.

  34. ALEX

    DG

    thats a good read on BORN , and yeah, there are prob many waiting to break even and bail out along the way. I agree.
    My problem is that (like REE) I rode this up before huge in oct, so I looked for the pullback to semi-bottom and bounce. I need discipline not to ‘fall in love’ with a stock ( ya know?). I’m still dying to get back into REE , but I just know better πŸ™‚

    Origionally I thought quick trade on Born, broke its downtrend-line off tops of 10/18 2010 and 11/09/2010..and re tested that line on 12/27 2010

    not the best set up, but i was thinking , good volume pop /short trade/keep an eye on it.

  35. ALEX

    clarification:

    By the way , I didnt ride either down..i posted my sell on ree @ $17 , but when you get those crazy gains…you fall in love with that stock ( If you arent disciplined)…

    so I sell, then keep them on a watch list for a retrace , and a bounce…and try not to cling to the bounce πŸ™‚

  36. DG

    Jayhawk: Cool. I wondered how you did that. I am a stockcharts.com subscriber but they don’t have that feature.

  37. ALEX

    Well thanks for sharing Jayhawks, that was cool

    Thanks for this blog again, GARY…I learn everyday from it.

    (DAX and CAC both closed up @ 2%)

  38. Jayhawk91

    Yea, I guess you could just look at the inverse ETF for the same view. πŸ™‚

    That 50 DMA is now resistance on gold (support on that inverse gold fund).

  39. Brian

    Well for those that like nice long flat bases MDW has been trading between .5 and 1.00 for 2.5 years. Volume is now coming into this stock in a big way. Breaking out above the present levels would be very pleasant.

  40. Rebecca

    Hi oa92000,

    In the last rally, the support for GLD is 50 SMA while for SLV it is 20 SMA. They now are resistance. So the price action in both are consistent.

    Rebecca

  41. Brian

    Bede, It is strictly a technical buy. I have to limit my fundamental time to silvers. For the kind of volume that is happening here on the weekly chart, somebody seems to be expecting a change in fortune for this outfit though. If anybody wants to give us a fundamental report, I would sure like that.

  42. Wes

    DG,

    I’m even more impressed with your system in light of the extremely bad seasonality results for yesterday and today.

    Thanks for the chart. I’ve subscribed to Jason on your and Gary’s recommendation. I gave Gary credit on the “where did you hear of us” question.

    I use two levels of bearishness on the 15 dma of the OEX. The first, “bearish”, is at 1.4 and the other, “very bearish” is at 1.7.

    We just hit the 1.7 level for the first time this trip. Yesterday, it fell back to 1.69.

    But, like you, I don’t think it will work.

    So far, I haven’t made a trade in 2011, and I’m just going to wait the market out. “Longer than you can remain solvent” just doesn’t apply when your trading account is all cash.

    I’m still looking for my pitch. So far, my best time on the expert setting of “Minesweeper” is 183 seconds, but I’m getting better. πŸ™‚

  43. DG

    Wes: A few things about Jason. His raw data is superb. His trading is not my style. He said he views himself as a retail store owner. Lots of modest transactions leading to good profitability. The problem is, as I see it, that when the market trends very strongly (as it has this past year), up or down, he has trouble. This year has been extreme, but trends that just won’t stop do happen from time to time. He is great in choppy markets. To his credit he has backed off shorts bowing to the momentum, until there is some price weakness. Again, data is great but use your judgment on his buys and sells.

    Also, regarding the OEX data, he uses standard deviations rather than absolute levels, which i think is better (those are the dashed lines on the chart I posted). Some indicators trend for years so 1.4 might have meant something in the past and not now. Using SD fixes any bias we might not notice.

    I’ve made a few trades. Some have worked (I caught the 3 day downdraft last week with FXP and OIH. Three days! Yippee!) I am about even and waiting. Let me know if/when you do anything.

    And congratulations on Minesweeper!

  44. pimaCanyon

    OEX options traders back to buying more calls than puts today.

    Also, SPY is nowhere to be seen in the SoS list today.

    Both of these do not bode well for an imminent downdraft. The meltup continues… SXP 1300? Who’d a thunkit?

  45. Wes

    There are some things about Jason’s site that need improving.

    First, there is quite limited historical data, or maybe I just don’t know how to get it.

    Second, there is no way to see the actual day that an event happened. “Near the middle of May” just doesn’t cut it for trading. Again, maybe I just don’t know how to get it.

    Third, there is no actual historical numerical data that I can find. Again, “near 125” won’t do for people wanting to construct moving averages or other indicators.

    So far, I’m neutral on the site. It really needs improving IMHO.

  46. David Kafrick

    I think the Euro has put in a major bottom. The breakdown from the huge trading range seems to have been a major shakeout. If that is the case I see it going up at least to 1.46-1.47.

  47. AJ

    Someone asked how to see inverse charts in stockcharts.com. Type $ONE:SymbolName on stockcharts. That will give an inverse chart.

  48. Gary

    Let me say this again because for some reason it never seems to stick.

    Yes there are 1000’s of ways to make money in the market. Yes many people can make money by trading, either with a mechanical system or by gut.

    Hell I’m pretty sure I could consistently make money by trading (although not day trading, that is a skill I have no desire to try and master).

    I wouldn’t have made anywhere near the kind of money I did last year by trying to constantly time the market though.

    So in order to make those big gains I’m willing to suffer drawdowns from time to time. If I can avoid an intermediate decline I will with at least part of my position and I will do everything I can to avoid a D-wave.

    So yes I do attempt to time the markets to some extent.

    I think the point of my comment was quickly lost in the assumption that I was knocking a different trading style (which I wasn’t).

    I was just suggesting that you computerize your bread and butter trade. That would take any and all emotional decision making out of the equation. Doing so would have kept the trade alive yesterday and it would have captured the rally today.

    There’s no need to read something into my comments that isn’t there.

  49. Patrik

    The dollar is falling apart and the euro is rallying. Every commodities are rallying but not gold and silver?

    Palladium and copper and any other metal is rallying.

    What do you guys say about that..Quite odd to me but also very interesting?

    It feels like gold and silver dont want to go up and the weak dollar are forcing them to at least stand the ground.

    Take Care all. Sry for my english..Im from Sweden so that maybe explain things..:-)

  50. David Kafrick

    DG,

    I am seeing a classic shakeout, or false breakdown from a huge trading range/consolidation. It’s what Vic Sperandeo calls the 2b reversal.

    Euro barely made a new low after breaking down from the trading range a couple of days ago, and now it is reversing pretty hard. From my experience, major bottoms are usually formed like this. A big trading range forms, then the market attempts to break down, shaking out the weak longs and inviting shorts to play the breakdown, but then the market quickly reverses up and trades all the way up through the top of the trading range.

  51. Brian

    You want em you got em. RBY went from 4.00 to 6.00 on a new mineral find. It has consolidated those gains for 2 months. Volume is starting to ramp up. Disclaimer. I do own it.

  52. DG

    David K. Thanks—interesting. but I think you need the right sentiment background to make the case more compelling that it’s an important bottom. If people had been terrified during that breakdown that the bottom was falling out I’d be more convinced but sentiment-wise it was met with a yawn. The stops got triggered and then it bounces, but a big rally…? Still I hope you’re right. I made a lot of money shorting the euro at 148 last time, so I hope it gets back to the mid 140’s because it ain’t worth toilet paper, IMO.

  53. DG

    Brian: That chart is a great example of when it’s right to buy a stock for a BB crash trade. It ramped up on big volume. then sold off slowly on much lighter volume. When it touched the lower BB was the time to buy it, at about 5.10. Let me know if you see others like this. For me now it’s up in the air at 5.80 and risky for my tight-stop style.

  54. DG

    Poly: yeah it’s amazing isn’t it? I often think of markets like bookends: the 2009 crash went further than anyone imagined, so the rally has too also. Butt still, Geez! I sure hope Gary catches gold right because I’d like to do something of consequence this year!

  55. JReality

    The Fed is gonna be buying 112 billion in treasuries in the next month. With all this printing going on, and all this extra “funny money” making its way into the equity market, I’m very concerned we might only get another measly 5% correction, like in Nov, rather than a REAL correction withe a pullback to the 200 DMA in SPX. Is anyone else concerned about that as well?

    We’ve got people like GreenSCAM going on TV saying that higher equity prices are the best thing that can happen for the economy to recover. It seems the Fed itself WANTS higher stock prices. Can we still get a REAL correction this winter?

  56. Gary

    Gary also hopes he catches the gold bottom. I’d like to have another year like last year.

    The extreme interventions going on in the currency markets are making these very tough markets.

  57. Wes

    DG,

    Thanks for directing me to the data. That makes Jason’s site a lot better. Again, thanks.

    I was making reference to the lack of grid lines on Jason’s charts. I guess we can go to the historical data (now that I know where it is), though.

  58. ALEX

    The corrections will come , but When , huh??

    these markets are just getting bought up.

    I got out of PAL (Palladium)a while ago and wanted to re-enter at the gold bottom, but it worked its way up to the high again and someone just stepped in big today all around 1 p.m…now its breaking out WITH VOLUME.

    1 day 15 minute chart says it all , and 3 month daily does too.

    SWC moving up too

  59. Brian

    Last year the flash crash happened immediately after the POMO party stopped. A little wall street message to brother Ben. Probably be the same way this year…….

  60. Gary

    The extreme currency interventions are definitely stretching the markets but they haven’t stopped the cycles. We did get a normal drop into the daily cycle bottom in November even though the cycle stretched to almost 60 days.

    We are probably going to have to elongate the normal timing band from 35-45 to 45-60.

  61. Brian

    I agree with you DG. It is in middle ground, but I have an alert at 6 and if vol is good, I will add on the breakout. I owned this for a long time. It was a dog and I was contemplating a sale when it made the discovery. If this is a true T1 pattern, it should see 8 shortly. BTW it now looks like the breakout could be close.

  62. MLMT

    1394-96 in NYSE Hours. I posted this more than a week ago. Some things do not change and are almost like “law of nature”. I expect gold to tag 1394-96 and end the day around that level or close to that – either today or tomorrow.

    Once 1388 gets taken out (which already has been), there could be a quick short squeeze up.

  63. Wes

    As everyone knows, there is a lot more to the stock market than sentiment and the other indicators that I collectively call psychology indicators.

    There is also monetary conditions to be considered as well as valuation metrics.

    I’ve recently posted that my psychology readings collectively score a 4 on a scale of 1 to 6 with a 6 being most bearish.

    The monetary indicators I monitor score a 2 on the same scale. This is almost the ideal monetary environment for stock market gains.

    I score valuation on a 1 to 5 scale with a 5 being most overvalued. Current valuations score a 1, the most undervalued score, and it’s a very low 1, nowhere close to a 2.

    Now before you flame me about valuation, this has been a 1 since before the end of the bear market, Every time I post this, people flame me. And for the entire nearly 2 years, those flamers have been wrong.

    Just look at the market results over those nearly two years and ask yourself if you would have disagreed with me on valuation a year ago, six months ago ? Well you would have been wrong, too.

    Thus, stock market conditions have been and remain almost perfect for continued upside, with the exception of psychology, which is really about neutral on a scale of 1 to 6.

    Even so, a psychology reading of 4 usually leads to a correction, as it did eventually when it turned to 4 on March 15th.

    But, sometimes, the darned thing just won’t correct for months. And months. And months.

  64. MLMT

    In fact if gold is around 1388 level at NYSE close, then it would be a good time to unload long positions IMO for those who were waiting for a bounce. Not a wise thing to try and catch the last few dollars in this gold bounce (we will likely go to 1394-96 IMO)

  65. JReality

    Wes, I don’t understand how valuation would still be a 1 out of 5 even after stocks almost doubled. How do you derive your valuation level?

  66. DG

    Wes: Do you know of Jeremy Grantham at GMO. For my money he is the best valuation guy around. His track record on all asset classes is amazing (He orders ten classes 1 through 10 for the next decade. last time he got every one IN ORDER of returns except #7 and #8 were reversed, if memory serves. Amazing.) He thinks we are quite overvalued, which is not to say you are wrong, just that I rely on others for such questions. What do you use for valuations, if you can say. As for monetary, Zweig always made his number one rule :Don’t fight the Fed. We have the steepest yield curve in history. That’s why I am not short and I hate flaming people who have been right. But then, why are you looking for a short entry and not long?

  67. blammo

    Alex, I followed you into SOLF, so far so good. The solars have based and look like they want to catch up to the oils.

    I too, did not like the look of BORN nor CDE, which apparently *was* a good short at the time…

    MDW looks promising but I don’t have a position.

  68. Gary

    Over the 100 year history of the Dow when dividend yields have been this low (and they are microscopic right now) the long term returns have been very poor.

    Of course that doesn’t say anything about today or even the next week or month but one can’t buy and hold at these kind of valuations and expect to make any money over the next 10 years.

    These same dividend levels levels or lower were active in 2000. I think the 10 year returns during that period make the case pretty clearly.

  69. Wes

    JReality,

    As I indicated, valuation is a low 1. It has been a lower 1 when the market was lower. I don’t think the model ever contemplated a business environment this favorable. Zero employees and blow-out earnings.

    It is highly dependent on interest rates and business activity (earnings). The latter are improving daily.

    It has nothing to do with the infamous “fed curve”.

    Having said all that, it is not my model and I don’t know the exact parameters. I do know that it has been back tested into the 1920’s, and prior to every bear market the model has recorded a 5, and usually for some time before the bear market starts.

    Hope this helps.

  70. ALEX

    Blammo

    I am glad to hear that about solf (funny thing, I JUST sold mine πŸ™‚

    I hoped it would go to that gap at $10.00 ( and it may), but volume got lighter each day, so I will sell for a gain and not wait & see on this one.

    It looks like SOL was maybe the better buy (better volume/price)
    so I will keep solars on my watch list for possible re-entry on any pullback.

    yeah, CDE…sorry Jayhawks , really. looked too risky 4 me, I do feel bad saying I wouldnt short it to you.

  71. Wes

    Gary,

    In spite of your protestations, average P/E ratios are highly dependent on interest rates. Not just a little dependent but highly dependent.

    Since 1970, the last 40 years, the trading lifetime of most traders, the average P/E ratio of the S&P has been 20.85 .

    Now, calculating average interest rates as the T bill rate + 2yr bond +10 yr bond, all divided by 3.

    When the AIR (avg int. rate) has been between 0 and 5 percent,
    the average P/E has been 23.86 .

    When the AIR has been between 5 and 10%, the average P/E has been 19.44

    When the AIR has exceeded 10%, the average P/E has been 9.35.

    Now these numbers are not my opinion, but are the same numbers you will get if you care to run them. They were run in May.

  72. ALEX

    Brian

    I saw that , still wiping the tears away πŸ™‚ I sold that on that long candle up,,,now its like $5 or $6 plus higher!!

    same with NG today ,sold around $13+… I was going to re buy that at the $12 gap πŸ™‚

    PAL, broke out with volume today too.

  73. Bob loves Hawaii

    Well I closed some more miners today, and now I am at my core. I am holding only GDXJ for gold, and silver juniors and uranium miners.

    Just closed the beast NAK, in which I rode from $5.00 and AEM from $59.00, I held OTM Jan sold calls on it which I closed today as well.

    I hold MCP and CMG short, both profitably. I will now attmpt to be patient.

  74. DG

    Wes: Gosh, Don Hays! I know his stuff very well. He got completely creamed in 2008 and changed his model (cost me a pretty penny to because I listened to him and violated my own discipline, like a complete ass.) I do not believe that Hays is prepared to handle what is coming if we have a currency crisis or series of deflationary events. That’s why they got creamed in 2008. Their stuff is very good in “normal” times but this isn’t. They now use as a fail safe that if the market breaks down below some moving average or other they get out regardless of how “cheap” things are. Things were cheap the whole way down in 2008, and the yield curve was positive. They stayed 100% long the whole way.

  75. Gary

    Wes,
    I didn’t say anything about P/E’s I said dividends. Earnings can be whatever accountants want them to be.

    BTW we are in a rising interest rate environment not a declining. The bond bubble has burst. Just like I said it had.

    Dividends can’t be faked like earnings. You either pay them or you don’t. The last 10 years has clearly demonstrated that this basic valuation model that has held up for 100+ years is still alive & well in the modern markets.

  76. ALEX

    Aloha Bob

    nice trades , especially NAK!!

    Uraniums do still look pretty good (URZ, URG, etc)

    DG

    I hate to trade miners this late in the game , but I am looking at (see 6 month chart) VGZ, GOOD volume on recent recovery…and Maybe it forms a reverse H&S if it pulls back. waiting, watching.

  77. Gary

    BTW I heard all this valuation nonsense in Oct. `07 also. It was baloney then and it’s baloney now.

    No matter how grossly overvalued the market is someone somewhere will devise a system the “proves” it’s not.

    Then of course it’s not long before we learn …again …that it’s never different this time.

  78. Wes

    DG,

    Our fail safe is much higher than theirs, at least mine is. I don’t follow Hays’ investment advice at all, and never have.

    Sorry to hear about your experience with him. I use them as a cheap data collector.

  79. Wes

    Gary,

    You have been critical of the P/E’s in the past just as you are of the valuation metrics.

    It’s like DG says, if it’s not your idea, you give it little budget.

    My total profits last year were 73.9% with no PM’s and no commodities. These alternate theories actually do work, sometime.

  80. DG

    Thanks Alex. This is a great use of this blog; that is, posting actionable ideas for people. That’s why I post my buy signals and other setups. Hopefully sharing ideas will make us all better off!

  81. TZ(5288)

    After the drop in dollar today and the rise of gold closer to $1400 and silver closer to $30, i raise my odds of last friday being the low (and a resumption higher to the $1600+ top) up to 33%.

    If gold breaks $1400 and silver $30, my odds would prob rise to 50/50.

    I think the gold *might* be in a up sloping channel consolidation, that friday was a low on the lower end of that channel and that we rally to the top line and up-and-out soon. Seems to me not many people are prepared for that possibility and it would continue to cause the chasing situation we’ve seen for months.

    I haven’t taken any positions based on my comments here. I’m just saying for now and being open to the alternate scenario.

  82. Gary

    Wes,
    Those aren’t my valuations. I’m just pointing out 100 years of historical data. The last 10 years have proved the point.

    You didn’t make 70+% because of valuation. The market only rallied a little over 11% last year. You made those returns by timing the market moves. That has nothing to do with valuation.

  83. TZ(5288)

    PS: you guys using GLD or gold ETF’s to draw a flag chart pattern are making a mistake. Gold is a 24hr market and the prices/behavior OUTSIDE of US hours are just as valid to taking into account.

    When you use a chart includes the full 24hr pricing you don’t have such a magical ‘flag’ continuation pattern like you think. You have a spike low through an uptrend line and a recovery within hours leading to straight up action of three days at this point.

    We could still go down. I said 66% on that option a moment ago, but you aren’t gonna sell me using that US hours only, crippled ‘flag’ formation.

    Same comment goes to people claiming ‘gaps’ on a gld chart too. Use a chart with 24hr data and there are no gaps. And if you reviewed historical GLD you would see the gaps remain open more often than not because they aren’t real in the first place.

  84. DG

    Wes: Glad your fail-safes are tighter than theirs. It had been many years since I have had a bad year, with lots of good years between…until 2008. It was a cheap lesson (a lot cheaper than my 1983 one) and I dare say it will never happen again. Never. I have made enough now that I do not have to shoot the lights out any more. To try to do so and then get over-confident is just greed in my book. Like these guys worth $25 million who get caught insider trading. What the hell were they thinking?!

  85. Gary

    TZ,
    The easy way to find out is to see if the pattern of lower lows and lower highs is broken.

    With the stock market on the 39th day of the cycle I certainly wouldn’t jump into to anything this late.

  86. David

    Wes,

    Valuations are almost meaningless in the short term.

    Over the long term — 7-10 years — dividend yield has a rock-solid statistical correlation to investment returns.

    As for interest rates, if we were to apply your logic, then 1980-1982 would have been a terrible time to buy stocks, as interest rates were hovering around %15. As it happened, this was the best time in a generation to buy stocks.

    By the same logic, stocks in 2000 would have been much more attractive than in 1980, because interest rates were much lower than in 1980.

    In 2000, based on a dividend yield of 1%, stocks were expected to generate a 0% return over ten years. They delivered just that.

    As it stands, based on the current dividend yield, an investor can expect a 3% annualized return on the S&P 500 over the next ten years.

  87. TZ(5288)

    Gary,

    Lower highs and lower lows is simple/easy, but if making money was easy everybody would be rich. I’m still in the waiting mode, I’m just throwing this out for discussion and saying I’m prepared for a run higher.

    SEE this chart for my view of what has a reasonable chance of happening. An up-pause(channel)-up move is not uncommon in the market.

    http://img502.imageshack.us/f/goldf.gif/

    Time will tell. I’m betting money on your scenario for now, NOT this one.

  88. TZ(5288)

    Oh..and with that channel I just posted, here is an intraday closeup of gold dropping down to the lower line, bouncing on it for about an hour, faking through the bottom for LESS THAN TEN MINUTES and taking out about 25,000 contracts on the move and recovery. From there we have climbed up pretty relentlessly.

    That is a sign that i’m gonna at least *consider* friday being a low that holds. Like I said, I got no money on it yet though.

    http://img217.imageshack.us/f/goldbreak.gif/

  89. Wes

    TZ,

    I’m sure you’re aware that stocks don’t trade off of trailing earnings. The projected future earnings determine current price to a large extent and the economic outlook seems to influence multiples that the market is willing to assign.

    Using trailing earnings and P/E’s based on them will mislead you badly. They will particularly be misleading when coming out of recessions because future earnings are rising very quickly.

    Now, the projected future earnings are ultimately determined by managements estimates for each stock, and can be wildly misleading on occasion. I only use them for companies where I’m familiar with management’s past track record.

    Using P/E’s for buying stocks or the general stock market is treacherous business, and I don’t do it. But, obviously, the projected P/E for the entire market will be much more accurate as misses and blowouts tend to cancel.

  90. Gary

    Wes, More important than any of that is the law of regression to the mean.

    Currently profit margins are as high as they’ve ever been. That will regress to the mean just like it always does. As it does we will get a compression of profit margins.

    As soon as that happens the stock market that is already overvalued will become extremely overvalued at current prices. Throw in spiking energy prices, municipal & sovereign defaults and you have the recipe for the next bear market.

  91. Wes

    That’s true, but wouldn’t compressed profit margins be reflected in projected earnings ? Managements don’t intentionally mislead analysts.

    Where do you get profit margins and their comparison to past history ? That is important information to have and I wasn’t aware it was available.

  92. Gary

    Forward earnings has to be the biggest joke I’ve ever heard. I’ve had numerous business in my life and I’ve never been able to predict my forward earnings with any accuracy.

    Wall street is no exception. They can’t see into the future and predict what soaring energy prices are going to do to profits. The have no idea what multiple defaults from major US cities and states will do to demand.

    There is no way to predict what the effects on consumer sentiment will be if the stock market suffers through a vicious yearly cycle correction.

    Forward earnings are just a cruel scam Wall Street pulls in order to sell stocks, nothing more.

  93. Gary

    Henry Blodgett has been pointing it out lately on tech ticker.

    I expect you could google it and find the raw data somewhere.

  94. TZ(5288)

    Here is the NAZ100 index going into the tech bubble blowoff top of 2000.

    Same channel formation. Just an example for fun.

    http://img199.imageshack.us/f/ndxchannel.gif/

    When the buying pressure becomes extreme and everybody wants in, then a correction period can turn into a running congestion or channel. Might gold have enough buying pressure to cause this? No idea. We wait and see.

  95. David

    Wes,

    You were asserting that stocks are presently undervalued.

    I countered that they are not, based on a number of valuation models, including dividend yield and case-shiller p/e. Both of these models can be back-tested to the 19th century and are quite robust.

    Forward p/e is not predictive, precisely because at important inflection points earnings estimates usually turn out to be wrong.

  96. DG

    Maybe I’m crazy here, but I think there’s an elephant in the room we’re not addressing. Maybe this time it IS different. Look, I’ve been around the block. I knew the “new area of tech” in 2000 was BS. But we never have had this kind of monetary pumping before as a concerted effort around the world. This IS in fact, different. Doesn’t mean the law of gravity has been repealed, but analysis like, “Since 1957 every time X has happened Y has happened” are worth a lot less. Wes, for the first time in 30 years we were up Tues and Wed after the payroll report after a previous up month. Why? That’s exactly the kind of analysis I have used my whole investing life, but we really are living through something no one has seen before. Who the hell knows how it’ll affect things? We will decline at some point, but the standard methods for measuring when that might be can’t help but be affected by what’s going on at all the CB’s around the world. It’s a new world. Adapt or die. maybe gold breaks up. Maybe the cycles get so stretched they are not worth as much. I am not predicting it, but do think it is worth considering. There is a danger of allowing such concerns to freeze you when it’s time to place the trade, but then deal with that hesitancy and figure out a strategy, rather than pretending we are in normal times. We aren’t. This has been too damn weird to pretend it isn’t.

  97. Gary

    DG,
    We have actually seen this before.

    When the economy started to drift down into a recession in 06 the Fed debased the dollar mercilessly. Ultimately all it did was spike oil to $147, put the finishing touches on the credit and real estate bubbles, and briefly drive the stock market higher.

    But all the printing in the world can’t reverse the cancer growing under the surface. In fact it will just speed it up. This time there is no housing bubble to blow so all that liquidity will just leak faster and faster into the commodity markets until inflation finally breaks the economy again.

    Despite what the Fed, government and Keynesian wackos would like to believe there really is no free lunch in this world.

    The more they stretch this the harder and more vicious is going to be the fall.

  98. DG

    I agree with that completely Gary, but “eventually” can be longer than we think, as in “the markets can remain irrational longer than you can remain solvent.” I am not suggesting we’ll be fine, just that trying to figure out what the hell to do has been, and will continue to be, hard due to all the fake-outs and crosscurrents. At least for me. Sigh.

  99. Gary

    There really is no law that says one has to trade, especially in these conditions. Maybe now is a good time to take a vacation πŸ™‚

  100. Onlooker

    Interesting look at precious metals by Chris Puplava, whose work I’ve come to respect:

    Precious Metals update

    It pretty much aligns with Gary’s thinking, though he’s less bullish on silver because of how stretched it has become. Suspects it may underperform gold over the next 6-12 months.

    I can see the argument, but given the relative strength and the fact that silver has just caught up to gold (on a relative basis), maybe that won’t come to pass.

  101. David Kafrick

    What bothers me about Gold pulling back to 1300 or even to 1265, is that it will be a very easy trade to take when it gets there. Unless it gets there in a really nasty way – ex: couple of 3% down days in a row – it is just too picture perfect and too easy. I don´t know, but I feel like Gold taking off from where it is and never retracing back to 1300 is what will fool the most people.

    Maybe Gary is right, and when gold starts to fall it will scare the hell out of a lot of gold bulls, but talking to people that I know, and reading things on the web, a drop to 1300 would be a dream come true for a lot of people.

  102. Gary

    The Fed was most certainly buying bonds in 06. That is how the Fed gets liquidity into the economy. They just weren’t publicizing it.

    We’ve had QE in some form or other since 2001.

  103. Gary

    David,
    I’ve been over that one many times before. It’s easy to say one will buy something when it pulls back to such and such a price. The problem is when it actually does it in real time it’s scary as hell and virtually no one can actually pull the trigger.

    Believe me if gold makes it back to $1265 I wager less than 1 in 10 people who said they were going to buy will be able to.

  104. TZ(5288)

    GARY,

    >When the economy started to drift down into a recession in 06 the Fed debased the dollar mercilessly.

    Yes, they lowered rates, but they didn’t do the things they are doing now.

    We have entered the *last phase* of a banana republic. The central bank of the US is now DIRECTLY buying and supporting the government’s debt. The Fed is now the largest holder and has surpassed china.

    The POMO (Fed printing) schedule posted earlier shows the continuing and increasing purchases. Those will not stop.

    This will now continue as the last stretch of the phase up and until the currency collapses.

    This really is the last stretch. There wont’ be a QE3 either. QE2 is open ended *by design*. We print now until the end.

    While I’m not convinced we never have large drops in stocks or metals again, I’m willing to at least consider that at SOME level of printing, there is enough cash to launch an economy into the final spiral up of assets (until the ultimate end point).

    As SOME level.

    Are we there? No idea. Am i betting on against a decline? Nope. Not yet.

    But these are unusual times and yes the fed has lowered rates before in it’s history. But it hasn’t bought govt debt wholesale at over a 1 TRILLION run rate to prevent collapsed of the entire country. That cash is flooding in and it MIGHT alter the ability of things to sell off dramatically (till the obvious crash when this all burns up closer to the end).

  105. Wes

    Thanks, David.

    I’m aware that dividend models, etc. are saying the market is overvalued. Of course, they’ve been saying that for a long, long time. And the market just keeps going up.

    As for forward earnings not being predictive, they may not predict actual earnings accurately but they are predictive of future stock market performance.

    Until the misses start coming, nearly everyone trusts the future earnings. Usually, it’s not the earnings misses that causes the downturn, but the dislocation in the economy that causes the misses.

    I guess that’s why most computers are equipped with sell buttons. πŸ™‚

  106. David

    According to Mark Hulbert, gold sentiment is very subdued already, with the average gold timer recommending an allocation of 33% of funds to PMs. This is historically quite low. Interestingly, this is also almost exactly in line with Gary’s allocation right now.

    There has been intense skepticism throughout this rally, and I would argue that the recent headfake bruised sentiment even more. So a huge decline is hardly necessary. A big stock-market washout should do the job.

  107. Steven

    Gary,

    What am I doing wrong. I tried just refresh but that doesn’t email me all the comments. It seems as if I have to leave a comment.

    Thanks

  108. Wes

    DG,

    You make some good points and maybe it is different this time, but the people that thought that last time are usually not around for next time.

    So far, I don’t see anything all that unusual about the stock market. Has there ever been a stock market correction with QE, or it’s equivalent, going on ? I think there have been many, but I certainly could be wrong.

    Gary says that the QE equivalent was going on in 2006.

  109. TZ(5288)

    GARY,

    >The Fed was most certainly buying bonds in 06. That is how the Fed gets liquidity into the economy. They just weren’t publicizing it. We’ve had QE in some form or other since 2001.

    http://raymondpronk.files.wordpress.com/2010/01/fed_assets_dec_09.gif

    This is a chart of the fed’s holdings (assets). The chart continues to the left (2006 and earlier) pretty much in the same flat, slighly downsloping rate you already see. It goes back DECADES at that same slow decline back to the creation of the fed (with some minor bumps in the depression, wars, etc.)

    I hardly think that the fed ‘was also buying bonds in 06’ is anywhere *close* to describing what has happened since 2008.

    Very simply, it is off the charts and incomparable to anything in the history of the fed (although not in the history of other countries that went BK and collapsed).

  110. TZ(5288)

    GARY,

    http://www.econdataus.com/fedbal03.jpg

    I found it. Here is the Fed’s balance sheet of assets going back before my first chart which ended 2007.

    Seriously, come on. Where is the comparable buying of assets in 2006 or 2004 or in any other time period in the history of the fed?

    Remember, I’m still not arguing that we can never drop again, but I’m certainly saying it might be possible at some point and some level of printing.

  111. Gary

    TZ,
    You are making the mistake of comparing what happened in 01-07 to 09. What you need to do is compare 01-07 to the rest of history.

    The Fed’s nonstop liquidity pump began with the tech bubble bursting and was what caused the severe devaluation of the US dollar since 2001. Just because it wasn’t at the present rate doesn’t mean at the time it wasn’t a historic rate of devaluation.

    By the time 07 & 08 arrived the Fed had managed to push the dollar below multi decade support. Total global debt had reached astronomical levels never seen at any other time in world history.

    By July of 08 the dollar was well on its way to becoming worthless. The difference now is every other country has decide to join the Fed in the money printing game.

  112. DG

    Wes: It’s not just some form of QE, but it is both around the world simultaneously and of massive size. Size does matter after all.
    There are also lots of “first time ever” or at least incredibly rare, stats. Lowest 30 day vix in 40 years, etc. (I may have that detail wrong, but you get the idea). Something is going on. I can’t say this is not an unusual stock market period. No 1% down days for the whole month of December, etc.

    At least that’s how it looks to me.

  113. David

    My memory is that the VIX was shockingly low for a long time in 2007 — it reached about 10. Right now it’s at 16. But when it popped, it popped huge.

    One hallmark of market tops is when even bears begin to doubt their sanity and wonder if the game has changed somehow. But the game never changes for very long.

    This may or may not be the top of this cyclical bull, but there is no question that we are in for a very sharp correction.

  114. Gary

    Remember the Fed was going to print money, buy bonds and hold interest rates down. It was going to be different this time.

    How’s that working out so far?

  115. Wes

    A very convincing report tonight, Gary. Nice work.

    I just checked, and NDX has been further above it’s 200 dma for just 5 weeks in the last 9 years. And only just above today’s 200 during those 5 weeks.

  116. Wes

    DG,

    I agree that size matters, and you may ultimately be proved right.

    But, there are more than 10 Trillion dollars in MZM, a broad measure of money in the US. An extra 1 Trillion from the Fed is a lot, but hardly the Armageddon that this site implies.

    The potential for inflation is certainly present with the banks holding this much money, but until they can lend it out through fractional banking, it is just that. A big potential.

  117. DG

    Wes: I was not predicting Armageddon, just that an extra trillion here and an extra trillion there might well extend SPX rallies beyond what’s normal. It’s the debt that has me spooked, not the printing. I don’t see how we will ever pay it off without stiff growth, which isn’t in our future. Countries ultimately default once it gets out of hand. That would be Bad.

  118. Wes

    DG,

    We can’t default because we own the printing presses. I guess Congress could fail to increase the debt ceiling and cause a technical default, but they most likely won’t.

    We don’t depend on other countries buying our bonds, even though they do buy some. We could raise the interest rates and sell them all domestically.

    We will do what we’ve been doing for 60 years and inflate our way out of the debt. But it will most likely be a controlled inflation of a public 2% (CPI) which will amount to about 4% in the real world.

    Einstein said the strongest force in the Cosmos is compound interest.

    At 4% a year, in 10 years a $100 debt today will be worth $67. And we’ll just keep doing it year after year. At least that will probably be the plan.

    Many people are betting the plan won’t work and we’ll have runaway inflation. I’m not one of them.

  119. Brian

    Wes, John Hussman has written extensively in his weekly letters about FOE and how one may address them. His writings are archived. Check it out.

  120. Gary

    It was the same plan we used in the 70’s to pay for the Vietnam war. It did cause runaway inflation.

    It took a man like Volcker to willingly put the country into two severe recessions and the invention of the personal computer to drag us out of that pit.

    Now the problem is many multiples bigger than it was in the 70’s.

    We’ve had another 40 years to compound the problem and kick the can further down the road.

    We will certainly default. Printing is just one form of default. The question is has the cancer grown so large that defaulting by printing will now destroy the currency.

    There is a level of no return when debts get so out of control that to attempt to print them away destroys a nations currency.

    Every empire in the history of the world eventually reaches this point. It’s why every fiat currency in history eventually fails.

    Humans just refuse to accept the fact that there is no free lunch in this world. Every empire in history has tested this irrefutable truth and not one of them overcame it.

  121. DG

    Wes: Yes I was not clear. We can “default” either by not paying or by paying with worthless currency. I guess technically it is not a default then. The point is, however, that I believe no country has pulled off what we are trying to do. It seems to me that since no one has ever done it, the burden of proof would be on those who say it”s not a serious problem. It has been a problem for every other country in history, so why not ours?

    I do agree about the money multiplier, but at some point as confidence in the currency fades, the multiplier will go stratospheric as who will want to hold dollars. They’ll move around like a hot potato. I guess we’ll see how this all unfolds…

  122. Sang

    “Every empire in the history of the world eventually reaches this point. It’s why every fiat currency in history eventually fails.”

    Exactly. This is the truth. History is littered with many empires over the span of 5,000 years where greed and the temptation to dilute/create money eventually kills the currency.

    While we have computers and digital representation of money, the fundamental concept has not changed one bit. We are doing the exact same things that failed empires did for thousands of years.

    We think that we are so smart and advanced now that we figured out a way to cheat the laws of economics.

    Not true. That’s exactly what all the old failed empires thought. And they were all wrong.

    In the future, when people look back at this time, they are going to see just how stupid we were.

    To actually think we can get away with it and create something out of nothing.

    As Gary said, there’s no such thing as a free lunch. That’s the first concept they teach you in economics.

  123. Ollie

    Gary, what do you make of the dollar falling hard this week?

    Think you haven’t mentioned the USD in last night’s report

    Thanks

  124. greg

    DX getting hammered this morning, platinum up $25 an oz. Very interesting. One stock to own for a double here is PAL (over the next year). What do you chart readers make of CHGI — Its a Chinese company that makes carbon used in batteries.

  125. MLMT

    There you go.. gold at 1392+

    I expect gold to trade to 1396 or so… but not too much higher. It may retrace today itself.. I doubt that though. I expect gold to end the day around 1396 or so when NYSE close happens at 4pm. This may likely be the last chance for the longs to trim their position.

    In SPX terms, I expect a dip down to SPX 1280 and then a late day rally to close green for the day.

  126. ALEX

    Interesting,

    the dollar just broke below its 20 sma and 50 ema and sma. Could be a fake-out/shake-out…too soon to tell.

    Greg-

    CHGI looks great, but its just too extended at this point ( but thats not stopping some other stocks).
    That chart shows price almost 100% over its 50sma…THATS hard to sustain.

    To be safe , I’d watch for a pullback on lighter volume (maybe 50% of the last move) , but if you stepped in here, you could lose 50% on that same pullback. If it really takes off upside, I apologize in advance ( it could go up and retest that high, since the stochastics is relieved from overbought a bit) but I would NOT buy it here . Bad risk/reward

    Mlmt….sounds good, we’ll be watching πŸ™‚

  127. TZ(5288)

    After this morning’s low, gold is now in a much clearer multi-day up channel which you guys were earlier referring to as a flag. I challenged it before, but it was more dubious without the drop this morning.

    The “flag” however, does NOT include the spike down low on friday, so it can easily be interpreted as a flag to the UPSIDE after turning around on that spike and NOT a flag waiting for us to continue DOWN.

    Regardless, the Fed is printing. ECB is printing. Bank of England is printing. And bailouts all around. (See this morning’s/week’s news.).

    I’m really not thinking we get a gold drop. Too many people want in this thing and the ever increasing slosh of paper needs a real (pun intended) home.

    Top of that channel/flag is about 1396. If we rally above that and break $1400, then I think it is a flag to the UPSIDE and I raise my odds that last fri was the low to 50%.

    I’m still core like gary and *not* betting money on the ‘runaway upside’ scenario yet. Just commenting and watching for now.

  128. ALEX

    Greg,

    Second look (stILL WOULDNT BUY!!)..BUT-looks like it wants to go higher.
    Pulled back on lighter volume and reversed yesterday. and a-b-c up would be huge %-wise , still wouldnt buy it though.

    If it started down, the volume is so small, it would be hard to bail out on a sell off…again bad risk/reward

  129. greg

    I keep hearing more and more people calling for a pull back in gold. I’m begining to think it’ll keep going higher for the next 6 months and have everyone chasing it higher. Don’t fight the Fed?

  130. TZ(5288)

    >If it breaks that pattern of lower lows and lower highs then I will have no problem taking another shot at it.

    The tradeoff, of course, is the more certain you are of a direction by waiting, the higher the risk of the position entry and the lower the profit when you finally do. You know this. I’m just pointing it out as the reason some like me are trying to angle into things before your decision point. The contary risk, of course, is that entering earlier also means you can be wrong much easier.

  131. Gary

    In this environment with no obvious intermediate cycle low there’s no other way that I can see to determine if the down trend has been broken.

    I have no problem trying to pick the bottom of an obvious intermediate cycle and if I don’t time it perfectly I just let the bull fix it.

    But in a situation like this with no clear intermediate degree correction and no stock market correction and a clear down trending market. What choice do we have?

    Sure one could just roll the dice and hope for the best but that’s not really how I trade/invest.

  132. Gary

    One could maybe jump the gun a little bit if the HUI broke the down trend line. But that’s still at about 570. At that point you might as well wait for a penetration of 580 and a clear reversal of the lower highs.

  133. MLMT

    @greg Watch what the popular media is talking about gold. They think it is headed to $5000. The people who think gold is due for pullback is the perma-bears (MLMT inclusive).

    @myself and everyone – we all see what we want to see. We all hear what we want to hear. Sentiment can NEVER be used to time entries and exits. Scale in and scale out based on whatever tool you have – be it cycles, be it moving averages, be it some vodoo.

  134. DG

    For those who may not think what is happening is extreme: The SPX has now traded above its 10-day moving average for 30 straight day without once trading below. This has NEVER happened before in modern market history. This is not a normal merely “strong” market move. (from sentimentrader.com)

  135. DG

    MLMT: Sentiment cannot be used as a precise entry or exit tool, but surely you are not saying that the sentiment background is irrelevant..? Or that all entry and exit tools are of equal value..? Interesting post you just made.

  136. Redwine

    Gary

    You have switched from focusing mainly on the dollar, as a timing tool, to nearly ignoring it.

    Last focus in premium was the weekend report. Do you think it’s becoming less meaningful due to euro volatility?

  137. Gary

    I think there are such huge interventions in the currency markets by central banks that I don’t trust the moves.

    Case in point we just got a failed daily cycle that immediately reversed and is now trying to fail again.

    The Fed is trying to debase and everyone else is sick of getting taken advantage of, so they have decided to play the same game.

  138. Rebecca

    Silver seems to be leading today’s decline. Already made a swing high on the daily chart (if I learned it right from Gary). 20 sma was rejected. For GLD, 50 sma. Since I am not a day or swing trader, I am sticking with the Gary’s plan.

  139. David Kafrick

    These are great times for trading the currency markets. In normal times, watching the currency markets is like watching grass grow. Now we have these huge moves in both directions. Great for trading but really bad for the countries.

  140. Jayhawk91

    Alex-

    Thoughts on RBY? Broke up out of a flag yesterday-could be back testing the flag now.

    This is one of my top picks for 2011.

    You guys see that H&S on SLW? Am I reading that right? Target in the 21 range.

  141. Gary

    Got to squint pretty hard to see a H&S on SLW. 21 would be below the 200 DMA. Probably unlikely unless a D-wave is starting (which I doubt)

  142. TZ(5288)

    >The Fed is trying to debase and everyone else is sick of getting taken advantage of

    The funny thing is that a country printing and debasing it’s currence does NOT ‘take advantage’ of another country.

    If anybody pauses from the TV rhetoric to think it over, it is plainly true. Zimbabwe didn’t take advantage of anybody else by printing (but the govt took advantage of their citizens). They did the MOST of it. They simply ran their country into the ground.

    The reason people believe debasing helps a country is because the positive effect (selling more stuff cheaper to others) are much more visible and measurable as gains to specific companies, industries and balance sheets…..as opposed to the NEGATIVE effects which is that *everybody* in the country and using the dollar is poorer. But since this negative effect is widely WIDELY spread out it appears invisible. Everbody loses a little, SOME companies and industries gain back SOME of that loss. The overall is negative, but balance doesn’t appear that way.

    The real flaw is that the other countries are stupid (or have stupid enough citizens) to believe they have to ‘compete’ in destroying their own currency and country as we do the same.

    Humanity is a mess sometimes.

  143. Gary

    Zimbabwe paid off their international debt in debased currency.

    Does anyone else think the countries that got those worthless Zimbabwe dollars felt cheated?

  144. ALEX

    DG

    remember I said I was watching VGZ

    noting unusually high volume today on 3 day 15 or 30 minute chart.

    no action recommended, just a nice pattern on the 3month daily too. strong buying.

    I also have the dollar breaking below its 20 and 50 sma…sickly looking MACD…

    and I got short term buy signal on ag @ #13.40 and ng 2day too.

    Bought AG with assumption to add to core or trade. do not like open gap below however.

    They were SHORT TERM signals that i wouldnt buy, but the dollar said ‘try it’

  145. ALEX

    (LOL)…as soon as I posted that, it directed me to the main page with Gary’s “TOO SOON TO JUMP BACK IN”

    I know it is πŸ™‚

  146. Jayhawk91

    Onlooker-

    That pattern is pretty iffy…I’ve found most of the H&S on the pms charts to be worthless. But that one would measure down to the 21 zone. I really doubt it.

    I think worse case on SLW is 27.50 area.

  147. MLMT

    @DG I never said sentiment is useless. I strongly believe that extreme sentiment can be used as a warning sign and for tightening up stops and getting oneself ready for reversal (possibly). however timing can go bad with sentiment. IMO sentiment is not much different from an oscillator… It is good for range bound market.. but not for trending market. Just like oscillators can stay overbought and oversold for long time.. so can the extreme sentiment.

    As for what tool to use for entry and exit… i think tools are as good as the user. IMO in entry and exit, risk management is more important than the tool itself. Whatever tool one is using, one needs to know the limitations of the tool. As long as one understands the limitations, one will do fine.

  148. ALEX

    Jayhawks

    I was watching RBY yesterday, I like that stock and basing action after the last run up , now good buying volume ( I understand they explore drilling and found more Gold?).

    After an IT low I may buy that, unless it takes off early and I dont want to chase it.

    as for H&S…they work, but I was taught that for a ‘proper’ reliable call for H&S, the last shoulder needs to peak lower than the first one, because it shows more weakness.
    A higher shoulder on the right can fail, but odds arent AS GOOD to get the full extension down (price target).

  149. MLMT

    I think 1393 in pre-market was the best that gold could muster. I doubt we will see 1394+ in regular session now. But it did the minimum requirement of opening above yesterday’s highs and 1388 level.

    A down day for metals with a push up for the equities late in the day would bode well for a major down day tomorrow. Also, lets see if we see SoS today as equities are ramped up into close.

  150. ALEX

    Gary

    “Does anyone else think the countries that got those worthless Zimbabwe dollars felt cheated?”

    yes, and they didnt have any good manufacturing products for us to scoop up and import with our super-strong currency at bargain prices either. (maybe travel there was a lot cheaper)

  151. Jayhawk91

    Alex-The HUI has the same general H&S pattern–kind of an upward sloping pattern so the shoulders are somewhat symmetrical. Like I said, I’m not wild about these on the pms from what I’ve seen play out over the past few years.

  152. thedocument

    I’d be careful about relying too heavily on regression to the mean. It works “normally” (statistically-speaking) most of the time, but during extreme events, it more or less fails. Now, I realize that after the event passes, price will snap back to some moving average, but a whole lot of good that does you if you go broke in the meantime. Ask traders like Victor Niederhoffer who twice made fortunes trading regression models and twice went suddenly broke when a big event hit.

    I mention this because I think QE2 may be generating one of these events. Consider a factoid from sentimentrader.com that the S&P recently closed above its 10DMA 30 straight days which has never before happened in the history of the index.

    The bottom line is that large divergences from the mean are best used as a signal to reduce positions, but in the long run, those who use such signals to open positions will probably lose a lot of money.

  153. Gary

    Which is why I have no desire to short the market.

    But I doubt QE2 will prevent a market correction. I tend to believe human nature will be more powerful than QE. At some point smart money is going to get nervous and take profits.

    QE completely failed to produce the initial goal of lowering long term interest rates.

  154. thedocument

    Oh, I agree. We’ll get a correction… and the longer Bernanke holds it off, the more violent it will be. I actually think calling the coming intermediate lows in gold and stocks may be tricky because the drop into those lows may be quite sudden and the snap-backs, just as violent. We will have to stay on our toes.

  155. Keys

    In not so many words, the Fed has stated that it wants to prop up the stock market in order to create a wealth effect, so that people can borrow against their perceived wealth and start spending.
    Doc made a couple interesting points. From my perspective, again, this is only theory, since I am not trading in or out. But what if the Fed perpetually holds the market up allowing the averages to catch up. I suppose corrections will take place, but minor perhaps. In nominal terms prices will be going up, history will show how Ben was the hero in restoring American know-how, and it will be proven by the surge out of the stock market.
    In reality, there is nothing to stop the FED from keeping the stock market up. The bank crash would never have happened had the FED intervened through a quick purchase of shares, and whatever else it wanted to do. Of course inflation is the cost to the country, but since the NEW bubble is the stock market, individuals will be able to borrow against this (as they did their homes) in order to buy time.
    Again please don’t take my words out of context, the rational thing to happen right now is for the market to correct, along with gold for that matter, just food for thought during these strange times. And I agree the longer Ben holds the market up, the more severe the correction will be when things explode.

  156. Gary

    If it was possible for the Fed to “hold up” the market we would never have had a bear market. We never would have seen a flash crash in May and there would have been no daily cycle correction in November.

    And the biggie. If it was possible for the Fed to support prices the bond market would not now be in a secular bear market.

    Human nature isn’t going to change. At some point a profit taking correction will begin and it will run it’s course no matter what the Fed does. The key is whether the underlying cancer will break free at that time and put an end to the cyclical bull despite anything the Fed does.

    In the end all that liquidity is just feeding the cancer not curing it.

  157. DG

    MLMT: Agreed on both counts. I use sentiment to alert me to direction, and timing tools for entries and exits and (Gary, don’t listen) tight stops and careful position sizing. I’ll buy or short almost anything in the morning if there’s a good natural stop is 5 cents away.

  158. Gary

    LOL tight stops only apply to volatile assets like precious metals.

    They end up being an excellent way to induce numerous losses in a bull market.

  159. greg

    Alex,
    what is your average holding time for the stocks you buy. I get the strong impression I am a lot longer term investor than you. I used to swing and day-trade, but now I like to buy and hold. I don’t mind being 20 or 30 percent down on a position as long as the fundamentals are great. BTW – I did buy some CHGI.

    MLMT, I agree with your statemant that we all see what we want to see. I know I do.

  160. Redwine

    So barring the invention of a perpetual motion machine the odds of many sovereign defaults, including the US, seems fairly high.

    Also, almost guaranteed the method of default will be currency debasement.

    Then logically one of the lowest risk/reward activities would be to take on as much debt as possible. Not only will the debt be eliminated by currency debasement but the gain won’t be taxed.

    The worst part of stock or physical PM investments is the capital gains tax that’s paid on currency debasement. Just staying even equals a guaranteed loss of wealth.

  161. Gary

    Here is a question one could ask themselves. How many times has a tight stop knocked you out of a trade for a loss?

    Now how many times did that trade end up being a winning trade?

    If there is a huge discrepancy in those two numbers then there’s a pretty good chance your tight stops are costing you a lot of money.

  162. Gary

    Jay,
    I would have to agree. There is so much intervention in the currency markets its hard to believe any of the moves. Not too mention that once the stock market corrects it should send the dollar higher.

  163. ALEX

    Greg,

    ya know what it is?? Its likely that I am trading with the hairs on the back of my neck up with Gary & Doc ‘s cycle analysis πŸ™‚

    I usually buy and ride the trade for weeks!! I prefer that SOO MUCH!! But when a large correction can happen (and is likely), I tend to trade by volume more,daily.

    I dont want to wake up with futures down 150 pts, gold down $35…and me over invested with a profit before it open, and slam (unless its my core position).

    I admit that I trade often and I will get caught that way, but I have spent Dec and Jan slipping in on what I see as a proper set up for me, and take the cash (usually a .50 gain, maybe $1.00/ share)so I will still be up pretty good.( and sometimes like NAK and REE you get strong volume signals to stay in the trade)

    this scooping of profits I will deploy at the gold Bottom…THEN I can RIDE THEM and shave my neck πŸ™‚

  164. DG

    Gary: There are lots of traders better than you (or me!) that use tight stops. I am coming to accept the fact that you simply do not understand that way of trading, and reject as worthy of scorn whatever you don’t get. You do seem to be quite good at what you do. Kudos and thanks for that.

  165. Gary

    DG,
    I whole heartedly agree. There are 1000’s of ways to make money in the market.

    I was just asking if when one looks at their long term record there is a big discrepancy between trades that got stopped out because of a tight stop as opposed to how many of those trades ended up being a winning trade.

    If that number is exceptionally large then it pretty much has to mean that ones stops are too tight or the level one is placing those stops at is incorrect does it not?

    And if the stop had been placed correctly or the trade allowed more room to work then one would have made a lot more money.

    Is there a flaw in that reasoning?

  166. ALEX

    This, however, is a good statement by Gary, because he started with “IF…

    “If there is a huge discrepancy in those two numbers then there’s a pretty good chance your tight stops are costing you a lot of money.”

    always good to self examine and improve “IF…” one can.

    IF..it doesnt cost one lots of money , its all good.

  167. ALEX

    AND…

    If anyone is watching BORN on a 3 day / 30 minute chart…and see’s that cup and handle break out rocketing it up over my sell point ,with decent volume all of a sudden…

    I DONT WANT TO HEAR IT!! πŸ™‚

  168. Jayhawk91

    What in the world is so special about GORO? Up 164% in 1 year? When supposed rock solid companies like AUY are up 1.8% over the past year.

    Double top on GORO with a pretty hefty MACD divergence on the daily charts. Tempted to short it. πŸ™‚ JK

  169. Gary

    Must be that SPY went negative.

    I’m going to be out climbing today…finally quit raining and warmed up. Perhaps someone could keep an eye on this during the day.

    If it continues to pop up during the day as the SPY drifts in and out of positive territory it should be significant.

    Send me an email this evening and let me me know the outcome.

  170. David Kafrick

    Gary,

    I would say that there is a flaw in your argument about tight stops. When you say that a trade without the stop would have worked, this makes no sense. Every long trade (or almost every trade) that you put on will work, even if it takes 10 years to work, it will work. That does not mean that it was a good trade. What matters, is the rate of return on that trade. In my book, or in almost anyone’s book, a trade that earns you 5% in 6 months while suffering a drawdown of 15% in the meantime is a horrible trade. Even if it “worked”, in the sense that you closed the trade with a profit, it was a waste of capital.

    The tthing about tight stops, is that you can be much more leveraged than someone who will accept a big movement against them. So when you finally get the trade right, your size will be much bigger than someone who just buys and hold with no leverage.

  171. ALEX

    Goro claims they have no costs producing Gold, because other by-products of their mining cover all the costs. mines in mexico.

  172. Gary

    David,
    The flaw in that strategy is if one is using leverage, even if stops are tight, and they are getting hit often, you are going to end up losing money…a lot of money.

    Just use a little commonsense. Let’s say if the trade that you got stopped out of reversed prior to going against you by 5% and within 2 to 3 weeks then count it as a winning trade that was missed because of misplaced or too tight stop.

    Then compare that number to all the trades that you got stopped out of. If there is a huge discrepancy then it would seem to be suggesting one needs to find a better way to place stops because the illusion of safety in a tight stop is in reality costing one a lot of money.

  173. TZ(5288)

    GARY,

    >…if there is a big discrepancy between trades that got stopped out because of a tight stop as opposed to how many of those trades ended up being a winning trade. Is there a flaw in that reasoning?

    Yes. Kudos, a very subtile one.

    It has to do with the vague nature of you defining a ‘winning trade’. It seems simple and clear, but it isn’t.

    Ostensibly you want to argue that if a person is long, get stopped out and then at ANY POINT IN THE FUTURE it trades HIGHER, then the trade was a ‘winning trade’.

    Can’t do that.

    A stop is part of any trade. The exit point whereby you leave and cut losses. By definition if a stop is hit the trade is NOT winning.

    If you don’t want to use stops, then that is ok. They you can argue your definition of ‘winning’, but you must then factor in unlimited loss (and emotional damage) on the downside.

    Just saying “if stopped but if it ends up winning” lets you slide by with subtile traps like how LONG and how FAR it goes down and give losses BEFORE it ultimately recovers and ‘wins’.

    By your attempted definition anybody who had gold in 1980 and got stopped has now demonstrated a failed trading approach because the position would now be “winning”.

    The example is not nearly as outragous as it seems and highlights the subtile trap of your argument.

  174. DG

    David K: Well said. you beat me to it. Gary has said I am “allergic” to drawdowns, but I think he is too cavalier about them. If he hits a cold streak (a few more false upside breakouts in gold?) he’s going to have done damage. The same math that Gary uses to discourage short-selling applies here. Losing 30%means needing to make almost 50% to get back to even. And the lost compounding ability is an even greater drag going forward.
    Another point is that the utility of money is not smooth (for me at least). I’d be much more upset to lose $250k than I would be happy to make it. I have enough money now. Making more is great, but losing enough to affect my future decisions would be unacceptable.

  175. Gary

    TZ,
    Read my prior comment. I said to use a little commonsense. Give the trade 5% and a 3 week leeway. If it reverses and ends up positive before either of those parameters are hit then count it as a winning trade that your stops caused you to miss.

    If it exceeds those parameters then count it as a trade that reached the limits of expectations and had to be kicked out to avoid the consequences of the trade getting away from you.

  176. DG

    Alex: Thanks for the post on what you are looking at. For me I prefer the ones where they dropped and have gone dead and then rally through the congestion on big volume. If VGZ goes to 20 the chart’ll look like it was a base, but at this point it is bouncing around with 100% swings.

  177. David Kafrick

    Gary,

    But now you introduced 2 variables that were not present in your original post: 5% and 2-3 weeks. Now I think it makes sense to discuss the merits of each method.

    Even an old turkey or buy an hold investor works with a stop, even if he doesn’t know it. The problem is that his stop may be too big. He may “win” multiple times in a row, because his stop is so wide (sometimes 100% away), but when that one time he doesn’t win comes, and it will come, he will go broke, or at best almost broke.

  178. Gary

    DG,
    BTW the next entry if it comes because the pattern of lower lows and lower highs is broken will not be leveraged. So if I’m wrong I will just hold and wait for the bull to correct the timing error.

    The only way that I will leverage at this point after one fake out is if we get something that looks like a true intermediate degree correction.

  179. David Kafrick

    Anyway, there are many ways to approach the markets. The one who uses tight stops and let winners run, can afford to lose multiple times in a row.

    The one who uses much wider stops cannot afford to lose multiple times in a row.

    It is a matter of preference. But of course, there is a limit to how tight a stop can be. If it is too tight, then I tend to agree that it is a losing strategy, simply because at tighter ranges there are lots of noise.

  180. Gary

    David,
    The purpose of the exercise is for one to examine their record and determine if they are placing their stops correctly. Just use some commonsense.

    If upon examination it becomes apparent to you that you are not placing stops correctly and that in reality tight stops have cost you a lot of money then change something.

    Is it really that hard to do a little self examination? It is how one becomes a better trader or investor as the case may be.

    If that examination tells you that you are operating under a false illusion of safety then don’t be afraid to alter your strategy.

  181. ALEX

    DG -Jayhawks-Greg (and anyone)

    Ok , check this out (FWIW)

    I got a 1 yr daily chart (or wkly) and pulled up TRE.

    It barely flinched at the FEB low last year…then kept going up , then BARELY flinched at the July low too!! It had run up in June and did a meager retrace into July low.

    Now look at that on a 6 month chart today. If history repeats itself, its not going to flinch very much from hear (unless for some crazy reason it goes to retest that break out at $5.50.

    so…keep TRE on your watch-list , that may just be a giant flag waving at us ;.)

  182. Poly

    We’ve discussed it before, but today illustrates the problem with that SOS number. With SPY barely in the red it disappears off the list, but under the cover you have strong SOS.

  183. ALEX

    Jayhawks-

    look at your RBY on a 2 yr weekly…see anything ??

    MAN!! On an IT low , this could go to $4.50 and still be a GREAT chart 2yr wkly!! It also may not go down below that $5.10 area.

  184. DG

    Gary: You may not leverage, but if gold makes higher high you’ll you get in. If after that it makes a lower low, you will cut back to core again, no? Or are you saying you’ll just hold through an intermediate correction because the bull will bail you out eventually. (Unless for some weird reason the bull is over and we don’t know it of course.)

  185. ALEX

    Jayhawks

    I know…I’m staring at it , knowing that if I hadnt heard about a possible IT low coming in, I wouldnt hesitate to jump in and watch it.

    It is good looking, with yesterdays strength buying, and low volume sell selling today.

  186. DG

    Jayhawk. That RBY IS a nice looking pattern. I am just not buying now because we are so up in the air I can’t stomach it. If we keep going you and Alex can make some money on my behalf. Let me know and I’ll let you know where to mail it. πŸ˜‰

  187. DG

    Nope. Wasn’t me. I’m out until we get a correction, or if I do something it won’t be big enough to move the bid/ask.

  188. Nike Boy2008

    wow..dollar tanks hard and gold is barely moving…

    Gary, with dollar close to that 78.82 again..is it about the dollar cycle now? or is it about gold making higher higher and higher lows?

  189. ALEX

    no Jayhawks…I think he just wants us to send him our profits πŸ™‚

    I dont use bollingerb’s (lack of knowledge), but doesnt price hit that upper band and just ride up it for a while at times, stretching it along??

    And I am juggling here…I had 100% invested during the run w/occasional trading –

    Then went 50% cash , 50% core w/ 25% of that 50 % being a tradeable core ( yeah i know , defeats the purpose of calling it ‘core’ πŸ™‚

    But the 50$ cash is for the bottom of gold IT , ‘core’ is the ride in between πŸ™‚

  190. DG

    Alex: Hitting the upper BB just means the stock is very extended to the upside. Like “overbought” in a super strong trend, yes, that can persist. If I thought the SPX was going to shoot higher I’d not pay any attention to it, but as skittish as I am now I am more looking to short stuff at its BB than to buy things there. My experience is that a lot of stuff breaks out right before an IT correction as the dogs finally go, but then they fail as the mkt gets hit. But will the mkt ever take the hit? Who knows at this point.

    And, yeah, just send me the profits. It’s about the only way I’m gonna make anything here (unless we start down.)

  191. DG

    By the way, take a look at pza. The last two time it crashed right through the lower BB it had a nice tradable bounce. A stiff down day tomorrow might set that up. I’ll post right AFTER I buy it if I do as it is thin at times.

  192. ALEX

    Deal,

    but if it turns red, I will like-wise have to send you the debt,

    my BORN trade is now swelling with volume, so it was a decent trade, but I think its going to do a pretty sweet run, really. Out too early.

  193. ALEX

    PZA…looks like its also in a bit of a falling wedge , at the lower trend-line.

    Stochastics slightly getting to oversold…do you have a price projection for a sell if you get in?
    Like looking at $22.50 from $21.50?? Or take it as it goes along?

  194. greg

    Alex,
    Yeah, TRE is on my watch list. Their CEO James E. Sinclair is pretty outspoken on gold mining shares in general. Also, RBY – I am long it at $1.49 and it has great potential still IMHO.

  195. TZ(5288)

    Gold flat and going down WITH the dollar dropping is probably a strong sign. Stocks looking exhausted finally too.

    All my previous comments aside about lots of printing and the possibility of a runaway higher (33% odds…look seeming dropping), i would be MUCH happier for things to sell off here.

    I know how to play that (with gary and doc in tow), i’m positioned for it and it means more profit in the future instead of trying to step in sideways during a move up.

    It’s a good sign. I sure as heck felt we couldn’t drop up through this morning and it showed in my posts (but remember to follow the money and I never put money on it).

    Now let’s get on with this stupid correction and load up?

  196. ALEX

    Greg

    #1,49!! SWEEEET! And you’ll get lower taxes on it too πŸ™‚ It looks like a giant cup/handle on a 2 yr weekly chart, which -when it breaks out upward with strong volume- has pretty huge odds of running good.

    I actually used to speak to Jim S. through emails ‘BARELY”..he lived in Connecticut and has a mine in Tanzania . I lost touch with him when his wife passed away unexpectedly.
    He also , back when gold was going from $350 to $400 , made a big bet with Prechter, when Prechter said Gold was a bout to crash, and Jim called the Bull mkt For yrs to come.

    Jim is very exuberant πŸ™‚

  197. DG

    I usually play it as I go when long. Since the munis as a class look crappy, I won’t be overstaying my position if I take the trade. Should be worth a quick 4-5% though. Sometimes they keep going down a bit and I get out even on the bounce, but this kind of trade rarely loses for me. My concern is always an overnight crisis hitting after I enter (like IL defaults or something) but it’s never happened to me.

  198. ALEX

    Jayhawk

    Maybe / maybe not. πŸ™‚

    If gold sells off , there s a gap at $5.20 that would cause some pain, but for now I still want to keep it. In the LONGRUN , we’ll be up, and maybe I’ll get more at a lower price , as gary would say.

    as I look, Gold and Silver and HUI and GDX are all selling off ..WITH THE DOLLAR down almost $1.

  199. greg

    Alex,
    That is interesting about Jim Sinclair. I have a friend that is always calling up the execs of mining companies to pick their brains on the gold they have in the ground. He gets some awesome information that way. That is what lead me to buy GORO and Canaco resources (CAN.V on the TSX). Canaco has a huge propety that the Chinese are putting in a four lane highway to. Another friend has all her money in it and she has very deep pockets.

  200. catbird

    FINALLY silver is taking a real dump. And I’m liking it.

    It’s been leading gold…hopefully this means gold will follow and give us our intermediate correction? Pretty please?

  201. ALEX

    I am looking at a few things here…still in RBY Jayhawks ( for now).

    At this point the sell-off looks deep, but not a high volume wash out yet…final hour of trading may reveal more. Gottta man the battle stations!!

    Going to go look at SVM and GDX , GLD , AG , etc.

  202. Poly

    Metals today, equities starting tomorrow. Finally these bleeding short trades are going to pay……and big they will pay!!!!

  203. DG

    Damn! I missed shorting FCX by a nickel this morning. Oh well. Once we get started this is going to be fun. I hope they don’t take my profits away because “you can’t make money on the short side in a bull market.” My plan for now is to let them break and hit the bounces if the break is convincing. They’re not going to 1150 without me!

  204. ALEX

    I think Gary went climbing…he has a pda , correct? He’ll be pleasantly surprised when he gets home ,if not πŸ™‚

    Out for the night-goodnight!

    DG

    did you see BORN? πŸ™ does it look any better now? that volume really came in at the close.

    goodnight!

  205. Poly

    I doubt he will be happy, but it might help him expel those “maybe this is a runaway move developing” thoughts again. I hear a shift in sentiment in his postings, all natural of course.

  206. Rod

    Did you see the SPY jump right at the end of the day? It’s like someone knows what Intel’s report is going to be!

  207. Poly

    Rod, that’s been a daily occurrence for the last 4 months, whenever the market was down into close. Last 20 minutes is bought.

  208. Rod

    Poly,

    Yep, but it’s getting a little old. Looking forward to the day in which “they” can’t buy this market back.

  209. Jayhawk91

    I had the same feeling last year–miners got butchered while the rest of the market just sat there. Sooner or later, the market will take it’s long awaited beating.

    GDX low 40’s would put the HUI in the 375 range. Intermediate corrections don’t take things that deep, unless we are D waving it now. I’d be shocked if low 50’s broke.

    Alex-thanks for talking me out of those CDE puts yesterday and talking me into long RBY! πŸ˜‰

  210. Marc

    As an observation, I’m reading (on this blog and others) quite a bit of talk that due to Fed meddling, things are different. When I hear talk of “things being different now”, it pretty much guarantees that things will end the same. At that point, there will be much consternation and hindsight reactions and the balance of opinion will shift.

  211. coolkevs

    Demark boy with general observations from Prof Depew at Minyanville:
    SP futures recording a DAILY Sequential 13 today. WEEKLY only on bar 9 of 13, so at least a month to go on that time frame.
    Cash SPX is on bar 12 of 13 of a DAILY sell signal. Cash NDX will likely record a DAILY TD Sequential 13 today. These are good for the next 12 days once they record.
    Dollar is on a WEEKLY Sell Setup, so we are definitely seeing a reaction to that today. But this reaction has another 3 weeks to go. So, can we have a stock sell-off with a dollar sell-off?? Anything can happen, but it seems to me, we might have another few weeks in a kind-of blow-off scenario. Target in the SPX 1300-1310 range according to Minyanville Prof Smita Sadana. So, we are getting close, but don’t load up your shorts too soon. I would make an observation that GLD/SLV’s lackluster reaction to a dollar shellacking may give you the yearly cycle low you are looking for. As a reminder, we are looking for a DXY 72.5 to achieve the last remaining point of exhaustion in the dollar in Demark terms.

  212. Gary

    DG,
    If gold breaks the pattern of lower lows and lower highs then I will just enter unleveraged and sit still. Even if it turns out to be another curveball I won’t reduce again.

    One curve is enough. I’m not going to get caught in a bunch of whipsaws to drain my capital. As long as I’
    m not leveraged I can just wait till the bull is ready to run.

  213. Shalom Bernanke

    G’s subscriber update from yesterday says “Here is the game plan we will follow just in case something unexpected does happen. Right now the precious metal sector is still making lower lows and lower highs.”

    So far so good. More downside in metals/miners, and especially the miners if you ask me. Patience.

  214. William

    Hi Gary, I’m still around, reading this blog and thinking, wondering if your cycles magic will net out here per plan in 3-4 weeks or not.

    QE has made the market drunk – I don’t trust anything I see here except higher highs (SPY) or lower lows (GLD).

    $GOLD is in the funk, and had better break below 1353 soon, or it may signal that this is just a horizontal correction. Seasonality thru March favors strength over weakness. A break above 1423.60 would confirm and cause you (‘n me both) to go long. Until then we wait as SB wisely notes.

    Q’s about cycles, of gold vs S&P: Are their periods compatable (period and timing, both), or asyncronous? If the latter, how do you net them out, or do you treat them separately? You’d make Copernicus smile, but the church would burn you alive πŸ˜‰ Thanks much.

  215. Gary

    Will,
    gold and stocks are on their own separate clocks. The miners however will be affected by selling pressure coming off the stock market during a vicious intermediate correction.

  216. William

    Yup, get that and agree w/regard to GDX being pulled down by SPY. They are stocks.

    How about GLD/SLV though? Cycles show they go down as well?

  217. thedocument

    Jayhawk,

    The last dollar cycle failure occurred on NY Eve. You probably remember me writing in the letter that I was not thrilled about getting a signal on the last day of the year. That’s why I didn’t go gangbusters buying gold at the time. We can see now that the failure was almost certainly a run on stops in a thin market. If we see a cycle fail in mid-January, however, I’m prepared to short the dollar aggressively.

  218. William

    … typo’s fixed …

    BTW, good teaching yesterday on earnings vs. dividends. I knew that about earnings, having worked with the CFO of a major software company before, but it was a good learning for me on dividends.

    Am still chuckling about Jayhawk’s upside-down gold chart. I am wondering, did he discover that while standing on his head, or is he a reincarnated dog? An insanely sane idea you had there, Jayhawk. What’s next?

  219. Gary

    I think the dollar just threw us one of the craziest curve balls I’ve ever seen.

    I’ll explain in tonight’s report.

  220. DG

    Alex: Yes, Born looks much better now having cleared the congestion, but it is at the upper BB which means it is very stretched. If the mkt gaps up and reverses tomorrow I suspect it will drop just as RBY did today when the SPX faded. If we keep rallying it’s fine since lots of breakouts hit the upper BB on the initial thrust, so, to me it’s dependent on what the mkt is going to do over the next few days, which leaves me less interested. Were I bullish I’d join you.

    I suspect we will have a nice gap up tomorrow. For those interested, the trade would be to short the SPX IF it doesn’t make a higher high after the first hour. If it makes a higher high after then the odds of reversing and closing down or unchanged are greatly reduced as almost all reversal make the day’s high near the opening.

  221. thedocument

    sophia, I’ve been telling my readers since last summer that a time would come when stocks and the dollar move lower in tandem as they both react to crisis. That crisis may now be upon us due to the breakdown in the muni bond market.

  222. William

    Gary, am sure you know, but another cycles guy named Larry Edelson is forecasting further short term weakness in gold, due to cycles.

    http://www.uncommonwisdomdaily.com/read-the-tea-leaves-%e2%80%a6-10951

    I am not pushing/promoting him or his service – just noting that another cycles guy seems to match your cycle theory as well.

    He notes that the Chinese Yuan will likely rise soon, causing the dollar to fall. Yet he doesn’t say that this will cause gold to rise, like I thought he would. Strange.

    Just fyi.

  223. thedocument

    The more I stare at my charts, the more I think we may get our intermediate low in gold sooner than we have been anticipating. There are a number of reasons for this outlook. Rather than getting verbose, I decided to make everyone a pretty picture. A picture is worth a thousand words, right? Well, I prefer the ones worth thousands of dollars πŸ˜‰

    Potential path for gold

    Enjoy.

  224. William

    Nice chart thedocument. The 150d EMA seems to work. A bounce off of it would be a good signal. Let’s hope it gets down there.

    FYI the 150d EMA also nearly matches up w/the 34w EMA, that was mentioned on this blog yesterday I think it was.

  225. MBS

    Gary–
    Watching closely for a swing high in SPX. Will you be on alert if on gets formed here? How will this relate to the current dollar cycle?

    Thanks

  226. MLMT

    Expecting gold and PMs to sport a nice bounce today after an initial dip.

    I expect gold to open at 930am BELOW whatever level it was at 930am last friday. It will likely go down to low 1350s, but not take out last friday’s pre-market spike down lows.

  227. Gary

    There’s no guarantee a swing will mark the top. This has been a very persistent trend and it is going to form a second very stretched cycle in a row.

    Ben’s printing press is stretching everything.

  228. DG

    Darn. As I posted last night a gap up would have been a good trade as fading gaps after INTC reports usually works. Now…? Selling off on “good” news is often a tell of buying exhaustion. Will post if/when I take a shot.

  229. MLMT

    Everyone is saying INTC marks the top… So they sold ahead… Now they will sell some more today… Only to get screwed with Tuesday gap up IMO.

    Expecting that SPX will finish near lows of the day. PMs will bottom out near mid-day

  230. Gary

    M,
    Just curious. Why do you try so hard to call every little intraday wiggle?

    Are you actually trading based on these predictions?

    Unless one is standing down on the floor of the NYSE and has access to the order flow it’s just crazy to think they can predict intraday wiggles with any long term success. Why bother?

  231. DG

    MLMT: Keep calling those wiggles. You have had misses (we were supposed to close up yesterday, for example) but have been quite accurate much more than random would suggest. A few more good calls and I’ll have to delve into what you are doing with your volume analysis.

  232. Jerred

    DG,

    Volume analysis/profiles does not predict price. It just shows you places to do business.

    That is how you can call out levels and market usually responds well to those levels.

  233. DG

    Jerred: Places to do business is price no? “SPY support at 127.89” states a price, or did you mean it doesn’t predict where SPY will go? You get me in at the right price where I never shows a loss and I’ll worry about the exit. Am I missing something here?

  234. ALEX

    Good morning guys

    Had a rather late ‘going away’gathering last night (good time πŸ™‚ but a little tired today.

    Will be reading more than talking on here today (your welcome πŸ™‚ haha

    Jayhawks..YOUI ARE FUNNY, I dont remember it quite that way πŸ™‚ I DO remember this:

    Alex-

    I don’t know…this one is looking strong and nicely back tested the flat this morning. 8.25 target on the flag break?

    just remember …we send the bill to DG, no worries!! good day everyone

  235. Gary

    If I remember right M berated TZ for buying several weeks ago because gold was going to $1388 and would subsequently collapse. It went to $1420 before reversing.

    Of all the time frames to trade intraday has to be the most random.

    Seems like an pretty tough way to make money.

  236. Jerred

    I think you have the right idea.

    Sometimes people believe it dictates where price will go, it doesnt.

    However, it allows you great trade location with great risk/reward.

    When used with context then it becomes really powerful.

    I am surprised you don’t already use it based on your style of trading

  237. ALEX

    as a side thought,

    AS for MLMT , maybe his short term call will keep some on here from shorting the bull market??

    I was looking at ZSL , but he has me worried about a small bounce “surprise to the upside’.

    Instead… Maybe i will just follow you Gary (patience)from this point to the bottom, then load up πŸ˜‰

  238. DG

    Nope. I have been trading since before computers and before such information was available. I do incorporate new things from time time and this will need to go on my list. It has come up before so it is probably time for me to put more energy into it. Thanks.

  239. DG

    Hey Alex: Nice move on BORN. I told you not to worry that it was stretched and that it would go up even if the market went down! πŸ˜‰

  240. ALEX

    DG

    You RE funny too haha

    I sold BORN ya know. It was good for a dollar , now its up a dollar from my cell point πŸ™

    It has a high volume high on a wkly a, and originally I thought it could retest that high, but thoughts of market correction had me cut it short. safe.

    U were trading before computers?? I AM a baby on here~!!

  241. DG

    Alex: I really didn’t remember that you had sold it. I wouldn’t have been so glib in pointing out how well it’s doing had I known. I try to be funny but not annoying, though I sometimes get that backwards. Yeah, started trading in 1979 when I first got my broker’s license. Pigeons flew quotes on bits of paper to you through your open office window.

  242. Avann

    Seeing the post from Jerred re books and software … I would love to hear recommendations for good books and software on market analysis.
    Jerred? Or anyone else?

    Thanks

  243. Jerred

    amazon.com has all of them

    markets in profile

    mind over markets

    data feed – dtn iqfeed

    software – investor RT (lynnsoft)

    hope that helps

  244. ALEX

    DG

    nice…1979 & pigeons haha , ahh the good old days. I was getting ready to start High school lol

    And for your comment on Born..I laughed. I thought it was a ‘dig’ because I sold , but I would be the first to say it too.

    As for ANY remarks made on here…I am not thin skinned at all. I respect everyones opinions -and if I post a trade…I own it. Good or bad. (It was a good trade anyways I dont want to seem greedy)

    Even if someone were to berate me verbally on here , I’ll learn ‘something’ from it.

  245. MLMT

    10:22am right now – IMO GLD is about to puke on high volume. We are near/under the lows of Jan 5,6,7 — when people smartly bought the dip. Once this 133 gives way… watch out below IMO…

    As said before, bounce will likely come later in the day…

  246. Gary

    In bull markets the best buying opportunities come below the 200 DMA.

    Look at last year with the HUI at 360 or the stock market this summer at 1010.

  247. Jayhawk91

    Alex-

    Just messin’ with you. Those CDE puts would have done 200%.

    I’m going to be shocked if the HUI doesn’t bounce fairly hard on the 505-510 range.

  248. Steven

    Jayhawk,

    Yeah but unfortunately for some of us we didn’t act fast enough. I’m now 100% cash but have a core holding in my physical gold/silver. I followed Gary’s advice like a champ (pun intended)…only I had leverage and would wait when he said to make a portfolio switch. Never again.

  249. ALEX

    Gary

    I know you say NEVER NEVER NEVER short a bull market ( and I tend not to, I admit I am not as good there),but my core position holds a lot of silver-so I bought ZSL as a counter balance.

    Silver goes down, my EXK and PAAS and SLW go down , but ZSL goes up and relieves the losses a bit. It works a bit so far , but…

    Do you find this unwise during a correction? Am I missing something other than IF the surprise just takes off to the upside, I miss those initial gains by being semi-neutral?

    Appreciate your opinion.

  250. Keys

    Doc, Glad to see I am not the only one that sees the 150 as being a good bounce point. I don’t look at charts very often, but this one seemed obvious. I believe another blogger made mention to this as well, so my pardons.

    Interesting as a re-entry point, if the stock market hasn’t turned over yet and we tag the 150 in gold, what do you do?

    Gary has yet another great call. I will be looking to add leverage when you call the bottom of this.

    To those holding, “Gobble Gobble” and good week-end all.

  251. David Kafrick

    Market profile is the best tool that a trader can have, at least in my opinion. It is the only method that forces you to see and think about the markets for what they really are: an auction process whose main purpose is to facilitate trades between buyers an sellers. As Jerred has mentioned, it doesn’t really predict price, but it gives you the tools to find great trade location. Mind Over Markets is a fantastic book.

  252. Jayhawk91

    Steven-

    Sorry to hear about your experience. I had a similar one last year and it messed with my head the whole year. Food for thought–last year’s harsh intermediate and yearly low was the buy point of the year. You could have bought that bottom and been old Turkey until Dec. SLW was rock bottom at 12.95 and hit the 40’s by year end. Anything can happen, but these dips could turn into some big gains and help ease our losses from a few weeks back. Hang in there.

  253. DG

    Poly: the only problem is that we are in a new world. The Fed has never gone nuts like this before so who knows how long this will take. “The markets can remain irrational longer than you can remain solvent.” Maybe back up a Honda Civic instead of a truck? I do think we will crack but Now, March? This summer? With the Fed stating they want the market up, you are fighting someone with a printing press. I am trading so small at this point it’s embarrassing, but it is keeping me out of trouble, and I am long no PM stuff.

  254. Marc

    ALEX,

    Why would you balance a long position in silver with a short silver ETF (ZSL)? All you’re doing is giving money to the fund manager (who always takes their cut).

    If you want to tread water, then why not just close your silver position?

    The only time I’ve found hedging to be useful is if the hedging instruments are sufficiently different, such as using options to insure a stock position.

  255. DG

    Gary: SoS over $350 million. You have said it is not a short-term timing tool, but you also said recently that it would indicate “the top” and expected it around now. Thoughts?

  256. Steven

    Thanks Jayhawk for the encouragement. The crazy thing is that I did listen to Gary during the intermediate low and, for example, bought AGQ at $60! But I kept buying it and leveraged myself too much. Won’t happen again. I’m hoping to make it back on this next leg up. So weird but in a single day I’ve gone from rooting for the metals to go down instead of up. Like I just switched teams all of a sudden. And this is even though I lose money on my physical position which is a fair portion of my overall net worth. I bought the physical thanksfully on and off from $800-$1100 (but most over $1000) so there is some cushion there and the daily gyrations won’t kill me. Although I do plan to sell all but a small portion of this if the C wave advances to the numbers Gary thinks it can. I have bars and silver bags. I’m considering keeping some bars and some bags as real insurance against a breakdown in society which I don’t expect tomorrow but there is enough of a potential to keep some (even through a D wave I suppose).

  257. ALEX

    MARC

    Thanks for your reply

    I dont want to sell my silver positions, because I do hold a core position at all times in a c-wave. As the core drops, however,so does the account balance πŸ™‚

    so ZSL is up 3% , while SLW is down 4%…seems better to have a position up3% and a mngr gets a small cut , than no position in the green.

    I dont want to sound stupid, but I am uninformed and inexperienced when it comes to options. I know its the best way to add insurance, but inexperience is often more costly to me ( when I have time, I may take a course for future positions).

    The fund manager gets his cut, but is it really THAT much??

  258. Onlooker

    Breadth is terrible for an up market. New highs are down significantly and new lows have shot up (NYSE data). Very strange market that just HAS to be perched on the edge. It does right? LOL

  259. thedocument

    Keys, if I remember correctly, you were the one who turned me onto the 150DMA. If gold tags that level within the current daily cycle, I will be a buyer… low-risk entry with a decent chance of hitting the bottom of the intermediate correction.

  260. ALEX

    Doc

    wasnt it ‘signals’ that posted the 150sma was repeatedly tested in the past, on your blog.

    Your reply was “
    …interesting. I am always looking for best fit”

  261. Gary

    DG,
    I think THIS SoS number will mark the top. We might make a stab at 1300 next week but I expect the intermediate degree correction will begin soon there after.

    The only way I would be a buyer of gold (miners)at the 150 DMA is if the stock market had already corrected and we got at least one large BoW day.

    Usually by the time everyone has noticed something it no longer works. I wouldn’t put a whole lot of faith in that 150 DMA at this point. Although it should be good for a bounce.

  262. DG

    I kind of agree with Gary. I have seen the 150 DMA mentioned about five places recently. We’ll get a bounce as a self-fulfilling prophesy, but I bet we don’t bounce for long.

  263. David Kafrick

    I agree with Gary comments about the 150dma.

    The more that a support or resistance is tested, the more likely it will fail. Be it horizontal support and resistance, trendline support and resistance, moving average support and resistance, doesn´t matter. After that line has been tested a few times and everyone is feeling confortable trading it, the more likely it will fail.

  264. Onlooker

    FWIW OEX P/C is running at about 4:1 today. That’s the worst I’ve seen it in some time. Put together with the other evidence and maybe…

  265. ALEX

    I think the 150sma will fail….

    not next time, but
    in the D-wave

    when EVERYONE really notices it working AGAIN , and jumps in on the way down D-wave style

  266. David Kafrick

    Too many people calling for a top. I don´t think this is it. Tops in the stock market are almost never a blow off top. Usually a trading range will form, with several drops and bounces, and the market will test the upper range a few times before finally breaking down. So even if we are near a top, I expect some sideways action next week, before the market begins the correction.

  267. ALEX

    ao9200

    not sure if you were saying you were ‘getting ready’ to jump in Aem Abx , because they were nearing their 200sma??

    If so, before you do , please check out GG & RGLD

  268. Gary

    I prefer to pick bottoms by waiting for a swing low in the timing band for a cycle bottom.

    I also wouldn’t try to re-enter prior to a stock market correction. We all know how these intermediate degree corrections in stocks affect everything. The selling pressure during one of those is intense.

    Jumping into any asset before that selling pressure has a chance to exhaust is the recipe for a major draw down.

  269. Romeo Bravo

    David, agreed. I would have thought we would have dropped by now but few more to eager bears to squeeze out. Next week is OPEX, so the usual games but I don’t think we are far off. We are close to 1300 on SPX, which I don’t think we will quite get to. But it will provide eager bulls a target.

  270. Gary

    David,
    I’m calling the top because big money is exiting. That’s what that SoS number means.

    If big money is selling who’s going to hold up the market?

  271. thedocument

    Alex, yes, maybe it was signals that mentioned the 150DMA. I also agree with you that the 150DMA will fail during a larger decline (post-parabolic), but is likely to hold this time. I’d also keep an eye on gold miners bullish percent. We want to see that reading under 50 to ripen the environment for an intermediate low.

  272. David Kafrick

    Gary,

    But if I remember correctly, we had a huge SOS when the S&P was trading near 1180, right? So who knows if this is the top… These are strange times. I´ve never seen such an amazing run in the stock market since this started back in August. And I was around during the late 90´s.

  273. DG

    David K: I don’t know. We had three down days and now a move to new highs with awful internals. April of last year didn’t build a top really and the decline from there would warm a bear’s heart. Not exact, but there wasn’t much of a top formed. I believe extended tops are more when an entire bull market is ending and this is probably just a correction.

  274. Gary

    David,
    I said at the time not to depend on that first signal. This signal however is coming very deep in the timing band for a daily cycle top.

    Everyone has convinced themselves that the Fed has somehow aborted stock market corrections for the rest of time.

    I expect we are about to undergo an extremely severe correction, possibly along the same lines as what happened this summer.

    Just about the time everyone becomes convinced that this time is different the market shows you it’s never different.

  275. David Kafrick

    If we were to reverse today, and close within the previous trading range (below 1286), than that would be really bearish. Otherwise, I think we will at least have some sideways trading before the market corrects.

  276. BlueHawaiiFan2025

    I do not recall this, but has anyone talked about the block trades on the SOS number? Would that have more significance than the total money flows? I am aware that block trades are ususally associated with institutions.

  277. ALEX

    Doc

    good reminder on gold miners bullish percent. I’m going to make a checklist for such things.

    Gary

    But
    1) IF they CAN keep this market propped up a bit more ( like to 1300 area, then a pullback, and retest of 1300 area) and it all takes 2 more weeks of what we have seen since Dec…

    2) THEN you get the swing low in Gold rapidly, like 2 wks from now…

    How do you invest in that Gold IT bottom??

    You’d wait for maybe a week, to see how P.M. stocks react?

  278. Gary

    This daily cycle is running out of time. It’s already deep into the normal timing band for a final low and it hasn’t even topped yet. I doubt there will be too much hem hawing about.

    At some point the market is going to wake up to the fact that the muni market is in big trouble and it will get busy moving down.

    Who says the market is a discounting mechanism? The muni’s have been in trouble for almost three months now. Human nature being what it is the market has chosen to ignore the obvious because prices are rising.

  279. Jayhawk91

    At this rate miners are falling without an overall market correction, we will most likely see a test of the 252 on the HUI (currently at 475, GDX 51.40’s now)

    I noticed too that SLW usually corrects to the 144 (150 pretty much the same) Just a bit over 27 right now

  280. Gary

    Alex,
    I won’t be jumping in before the stock market corrects.

    One can try to convince themselves that the Fed will prop everything up but the odds are astronomically against them being able to do so.

    They couldn’t prop up the bond market even though that was their stated goal.

    Don’t make the mistake of projecting the past into the future.

    Once the correction really gets going we will wonder what in the hell we were thinking and how we could have possibly ignored the huge mess laying right there on the doorstep.

  281. Gary

    The world did the same thing when the sub-prime market started to unravel. We convinced ourselves it was a minor blip and of no consequence.

    We were wrong.

  282. Jayhawk91

    Also, in the past silver corrects as hard as the miners and the 144 usually doesn’t not hold up. The 252 looks better for silver, but this time it could be different-silver is hanging tough. (A correction even to the 144 would be a hard fall from here–22.50 for SLV)

  283. Gary

    It’s a waste of time to try and rationalize support levels for miners.

    As long as gold is heading down the miners will continue to correct. If you add in a severe stock market correction then support levels become meaningless.

    The markets will be governed be the intense selling pressure coming from the stock market. Assets will slice through support levels like a hot knife through butter.

  284. Jayhawk91

    I’m getting irate emails from a silver bug buddy of mine-

    “this is rigged!”

    “sell your metals and buy farm land!”

    “it will never break 30 again!”

    “Jim SinClueless and James TURKey are frauds and idiots!”

  285. David Kafrick

    The other thing that is bothering me is that I´m really bullish on the Euro right now. I think it has started another leg up and will make a new high above 1.42. Of course the stock market could go down along with the dollar, but that´s not how it´s been for quite some time.

  286. DG

    FWIW $BPENER is almost as overdone as $BPGDM was at the the PM top. The oil group may be the next commodity to fall.

  287. Marc

    ALEX,

    Taking a short position to offset a long position is the same as going to cash EXCEPT you are also paying someone to manage the ETFs. What good is a core position if you have another position that will ALWAYS negate your core position?

    The only time this might make sense is in a tax planning situation where selling later would have a lower or deferred tax exposure.

  288. Poly

    Bring out the charts, history, trend lines, moving averages, sentiments, whatever you want to justify this not being a top, and you may well be right too.

    But all I know is one thing, deep down in my gut, whatever experience I’ve accumulated is telling me this is just about as close to a top as we’re going to get and the drop will be sudden and sharp. When I get feelings like that, I ignore or else and follow it.

    Time will tell.

  289. ALEX

    Thx Gary

    I know I’ve been trading through DEC and Jan, but I dont think I will be jumping in either , if the market is in its correction. I picture that EVERYONE will head for the exits then, and I want to see the effect that has on P.M. stocks.

    Unless they re viewed as safehaven? But only that moment in time will tell. If we’re crashing down and my Core holding begins turning ‘green’ with good buying VOLUME -AFTER the IT low in Gold , I’ll feel better.

  290. thedocument

    I would be careful with the assumption that stocks and gold will find intermediate lows together. We all have last February’s experience burned into our minds, but the truth is only 4 of gold’s last 13 intermediate cycles bottomed simultaneously (+/- a week) with stocks. There are plenty of examples where the lows are a month apart.

    One could note, however, that when gold bottoms ahead of the stock market, the intermediate rally tends not to accelerate higher until stocks have finished their business. This fits with gold’s tendency to meander out of intermediate lows and surge into its highs.

    So there is little reason to fret catching the bottom. There should be plenty of time to build positions once the low is recognized.

  291. Keys

    To summarize.
    Gold bottom 150 or 200? or other?
    Stock market correction severity?
    Fed intervention has a mandate to hold stocks up. Nobody believes this can be maintained, but the question becomes when does the crap hit the fan?

    I will disagree with Gary on the bond market when comparing it to the fed’s ability to prop up the stock market. The bond market clearly hit a top, as we discussed months ago, and the only way to keep that thing afloat was to develop negative interest rates.

    My observation in bubbles is that they can go on and be maintained for a long period of time, but once they hit that breaking point where new tops can’t be imagined or triggered, things fall apart.

    I believe the stock market can be maintained for now by the fed. This does not imply a non-correction event, but a reference to that doozy of a correction. This of course will make the problem worse when we do hit that final unmanageable top. How convinced am I; I am not. I don’t trade the market. But it does relate to the gold bull. Logically speaking, although initially, PM’s might fall as the stock market falls and the dollar rises, I fully expect that the rationale to holding dollars will finally hit that “what the heck am I doing moment”. With the bond market already correcting, the understanding that the US economy is not doing well, purchasing power should find its way into PM’s…the ultimate bubble. Money running out of bonds, running out of stocks, having caps and speculative legislation on other commodities(oil for example), all this money will most likely jump into the PM wagon. With the world’s purchasing power running into gold and the poor man’s gold(silver), I can’t imagine gold not hitting $5000, and silver hitting at least $250. Assuming a dow:gold ratio of 1:1, and silver ratio 25:1. With these types of numbers, and my inability to see beyond the worsening fundamental story, IF the fed can delay the stock market crash, it should only serve to aid PM’s ultimate end price. The reason I stay 100% invested, is for the fact that although improbable, I wouldn’t count it unlikely for the FED to do something really really stupid as Ben panics if the market really begins to tank.

    Finally some interesting puzzles to think through…

  292. Gary

    If the Fed can prop up the stock market then explain to me why they allowed a 5% correction in November.

    The markets are bigger than the Fed people. Not to mention we still have a very large SoS number developing today. If the Fed was able to hold up the stock market indefinitely then I’m pretty sure the smart money would know about it. And if they know it can be done then why are they selling today?

    This will start as a profit taking correction. The Fed can’t stop that from happening. It may morph into the end of the bull market though just like the bond market morphed into a secular bear despite the Fed’s best efforts.

  293. Trader H

    hi,

    hey guys, my broker will not let me short ewp, so im looking for the a stock that i can buy short this stock. anyone know the symbol for that?

  294. Driver

    Gary,

    I’m not familiar with how the inner workings play out on the SoS #. How can the market continue to go up as it’s doing today when the SoS # is so large? Maybe it takes more than one day for enough of the big money to join in?

  295. MLMT

    As expected gold DID NOT take out Friday’s pre-market spike lows and as expected PMs and GDX bounced into close. Bottoming AHEAD of prior swing lows in IT downtrend is uber-bearish.. This just means that some day we will gap under today’s lows of 1354

    More of this bounce to continue on Tuesday. Let Ms. Market keep showing the way as always.

  296. David Kafrick

    Gary,

    Not that I believe the Fed can manipulate the markets, but letting it fall 5% like it did in November could be an excellent strategy if you are trying to manipulate the markets higher. The reason is that a drop like that will make longs liquidate their position and will invite bears to initiate short position. These 2 things will then fuel the market higher, as longs who got out will have to chase the market at higher prices and shorts will have to cover.

  297. Gary

    Driver,
    The SoS is a sign that smart money is unloading shares into a up day. Smart money sells into strength and buys weakness.

    David,
    Do you really believe what you just said?

    Do you really think the Bernanke, the same guy that wasn’t intelligent enough to see either the housing bubble or credit bubble or the effect his monetary policy had on oil prices in 08, is capable of that kind of tangled reasoning?

    You’re kidding right?

  298. Gary

    Don’t forget, these are the same idiots that thought they could ban short selling in financials and it would prevent banks stocks from going down.

  299. David Kafrick

    I said I don´t believe the Fed or anyone can manipulate the markets. πŸ™‚

    Not because the market fell 5% in November, but because I just don´t think it is possible.

  300. Gary

    I don’t think the grain markets are big enough for cycles to do any good plus they are governed to a big extent by weather.

  301. William

    Hey Gary, w/today’s candle, it looks like your cycles call on gold/miners is working perfectly. Am now waiting for your cycles call on the $SPX to force a bottom in GDX. Well done so far. There must be something to this cycle magic after all.

  302. Keys

    I am not arguing that the market can be manipulated into perpetuity. This is a timing question…5% corrections are not really what I am referring too..I was referring to the time delay that the Fed trys to hold the market up from that monstrous nose dive that you alluded to in your reports.

    I was only looking at the timing of this event, not the event itself. I simply don’t think the market will tank so hard this time around to break March 09 bottoms.
    And I do believe the Fed has some power to hold the markets up for a certain time, unless one believes the rally from March 09 bottoms were actually fundamentally sound. The Fed still has some bullets left in its gun. The belief in the recovery of the US should still buy the FED some borrowing time, until those interest rates creep up to levels the Fed cannot control. That being said, the bond market time clock has already begun.

    Tell you what if Armageddon re-starts now, I will buy you a burrito and I admit my logic is flawed in advance.

  303. Gary

    Keys,
    I can tell you where your logic is flawed, where it’s been used before, and how it failed.

    Simply printing money can’t fix our problems, it can only create bigger ones.

    In the summer of `07 the sub prime credit market started to unravel. The Fed did the same thing it’s doing now. It printed billions and billions of dollars.

    Did it cure the problem? No it did not.

    What it did was cause inflation to soar. Oil spiked to $147. That destroyed and already fragile economy and thus begun the 08/09 debacle.

    Now the same thing is happening. The municipal and state credit markets are imploding. The Fed is attempting to use the same cure it used for the sub prime markets. It is having the same effect. It is spiking inflation. They will get the same result.

    The economy will roll over into another recession. To print more and more money attempting to halt the economic and market slide will only spike inflation higher and higher magnifying the problem not curing it.

    So unless Ben comes to his senses his printing press is going to be the direct cause of the next recession and bear market. And the faster he prints the more severe it will be.

    I personally don’t think Bernanke is capable of seeing his mistake so I expect he will create a disaster that will dwarf the one we had in 08. That should easily send the stock market to new lows.

  304. Romeo Bravo

    Gary, et. al, I saw an interesting article the other day. I know we throw Ben Bernanke’s name around a lot here, and believe me, he is no hero of mine.

    However, the gist of the article was that Bernanke is just doing the impossible task of monetizing the debt of our country that Congress refuses to stop running up. The Fed’s job is to keep inflation low (ha-ha!) and prevent asset depreciation (markets, economy, housing, etc.) Sounds like an impossible job!

  305. Keys

    Yes and yes. Did I say anything to the contrary? Maybe I miswrote. Anyways, I agree with everything you said. The only thing I had an issue with was the timing of the demise.

    I am one that has notioned that this depression never ended, so a double dip in my mind is not possible since we didn’t get out of the first dip. The surge from the 09 bottom was based upon a liquidity driven Fed, and this propped the market up for now almost 2 years. This is manipulation to me. This has helped gold’s cause in my view and ultimate end price, and it has helped me remain old turkey in the PM’s. I have also posted in the past about inflation and its ugly head.

    Of course printing money doesn’t help anything…I never suggested it did or would. I did say the recent stock market collapse could have been averted had the Fed simply bought every falling share out there. Of course you are debasing the currency, and causing probably in this case an immediate hyper-inflationary event. Maybe this is where the confusion comes from; that I somehow believe propping the market up is a good thing. To tell the truth, I would be much happier had 09 continued down. Holding cash would be such an easy play at that point.

    My issue contends with the timing. On THIS correction, I don’t believe we will break March 09 lows. I still believe the market has some more to move up, before the Fed’s plan to inflate the stock market falls apart for good…for every reason and more that you have outlined.

  306. sophia

    Gary, when we have such big SoS as today with market finishing higher, how long does it take usually to unfold and when does the selloff starts in earnest? We seem that at 42 days into the cycle, we are geting really stretched

  307. Gary

    Sophia,
    I think this one is signaling an eminent start to the correction, mostly because the daily cycle is getting so stretched, and because a yearly cycle low is also due.

  308. David Kafrick

    Gary,

    You believe that gold will not be correlated with the stock market going forward, since you think that the market will resume its downtrend and gold will remain in a bull market. So why does gold have to go down with the stock market right now, when in the future it will not?

  309. Gary

    David,
    I think you are misunderstanding. Gold often does go down when the stock market dips into an intermediate cycle low. But it tends to dip rather small and once the selling pressure is released then it quickly soars back to new highs.

    We even saw this to an extreme extent during the selling crisis of 08 and 09.

    Gold took a beating along with everything else but it bottomed before the stock market and very quickly recovered all of it’s losses while the stock market was still dropping down into a final bear market low.

    Then while the stock market is still struggling to regain it’s 07 high, gold has long since passed those levels and has made huge new highs.

    This pattern of relative strength should continue for the duration of the stock bear and gold bull.

  310. ALEX

    Gary

    good point, even for Gold stocks.

    Early Nov 2008…GLD was near 70

    Early Nov 2008…spy was near 80’s

    then

    Early March 2009..Gld was near 100

    Early March 2009…Spy was below 70

  311. Jayhawk91

    Hmmmm…I made a comment earlier that never made the blog. Something about “I was wise to hitch my wagon to that rising star TZA”. Crap, I’m in that thing hoping this correction gets cooking.

    Alex-Great blog for your style of trading is-

    http://bluechipbulldog.blogspot.com

    Couple of frequent guys post here from time to time (Rosabarba, Bobloveshawaii or Bkudla over there).

    There is some outstanding day/swing trading ideas. The 2 leaders of the blog are Brinkley & Moo. Brinkley is one of the very best I’ve ever seen. She’s got her finger on the pulse of the market big time. Lot’s of ideas flying around there. Other good traders you would like are Eva & Rosa among many others. Just thought I’d share that with you. I’m still trying to learn and just try and observe over there.

  312. ALEX

    Jayhawks

    Thank you much-I appreciate that!

    I actually have listened to Rosabarba on here and Docs blog, you on here and Docs blog and Bobloves Hawii on here too.I was ‘signals’ on his blog πŸ˜‰

    My sub expired with Gary, I tried Docs and was also very satisfied, and plan on resigning with Gary again ( he’s quite thorough and detailed, and he responds to market changes nightly and with intra day posts). I’m new to cycles, they re both quite sharp.

    I do like to listen to others’ ideas and see things the way they are seeing them ( to learn something new) – And I appreciate the charts you’ve posted- so Thanks for that link πŸ™‚

  313. ALEX

    And Jayhawks

    you know how Gary is always saying that when a cycle low starts to takes hold-Patterns and indicators are of no use( they break down).

    I agree , early in a cycle, all my patterns work well, but they fail at the end…

    Good example of that is a beautiful small Cup/Handle in MVG within Dec. stong buying up the cup off of the 20sma, light volume handle, but it fell apart now (bigtime, $13 to $10 so far)

    i am thinking RBY may do the same soon, but lower prices are nice later.

    Have a good long wkend, no mkt Monday.

  314. Jayhawk91

    Steven-

    I forgot to respond yesterday–I’m the exact same way. Rooting for the things to go down but then realizing my core metals position is losing value. I actually don’t sweat that stuff too much. That is my OLD TURKEY until the bitter end position. DOW-Gold 1:1 or when governments can be trusted not to debase the currency.

  315. Jayhawk91

    Alex-

    I’ve been following Gary’s cycle work & blog for 3 years and started with Doc last winter. Both are excellent and I’m a big believer in the theory. (It’s not perfect, but I think helps recognize the wild swings in these metals which can cut both ways.) I’ve made too many mistakes, mostly on the mental/emotional side the past 2 years…I think I’ve now paid my tuition and am ready to have a more productive year.

    Last winter, both Doc and Gary were anticipating a very large move in the spring in the miners. They were both prepping their subs on this move, looking at cycles, patterns, etc and when the Feb correction happened it was a bit shocking to me. Then, the spring rally was ok but rolled over into the summer on the heels of the overall market flash crash/summer market weakness. I found myself thinking a larger size correction was coming on the heels of the summer weakness in Oct. (Hindenburg Omens, etc) so I was struggling stating long.

    All this to say, I’m wondering about the thesis of a 3 year dollar low coming this spring combined with a parabolic move in the pms. Just mentally preparing myself for the fact it could be later in the year again. Heck, if the overall market keeps churning higher into Feb, we could see the market move lower into March-May time frame causing the miners to move sideways/consolidate.

  316. Phil

    Will silver bullion bars keep ok in the bottom of a sump pump plastic basket buried inground in a basement ? thinking of buying 100 oz silver bars from blanchard and looking for a good hiding spot besides a lock box at the bank .. or how much is a lock box generally cost for a yr or 5 yr lease lets say . thanks Jake

  317. Onlooker

    Steven

    Re: that SeekingAlpha article. I’ve heard Morgan before on Jim Puplava’s podcasts. He’s got the typical viewpoint about PMs as money, Fed debasement, etc.

    As for the other guy from Fidelity: he just doesn’t get it. He has that typical viewpoint that the PM trade is just based on fear. He doesn’t get the fiat money debasement, etc.

    As much as his viewpoint is worthless and nonsense, IMO, it’s actually helpful for seeing into the typical mainstream investor mindset out there. He buys into the economic recovery thesis (he’s dropping his silver position and buying large cap stocks with it), and all the other clap trap you hear.

    And just to cap it all off, and further demonstrate his flaws here, he bought an ultrashort gold ETF against his AGQ position last year. Brilliant!

    He took an enormous return and reduced it substantially, all because he didn’t understand the PM trade. He only bought silver because of his bullish economic viewpoint, and figured gold would get smacked as the “fear trade” fizzled away. Oh yeah, he also says gold is in a bubble, blah, blah, blah.

    I’ll pass on his advice. πŸ™‚

  318. Onlooker

    Oh, and there’s more. He hints at suggesting people short silver here. Please, please do!

    He also suggested that “individual investors” had been “loading up” on gold for the last 2 1/2 years, but will be going back to the stock market with the “dissipation of fear” this year. Bullocks! Small investors haven’t been “loading up” on gold. Some have been tinkering with it (probably at tops and been burned) and it’s gotten more attention. But loading up on a widespread basis? I don’t think so.

    This interm correction is just going to reinforce this mainstream view that the “gold bubble” is over, and entice some to short it. More fuel for the next advance.

    (Also that last line of my previous post wasn’t aimed at you Steven, though it might have appeared that way.)

  319. Poly

    Hi Gary,

    Good weekend report. Got to say, that’s a great, big and brave reports with some major and specific predictions. You get 50% of those right and I would be very impressed.

    Have a good weekend.

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