WARNING SIGNS

It is been my belief that stocks and the economy have been locked in a secular bear market since March of 2000. During that period we’ve had two recessions and two cyclical bear markets. One of those recessions was the worst since the Great Depression and the last bear market in stocks was the second worst in history.

I’ve said all along that printing money will not cure the problem we’ve gotten ourselves into. It’s never worked in history and it’s not going to work this time either. We can’t solve a problem of too much debt with more debt. All we will accomplish is to make the problem bigger.

We are now fast approaching the period when the next crisis should arrive.

On average the stock market suffers a major correction about every four years. In a secular bear market that cyclical trough arrives as the economy sinks into recession and a stock market bear bottoms out.

The last four year cycle bottom formed in March of 09. That just happened to be the longest four year cycle in history. I’ve noted before that long cycles are often followed by a short cycle that compensates for the extended nature or the prior cycle. If that’s the case then the next four year cycle low is due sometime in 2012. (My best guess is in the fall.)


As we are still in a secular bear market then the move down into the four year cycle trough should correspond to another economic recession and cyclical bear market for stocks. Bear markets tend to last about a year and a half to two and a half years. If the next four year cycle bottoms in the implied timing band then the current cyclical bull should be topping soon.

As a matter of fact the stock market is already flashing warning signs. Three of the largest and most important sectors in the S&P have not confirmed new highs.




Another warning sign; Despite record earnings the market has only been able to move to marginal new highs and is now in jeopardy of reversing the recent breakout.

I’ve noted in the past that this is how major tops and bottoms are often established. Smart money sells into the breakout, or buys the break down in the case of a bottom. The trend then reverses and a major turning point is formed. Both the `02 bottom and the `07 top were put in this way.


The market is now at risk of a similar event as we’ve experienced a marginal breakout to new highs that is threatening to fail. Don’t forget this is happening against a back drop of record earnings.

When a market can’t move higher on good news something is wrong. And don’t forget bull markets don’t top on bad news they top on good.

If the market can recover and move to new highs the cyclical bull will be confirmed, but if the market continues to fade and drops back below the Japan bottom it will constitute a failed intermediate cycle. If both the Dow and the Transports close back below the Japan bottom we would have a Dow Theory sell signal and that would confirm the next leg down in the secular bear has begun.

It would also be a signal that the economy was unable to handle the spiking food and energy costs that were the direct result of Bernanke trying to prop up the financial system with his printing press.

Like I said, printing money has never been the answer. Every empire in history has tried this approach and not one of them has ever succeeded with it. We won’t either.

361 thoughts on “WARNING SIGNS

  1. David

    Also very telling is that the defensive sectors — consumer staples and utilities — have been outperforming of late.

    These sectors always lead as we enter a recession.

  2. Slumdog

    Short term silver and gold blog owners who I respect think there will be a run for a few more weeks, a strong dash in fact, up.

    Turd expects a reversal up this week.

    And they think this SI/AU game is more postured like the front of the 1980 parabola, the fake-out drop preceding a runaway, to the upside, parabola.

    We’re at a time crossroads.

    In this situation, I will stand aside, but for a cute, respectable, but meaningless in terms of total bottomline, position in physicals awaiting the outcome in the next 30 days, the lady or the tiger.

    When Gary’s agreed with the herd who I respect, including with Poly, I feel it a greater probabiilty. Now, Gary’s focusing elsewhere, on the S&P/DJIA.

    I’ve stated prior to the steep drop a few weeks ago that the parabola forming in silver had not extended the way it did in 1980. It looks more like a nipple than the slope of mount everest or even mount fuji.

    The softs recently showed that type of action. But silver stopped short. Even worse, silver never came close to the inflation adjusted value of 1980’s “50”. That would be 130 or thereabouts. That would be mount everest.

    Gary’s quicker to let go of the trade idea than I am. I will be watching very closely over the next few weeks. Between the devil and the deep blue sea.

    I wish I could agree that we were done with that parabola. But it just hasn’t climaxed high enough for it to be 100% written off.

    At the same time, if this is over, the backside of the parabola is very steep and once back in the starting price range, remains in that range.

    And we’ve seen “1X” on the monthly gold chart. And if it were the front side of the parabola, we could stay in this area for another 30 days, with small, rapid break out/fake outs which will kill the participants save those who sell spreads for the short term. If in June or July, we start to head up, we’ll talk.

    How many double topped parabolas have you seen in your lifetime? Same number as you’ve seen unicorns? Hence, my being wary, while still liquidating as not to be hedged at this moment is gamblers anonymous.

    And finally, yes, I know this is opposite to what Turd and silverandgold and Hammy and and and are saying, which is “up” later this week.

    I may linger before hedging just this last week. But come Friday, if there’s no up action, it’s hedge city until there’s a recognizable higher probability with which I can agree.

  3. David

    Slum,

    The current situation is more like the 1974 parabola in silver than the 1980 one.

    Unless you think this is the final parabola of this bull market, you should not be comparing it to 1980.

  4. Alex in Montana

    Silver Peak

    Robing Griffiths interviewed on May 14, 2011 says silver likely to top between $350 to $450. I keep buying physical on the dips and major corrections and will continue to do so until I see governments taking a machete or broad sword to spending.

    In addition we need to see real interest rates exceeding actual inflation, not the phony CPI, by at least 200 to 300 basis points allowing investors a real return. Of course when governements raise rates that far and do not reign in spending the deficits will get even worse.

    Griffiths picks 2015 as the peak in gold and silver. Sounds about right to me. Remember Europe and Japan are screwed and China’s real rates are worse than ours. All governments are lying through their teeth about inflation. The Chinese just started pulling the same stunt as the Clinton administration in fudging inflation numbers.

    The game continues…

  5. niven

    hey guys,

    Just a question…is copper a leading indicator of commodities and the overall stock market? I realized that copper already moved below the 200DMA. If that is so…gold and silver still has alot more room to correct…and it also looks like we are in the early stage of a secular bear.

  6. Elaine

    Alex in Montana,

    I listed to that broadcast also, but I got the impression he thought the top would take a few decades. While we probably started the bubble in the early 2000’s, it’s hard to imagine that we could achieve 1000% in under 5 years. I guess anything is possible.

  7. Hot Rod

    It looks like the long term interest rates ($USB) are in an uptrend which should continue with the 50 eventually crossing back over the 200 DMA, but who knows.

    For the fed, it would be good for the debt load.

    Does long term rate decline usually mean soft PM’s?

  8. Gary

    $USB is bond price not rates. Prices trades inversely to rates. ie. if rates are going up price is coming down.

  9. Alex in Montana

    Elaine,

    I just listened to the interview again.

    Exact quote, “I think that the run up to the peak in markets like gold is between now and 2015. I think it will all be over by 2015. A lot of it depends on how agressively paper money is printed from here on in. I think that $3,000 gold is an absolute minimum target. I can believe in targets certainly above $5,000 and it’s theoretically possible to go to $12,000 oz for gold”

    Earlier he said the gold/silver ratio will go to 10. he also said that from today’s price silver is a ten bagger, hence the $350/$450 silver headline.

    Always good to listen to these interviews again.

    Alex

  10. Alex in Montana

    Elaine,

    For historical comparison. Nixon closed the gold window in August of1971. Gold was $41. In less than 9 years it hit $850 – Jan. 1980. That was a 20 fold increase

    So, from $255.95 on April 2, 2001 when bull market began to 2015 peak – $3,000 to $5,000oz. gold – for this bull market on gold seems possible.

  11. Gary

    Call,
    I’ve found that if one squints just right we can usually manage to see just about what ever pattern one wants to see.

    However the fact is that gold is now late in the intermediate cycle and if it was going to put in another parabolic move up the miners would be leading. They are breaking down.

    At the very minimum gold is probably caught in an intermediate decline. There is still hope that the parabolic phase will come during the next intermediate cycle in the fall.

  12. Gold Lion

    Niven,
    The story is that JPMorgan was hedging their short position in silver by being long copper. So when they took profits in copper and it topped many people speculated they (JPM) took their profits and sold huge naked short position in silver. That along with the coordinated raising of margin rates for silver caused the 30% fall in silver.

  13. Eamonn

    James, when a new post is added by Gary I need to add a comment to it (“beep”) so I can updated receive comments to the post in my email. Apologies in advance if this upsets you

  14. TZ(8155)

    Eamonn,

    How about a simple single unobtrusive period “.” instead of multiple ‘beep’s on each thread caused by you (and your now accumulating pack of followers)?

    If you appology in advance is real then we would appreciate the gesture in minimizing the entries.

    And PS: you have already done it twice on this thread. Any reason once isn’t enough?

  15. TZ(8155)

    I have demonstrated for you above.
    Please consider following this example to shorten the blog which got pretty extreme lately.

  16. Eamonn

    I, for the life of me, cannot understand why the word “beep” is causing such distress. TZ(8155), if other people find it so troublesome I will certainly use a period or whatever. But until then I see no reason to change it for your accommodation, and therefore I suggest you attempt to ignore it or see a psychiatrist :o)

  17. Hack

    The problem everyone is having reading “waves” may be that “waves” aren’t working this time around. IMHO there is no way to see what silver will do based on a previous wave, a time when there was no QE, 14.5T debt or socialist anti-capitalist government in charge. The zone that silver is in right now could be the new normal. In which case you can trade miners like any other stock or buy and hold for the future.

  18. Eamonn

    Hack, I have thought about that too before. Gary did say thought that the dollar rallied out of its low, not because of any exogenous or logical reason, but merely because its cycle dictated that it was due a rally. So, despite other events, like wars, a potential nosedive in the euro coming (due to a Greek exit from Eurozone), and other events, the cycles just keep working. At least that is my understanding of it. Now, Gary did say that a QEIII event might convert the d-wave into merely an intermediate decline, but even that is unlikely. So I guess you just gotta stick with whats seems to work the best for timing until you find something better

  19. Hot Rod

    Guys,

    We’re making a mountain out of a molehill.

    Eamonn, if a dot will serve same purpose it would be gracious of u to respect that.

    TZ – I loved the philosophical explanation. Rabbit did catch me. Bottle not so much because I knew what it was.

  20. Eamonn

    TZ(8155), I never meant to offend you. However, since you have explained and put it that way, I’ll just use a “.” henceforth. Hopefully that’s the end of the battle

  21. TZ(8155)

    Clearly I’ve had posts that people didn’t like or were bothered by as well. I plead guilty to causing consternation as well.

    But they were generally made with the intention of arguing, communicating, or otherwise chiming in – even if not received that way.

    The repeated readings of ‘beep’ (and then more people following along as of late) were simply adding up over time like water torture – especially after the thousands of posts in the last few weeks where we were just trying to keep up.

    Your posts today were no worse than any other day. I just decided to say something when that earlier guy did too and I guess became the lightning rod.

    Anyway. Thanks again.

  22. Eamonn

    I’m hoping to short the stock market when we have decent confirmation that its decline is in. Doc is pretty sharp at calling these things, so I am watching what he says carefully. He smelled something wrong in silver a week before it crashed and got out. I wouldn’t mind making up some of the money I lost in silver before the A-wave

  23. Hot Rod

    Damn, I wish the market was open – I want to totally make a move here….

    God knows where we’ll be at in 14 hours….

  24. pimaCanyon

    TZ and eamonn,

    beep is no big deal to me. I know why you’re doing it, so what’s the problem? Takes as little time for me to read and process “beep” as it does to read and process “.”.

    And yeah, TZ, if you would like someone to do something, the most effective way to get them to comply is to ask them in a nice way, say please, and say something like I would really appreciate it.

    If you want to insure that they might dig in their heels just to spite you and do exactly the OPPOSITE of what you’re asking, then ask them in such a way that implies they are an idiot for not doing it already, that implies how smart you are and how stupid they are. Pretty much the way you asked eamonn to change the “beep” to a “.”, yeah that would do it all right.

    I know what I would do if I were asked to change my beep to a . the way you asked eamonn.

  25. TZ(8155)

    Pima,

    I thought I explained and asked nicely the first time. Yes I was probably overboard on the reply. Your points are fair.

  26. Hot Rod

    Moneyman,

    I have a hard time bringing myself to post positions and trades, especially ones not made yet (superstitious and pressure reasons).

    THis weekend, I took a little breather from the PM analysis (too many emotions connected) and think I may be on to a trend I like. When I get some more time tonight to clean up the chart and result I’ll post for food for thought.

    I do have a question…

    Let’s say I wanted to trade options on the pure $CCI index?

    I know that is not possible, but what would be the best alternative? I have not been able to find any liquid NYSE products (similar to SLV and GLD for PM’s) for the pure CCI play.

    Thanks.

  27. T

    Silly question from a new investor:

    Dollar is up and gold is down. Why is silver rising? This seems counterintuitive to most of the reading I’ve done. Does anyone think there is some sort of reversal in the cards, or do most think it will follow lower short term>

  28. Gary

    Unless this is the only parabola in history to recover I expect silver will continue lower until gold puts in a final intermediate cycle low.

    It will have violent counter trend moves to keep everyone hoping though.

  29. T

    Thanks Gary. What do you account this last week’s rise in silver to? Pure volatilaty? Buyers trying to pick a bottom?

  30. E

    Based on all the comments, I moved most of my 401k balances to money market fund.

    Maybe I was little early but will wait for QE3 or some other program to be announced and then move back to aggressive funds.

  31. Poly

    I doubt Silver will do too much also, but many parabola snap back violently, sometimes more than once and often testing the highs too. Anything is very possible, even with Gold IT cycle well in it’s 2nd half.

  32. T

    Sorry. Guess I didn’t really start looking till Thursday. Just came up Thursday and Friday. That does not a trend make.

  33. Gary

    Silver already had an 18% snapback rally.

    Hoping for another one immediately after the first and bigger than the first probably doesn’t have great odds of happening.

  34. Eamonn

    Gary, I know have already said that gold needs the consolidation effect of the B-wave to absorb the potent price rise of gold in the c-wave. If I may ask, given the likelihood of QEIII, how do you expect gold to respond to it?

  35. Gary

    It’s still an 18% move just back to the 200 DMA. Depending on what strike price and expiration one buys that could be up to a 200-300% gain for put options.

  36. Poly

    Yeah, but the trade is out, everybody is on it and the premiums are huge. Plus Silver will buck, many can’t hold.

  37. Gary

    I think QE3 is politically impossible without another severe market correction.

    Until that happens I think gold bulls are hoping in vain for something that just isn’t going to happen.

  38. Gary

    Poly,
    So what you are saying is that if for instance the stock market were to correct from 1575 to say 1400 that it would be too late to take the trade because by that time everyone has spotted it and there’s no money to be made?

    click

  39. aviat72

    IMHO better trade in silver is an outright short with protective calls on the upside, especially those out to Sept/Oct. Assuming the trend continues down the short will work. Once the trend reverses as the A wave starts, cover the short and let the call options play out. This is assuming the put-call premium skew is heavy on the put side.

  40. Blake

    Gary-
    I’m looking at the OTM SLV puts at $22 strike. If the D Wave is to last out until the end of summer should we be looking at the July 18’s to catch all of the move or the June 11’s as a cheaper play? Any thoughts would be greatly appreciated!

  41. Keys

    In order for silver to keep to the upside it would need holders…once silver tags X level, the profit takers will come back and it will plow down again…Without people willing to hold you can’t get a sustained rise…Who is willing to hold silver now? OWW i just made 10%, with silver, do you take profits are would you wait for more…with silver I think people would take profits.

    Gold is a different story…I believe the strength of the next down in gold will bring about a nice rally….Miners may do nicely,..I hate miners too btw…but this brings up some extreme value, non-bull market, ideas. Combine a bull market with value, you are looking at something very unique. I really hope miners really hit the downside and confirm the value play…something of beauty may come by.

    Anyways for another day…as for now ZZZZZZZZZZZZZZZ

    BEEP πŸ™‚

  42. Gary

    Blake,
    What in the world are you thinking going that far out of the money.

    You don’t seem to know what you are doing with options. If you don’t understand them don’t play with them.

  43. Poly

    No that’s not what I said at all. Silver went parabolic it’s a very difficult security to trade, as we’ve seen And experienced here, same applies going down! It’s already down a full 35%, your example is just over 10%.

    Also reading between the lines, my point was that people are ” reaching” for a trade that has presented itself twice already and it’s down big. Nobody is trying to argue with your coming risk asset collapse, I’m fully inboard. There are just plenty of other options, especially for your followers. It’s not always black or white, seeing he shades can be rewarding.

  44. Blake

    Haha, $32 strike, mistype!!!! I have a good deal of experience trading DITM calls for extra juice but I am learning how to purchase short term OTM puts to play large volatility. Again any general insight you can provide as to how many series deep OTM to go or expiry date is much appreciated!

  45. Gary

    Blake,
    If you want to know what I’m doing with my portfolio then buy the aggressive portfolio subscription.

  46. Keys

    David don’t pull you points. I think all thoughts should be taken. Alright Sunday night and a beer is calling…I look forward to another boring day on Monday…maybe I will pay some bills or mow the lawn or watch CNBC for some things I knew 3 months ago….

    I put all my money into safe $10 put options on slv…btw…helps me sleep better at night. lol πŸ™‚

  47. Gary

    Beanie,
    This is the first time I’ve taken any short position on the market and it’s still a very small short position. I will need to see confirmation before adding to the position, but if the market breaks below the March 16th low your cyclical bull market is dead. At that point you will need to reel in your bullish bias or risk getting caught in another bear market.

    I said all along that one should wait until the dollar puts in it’s three year cycle low before trying to short, as the rally out of the three year cycle low should correspond with the next deflationary period just like it did in 08.

    Well there is a decent chance that the dollar did just put in that major cycle bottom.

  48. Beanie

    Btw, money printing has always led to higher asset prices, not lower.

    While the endgame can be hyperinflation (even higher asset prices before it all collapses) nobody really knows when the shit hits the fan.

  49. Beanie

    The Fed printed money in the 80’s, they printed in the 90’s, in the 2000’s, and 2010’s. Anybody that short the equities market based on money printing would have margin calls up the wazoo.

    Money printing doesn’t tell you the equities market is going to collapse. It never has.

  50. Gary

    Ahh but Beanie you are ever so wrong. Money printing led to $147 oil in 08 and it led to the second worst bear market in history and the worst recession since the Great Depression.

    Money printing has always ultimately failed and led to lower prices in the long run. Never once in history has this been untrue. The only question is at what price does commodity inflation collapse the economy.

    In 08 it came at $147 for a barrel of oil. Did it come at $112 in 2011?

    No one knows yet but I will say that this time unemployment is much higher and the economy way more fragile than in 08 so it does stand to reason that it wouldn’t take as much to roll it over this time as last.

  51. Blindweb

    Peak oil is greater than any event in modern history, greater than WWII and the Great Depression combined. 99% of all cycle theories and economic models, calculated during the rise of industrial society, are going to fall apart over the next decade or two. Just saying…keep it in mind.

    Martin Armstrong, although I haven’t seen anything about peak oil, is the only cycle guy I’ve seen who has a grasp on the much longer cycles. I suspect he sees what’s coming from the smoke, but doesn’t know where the fire is.

  52. Gary

    I really think peak oil is a myth. We’ve got plenty of oil, especially with the severe demand destruction that happens in recessionary times.

    If peak oil was real then oil would have quickly spiked back above $150 as the globe emerged from the recession and demand returned. It never even got close. The reason being there isn’t enough true demand to take oil to those levels.

    The only reason oil even rallied as far as it did was because of currency debasement. Without that oil probably never would have even moved above $60-$70.

    I’ve been saying for the last two years that oil wouldn’t be able to get back to the old highs and that people would mistakenly try to ride that bull again and they would be disappointed.

    It’s always the same with every new bull market. People always gravitate back to what led in the last bull and invariably it never performs well during the new one.

    Oil didn’t disappoint. It underperformed just like I said it would even despite several trillions of new dollars thrown at the markets.

  53. ALEX

    EAMONN

    Could you please use the word “ALEX” when you are updating??

    ‘Beep’ is just wasting my time:)

  54. Keys

    Okay finished a couple beers…surfing the net now..onto the scotch!
    Anyways great to hear about the oil exchange again. Peak oil..and other items…

    IMO, the only thing you need to look at is the marginal cost of oil, which is $70-$80 a barrel. Another deflationary event and oil drops to a nice $35 again…but as the money printing increases the marginal cost increases..so at the next round of printing the US barrel may be at $100…

    oil prices is the US Achilles heel…once the marginal cost of oil gets above $100 the US printing is done and we are in a) hyperinflation or b) allowed to finish the depression that we are in.

    Either way the US is doomed to reset…not fail…but a good reset is very very much due…

    Buying stocks is a dumb idea, and buying stocks based upon inflation avoidance is even dumber….

    My first choice is always oil, but oil at value levels…I.e. get me a value trade with oil at $30 I am all in back up to $70 again. My second trade is gold and its brother silver…I hate gold and I really hate silver, nasty beast….I warned months and months ago what a bastard the metals were and got called names, but that is okay…I hate investing in this…

    So in my scotch driven state…I am looking forward to oil and pms falling…..

    I will lock in oil at low prices and PM’s at lower prices and go old turkey until the value trade is down, we get a parabolic move, or BEN admits he is a moron!

    Man I love scotch…anyways since I don’t care about the market open I can enjoy a couple nights like these..

    Good hunting all…and remember Gary is a great coach…not all plays will work but his direction is dead on!

  55. David

    I love Beanie’s solid-gold “B”.

    It seems subconsciously emblematic of the bull market he’s been missing out on for 10 years.

  56. ALEX

    Keys

    May I recommend the much hated by my circle of friends…LAPHROAIG ,over ice, add a splash of cold water?

    Glenlivet and Mac allen are great, but for ‘smokey’ flavor with a kick…try the above.

  57. Keys

    Alex,

    I love Balvenie first…but the best I ever had was a 50 year old glenfiddich. But I will keep your ideas in mind for the next round. πŸ™‚

  58. flaunt

    It’s interesting how everybody thinks that just because others on the blog say they are taking a certain position, that means that things are going to go the opposite direction. The theory is that “the herd” is always wrong. Well apparently when silver approached $50 the “dumb money” was selling physical at a rapid pace, which means they weren’t dumb at all. Lucky maybe, but not stupid. Sometimes the crowd gets it right. It’s not good to be a contrarian for the sake of being a contrarian. One could make the case that we have a bubble in contrarians and therefore one should take the other side of that trade. People outsmart themselves at every turn.

  59. David

    As Soros says, the crowd is always right except at turning points.

    I know a number of people who faded the herd by shorting silver at $18 in August. The herd trampled them.

  60. ALEX

    I am in “TRADERS MODE”

    I want to post something slightly contrarian. I believe right now the metals market is 50/50 as to will it go up from here, or down ‘short term’. I believe we had the bounce that I was looking for (though it didnt hit $42). I now believe we are going to get another bounce.

    I could be WRONG, and I am not recommending trading off of this idea, though I ‘might’ & Have.

    Based on the chart below, I bought AG at 17.70 2 Thursdays ago and sold at $20.10. I sold because AG was rising on a light volume bounce.

    http://www.screencast.com/t/c6lLqCiy8AX

    I re-entered , and sold again last week. I am now watching for another possible trade, but I really think that the dollar will dictate things from here…Is the dollar over bought and due for a little pullback, causing Silver to bounce again??

    http://www.screencast.com/t/bs71riPL07

    SLV’s chart, which mimics silver, calls for a double bottom bounce here.
    Time will tell, if it does, I will re-enter AG.

  61. Hot Rod

    Anyone have an active position in DUG? I remember seeing some talk about this the other day.

    If oil pulls back, DUG should do pretty well considering it is a double short ETF and tracks an index with oil companies, not just the spot price, correct?

  62. Hot Rod

    Taking a beak for a minute from PM’s…

    Long term chart of the $CCI shows very huge and immediate chart damage:

    http://stockcharts.com/h-sc/ui?s=$CCI&p=M&st=2000-01-01&en=2011-06-01&id=p96833620791

    RSI, MACD and SLOW STO all broken. It sure looks like the $CCI is in for at least a few months of severe damage.

    Long term chart of $UST with $USD.

    http://stockcharts.com/h-sc/ui?s=$UST&p=W&st=2000-01-01&en=2011-10-28&id=p38128809137

    It looks to me like $UST likes to come out of a cycle bottom a month or so before the $USD does. The recent chart action to me points to continued upwards strength in the long bond and of course up tick in the USD. This means long term interest rates are going down (deflation play).

    Is it possible for the US government to keep long term rates deeply under control and strengthen the dollar?

    Aren’t the Chineese happy with a strong dollar as well? Kind of a win-win situation for the FED, right?

    At the same time, we have an election year coming up. There is that sign in bright lights that flashes QE III or something similar to keep ratings high.

    How far can the government let the stock market drop before big time anger returns?

  63. Gary

    Folks we don’t even have confirmation that stocks have entered a bear market yet. Everyone is talking about double inverse funds and shorting this and shorting that.

    It’s too early to press this trade. At this stage all I suggest is a very small test. Something that will only result in minuscule losses if we are wrong.

  64. Slumdog

    It’s late, but I’m gonna wade in here. I see reality differently than you guys do, and I agree with Gary in the S&P.

    “but if the market breaks below the March 16th low your cyclical bull market is dead. At that point you will need to reel in your bullish bias or risk getting caught in another bear market.”

    Gary pointed out to Poly the low which occurred in a major monthly reversal pattern which was picture perfect. I’ve pointed out to Gary that I called that turn and he pshawed it. I called the rise in gold to 1547 as a 1X, too, back in February as it formed.

    Now, there’s another of those patterns forming in the DJIA. It is an up directed power move, internal to the move, as in the same direction. That means it will fail. To form that pattern and achieve what Gary refers to, a drop after going through the Japan low, we need time. We need the DJIA to stay above the Japan low until the close of this month.

    If this happens, the value of the drop probably will be to 11000 and possibly 10800, which is the obvious range. There’s no power in this set up to drive the market lower based on this pattern now existing and probably finishing on the monthly basis.

    On the upside, there’s very low probability of anything other than a double top or a splash above that. So, this is a smart trade, to go south with the DJIA. Of course a higher priced entry will be more profitable.

    At the end of May, I’ll post again. I know for you guys, this is nuts, but for me, this is well within familiar pattern formation.

    How I view the markets at least in this way, has nothing to do with anything other than a chart pattern within time; no other factor is considered as influential over this outcome prediction.

  65. Rebecca

    Based on my observation, while negative/positive divergences in the daily charts don’t always predict major top/btm, major top/btm seem to be always accompanied with one. Experienced traders on the blog, please correct me if I am wrong. Gary has presented a convincing case that $usd has put in a 3yr btm on May 4, 2011. The only doubt I have is that I don’t yet see a positive divergence in $usd daily chart with RSI(14) and MACD(12,26,9). As a comparison I noticed that in the Nov 2010 btm the $usd daily chart clearly accompanied with a positive divergence in the daily chart. So does it mean that $usd may have one more push down to a lower low and form a positive divergence before putting in the 3yr cycle? Sorry I haven’t figured out how to upload the chart.

  66. sophia

    Thanks Alex for your charts. Very interesting indeed..As you know, I played ( small) the rebound from 33 to 38, got lucky, out now…was thinking of reloading by mid-week.

    I am confused though on the long bond… If QE2 is over, there won’t be QE3 for obvious reasons, so why on earth people ar buying bonds?

  67. Gary

    Hardly, for the rest of the decade and maybe two the danger will be deflation. The globe is in a deflationary period just like it was after the credit bubble in the 20’s collapsed.

    The difference this time is that all currencies are fiat, so central banks can create inflation at will up to the point where that inflation destroys the economy.

    Once that happens there will be no stopping deflation as the economy sinks back into recession. Once the recession runs it’s course the Fed will go on another printing spree and we will go through the whole cycle again.

    Ultimately it will end when we either accept the fact that this isn’t “fixable” and allow deflation to cleanse the system of debt or we hyper-inflate and destroy the currency.

  68. Fergie

    I recall Victor Sperandeo in his book on commodities saying something about how one would go broke expecting govt to do the right thing.

  69. T.J. Rand

    Gary-

    Deflationary depression and current destruction leading to hyperinflation…you’re a ray of sunshine this morning! πŸ™‚

    In this case I wish I didn’t…but I have to agree with you. There’s tough sledding ahead.

  70. Gary

    LOL you caught that I see.

    The next intermediate cycle low for the dollar wouldn’t be due until late Sept. or early Oct.

  71. Edwin

    usd trading above > 74.47 level, completed a change in trend.

    risk off at this point imho.

    sucks, not good for stocks or precious metals. trading based on what i know and not on hope.

  72. Gary

    The dollar has rallied over 3 points in 7 days and formed a weekly swing. What exactly would it take to convince you?

  73. basil

    Gary,

    have you done any cycle work on stock markets other than the US? Or do you know of anyone who has whose work you recommend?

  74. basil

    Gary,

    an do you have a time horizon for the short trade on US markets? How long are you planning to keep your positions i.e. do you have downside price targets or time targets?

  75. Gary

    Well if you want the dollar to reach 80 before you trust the move then you will have to give it more than 7 days. πŸ™‚

  76. Gary

    Basil,
    I think for the most part foreign markets tend to follow the US market. I have noticed that the Nikkei runs on a three year cycle though. Probably because Japanese elections come every three years instead of four like the US.

  77. P.K.

    Gary,

    You said: ” for the rest of the decade and maybe two the danger will be deflation.”

    Would you please comment on Real Estate.

    Will real estate prices find a bottom only to crawl along for 20 years?

    And will the bubble top only be re-visited if we in fact do get hyper-inflation?

    Looking for your perspective. Thanks.

  78. Gary

    PK,
    That is what usually happens with bubbles once they find a bottom. They just bounce around down there for many years.

  79. torero91

    Gary,

    Food for thought from Sentiment Trader this a.m.:

    “Usually, at a major market peak we have a large confluence of sentiment readings that are at historic extremes, or had been very recently. we’re not really seeing that now.”

    My Translation: There are nowhere near enough bag holders at this point. This bull is not over.

  80. Poly

    Dollar will have to take a short break eventually. With gold’s relative strength to the dollar since the cycle low, there is a decent chance gold pop’s to test the high’s.
    That, IMO, would be the opportunity to short, not these already over sold levels. Miners seem to think so today too.

  81. traderlady

    Excitement here is seeing the space shuttle go up over from the West coast of FL!
    I am checking in on occasion as I wait for a clear trend. Where are you SB???

  82. Gary

    Torreo,
    Look at sentiment from the beginning of the year to late Feb.

    Sentiment did reach true bullish extremes. During that period the market peaked, dropped into an intermediate decline and has now recovered only to now be in jeopardy of forming a failed breakout. Which as I pointed out in the post is how cyclical bulls often top.

    A move below 1329 will form a weekly swing and the market will then be at risk of having formed a left translated daily cycle and also potentially a left translated intermediate cycle. That is how bear markets begin.

    The market needs to make new highs to negate this.

  83. Gary

    I think at this point it’s probably better to just track the weekly charts. Watching the daily wiggles will just cause you to miss the big picture.

    Those large red candles on all the weekly charts are telling a story for anyone wiling to listen.

  84. Poly

    We’re all on board the big picture, but until the cycle fails, obtaining the best price makes the big picture much more rewarding. I like buying my puts @$1, not @5.

  85. Gary

    One can buy puts at any strike price they desire. It just depends on if one thinks the move still has further to go or not.

    If the intermediate cycle runs the normal duration then the sector still has 4-5 weeks before it bottoms. If it runs a bit long like many have then it has about 8-9 weeks before the bottom.

  86. torero91

    Gary,

    We are only about 3% off the SPX highs. The bull market is clearly aging. However, before the next sustainable move higher occurs, buyers want lower prices. So most likely what we will be seeing is a modest (5-10%), choppy correction until large buyers step back in. This is healthy for the market. As long as the SPX remains above 1233, the market is bullish. I would not be surprised to see us trade just below 1249 SPX to trap the bears and then strongly reverse higher for the next advance. In fact, that’s exactly what I expect to see. πŸ™‚

  87. Shalom Bernanke

    Hi traderlady,

    I’m just peeking in every now and then until I get a signal to trade. Nothing attractive except my anticipated short sale of SSO and/or QLD, and it’s too early to do in size, IMO.

    Sitting tight and enjoying life while I wait. πŸ™‚

  88. Gary

    Torreo,
    A move below 1249 would indicate a failed intermediate cycle. That is very bad news for the market and probably a sign the bear has returned.

    This is why I don’t rely much on charts. If you just look at charts you might think a move below 1249 is a consolidation but if you understand cycle theory you know a move below 1249 means the market is in serious trouble, especially if it occurs early in an intermediate cycle.

  89. torero91

    Gary,

    We both probably can agree there are a large amount of stops just below 1249 spx. A bull has historically never had more than one 10%+ correction (summer 2010). Thus the line in the sand would be about 1233 spx. Today the rising 200 dma is at about 1233 spx. In fact, the 50/100/200 dmas are all still rising. Now ask yourself, where would “they” set a bear trap in order to set up the next bull market advance? I hope at some point you reconsider adding short if the Japan lows are breached. At least wait for a little better confirmation.

  90. Gary

    The XAU has already broken thru the Jan. intermediate cycle low. There will be plenty of bounces along the way to keep folks hoping, but the damage is already done.

    Now one just needs to wait for the intermediate cycle low before we want to jump back on the bull.

  91. DG

    Mr M: Quiet because there’s nothing to do. We are part way down and have not bounced enough to short, IMO (though EUO is starting to look good on this pullback…)

  92. Gary

    Torero,
    I’m sure we would see a bounce once 1249 is breached. Contrary to what most retail traders like to believe most breakouts and breakdowns initially fail to follow through.

    But it would just be a bounce followed by another leg down.

    I can only stress how damaging a move below 1249 would be this early in an intermediate cycle. It would signal that the intermediate cycle topped in only 7 weeks. That implies that the market would then generally drift lower for 15 weeks or more.

    A down leg of that length will cause severe damage to the market. Much more than your 10%. We will see panic selling at some point if a move of that duration gets started and that means a period a large losses.

    If this intermediate cycle has topped in only 7 weeks it will open the door for a test of the bottom trendline on the megaphone pattern I’ve been watching for over a year now.

  93. DG

    Beanie: Seriously, can you explain why you basically post the same thing over and over? Is it for people who might not have seen it before? New charts or other evidence for your claims might be interesting, but the basic “We’re gonna zoom” stuff gets old, no? Why post basically that over and over?

  94. Gary

    Felix,
    Yes we still have the possibility that this will only turn out to be a run of the mill intermediate decline followed by a final C-wave top this fall.

    I’m going to go over that scenario in tonight’s report.

  95. Poly

    Watch out for the XAU index, it’s recent performance has been very heavily skewed by Barrick Gold poor performance after that copper miner purchase.
    XAU is a market cap weighted index and with few big cap companies, it got pushed around by Barrick. Barrick (ABX) is 20% of the entire index!
    Just an FYI for all. The $HUI is a little better indicator at this point and yes it hasn’t exactly been doing fantastically.

  96. Gary

    The S&P lost the 1340 support on Friday. I’m interested to see if it can hold on to it by the close.

    AAPL, GOOG, AMZN and many of the big tech names are strongly negative today. That’s usually a sign that the market will fade by the close.

  97. DG

    Poly: As a student of human psychology I am always fascinated by aberrant behavior. Your point is well taken, though. I doubt he will answer me with a substantive comment. Thought it worth a shot. πŸ˜‰

  98. Gary

    Semis are economically sensitive. If the economy is weakening it will show up in the SOX index early.

    Sort of like copper, which by the way is also diverging.

  99. Gary

    Hot Rod,
    I don’t think anyone truly believes any politician will vote to default. They will bluster and grandstand to score political points but they are going to raise the debt ceiling.

  100. Felix

    Shannel,

    From the Bob Chapman article you just posted: “The market has been telling us for two months that we will see a very large QE3. The phasing in, the transition, from QE2 and QE3 will be stealth and hardly noticeable. It will be happening, but it will be well hidden and probably called something else. It will have another face, but it will be the same old game, probably to the tune of $2.3 trillion, which will feed roaring inflation.”

  101. Felix

    …such a scenario as Chapman suggests would lend to the “intermediate low” playing out as opposed to D-wave, wouldn’t it?

  102. torero91

    Gary,

    Obviously, you place heavy emphasis on cycles in making your stock market calls. You have admitted that QE and other FED intervention has distorted your cycle playbook. Thus, IMO relying heavily on cycle analysis to predict current stock market behavior would seem unwise at this juncture.

    We are in a bull until we are not. The trend is your friend. In a bull, the surprises are to the upside. So without confirmation, shorting positionally in a bull is going against the odds. Unless the SPX breaks through the 1233 area, I really see nothing for the bears to get excited about.

    ADD: The fact that the market didn’t advance much after earnings tells me that stock values are a little too rich and need to correct some. In no way does that tell me that we are about to enter a bear market.

  103. DG

    I had just ben wondering about copper’s behavior myself, when i cam across this from sentimentrader.com. He does great studies like this all the time…

    sentimentrader 5/10/11: “Let’s go back the furthest we can, 1988, and look for any other time we saw this kind of divergence. Specifically, we’re looking for a 100-day low in Copper futures, with at least a -10% decline from its 52-week high, while the S&P was within 2% of its own high.

    [chart was here]

    Copper’s lagging performance didn’t seem to be much of a negative predictor for the S&P. In fact, stocks’ performance going forward was quite good, especially in the intermediate- to long-term. Of the 92 days that qualified for the study, 78 of them sported a positive return three months later.

    The maximum decline during the next six months averaged only -3.9%, versus a maximum gain that averaged +11.4%. So the drawdown required to get the positive returns was usually pretty limited as well.

    Overall, I can’t find much about Copper’s drop that has historically meant anything consistently negative for the broader stock market in any time frame.”

  104. Gary

    QE has stretched the cycles but it hasn’t changed the way they work. That won’t change unless human nature changes.

    A violation of the intermediate cycle low at 1249 this early in the intermediate cycle would be an extremely dangerous event for the stock market and would have very very high odds of signaling the next leg down in the secular bear has begun.

  105. Gary

    DG,
    What Jason doesn’t do is look at the context each occurrence happened in.

    If copper lagged in the first 6 months of a new bull market then yes it probably has no meaning.

    However 2+ years into a cyclical bull market within the confines of a secular bear market and with stocks threatening to form a weekly swing early in the intermediate cycle and in jeopardy of reversing a breakout is a completely different scenario.

    In that case one might want to look a little harder at copper’s divergence.

  106. Gary

    Mr. M,
    Yes of course we are. The market will have to break that before I get really bearish. Right now it is just a possibility, but one that has a greater chance of unfolding if the S&P forms a swing this week.

  107. MrMiyagi

    Gary,
    Could a long sideways move in gold/silver be developing here? I know it’s only been a few days but just wondering how that would play out.

  108. Gary

    Mr. M,
    Gold has been pretty dependable about intermediate cycle troughs. I have to think this will continue down into at least and intermediate bottom over the next 4-9 weeks.

    Whether or not it just ends up being a run of the mill intermediate decline or a D-wave remains to be seen. The COT will be the tool we want to watch to determine this.

    More in tonight’s report.

  109. ALEX

    DG

    I am looking at EUO also.

    I did notice extra heavy volume on the way down today , so I was looking at the gap around 417.20 to possibly fill , and the 10 sma is there also.

    just thinking out loud here.

  110. Felix

    Another quote from that Chapman article, if you please:

    “We have just had a new development that will no doubt change the way that the monopoly known as Comex operates. The Hong Kong Mercantile Exchange, on May 18, 2001, will start trading a 10 kilo (32-ounce) gold contract. That should cost the Comex more than 30% of its market and its monopoly. Comex will be hard pressed to manipulate markets like they just did raising margins five times in nine days at the behest of government and JPM and HSBC. This will also eliminate banging the close by hitting the bids, because all of the commercials (banks) are short. We are going to see a whole new market world.”

    Setting aside the controversy regarding manipulation, what about his conclusions regarding a “whole new market”?

  111. TommyD

    I Picked a GREAT time to go to Rehab.. All my stops protected this years gains πŸ™‚

    Ok, I’m off the booze and on the sidelines awaiting confirmation from Gary’s calls as to the next adventure.

    I guess my next vehicles to study, if the market has topped, is to look into QID, SDS and/or SH ETFs. I do not have a margin account and must rely on the shorting ETF’s.

    Good luck everyone. Off to my 12 steppin meetings…

    Tom

  112. 77

    as of may 3, large specs/hedge funds were significantly net longer all commodities than they were at their 2008 net long peak (ie CL 140)…cftc report showed them net sellers of $17 bil for the week ending last tuesday

    june crude oil has the feb 3 high of 97.68 it’s still above, however when CL came off morning high silver could not hang near 35 and is now down to 34.26

    silver futures open interest down to 120k contracts from 155k, will need that open interest to expand for a good bottom

  113. ALEX

    GOLD ERA

    I know, I am looking at everything SDS, DXD , ERO, ,UUP , MZZ , SPY

    and so on, and I feel like everything direction wise is right on the line (50/50).

    Gary has good and reasonable arguments in favor of his call for the markets to turn lower, and I see what he is looking at, but before I read his report I saw this Saturday Morning…So I am looking for a breakdown maybe below the 50sma or a close decisively below my support line before I think I may go short.

    http://www.screencast.com/t/EngwGe4K7

  114. T.J. Rand

    Alex-

    Your chart made me go to my Martin Pring Technical Analysis textbook…LOL! Dry as toast, but pretty interesting in its application.

    I’m not sure that the reverse H&S is not in the process of failing. When I drew the neckline to actually touch both places where the head becomes the shoulders, I got an upward sloping trendline…which price has now violated to the downside. Coupled with somewhat declining volume, I’d lean toward a reverse H&S failure.

    Anyway, interesting exercise!

    Here’s the chart I created to take a look:

    http://tinypic.com/r/2rr1kxs/7

  115. marinho

    a little bit of divergence starts to come up in the pm stocks vs the metals. I am just all in cash and will wait a little longer

  116. ALEX

    T.J.

    So the book was tech analysis- just add butter??

    Yes, that chart you drew looks valuable. As the price draws down, you really want to see an increase in volume, but that can come flooding in like a waterfall at anytime! πŸ™‚

    Thanks

  117. T.J. Rand

    Butter would have helped…I had to take a 15 min nap in the middle of the H&S discussion ;-).

    Pring knows his stuff technically, but I’ve never read anything harder to slug through, and that includes my Econ 101 textbooks way back when.

    And true that on volume…we’ll just need to see what unfolds.

  118. T.J. Rand

    Alex-
    Post what you find out…that would be great to know!

    I’d stopped looking at/for H&S patterns (didn’t seem to work), but I may have been looking at them in too specific a way.

  119. ALEX

    T.J.

    I will look up tonight the subject in a book that I specifically remember learning about it from.

    One thing that I remember was an “ahhh-HA!” moment was that the author claimed that 80% of people pointing out a ‘head and shoulders’ formation…would see it fail, because they were NOT actually looking at a true H&S.

    He said that the pattern is very reliable, when formed correctly, but most people just pick any 3 lumps and call it one.

    So the key for a more reliable H&S is that the RIGHT shoulder HAS TO BE lower than the left. It is a specific sign of weakness that the first peak forms, the head is not enough strength to hold the new highs , and goes lower than the first shoulder by quite a bit. Then the right shoulder cant even reach the peak of the first shoulder before it starts to turn down.

    This will almost always fail, indicating buyers have run out.
    THAT- I told myself never to forget (Because I always see H&S callers calling a stronger looking formation with a real high right shoulder), and then they say , “Those patterns are worn out and useless…because everyone knows them “

  120. T.J. Rand

    Thanks, Alex…I appreciate the thoughts and reminders. There seem to be a number of folks that have found H&S to be quite useful – and I would love to take advantage of their experience and success by better incorporating H&S into my own thinking.

  121. fubsy_cooter

    Well,
    As far as confimring the trend reversal, I’m liking
    -the low volume breather in the dollar.
    -The lack of strength in stocks, oil, and commodities even with today’s dollar weakness.

    DG, I’m also looking at EUO today. Thinking I may take a nibble. I feel like a trout ooking at the bait from the depths. But it looks so tasty right here.

    Actually, just took the bait. Risking 0.25% of the portfolio. : )

    Come on in DG, the water’s fine.

    f

  122. fubsy_cooter

    That’s how I like to break the ice, buy something that makes no impact on the portfolio, but makes an impact on my psyche by getting me in the game.

    f

  123. ALEX

    “-The lack of strength in stocks, oil, and commodities even with today’s dollar weakness.”-Fusby

    I agree, not much of a reaction.

  124. DG

    That’s just what I do and did today Fubsy. (I bought some at 17.57 this morning, before you. Hah!) Breaks the ice and gets my attention more intensely. It’s always weird, though, to have a position and hopes it goes against you. I would like to have a ton of EUO before month’s end. Let me know when you get past the dating stage and move towards a real romance, and I will do the same.

  125. DG

    Rapper. NO! EUO is betting on a euro decline and dollar rally. It is an inverse euro ETF. The dollar rally will tank everything including the euro so we are betting that way.

  126. Workfriend

    Food for thought on the lack of liquidity that may be pulling the market down today. The treasury is issuing $68 billion in net new date today. Which is the biggest net settlement since Nov 15.
    Paydowns and POMO should put some liquidity back in the market towards end of week. So may see a little bounce later in the week. IMHO

  127. Hot Rod

    Mr. M,

    I agree. $34 support is now $34 resistance. 5 min BB right now is the narrowest its been all day. Under today’s low of 33.60 or so, there is a lot of air until the correction low of 32.15 or so.

    I sure would not want to be long after the close today.

    Most of this is just stating the obvious for the veterans around here.

  128. MrMiyagi

    Hot Rod,
    Daytraded RY.to for a small profit. Not much else going on, few clear signals I can se. I was going to buy some LVS puts this morning but hesitated, stock went down 1$…

  129. Hot Rod

    Mr. M,

    Nice job on Royal Bank today. Are the LVS puts liquid enough?

    Bought some ZSL early today and plan on holding for some time.

    It was either that or DUG and I’m glad now (of course) that I picked ZSL.

  130. Hot Rod

    Options on SLV and GLD expire this Friday for May, correct?

    Anyone testing any lottery plays?

    Any thoughts on where the big money will force the market to?

  131. basil

    Started buying inverse ETFs on Friday and continued throughout Monday morning (TYP, TZA). Also bought UUP (I know, not expecting much of a %gain, but s.th. is better than nothing), and a tiny position in VXX.

    I think I have never made any profitable trade with any of the above, but did try.

    I am now trying a different approach. I bought Friday & Monday, which I consider early and before any ‘official’ confirmation of the downtrend.

    The good thing is, they were all pretty much flatlining when I started to go in. These things have sharp moves in both directions. The mistake that I did in the past, I think, was that I bought these some times a little late. I couldn’t handle sharp drawdowns, and settled some times for losses.

    In the past these inverse ETFs have been barely worth more than a trade for a few days, if one was lucky enough to time them correctly. One just need to look at all their charts to know that they have all been going mostly against traders.

    I now understand that these inverse ETFs become extremely risky the more they move away from the recent flatline. If the tide turns they lose 10% or more in a blink.

    I am now 30% invested in the above, and I am not going to add anymore. Obviously, I am hoping for a correction, and if I can make 20% on this 30% investment, I’d be more than happy. What I’d hate would be a snap back rally or a sideways market. If any of that happens, I would begin reducing these holdings.

  132. basil

    PS: I am glad I bought into Gary’s view that the weakness in PMs will continue. Also, if his call on a stock market correction and a top here is timed right, I’ll be damn impressed.

  133. David

    Basil,

    You don’t have to use 3X ultrashort shares. Your timing has to be *perfect* in order to make those work. Any rally will make you panic out of them.

    A better option would be to buy something like RWM, which is 1X short. There’s a lot less erosion (perhaps none), which means you can hold them for a while.

    Better to be 100% in RWM than 30% in a 3X ETF, IMO.

  134. David

    Basil,

    VXX is also a widowmaker. It doesn’t track the VIX properly. Possibly the worst ETF out there from a risk-reward standpoint.

    I would avoid that one like the plague.

  135. Poly

    I agree with David, most of those mentioned ETF’s are toxic held for longer periods of time, as you intend. I’ve played them in the past, gotten the call right and still managed to lose or make less than should have.
    Also Gary’s call of a top would still take a bit of time to develop and unfold, plus you need confirmation. With all due respect, it wouldn’t be the first top call also.

  136. DG

    Fubsy: Let me know when you add to DUG. That’s on my list too (though I actually prefer shorting OIH.)

    BTW—I sent you an email. Did you get it? If no interest, just let me know please.

  137. DG

    UNG is right up there with VXX as a vacuum deigned to suck money out of traders’ pockets. When they start getting nothing but lint they do a reverse split.

    Truth in advertising: I do trade UNG but short term only!

  138. basil

    David, Poly,

    good, valid points.
    VXX is a minimal position, and a one, or two day spike in the right direction would already get me out there. I agree, but just can’t help but believe that we see a down week for the markets this week.
    As for the triple ETFs, you are right, too. I guess I was spoiled by AGQ on the upside.
    I’ll think about taking a bit risk out of this trade by swapping to 1xETFs.
    One thing though is that I might rather hold inverse for the short term (therefore 3x) than for the long term ( with 1x). I skeptic about any market forecast that has more than a four week point of view.
    Nevertheless, because these ETFs are, as you correctly describe ‘toxic’ and ‘widow makers’, and because I had my share of that experience already
    I might very well swap to something less aggressive.

    Thank you for your concern & advice.

  139. Bill no 2

    Since the double and triple etf’s decay so badly, then why not use this to our advantage. In a declining market, short the longs and/or go long the inverses?

  140. David

    Bill,

    You can’t borrow them from your brokerage.

    I presume that somebody better-connected has already had that idea and shorted all the shares. It may be the closest thing to a sure thing out there, because they all go to zero eventually.

  141. Gary

    I’ve never been able to borrow them either. It’s such an obvious trade you know it’s only going to be available to professionals.

  142. David

    Basil,

    It depends on how you define the short-term. The 3X ETFs should probably only be held intraday — they are for true short-term traders.

    Keep in mind, even if we buy 1X etfs, we’ll only be holding them for six weeks or so.

    At that point, hopefully, we’ll be buying the beaten-down gold (and platinum!) miners for the A-wave.

  143. David

    I would not be surprised if the 3X etfs exist mainly to be shorted to zero by the big brokerage houses.

    Another way of fleecing the little guy.

  144. basil

    David,

    I guess short term would be a 3% drop from here in the indices related to these ETFs; these are Nadaq and Russell. I would think it’s not out-worldish to assume that this could happen during the remainder of this week. That would pretty much give me what I’d be hoping for. At that time I would either get out or, if we have confirmation, swap to the 1x ETFs. This being said, I won’t take any severe draw down on these ETFs. I think I am about 3% up at this point, so I have at least a slight buffer. I am taking your warning words seriously, for sure.

  145. grimweasel

    Agree – the Leveraged ETFs suffer from ‘decay’ because of the daily re-pricing and over time can eat into returns. They are good for exact market timing if you are a technical chap and good for raging bull/bear markets over a week say but market timing can be a mugs’ game unless you are an expert Technical Analyst – even then you are only stacking the odds in your favour; we all know there are no certainties in trading.

    I made good money on a x2 Silver ETF on the way up and took half profits at $48 on that huge range bar. Then I sold some more into the rally but stuck with 1/4 position. This was up 30% or more but after last week I had a mental stop at 20% loss – all in 3 days – so you can see they are great in the right direction but sting you badly if you get your call wrong.

    Great article below:
    http://www.marketfolly.com/2009/01/how-contango-affects-crude-oil-etfs-and.html

  146. EricH

    “You can’t borrow them from your brokerage.

    I presume that somebody better-connected has already had that idea and shorted all the shares. It may be the closest thing to a sure thing out there, because they all go to zero eventually.”

    Go long deep in the money puts if you can’t borrow it to short. Not a lot of premium. For example AGQ is currently traded at 158.70. If your broker don’t have the shares to lend you to short, just buy the September 300 puts at 149.

  147. Sasa

    Nice triangle on gold going on

    3 month gold

    Actually it fits better, just this chart is a bit awkward.

    closer look

    If I zoom closer i found it interesting that friday and today’s slow crawl up was pretty much on the trendline that goes way back to march 16th low.

    Looking at the drop into aftermarket time i’m quite interested to see what tomorrow brings.

  148. Clarkatroid

    im a little surpised at the seeming lack of enthusiasm for the model portfolio

    i bought my positions today

    we are back in the game ladies .

    barmf barmf

  149. Gary

    That’s easily explained. Everyone got spoiled by the big fast gains during the end of the parabola and now that things have settled down to more normal actions it’s boring in comparison.

  150. David

    I am going to get fully invested in the model portfolio, then apply 10,000% leverage.

    That should liven things up.

  151. Poly

    Gary,

    I think your gold view will turn out to be right here, each passing day the odds of making a run to the high’s fade. I thought it had been holding up rather well recently, until today’s action vs the dollar, as you point out.

    Still for the trade itchy, this $1,490 area while relatively early in the gold daily cycle is not an expensive LONG entry point, with a stop above the recent cycle low to protect. This would capture any explosive (short term even) move to the high’s. You would think almost 10 days of hanging around, Gold will make a break either to the cycle lows to fail or towards new high’s sooner rather than later.

    As for the equities, I’m far from convinced that’s a cycle low that just got failed. You can’t see it from across the room and that was less than 3%. Its so very early in the cycle and the previous cycle was only 23 days young, so no expectations for a very short cycle to follow.

  152. Gary

    April 18th was not a daily cycle low. That was way too early. that was the half cycle low. the May 5th low came during the normal timing band.

    If this was going to be a left translated cycle then it could easily start out as a minor 3% decline that quickly fails. If the market takes out the half cycle low we will have the first level of confirmation that May 5th was indeed a daily cycle low and we are now in a failed and left translated cycle.

  153. MrMiyagi

    Gary,
    In the premium report, all equities are included in your outlook or is there any class that would do well.
    Thanks, very interesting report by the way.

  154. Poly

    My bad, thought you were marking April 18th as a low.

    Should it be so easily dismissed though as an open option? 23 days is enough and wasn’t the cycle before super long (at one point a runaway) that could easily justify 23 days? April 18th as a low looks neat.

  155. Eamonn

    Listening to Robin Griffiths, he says the real rate of inflation in the US right now, taking into account food and energy, is 10% (he referred to shadowstats.com). Also, the Bank of England is expecting 5% inflation this year

  156. David

    On my menu tomorrow:

    RWM
    PSQ
    EUO

    I will start with 5% in each and phase in 5% every day over the course of a week, with an eye to selling them in six weeks.

    I may put stops down 4-5% lower on each.

  157. Bob loves Hawaii

    Gary nice report tonight. Question, if the SPY bounces here, when is your next add to point, the Japanese low?

    Thanks. Bob

    Long RWM and short USO from Friday. Yes, still holding my June gold calls, hedged with weekly sold calls.

  158. David

    A provocative article on Minyanville.com entitled “Silver is headed for Single Digits”:

    Let’s start from the top. As of the April 27, 2011 close, silver had gone up 435% over the previous 628 trading days (2.5 years). Since 1920 (where daily data from chartsrus.com starts) this has actually occurred on 56 prior occasions. In all 56 prior instances, silver experienced an 85.84% decline from the signal date. This would project the price of silver to go to $6.86.

    Silver Crashes Lead to More Downside

    On May 5, 2011 Bespokeinvest.com listed the dates of top 10 four-day declines in silver. The four-day decline up to May 5 made the list at No. 5. If one takes their research further and looks at what happened next after top four readings, all had 77% declines AFTER the massive 29% to 40% four day declines. This would project to silver going to $7.73.

    ****

  159. Gary

    Bob,
    I won’t add into strength. What I’m looking for is confirmation. I will add into weakness if certain levels get penetrated.

  160. GGuy

    I have a different cycle count, even if final results are not so different.

    To me first daily cycle of this intermediate closed April 18th. First half of the 2nd daily cycle closed May 5th. What we should have now is just a half daily cycle fail. A drop to 1310, a bounce, weak and small in time, for the new daily cycle. THAT cycle will be left translated and lead to a big drop.
    We still have to close an intermediate and a Yearly cycle by July.

    G.

    http://www.ellipsetrading.com

  161. thedocument

    May 5 was not a daily cycle low because the decline at that point had not pierced the cycle trend line. In fact, the trend line was just broken today, giving us final confirmation of a cycle in decline.

    Now on Day 42, this daily cycle should quickly find a low and then give us the final bounce before some serious damage gets done. I certainly will not try to play the move out of a daily cycle low here because I suspect the bounce will be weak. In fact, I intend to hunt for spots to begin building a short book into that bounce.

  162. Shalom Bernanke

    I’m not short yet although could be soon. One thing that makes me think it’s too early is that I can still borrow both SSO and QLD to short.

    Just watching from a distance right now.

  163. pimaCanyon

    David,

    If the miyanville analysis turns out to be correct and silver does indeed go into single digits, we will all be looking for another, different bull market to ride because the PM bull will be toast.

  164. Shalom Bernanke

    One important tell will be how hard treasuries bounce into the realization deflation is back, even if only temporarily.

    Most think if stocks are headed lower that bonds must rise, but I suspect bonds might be as good or better short than stocks as they both go lower. Besides, everybody thinks stocks are headed lower.

  165. Gary

    Doc,
    Hmm that trend break hadn’t occurred to me. We are still in the normal timing band for a bottom after all.

  166. Gary

    I doubt silver is going to single digits during a secular bull market. I could see a test of the breakout at $21 but probably not much lower than that.

  167. David

    Pima,

    I think that analysis is slanted.

    For one thing, the 1974 silver parabola was even more powerful than this one, but it didn’t fall by 85% afterward. It bounced in a range for years then went on to new highs.

    I may check up on his stats. Nonetheless, I’m happy to leave silver to others for a few years.

  168. Ryan

    Gary,

    I was never good at shorting so I was hesitant to go with the model portfolio. But I don’t want to stay in cash waiting for the a-wave. Should be ok to go into PSQ and SH tomorrow?

  169. Dan

    Just checking in…choppy action here although I know we will see $2x sometime by the end of the summer so with that in mind im still holding some puts. Hopefully we get some oversold/overbought levels so we can trade one way or the other.

  170. Gary

    Ryan,
    I think Doc may be right and stocks are still trying to put in the cycle low. Might not hurt to wait for a swing and then see how far it bounces before taking the trade.

  171. Juan

    David,

    I silver goes to $7.73 I am backing up the truck, maxing out the credit cards, selling the house, etc etc etc and going LONGGGG!

  172. Shalom Bernanke

    I’d encourage others to keep an eye on bonds. Regardless of deflation, an expected stock decline, no more QE, etc, I think the trap is being set for those seeking safety in bonds.

    Watch the strength of the bond rally.

  173. Shalom Bernanke

    It’s entirely possible stocks go lower, but mostly sideways as the Fed sells bonds (pushes rates higher) to make an excuse for QE3. If the Fed dumps some paper it’s enough to keep stocks from collapsing, too.

    Have a good night, I’ll check in tomorrow. πŸ™‚

  174. DG

    Doc: I am a bit confused by what you have written. I am thinking of subscribing but found this:

    You posted today on SMT at 5:26 p.m. “May 5 was not a daily cycle low because the decline at that point had not pierced the cycle trend line.

    You posted on May 15th on your public blog: To borrow from lingo used in the Member Letter, May 5 constitutes a daily cycle low.

    ??????

  175. ALEX

    Blogger Gary said…

    Doc,
    Hmm that trend break hadn’t occurred to me. We are still in the normal timing band for a bottom after all.

    May 16, 2011 5:51 PM

    Will there be an update or new post tomorrow…or not? thx

  176. Gary

    Alex,
    I’ve already posted a possible adjustment to stops in the stops and trade trigger link. We do still have a weekly swing forming after all.

  177. ALEX

    sorry Gary,

    I havent read the report yet, I just logged on…I’ll do that now

    Kal , I will do that, if you want to delete that post , I have the email address..

  178. KAL

    Hmmm… Learning patience here a little bit. Sometimes not doing anything is nice. Good to see there’s some healthy discussion/debate on the board with strong minds leading to some great output followed by financial gain for us all.

    Sounds like the consensus is a bit of a wait and see on a daily cycle low for stocks and a possible quick bounce before the big drop starts. I like the flexibility to move the trades to the SPY and QQQ to take advantage of profit opportunities. Nice.

  179. KAL

    By the way Alex, no rush on that email. It’s kind of a big picture question that might be really easy for you, but either way no rush. Thanks!

  180. KAL

    Got it Alex. I was on the phone with my wife. She got lost driving… No comments further on that situation as I want to stay out of trouble. A wise man once told me, “A happy wife is a happy life.”

  181. Gary

    I usually only take notice when it goes above 95, plus I would need to see gold confirm with a 95 or above also.

  182. KAL

    Hey, Eamonn… The dude that told me that is an Italian from NYC. He’s not in the Mafia, but he “knows a guy.” Anyway, he’s full of wise sayings like that. He should write a little bathroom book!

  183. KAL

    Very true, Eamonn. I feel like MrMiyagi should weigh in now. Maybe I will change my handle to “Grasshopper” or “Caine” and alternate between siting and listening to wise folks and wandering the earth in search of wisdom and fulfillment. Haha.

  184. Bob loves Hawaii

    I am very interested in how Hong Kong futures affects anything, when they start up tomorrow. The Asians have a different view of the metals, and they will trade in yuan, meaning Chinese citizens will be able to convert Yuan into gold and silver, with leverage.

    Or we just taught the Chinese how to create unbacked metals through shorting.

  185. ALEX

    ROB L

    Sure ( 2 words or less…do I talk too much) LOL

    It is supposed to be a reversal (it is not always accurate) but if you look at the bottom of the March consolidation…there was one there too. πŸ˜‰

  186. KAL

    …at ease,

    I have only one comment, and I think I speak for Eamonn here…

    “Beep!”

    Haha just kidding! I’m not stepping into this one except with puns!

  187. Veronica

    My internet has beenm out the last couple of days:( My gold futures system will go to a buy at 1516.00 but it is not a trade I will be taking. I cleaned out my DBA shares today too, so I hope this deflationary period gets going soon.I’ve held them from somewhere in 2008 or early 2009.

  188. Natanarchist

    Poly…that dollar chart is interesting. Like you mentioned one would think with all the QE that the dollar would go lower than ’08. maybe like 08, we will stay in a bottom range until the end of summer or QE 3 (or no QE3)and then it breaks one direction depending on Fed and other central banks.

    Lots of uncertainty in the world now and it seems to be in the markets as well. Could be a wild summer. US and Euro debts, Middle East in turmoil, again, plus the ongoing wars, conflicts. Also the US is going to need a new “enemy” or a new “face” to current enemy. With no NFL, Americans are going to need some serious distractions by the fall.

  189. notGreedIsGood

    gary,

    why can a blees rating of 100 indicate an intermediate decline instead of a d-wave?

    didn’t we get record low sentiment on the dollar, and a strong rally to mark the 3 year cycle low on dollar? and didn’t you say that it would take Qe3 before the dollar can make new lows, and make gold go parabolic?

    eg. why is the possibility of gold going parabolic into the fall still on the table, given that the miners are sick and have been warning us for weeks about the end of the C-wave, and gold is unable to rally despite weakness in dollar today?

    not

  190. Gary

    A 100 Blees rating could just mean that the D-wave was very shallow and the A-wave is about to start.

    All I know is that I don’t ignore a 100 blees rating on gold.

  191. David

    …at ease,

    Seems easier and safer just to short the Euro.

    Gold is going to $5000, and the Euro is going to hell. Which would you feel more comfortable shorting?

  192. ...at ease

    David, Yeah, I thought about that right after I posted. I was just going through the list and thought entered my mind, but also realized… Gary says never short a bull market. πŸ˜‰ And you have concurred. No brainer. πŸ™‚

  193. ...at ease

    David, didn’t you just say you are in cash for the first time in your trading history? With your plans to scale in with ultra shorts, will you have enough for the A wave available?

  194. David

    …at ease,

    I’m not buying ultra shorts. I’m just buying 1x short ETFs like RWM and PSQ, because of the decay involved in 2X ETFs.

    (I may make an exception for EUO, simply because currencies are not that volatile, so the erosion factor is not as great)

    I plan to sell them in six weeks and go all-in on gold miners at the bottom of the D-wave.

    If I make 10% off the short ETFs in six weeks, I’ll be delighted.

  195. ...at ease

    Gotcha, I have PUTs on Silver and a little ZSL, however don’t want to ride those too much longer. I bought EUO this morning. Was looking at your PSQ rather than PUTs on QQQ.

  196. basil

    Hey Gary,

    While I do agree with your assumptions about a trend change in the stock market, what makes you so convinced that a cycle low in 2012 will take out the 2009 low? Is that more of a hunch (?), because I feel you could perhaps make the same arguments with a much less aggressive downside target (perhaps 25% down from here?). Why can’t the coming four-year-cycle low not be much higher than the previous one? Do cycles imply that it must be lower? I am not questioning the direction, I am wondering about the severity of the decline.
    Thx

  197. Ms C.

    Gary says never short a bull market. Does that also counts for a cyclical bull ? If so, why are we shorting the S&P500 ?

  198. RA

    Ms C.

    If I may, I think Gary means not to short a *secular* bull market – which means a market of rising prices over the long term. PMs are in a secular bull market.

    Stocks (including SP500)on the other hand, are in a *secular* bear market. But even in such markets there are uptrends and downtrends. There are known as *cyclical* bull and bear markets respectively. Stocks have been in a *cyclical* bull since 09. But we believe this trend to be ending.

    What Gary and others are doing are shorting the downtrends in a secular bear market.

  199. Ms C.

    Thanks for your answer RA. The safest place to short though is the bear market rally touching the 200 DMA. (The cyclical bear market is not confirmed yet)

  200. RA

    Ms C.,

    Ooops! I did not read your post carefully – I made the erroneous assumption that you were not clear about the difference between cyclical and secular. My bad!

    But isn’t the 200dma pretty far away. All we need to confirm the cyclical bear is if the sp500 takes out the March lows.

  201. RA

    I see what you are saying. Something along the lines of waiting for a bounce after a failed intermediate cycle is confirmed. I guess that would depend on where we are in the intermediate cycle?

    Also I think the short positions that Gary has in the model portfolio are small ones. So the risk is minimal I guess.

  202. Gary

    Basil,
    I just put the target dot there to illustrate a timing band.

    I think in inflation adjusted terms we will go to new lows but in nominal terms it’s probably a toss up.

  203. Gary

    Ms C,
    That’s why initial positions are very small. I want confirmation that the cyclical bull is done before I get serious about shorting stocks.

  204. Power Corrupts

    Gold Price to HUI ratio range since Jan 2000:

    November 2000 7.25 (8 year cycle trough?) H

    May 2001 3.75 L

    July-August 2001 4.2 H

    May 2002 2.4 L

    July 2003 2.5 H

    November 2003 1.6 L

    May 2005 2.5 H

    July 2006 1.75 L

    August 2007 2.25 H

    November 2007 1.75 L

    October 2008 4.75 (8 year cycle trough) H

    September 2009 2.25 L

    February 2010 2.9 H

    November 2010 2.25 L

    May 2011 2.9 current, highest since November 2010

    Just eyeballed this from charts

  205. Haggerty

    Hey All
    There is a lot of BS in the news these days and they keep talking about how we have 11 weeks till we default. Just thinking out loud but that could be the story that gets our A wave started.

    Bob who loves Hawaii
    I’m taking a 3 day course on Solar panel installations, pretty cool stuff. Is this what you do for a living?or should I say to keep yourself busy?

Comments are closed.