THE MOST IMPORTANT DECISION BERNANKE WILL EVER MAKE

As many of you know who have read my work in the past, the dollar put in a major three year cycle low back in May. It has been my expectation all along that the rally out of that major bottom would coincide with another deflationary period and the next leg down in the stock secular bear market. So far this has been the case as stocks topped in May at the same time the dollar bottomed. 

After a 15 week consolidation the dollar has initiated its first powerful thrust up out of that major bottom. As you can see in the chart below the rally out of a three year cycle low generally lasts at least a year and turns the 200 day moving average back up.



I’ve also noted that once the rally out of a three year cycle low rises above the 200 day moving average, it shouldn’t dip back below that level, at least not for the next year to year and a half.

Sometime in the next few days the dollar will put in a daily cycle low and bounce. My expectation is that it will either bounce off of the 200 day moving average or bottom slightly above that level. It’s what comes next after that bounce that is absolutely critical.

Bernanke is now about to make the most important decision of his life. The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would  facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years. That is the correct decision. It is also a very hard decision because it will lead to severe short-term pain and undoubtedly another depression on the same scale as 1932.

However if Bernanke chooses to kick the can down the road again and continues his failed policy of monetary debasement then  the dollar is at great risk of forming an extreme left translated three year cycle.

For those of you that are new to cycles analysis, a left translated cycle is generally associated with a bear market. Left translated means that the cycle tops in the front half of its cycle timing band. In this case any top that forms prior to 18 months would signal a left translated three year cycle. Furthermore the more extreme translated a cycle is the more severe the decline tends to be, simply because the cycle has a lot more time to move lower.

If Bernanke decides to avoid short-term pain and kicks the can down the road again with further currency debasement, then the dollar is at great risk of having already put in the top of this three year cycle.

The unintended consequences of a three year cycle that tops in only four months are, to put it mildly, horrendous. That would indicate that the dollar is going to head generally lower for the next three years culminating in a hyper-inflationary event at the next three year cycle low in 2014.



The next couple of weeks and months are going to be of grave importance. The dollar needs to find support at the 200 day moving average and resume moving strongly higher. That would of course put pressure on the stock market and probably terminate the current bear market rally somewhere around the 200 day moving average (roughly SPX 1270ish) before the next leg down begins.

If however the bounce out of the now due daily cycle low is weak and the dollar rolls over quickly and moves back below the 200 day moving average then all bets are off. Stocks could even rally back to marginal new highs. However that would also guarantee that the CRB has put in its three year cycle low and we are now at the very beginning of an inflationary Holocaust.



If Bernanke makes the wrong decision then gold is on the verge of moving into the bubble phase of the secular bull market. That being said gold should still experience one more move down in the next couple of weeks as the dollar rallies out of its impending daily cycle low. After that, everything hinges on Bernanke’s decision whether or not to continue his failed monetary policies.

348 thoughts on “THE MOST IMPORTANT DECISION BERNANKE WILL EVER MAKE

  1. Shalom Bernanke

    Gary,

    Good weekend post. What I take away from it is anything could happen.

    Better get and hold onto some metals/miners if we get a dip so you can afford those $40 Big Macs abroad!

  2. William Wallace

    In 08 we seen the dollar rally out of a 3 year cycle intermediate low and then roll over into the next low at pretty much the same amount of days the we are witnessing now. The dollar retraced to the 50 day moving average slightly higher than the 200 before resuming it’s rally. The current 50sma is right above the 200 and slightly below Friday’s low, it’s likely we see the 50sma tagged on Monday and a reversal day put in. BTW, in 08 the market was trading sideways while the dollar blasted out of the 3 year cycle low, when the dollar pulled back and bounced off the 50sma and resumed it’s rally the market began to tank. If the dollar bounces violently off the 50sma this bear market rally in stocks may end sooner then later.

  3. St. Deluise

    provocative post but i don’t agree that the US will ever be in a hyperinflationary scenario. that’s not how our monetary system works and i don’t correlate QE with “money printing” to the degree most people seem to.

    though i am confident that over time they will continue to weaken the dollar (and all currencies) to slowly erase all this debt. perhaps at times the inflation rate will get out of hand but again, not in any “hyper” sense.

    that said, i think this dollar rally will continue.

    /dx daily with 233 & 1597 day MAs with effective volume equivalent in the subgraph.

    http://i56.tinypic.com/30bhi6o.png

    big/herd money has decided that this break is for real. if the EV fails the 233 day, then yes we’re in for a brutal drop. but i think we see 81 first, at least. /dx tapped its 233 day on the nose friday and the news AH was then that the US would be diminishing its role in the IMF/euro crisis.

    not to mention that there is no reason to print right now

    http://bpp.mit.edu/usa/

    as we are not experiencing deflation at all, let alone anything like 08.

    time will tell. for now fairly confident the dollar puts in a new high (81+) but these rallies seem to be getting weaker and are definitely getting less relevant as the currency war escalates.

  4. Gary

    I’m not really sure one can use the “it’s never happened before so it won’t happen this time” argument.

    Housing had never collapsed before but it did this time. The global credit markets had never imploded before but they did this time.

    History is crystal clear. Never in the history of the world has a country come back from a 100% debt to GDP ratio. If one factors in SS, Medicare and off balance sheet items like the last two wars it’s more like 800% of GDP.

    Just because this is the United States doesn’t mean the laws of nature don’t apply to us. Rome was the greatest empire the world had ever seen and yet they couldn’t defy the laws of nature either.

    The unfortunate fact is that we have now gone past the point of no return and a depression is unavoidable. Our only choice is whether it will be deflationary or hyper-inflationary.

    I think the the next month or two will tell us which it will be.

  5. asm

    The EUR will stay weak and might collapse, that’s what FED is waiting for so they can start printing without driving USD to the ground. The assumption that a QE3 will somehow ignite a 3 year long crash in the dollar, well, I’m doubtful.

  6. Gary

    Continual monetary debasement has triggered a 10 year collapse in the value of the currency.

    Why would a continuation of the same policies all of a sudden have a different outcome?

    Isn’t that Einsteins definition of insanity. Doing the same thing over and over but expecting a different result?

    The Fed has debased the currency aggressively since 2001 and it created a housing bubble, credit bubble and $147 for a barrel of oil. It seems a little illogical to all of a sudden expect the same policies to deliver a different result.

  7. Gary

    BTW the value of the dollar against the Euro is meaningless. It’s the value of the dollar compared to commodities that is the determining factor as to whether we experience severe inflation.

    If the Fed and EU debase at the same pace the dollar index could remain stable but the price of all commodities could skyrocket in both currencies.

  8. Robert

    Gary

    good post–with Presidential elections coming up next year i doubt very much Bernanke and Obama will let the markets tank…the democrats want to get re-elected and they need at least the stock market to keep going up–the Fed will print money as that is the only thing they can do.
    From john williams

    The root source of current global systemic instabilities largely has been the financially-dominant United States, and it is against the U.S. dollar that the global markets ultimately should turn, massively. The Fed and the U.S. Treasury likely will do whatever has to be done to prevent a euro-area crisis from triggering a systemic collapse in the United States. Accordingly, it is not from a euro-related crisis, but rather from within the U.S. financial system and financial-authority actions that an eventual U.S. systemic failure likely will be triggered, seen initially in a rapidly accelerating pace of domestic inflation—ultimately hyperinflation.

    The financial markets still are roiled by deepening crises of confidence in the U.S. dollar and in the long-term outlook for U.S. financial, economic, systemic and political stability. For those living in a U.S. dollar-denominated world, regardless of any further near-term extreme volatility in the U.S. dollar—in either direction—versus the stronger major currencies and gold, the stronger currencies and precious metals remain the fundamental hedges against what lies ahead.

    Massive, fundamental dollar dumping and dumping of dollar-denominated assets could start at anytime, with little or no further warning. With a U.S. government unwilling to balance or even to address its uncontainable fiscal condition; with the federal government and Federal Reserve standing ready to prevent a systemic collapse, so long as it is possible to print and spend whatever money is needed; and with the U.S. dollar at risk of losing its global reserve currency status; much higher inflation lies ahead, in a circumstance that rapidly could evolve into hyperinflation.

  9. Danno

    The largest obstacle blocking a one world government is the existence of the United States. It has to fall. The event can be postponed, but not indefinitely.

  10. Samson

    Great report, Gary. Have always wondered why people say it couldn’t happen here. Seems to me that at the end of the day, part of the hyperinflationary route is psychological and what people believe/perceive about the relative value of goods and money. What I’ve come to appreciate by looking over history is the seemingly never ending succession of generations who basically think the folks before them were unsophisticated and/or crazy. Human nature is what it is. It certainly hasn’t changed in the last few hundred years. Why are many so sure that it has now?

  11. andybuji

    for those who like fundamental correlation (or causation for true believers) here’s an interesting take by Zero Hedge on the latest surge in euro. And why it won’t last.

    The last 2 weeks have seen the paradox of just how ugly the European funding and liquidity situations have gotten, on the one hand, confirmed by the blow out in French bond yields (the French-Bund 10 year spread just hit an all time record yesterday) as well as continuing deterioration in credit spreads across core European nations.

    Yet, on the other hand, the euro, especially in that critical pair the EURUSD, has seen one of its most explosive rises in recent history.

    Deutsche Bank explains that a pervasive European, though mostly French, scramble to procure liquidity at any cost by dumping various USD-denominated assets, has been erroneoulsy interpreted as a risk on signal.

    Europe (the French) are selling Dollar Assets to get Euro cash.

    Having sold the Dollar assets they need to sell the Dollars and buy Euros to meet Euro liabilities. The EURUSD goes up, fooling the robots to buy stocks.

    Bottom line ZH takeaway: “Expect all of this to promptly, and very violently, correct once the market understands what an idiot it has been in the past two weeks.”

  12. KAL

    FYI in case anyone is interested. My new job is in pharma so I’ve become interested in the possibilities of other realms of investing heretofore unknown to me…

    http://www.bloomberg.com/news/2010-09-15/bayer-chief-envisions-15-billion-market-for-xarelto-new-blood-thinners.html

    http://www.foxbusiness.com/markets/2011/10/07/bayer-to-present-phase-iii-xarelto-results-on-nov-13/

    I think in another article the Bayer CEO said he’s looking at $2.5 billion a year in sales.

    From another article:
    “Warfarin (Coumadin) is the most frequently prescribed oral anticoagulant, the fourth most prescribed cardiovascular agent and the overall eleventh most prescribed drug in the United States, with annual sales of approximately $500 million.”

  13. KAL

    Sounds like were talking about Biblical type stuff, like the “year of Jubilee.”

    In Wiemar Germany, if I recall my history, debt was eliminated in big chunks when those who held any assets in marks were liquidated by hyperinflation. Farmers did OK, they just kept growing food and selling to those with something to trade or gold/silver. The poor and indebted did well, as their debts became tiny and they lived paycheck to paycheck anyway. The middle class of savers was crushed. The rich who “knew the signs of the times” and invested in gold/silver were megarich after this thing was over. If I understand correctly, your $100,000 signature loan looks smaller every day in a hyperinflation, and nobody will loan money at any reasonable rate. Interest rates would have to skyrocket, as everyone wants to borrow $100,000 that morphs into $1 million tomorrow. Am I remembering correctly?

  14. SF Giants Fan

    I have to agree with Robert. You don’t need any cycle analyzis to determine what is going to happen next year being an election year. Ben is going to do what he did at the end of QE3. Pump up the stock market.
    They do not want another 2008.

  15. Bill

    Gary, great post. And nice follow up discussion. Regarding Weinmar, I’ve read it argued once that it can’t happen now because of the bond market, which is far larger than the stock market. I’m not smart enough to know if that’s true or not.

    I also wonder, too, if China slows (or worse implodes) due to a) low demand for products in the US/Europe, and b) over building/heating/lending, way beyond demand needs (empty buildings, towns, etc.), then I wonder how the falling price of copper/oil will dance with the falling dollar – sort of like a massive reboot of the entire financial system – the price of 1 bbl of oil is how much, if no one is flying, building, or driving? – type thing.

    I also watch with high hopes that cycles work here. In the interim, I remain a trend follower.

    There are just too many people on the planet, is the root cause of this all, in my view. Compare to 100 yrs ago, before electricity, gas-powerd auto’s, etc. Just coal and horse manure was all we worried about. What will the next 100 yrs look like?…

    Time for a beer.

  16. DDD999

    Great post,

    Ben will be under tremdous pressure to kick the can and that complicates his decision.

    Why do I feel that if both choices were clearly defined right in front of as “This is the right choice” and ” This is the wrong choice” that Ben would choose the one labeled “the wrong choice”?

  17. ...at ease

    We won’t know, which way Ben will turn, as political winds are blowing at him from both directions. It just depends on what he chooses as his final legacy.

  18. Mean Guy

    I don’t Bernanke cares about the upcoming election. Obama does and that’s why he is pushing his jobs program. The GOP will shoot down any form of stimulus because they don’t want him reelected, but that’s just politics. He will try to throw it back in their faces next fall, politics again.

    Gary, won’t Bernanke just raise interest rates if it looks like inflation is getting out of control or do you think it will be too late?

    Paul Volcker in the late 1970″s raised rates to control inflation pretty much ensured Carter would not be reelected.

  19. Gary

    We’ve already had gasoline go from $1.60 to almost 4 dollars again. A barrel of oil went from $35 back up over $100. If that wasn’t enough to get Bernanke to raise rates how much inflation do we need?

  20. Veronica

    Gary, unfortunately I think we all know what Bernanke is going to do
    πŸ™ If gold has an up week next week and stalls at the 50% retracement at 1720’s and then has a violent correction down to low 1400’s the bubble phase very well may get started as this would be following other bubble fib formations that have occured in recent years.The trouble I have in reconciling such a scenario is that the bubble would probably end much sooner than 2014. It may well be a good time for some major old turkey holding if this scenario unfolds, and that will be a tough thing to do.I will have to write my price targets down and study them every day to avoid selling early:)

  21. Chico_hawk

    Given the choice, and there are only two stark ones, he will choose hyperinflation over deflation, since HI favors the big banks & 1% elite who controls most of the wealth. Deflation will kill the big banks, as well as Obama’s re-election chances, and since the choice between hyperinflation & deflation is ultimately a political one…HI it will be.

    So the risk of a deflationary spiral that goes out of control is too great (at least from Bernanke’s perspective) – he will print to prevent that from happening and try to maintain some semblance of “order”. (See his famous helicopter speech).

    Other factors such as bailing out Europe (i.e., Wall street banks exposed to euro sovereign & bank debt), while a sideshow to the main event, also favor printing.

    just my 2 cents

  22. john

    I would not assume that Bernanke’s employers care one bit about Obama’s political future. If his handlers cared about Obama, they would have taken the pain early in his administration and not have shot their load so early in the romance.

    Nor do they seem to care about the social unrest and hunger that commodity inflation has caused and is causing.

    Benanke’s actions to date suggest that they care primarily about preserving the system for their short-term benefit. Operation Twist is consistent with Bernanke’s mission – as it generates fee income for primary dealers as debt is rolled over and over and over.

    Keep short rates low and generate a lot of fee income for the bigs. What else can Bernanke do for them in the current political environment with protests and with Republican candidates calling printing “treasonous”?

    I’m guessing that things will have to get very bad (deflationary, lower stock prices), before QEIII.

  23. Farm Girl

    In a high-inflation environment, caused by too much money, profit margins can get squeezed just as interest rates are rising and P/Es are falling.

    But in a hyperinflation, which is caused by counterparties refusing to accept the currency, stocks rise because it isn’t about profit margins or earnings, it is about assets.

    I don’t think there has been a hyperinflation in history where stocks didn’t rise dramatically (as well as PMs, commodities, real estate and any other real asset).

    I believe the end game is hyperinflation. However, Gary has convinced me that before that hits, there could be a period of squeezed margins and compressed valuations. So there will be a time to sell stocks, and then be ready to load up on them (and PMs) before the hyperinflaton hits.

  24. Chris Beanie

    The equities market is headed to the moon, starting now.

    Hedge funds will now collectively “let” the market rise, just so Occupy Wallstreet doesn’t get out of hand and morph into something dangerous.

    A strongly rising market fixes all problems – economy, jobs, protests, etc.

    And so it shall be.

    The inverse is also true: A massively declining market will cause many economic and societal problems thru a negative feedback loop. George Soros explains this via his theory of reflexivity. http://www.smartcompany.com.au/the-intelligent-adviser/20100712-george-soros-theory-of-reflexivity.html

  25. Sang

    “The equities market is headed to the moon, starting now.

    Hedge funds will now collectively “let” the market rise, just so Occupy Wallstreet doesn’t get out of hand and morph into something dangerous.”

    The equity markets explosion from the March 2009 lows has not created jobs.

    Rather, an equity explosion to the moon coupled with no jobs being created is the perfect recipe to make occupy get even angrier with the rich getting richer and them still getting no jobs.

  26. Brutus Maximus

    But as far as the markets are concerned, I would like to share some observations from friday. It is important for me to point out that as opposed to most blogs and professional services that charge for their opinions and usually give you two opinions and subsequently claim the best one post history. I present my view, it is merely a view but is a focused one. I have never found that I can make money in the markets by flip flopping…I don’t have time to waste doing that…either I am wrong or I am not. In the case that I am wrong, I want to determine it early and manage that condition proactively…the most effective tool for proactively managing risk is proper allocation.

    Hence, my view and posture has not changed at all since my last post…the market was SOLD by institutional traders especially into the short squeeze at close on Friday. In fact, it looks to me like the primary activity in the markets has once again been a roller-coaster of leverage becoming de-leverage…longs became shorts after blowing out of their trades and now they are blowing out of their shorts. In addition to that, you have all the asundry liquidations by the various insolvent and liquidating financial institutions around the world. With all their crazy derivative and leveraged risk positions this does not imply that asset prices must go down…and can indeed imply quite the opposite. The most ridiculous thing is that NOW that we are above that trendline…most will likely look at it like a breakout which will likely further their whipsaw. I am quite confident that this breakout will be a retest overshoot and thus a failure.

  27. Gary

    The dollar made a lower low this morning. A swing can’t form today.

    It sounds like you are preparing to leverage a short trade. I would strongly recommend you don’t.

  28. St. Deluise

    i can still see /gc getting up another $20 here with the bearish case remaining valid.

    seems to respect its 610 hourly MA fairly religiously, currently at 1706. expect it to test this eventually but not sure at what price.

    added 3 shorts since 1645 at around $15 intervals. will add my last at 1705 if it gets there.

    similarly first SDS long added on the close friday, will add to that at /es 1230 (got up too late this morning)/45/60 or when the 233 day is grazed, currently 1267.

    this morning /es hit both its 89 and 1597 day and repulsed hard. and it did hit a marginal new bounce high so the jan-may ’08 analog would predict a down to around 1160 followed by a rally back up to the 233, then dowwwwn. if we’re in the macro ‘deflation scenario’ which i think currently has the best odds, if only just barely.

    nice /dx bounce but nothing proven yet.

    seemingly nothing to do today otherwise (for me at least), good luck everyone

  29. sophia

    St Deluise,

    sold Nasday on Friday night…of course not really happy this morning when I saw 20 points on my face, but now we are back to where I sold it and it is Opex week, so it could be a nice trade

  30. intelliblue2000

    Apparently I have been “savaged”, got out of both AAPL and GOOG, knowing they may go higher. But don’t want to risk losing.

    Savage-style: manage your risk and the profits will take care of themselves.

  31. Karl

    Bernanke will NOT let the dollar appreciate and the market go down. That will bankrupt every States’ retirement fund. Debasing the dollar and creating inflation is part of his Housing fix… 50% inflation will inflate the value of housing… and fixes the upside down mortgages. Of course the unintended results will be ignored.

  32. Poly

    Gold resisted the $USD move all morning, but finally cracked. We need to see some solid follow through over the next few days to confirm the trend though, still wait and see mode here.

    In terms of probabilities, I like our current framework of a gold daily cycle top and then a sharp move into a ICL. The cycles age lends itself well to these interpretations occurring right here.

    Anybody who picked up that short SPY position on Friday as I suggested now have a solid no loss ceiling stop to work with.

    Time to kick back and watch the action, again.

  33. Ben

    Gary, does 20% inflation qualify as hyperinflation in your worst case scenario? Or what?

    Also, do you think the fact that the latest 3-yr low in the dollar was *higher* than the prior 3-yr low in the dollar in ’08 means that it’s more likely to have a severely left translated cycle this time? With all the printing since ’08, it did seem a marvel of financial engineering that we didn’t see a lower low.

  34. William Wallace

    Holding SPXU (last add was at SPX 1217ish, the 75dma) and considering not taking it off unless I see that the dollar has no intention whatsoever of rallying for another 4-5 weeks. Looking to see if the dollar regains the 10sma and it supports a move higher, or fails to hold. As I mentioned in my last post (Oct 15th) I was expecting to see the dollar put in a reversal day today (looks possible), and we may see an end to this bear market rally sooner then later. The dollar’s 50 day moving average has crossed over the 200, so lets see how things go from here.

  35. sophia

    W2,

    Thanks for your post…you might be very right about the dollar today…let’s hope for a last woops before year end rally!

  36. diana

    What a surprise – not! (Bernanke lying) Are we going to have massive global inflation? Will there be nowhere to hide?

    “Tuesday, October 11, 2011
    Jim Rogers: Bernanke Is Lying to Us
    Jim Rogers tells it like it is.

    In the EPJ Daily Alert, I have been pounding away at the fact that no new QE is required, that the money supply (M2) is exploding. Rogers correctly points to this money growth in the clip below.

    Also, Larry Kudlow is correct in his view that the European Central Bank is likely to join the Fed in the money printing. If they do, it will be the first time ever that the world could face a massive global inflation.

    Kudlow is correct that the stock market will skyrocket under these conditions and Rogers is correct that commodities will soar.

    Prepare yourself for climbing prices like you have never seen before, to differing degrees both Rogers and Kudlow know what is coming.”

    http://www.economicpolicyjournal.com/2011/10/jim-rogers-bernanke-is-lying-to-us.html

  37. Michael

    WW,

    Thanks for your continued posts… I am still long DX via UUP and short S&P via puts… waiting for the end of the D-Wave… will be interesting to see if the rally terminates and DX holds here… good luck..

  38. Liquid Motion

    Critical point Gary,
    Debt destruction (a “when” outcome) in EURO LAND will be deflationary.
    Money printing by ECB (not if but when) will be inflationary.
    IMHO the risks of both occurring are equal.
    Concurrently, the Fed has no immediate “debt destruction” to deal with unless the first part of the EUR unfolds (US Bank exposures and contagion resulting from that).
    So, isnt it feasible to conclude that the world can have some debt destruction (deflation) with money printing (mild inflation) ?

    In that scenario, hyperinflation would be difficult to achieve when the money supply is being replenished to a marginally greater degree than it is being destroyed.

    Indeed price inflation brought about via higher import prices are a given. Perhaps inflationary trends are contained sufficiently to keep interest rates low. The endgame is a very protracted period ( a decade or two) of mild inflation and minimal growth. Ultimately real rates are zero or below. The US finds a way out (as does EUR) of their debt quagmire by a slow and relatively painless inflation. In this way it avoids the extremes of deflationary scenarios as witnessed by Japan and Hyperinflation as experienced by many nations in history.
    (I say relatively painless as more acceptable as compared to the “Hyper” alternative …which is an extreme). One could argue that US corporates/consumers have been the recipients of an overinflated currency for multi decades. An unwinding of that position can be achieved on an economically acceptable platform over a similar timeframe.
    Just some fodder for more discussion.

  39. Gary

    LM,
    You are missing the point of the article. I’m not concerned with the short term moves.

    I’m just concerned that the current three year cycle may become extremely left translated. If it does this early in the cycle it would imply a severe currency crisis at the next three year cycle low.

    I tried to explain the concept of left and right translated cycles in the article.

  40. Robert

    Gary,
    Maybe you can explain why gold/silver are usually up when they trade in the Asian markets ( physical market ) and why is it that when Wall Street and London open the prices are almost always taken down.Soon Wall Street (and London) will be left in the dust while Hong Kong will set up the real value of gold. This is what the Chinese are trying to set up and with the kind of cash they have I guess I know who the winner will be!!

  41. Gary

    That one is easy. The dollar is down at night and this morning it reversed higher.

    Must be the evil cartel manipulating the multi trillion dollar currency markets in order to make a few pennies off lower gold πŸ™‚

  42. Robert

    Good response, yea I forgot currencies are not manipulated at all–Last night AN INTO THE EARLY MORNING gold was rallying with the stronger dollar and weaker euro.

  43. john

    “The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years.”

    Even if they did stop the printing, do you think that they would allow cleansing?

    Everything that both the FED and at Treasury have done has been consistent with avoiding that cleansing.

    If you’re big and you eff up, you’re too big to let fail.

    If you’re small and you eff up, you’re a victim of predators.

  44. Danno

    I don’t think silver is following 2008’s playbook anymore. There should have been a large gap down by now and it didn’t happen. Although I expect silver to revisit lower prices, maybe even its recent low, to be very short silver here expecting a 2nd sharp leg down ala 2008 is becoming more and more risky. There could still be a sharp leg down of course, but every day that passes now without one makes it less likely IMO.

  45. Gary

    For what it’s worth I’ve never seen much value in trying to compare current price action to past history.

    Every period of time in the market is unique, with different fundamental driver’s.

  46. john

    LM, I think that what you describe is the best that could be hoped for …debt destruction and slowly inflating away obligations.

    But the bailouts and the failure to enforce fraud laws against the people who profited from our ruin, will make it very difficult for government to now reconcile the unrealistically high expectations of the masses with the necessarily lowered-expectations of a stagflationary world …even if our leaders were suddenly inclined toward longer-term planning.

  47. Gary

    If we were going into this with 30-50% debt to GDP we might be able to get by with stagflation. However that’s not the case.

    If one factors in SS, medicare and off balance sheet debt like two wars the US has debt to GDP of about 800%. No country has ever come back from a 100% debt to GDP ratio.

    Most people really have no idea how large the debt spiral has become.

    History is crystal clear. Every time the world creates a debt bubble it always lead to a depression. There are no exceptions.

  48. Slumdog

    Gary: “History is crystal clear. Every time the world creates a debt bubble it always lead to a depression. There are no exceptions.”

    For years, I’ve been watching the unbelievable development of parabolas on the gold 5 and 10 year charts. The rise is relentless. The setbacks drop back to the french curve “support line”.

    Why? Dunno. Just it keeps grinding along, higher. Old Turkey is the way to go, painful as it is sometimes.

    Without a single additional indicator, the two PM’s would be expected to rise faster and in 3 to 4 years be double and on their way up the then steeper and finally vertical wall… and this is happening on the 5 and 10 year chart patterns. This ain’t weekly or monthly; it’s the real deal.

    Outcome has to be hyperinflation, not due to any argument, but it’s the thing that will support the completion of the parabolic rises.

    Illogical? Yes. Real? You decide.

  49. Rob L

    Slumdog,

    Are you still expecting that nasty down-side movement in gold that you mentioned a couple weeks back, or have you changed your outlook?

  50. Slumdog

    Rob, I am distracted by my biz. I fight with guys in the most gross and subtle ways, with money thrown out like nets and used as knives.

    So, stealing money or losing it in this game is for when I retire, aka never.

    It’s a diversion from the tough world of cunning in which I spend most of my time.

    The S&P reversal down is still forming, last month not being an inside month. So I stopped looking.

    As to gold and silver, it’s obvious that they’re weak right now and respond with blood gushing just by a mild bruise, as in the USD up what 15 cents now and gold and silver gapping down in the night session. Catharsis here, as still there are so many longs at higher prices, the newbies, who need to capitulate for the market to rise without them. That takes time and the grinding sense of defeat from down markets, just what we feel here seemingly endlessly. Answering directly, I don’t see any chart pattern I recognize as very highly probable at the moment, on a weekly or monthly basis. Do well. Gone on biz for 2 weeks.

  51. MBS

    Gary-
    Let’s assume yesterday marked the daily cycle low in the dollar. Do you think that also marked the intermediate cycle low at week 24 or are we on week 9 due to a short previous cycle of 15 weeks? Thanks

  52. Danno

    SF,
    Because of the way ZSL moves, it would take many down days in silver to really get ZSL rolling and I doubt any sustained move down consisting of day after day of silver losses will happen. When silver drops it seems to drop hard and fast, not slowly over a prolonged period. For that reason I doubt ZSL will ever again be higher than AGQ. As far as what price silver would need to be at, I haven’t bothered to try and calculate. Then again… never say never.

  53. William Wallace

    On wednesday gold briefly broke out of the c-wave channel and 75sma after multiple attempts over the last couple weeks, so I reluctantly took a shot at a long position in futures with a stop below the 75sma…gold immediately reversed back into the channel and back below the 75sma and triggered my stop at a small loss. On Monday gold was rejected once again at the upper trendline of the c-wave channel and the 75sma, it is also being squeezed now between the 75sma and the 10sma which usually leads to it being popped out the bottom. As many of you know I have been bullish gold above the 75sma and bearish below the 10sma. Gold has now lost the 10sma (which is actually a break of the 20sma and daily cycle trendline also), I expect to see gold put in atleast a new low (C-wave lower trendline $1500 bounce) being it has lost the 10sma again after having regained it, which has proven to be high a probability outcome… so im going to take a shot to the short side now.

    Short gold futures at the 10sma.

  54. Haggerty

    WW

    It look it’s going to Gap down a little at the open, are you going to only enter that trade if it trades back up to the 10sma?

    Thanks

  55. St. Deluise

    these moves in /gc from the highs seem to be on a 20 day period.

    20 days from the top, 20 day bounce.. 20 more days until the bottom? that would put a low around the 11/4-7 weekend.

    /es has to bounce hard pretty soon, the degree gold wants to play along this time should be the final tell. it’s actually shown relative strength (/es dropped 3.68% from the highs to /gc’s 3.55)

    one thing that’s different about this move lower is that the average /gc buyer (over the last 89 days) is already -2.76% in the hole vs. 7+% in the green when the last one began.

    my bull/bear line is now the 610 hourly MA currently just below 1700.

    now if you’ll excuse me there is a squirrel loose in my house.

  56. Shalom Bernanke

    Good morning all.

    Quiet day yesterday with no changes on my end. Still long same amount miners and short some SSO. I probably won’t be making any changes today, either, though I am looking to add to miners sometime soon, maybe if we close weak today and get a lower open tomorrow I’ll add then.

    SSO short is working, but I’m on day 5 today of a 6-10 setup, so unlikely to get the chance to add unless we get a late morning rip higher. In that case I’ll add, but still expect to exit entire position some time this week. I’d look to add to my short around 42.90-43 this morning, but keep overall risk on this trade to 1% of total capital.

    Good luck!

  57. William Wallace

    St. D,

    Yup, I had a 20 day lower trendline on a 5 min. that I watched gold bounce off of every time it was rejected by the c-wave channel’s upper trendline and 75sma (amazing the resistance that trendline offered) When gold broke below that 20 day trendline it back tested it and then began to free fall.

  58. St. Deluise

    so do you have any add / bounce targets WW?

    i’m almost thinking we don’t get any and 1648 might have been it. i’m sure the longs would like a test of the lower wedge but they might have to just take a bite and swallow.

  59. St. Deluise

    /cl has been one of the heavier “stealth buys” i’ve been watching over the last month.

    and one of the few commodities that makes sense to accumulate.

    haven’t the foggiest idea why people would sell it! it is a rare valuable thing that the entire world needs more and more of every day.

  60. William Wallace

    St. D,

    Its possible we see some sort of back test of the 10sma, but I doubt it because like I mentioned on saturday I do think the dollar put in a reversal day yesterday. I expect we will see a bounce at $1500 which is also the c-wave channel lower trendline, but I believe that bounce may only be temporary and I will expect a final bottom on or around the 300 day moving average…$1460-80.

  61. Poly

    The gold cycle is clear as day IMO. We’re still deep in the July 1st IT cycle and we should now start the final decent into a DCL and ICL. I say gold gets busy quickly here.

    As for equities, the cycles are ambiguous, as this current (new) daily cycle has not done enough to cement it as part of a new IT cycle, IMO. Although it’s certainly an “open option”. For example, the current daily failed to pierce the prior daily cycle high of SPY $122.87. With a dollar ready to turn, we should be on guard for another failed equity daily cycle, part of and possibly the final daily of a June 13th ICL. For now, i will keep riding my shorts.
    My primarily interpretation still has June 13th as the ICL for SPY. Granted there are three plausible ICL options still open, two bearish and one bullish.
    I suspect SPY will come back down to the 50dma in fairly short order and the reaction there will provide solid clues to the equity cycle puzzle.

  62. Ken

    I remember who said the SPX could hit 950 by November options expirations yesterday… But I seem to forget who said it couldn’t? The D-Wave resumes today with a target of $1500-$1400 and the SPX has a date with a 9?X handle by the third week in November. I’m looking forward to seeing what kind of selling pressure comes in (margin/forced selling in gold/silver/oil) when the SPX breaks the 1100 level and weak hand longs puke them. Better buckle up folks… Uncle Bucks getting ready to open a can of whoop @ss.

  63. Haggerty

    Let me point out that I don’t know very much, lol, but I noticed that with the bounce in the indexes the miners did not follow them up.

  64. Aaron

    Wav, his speech started 9 mins ago… apparently a non event. I think its just shorts covering ahead of earnings. Euro has failed to follow through to the upside… I think its a fail.

  65. Joseph Lemma

    Feel,

    They are clearly discounting nationalization or outright destruction of capital. In contrast with those in the USA, they are one of the worst performers this year.

  66. St. Deluise

    quite a pop in gold this morning. lost about 3/4 of my gains! oof.

    oh well. added final short at 1660.

    /es looking tempting again, but i think i’ll just hold my SDS which now is basically 0. i’ll add the next piece at 1230 if it can get there.

  67. Joseph Lemma

    ckpk,

    RWE and Eon for example are pricing in huge capital destruction. I’m sorry but the “Germany utilities will have to stop using nuclear” doesn’t stick.

  68. ALEX

    I got pretty darn heavy , but I was buying this morning when the Miners were still in the R E D .

    I know that GDX is still in the red, but look at NAK, NG, XG, BAA ,XRA, etc these are great reversals with all the internal indicators lined up ( If we close green). IF NOT, I can change my mind, but I am also seeing

    UUP…hit the 10sma and was rejected , looks to want to close red. This is also a reversal off the top. ALSO , MACD is weak & histogram negative.

    SLV was a sideways consolidation and just regained its 10sma and 20sma…which are now support. On a 10 day chart…SLV shows me that OCT 7 had a high volume sell off, and today retested the lows and recovered (successfull retest). The ACCUMULATION/DISTRIBUTION on the SLV 10 day consolidation shows that SLV was being accumulated , not sold off and esp today as it shot up .

    SeeSLV 10day 1/2hr or 60min chart with ACCUM/DISTR

    Plus C.O.T. and $BPGDM

    This Morning I bought XG, NG, NAK, SWC, TPLM

  69. ALEX

    Forgot to mention that MINERS I mentioned …

    Pull up a chart with BOTH 10sma and 20sma . The 10 is crossing above the 20sma and the stock price briefly dropped below and then recovered both moving averages.

    The stocks mentioned (SO FAR πŸ™‚ Have reversals and have re -traced the last move up from Oct 4th 50% or less.
    Volume buying seems to be increasing , and again $BPGDM is UBER-BULLISH

    As always, time will tell.

  70. St. Deluise

    i’ll tell you that when /es tested 1230 again it did so with less buying volume than the last time.

    i don’t know what THAT means either. the action is so fast and seemingly illiquid i don’t know what to make of anything. it “feels” bullish here but just looking at a chart after the fact i’m not seeing anything technically damaging to the bear case.

    i know my gold short gains have been wiped basically completely and that stings.

  71. Shalom Bernanke

    Was there ever any doubt the central banks would print more money? Even if this latest story is inaccurate, digital fiat costs nothing to create.

    The ONLY reason they pretend to have restraint is to keep the illusion alive.

  72. ALEX

    The piece above where I wrote about SLV on a 10 day chart had a highvolume sell off on OCT 7th , and it was successfully re tested this a.m. …and the whole consolidation sideways saw accumulation

    Here is a chart to help see it better. SORRY it looks like I drew it with a box of crayons, I’m using a different app today.

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

  73. coolkevs

    Whee! Let’s ban European CDS! Is this something already priced into the market?
    Be careful here. Demark analysis is showing Daily SPX, NDX, and Russell are all recording perfected SELL setups today. This means a 1-4 day downside reaction good from Wednesday through the following Monday. GS also recording a DAILY SELL. Kevin Depew at Minyanville yesterday said “Because the 9 (for SP) is recording below TDST Up resistance at 1321.20, we should anticipate a significant reaction to the 9 once it occurs, though doubtful we will see new lows”. Also Mclellan Oscillator returned to nosebleed levels today showing an overbought market. Smita Sadana, who I respect greatly, on the Minyanville Buzz and Banter also pointed out the S&P Oscilllator remained at an elevated reading of 7.5 yesterday, so is probably more today – the highest since the market decline began in August and often works as a contrary indicator. So, caution in stocks is warranted for the next few days.

  74. ALEX

    I am thinking the opposite ( Crazy HUH?)

    There’s a term called “Jumping the Creek”, where mkts run up to previous resistance , then sits there…while many go short. Its building cause (cause and effect)and once all the shorts are in…it GAPS over resistance and runs , then as the shorts all cover , it really runs (right to that downward sloping 200dma).

    Looking at the SPY and DJIA charts…it looks just like that kind of a set up. We’re at the top of the trading range, everyone has their short positions on…we’ve gone sideways here for a few days to allow all to think that its a “failure” and cannot break the top…add to shorts.

    lots of bearishness.

    A Gap open tomorrow would be “jumping the creek” and the short covering would be great.
    Usually COOLKEVS is pretty on the ball, so I now feel CRAZY , but its worth mentioning…the set up is there. (UUP rejected by 20sma? Head & Shoulders? Heavy volume, closed down? MACD .weak?)

    AS ALWAYS- Time will tell πŸ™‚

  75. St. Deluise

    could be, alex. i think we’re all expecting price to hit the 200/233 day at some point so wouldn’t be a huge surprise, the question is just when and at what price.

    my roadmap has been the eerily similar analog in early 08. 40 day double bottom, new bounce high, week of selling, then another 4-5 weeks of grinding up to the 233 day sma (now at /es 1267).

    so since i don’t know where the 233 will be 5 weeks from now, i’m just going to scale in now since we’re only 40 points away from it. current avg price 1220, will add piece 3/4 at 1245 if it happens to get up there, otherwise will put the last half in when the 233 is touched.

    if /es breaks north with authority i will be in gold!

    gold still like as a short below 1697 (610 hour sma). today was very, very trying however. avg price around 1660 and expect new lows or until november 7.

    gonna go hit my head against the wall to cool off a bit, see everyone bright and early i’m sure

  76. Gary

    Instead of trying to fight with a violently whipsawing market might I suggest going to cash and on vacation until we get a recognizable cycle low in gold.

    It likely won’t be this week and probably not next week either.

    Trading just for the sake of trading, or because you’re bored, is usually a good way to lose money. And when the market is as volatile as it is right now it’s almost a guarantee of losing money.

  77. Poly

    That was some afternoon move, wow. Those types of moves generally stink of desperation. Clinging to the same old Euro bailout news 2 years later only validates our thoughts.

    Granted the swings and volatility are massive, no place to be trading in and out.

    I see AAPL disappoints when they never do, if one company can move markets, it’s AAPL.

    Spain just downgraded.

    Interesting times to say the least.

  78. Natanarchist

    SB,

    CFTC voted 3-2 in favor of position limits. Seems it was straight along party lines. Dems in favor, Repubs opposed. No surprise there.

    Interesting posts Alex. I added some mining positions, ( very small ) when Gary bought gdx a couple weeks back. Still holding. I think for me it is best to wait on gold cycle clarity before adding anymore. I can’t be watching every hour so these will be old turkey plays..I think..haha

  79. Robert

    Today’s passing of the position limit rule was a big deal but don’t expect it to end manipulation immediately. First of all, there’s a 60 day waiting period allowing JP Morgan to further close out their big short position. Second that 60 day waiting period doesn’t start until after the CFTC defines the word “swap”, what ever that means

  80. ALEX

    Natanarchist

    Thanks, and I agree..if you’re not in front of a P.C. all day, where you are ( holding a few miners from the past couple of weeks is best…and GOOD FOR YOU not selling into the fear).

    As for my post ( this isnt to you Natan…Its more general)

    I am not posting here as a guess or just because I’m bored by any means , I bought the OCT 4th low in Miners and went in HEAVY at 3:30 P.M. ( and as a reference, I did Email ROB L and DG and POLY , so I’m not making it up).

    Then I got out for the pullback , and I also thought maybe Gold goes to $1530 area, and Miners maybe retest the Oct 4 lows?? BUT -today , I bought at 10 a.m. and think I see the bottom of a normal retracemnt .

    I’ll try to post a chart or something later. ITS just the other side of the coin…but I really feel Bullish here , not Bearish.

    And COOLKEVS

    I love your stuff, but you said a sell on GS today.

    I see a screaming buy!Reversed off the 10 sma and the 20 sma..Breakout with high volume.

    Tomorrow is gonna be CRAZY

  81. diana

    Alex – Are you trading the miners or investing? I bought some recently on their way down. Now I am getting the impression (Gary: $ up) that the market will drop MORE. I can hold, but would like to get some more at a REAL low price. Thanks!

  82. Joseph Lemma

    This bottom looks like the 2009 bottom in everything: vix, volume, sentiment and actual chart candlesticks.

    I bet Ben does QE3 and loses control of money velocity, and that’s what the market is telling us. There’s no way the dollar would be as weak as it is without money velocity soon getting out of control.

    Batten down the hatches, people.

  83. ALEX

    diana said…

    Alex – Are you trading the miners or investing?

    Diana- I guess it’s different at different times.
    I usually have a core of Miners and trade some when I feel they are maybe ‘over extended’ and others may be setting up to move higher.

    Right now I bought the Oct 4th low and sold last Friday and Monday morning…Now I am back in and looking back- I see that it’s possible that Miners bottomed before Gold again, If Gold is going to put in a LOW soon.

    In Mid June (16th & 17th Miners bottomed first ) I bought Miners, and then Gold bottomed around 2 weeks later with a Low on July 1.

    SO I will hold a core here IF what I am saying happens, & Miners should run well here. Tomorrow should be a deciding point…I.M.H.O.

  84. ALEX

    So this is a couple of things inside my head at this time.

    I am always told a market rally isnt real unless financials join in (or Banks lead). Without going into chart after chart of Miners ( they look like bullish reversals) …what if We jumped the creek tomorrow? Could it happen? Is it time?

    Banks must lead–

    http://www.screencast.com/t/bNj3VTu72sB

    Goldman Sachs looks like a breakout..JPMorgan is identical, and so is BAC

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

    WHAT IF…?

    http://www.screencast.com/t/oHbRYC4U6OhT

    We’ll see, right?

  85. Gary

    This is why I use cycles instead of trying to guess based on chart patterns.

    The dollar is due to put in a cycle bottom. It formed a swing low today. The half cycle low usually occurs sometime between day 15-25. The top obviously has to occur prior to that by 4-5 days.

    In order for the markets to continue higher the dollar cycle needs to continue stretching.

  86. ALEX

    Since i bought the OCT 4th low and believe that may have been an important low…I also believe You may have been closer to correct when you said this 9 trading days ago– : )

    Blogger Gary said…

    Folks we should now be in a period where there’s just nothing to do for the next 4-15 weeks.

    Get out of the house and go enjoy your life for a while.

    October 7, 2011 7:56 AM[/color]

  87. Gary

    If you managed to buy the exact low then even if we have one more leg down you got pretty close. The A-wave will rescue your positions anyway.

    But I don’t want to be buying aggressively now that the dollar has formed a swing low and gold is pushing into the timing band for a cycle low which also happens to be the normal timing band for an intermediate low.

    The early morning weakness has already broadcast what’s going to happen when the dollar rallies.

    Either way I will be a buyer at the daily cycle bottom whether it occurs above or below $1535.

  88. Danno

    It happens. Could be that traders see the dollar’s decent slowing, and know what potential danger that represents for PMs so are shying away from PMs even though the dollar is not officially ‘up’ at the moment.

  89. 23t870

    o have a failed daily cycle, gold needs to trade below the oprevious dialy cycle low.

    Gold would need to trade below 1535 to mark a failed daily cycle.

    Gold did break below the daily cycle trend line, signifying a cycle in decline.

  90. 23t870

    To have a failed cycle for the buck, the dollar would need to trade below the previous daily cycle low.

    There is a little ambiguity as to when that last daily cyle low was.
    9/15 to me looks as the previous daily cycle low.

    Monday was a low and Tuesday formed the swing low. It is unclear if that is the new daily cycle low or not.

    If the dollar trades below the monday pivot, I would be inclined to view it as a continued decline into a daily cycle low.

  91. Haggerty

    Oh, in that case a it’s possible the dollar makes a new low and negates the swing, it’s still in the timing band to do so. We would be in real trouble if we had a bounce for a few days and then it makes a u turn to make a new low. I’m pretty sure that’s the difference.

  92. Russell

    I am disappointed by the action of the US dollar. The fundamentals do not line up with the valuations compared with the Euro. I think I was a little early to the trade. The dominoes are beginning to fall. Greece is now turning violent. When they can’t write checks to 20% of the population this Nov. the pace will pick up. Hope from Euro bailout is only a typo from Hype. When reality finally sets in, this trade will work.

  93. Gary

    The dollar hasn’t even broken its downtrend line yet. That would confirm a cycle bottom. Gold, silver, and miners are all signaling that the move down into the daily cycle low has begun, as all of them are holding below the cycle trend line today.

    It’s only a matter of time before the dollar rallies enough to break the down trend line and stocks move down into their half cycle low.

  94. john

    I need this to be spelt out to me…. It should be obvious, but I need to see it in writing.

    When Greece finally defaults [and when other countries will later as well] what will be the initial short term market response? I always thought the precious metals would rise on such news, but it always amazes me that the money goes into the reserve currency [USD] and US treasuries.

    Is this what will happen? Will HUI drop with PMs…. will the stock market fall??

    Thanks

    John

  95. john

    As action in the miners often foretell action in the PMs, I can only guess that mining stocks sense trouble ahead as a result of the new ruling on position limits…

    – JPM saving themselves by bringing down the price of silver and gold.

    GDX down 4% today, whereas nothing else seems to be anywhere near that.

  96. Shalom Bernanke

    No reason for action on my part today, just sitting with my miners and still short SSO. I wonder how ugly it’ll get for the miners if the market starts heading down with conviction?

    I expect to cover the SSO before the week is done, and will likely add to miners tomorrow if we can finish weak today and gap lower in the morning, looking to bring my total risk there to 10%. Same strategy I had yesterday, but the rally threw a monkey wrench in my plans so I didn’t add.

    One thing for sure, there is no reason to buy miners into strength. Only buy weakness or you could find yourself in a deep hole almost immediately.

    Good luck, fellers!

  97. Shalom Bernanke

    wolf33,

    I checked into AEM when Rose pointed it out this morning. I’m not gonna touch that one as the news is fundamental rather than market related. Some of these miners have some really nasty charts, and if they stay low enough for long enough I think they will also have to contend with tax-loss selling which will keep a lid on them for the rest of the year.

  98. Russell

    John,
    My question is similar to yours.
    Can PMs rise with a rising dollar?
    The falling US dollar was the engine behind the recent gold run. If Ben doesn’t print and the US$ continues to climb out of the 3 yr low, will it be the falling Euro, defaults, and bank failures in Europe that drives gold?

  99. ALEX

    I see selling today in Miners as possibly just an intraday overbought situation from yesterday.

    Actually , most of the Miners yesterday were down in the morning and during the day , they rose in a big way. Some , like

    NG went from $7.33 to $8.20 ( now down 38 cents)

    XG went from $7.43 to $8.58!! About 15% Intraday–( now down 34 cents)

    NAK went from $6.70 to $8.00 !! Almost 20% intraday- ( now down 40 cents on NO volume)

    Its like a 50% retracement from yesterdays lows to highs (so far).

    The above mentioned Miners are still above their 10 & 20sma..so I am holding them .

  100. paul

    ALEX,
    What about the miners (gold & silver) in general? will you hold and add or is there a point where you will sell (stops?)?
    If gold goes down that much as in your chart (and Gary thinks), how far will/can miners go down?

  101. Tim and Jeanene

    Hyper-inflationary? We are Japan Gary……

    You do realize that by predicting a collapsing dollar like you just dide – you basically are predicting a massively surging Euro, Pound, Yen, etc.

    So in 2014 – the rest of the world will be able to buy America for cash. Their dollars will go much much further than ours. A french family who makes $60,000 euros will be able to buy a US house for cash on a years wages.

    Not likely. Let it be noted on this date, I will bet Gary yet another burrito that this call will be wrong. He is already one burrito in the hole after better that the Treasury market peaked 2 years ago and that the bond “bubble” would collapse.

    Up for the bet?

  102. ALEX

    PAUL

    One could hold a core, but there is also a point where I will say ( OR SEE) that the “set ups” I got early yesterday morning were short term. So I would sell “somewhere”…I’D HAVE TO SEE MY SET UP FALL APART THO.

    Right now- I’m OK holding all that I bought. I wont “marry” my positions , though, if What I am seeing is trying to tell me that What I saw as a “STRONG set up”…has not played out correctly. (its Rare, but happens)

    I look for a good number of ‘indicators’ and ‘conditions’ to give me either a ‘weak set up’ (quick trade) or a ‘GOOD set up’ (more confidence) or a ‘GREAT SET UP’.

    Yesterday was a ‘STRONG set up’…and it was accurate when I bought in around 10 and 10:30 a.m…..BUT, I expected Follow Thru 2day also …to show continued strength…so I DO find it hard to believe that the ‘STRONG set up’ yesterday was just for a day trade??
    So I am still holding -watching.

    Clear as Mud? : ]

  103. Joseph Lemma

    My only holding in the sector is a few hundred shares in AG.

    The ugly truth is that we are way past peak gold and peak silver. Miners have been processing increasingly lower ores over the last ten years.

    Look at aem today: a writedown of 5 bucks a share. wow

    This game is not for kids. Very few guys are making money mining the metals, especially gold.

  104. St. Deluise

    fwiw got a system sell on /es to 1202 with stop 1224.25. but it is counter trend.

    already long sds

    [personally i like to short leveraged instruments if i’m holding short term (for the decay/panic factor) and buy if for long term since (for the mathematics)]

  105. ALEX

    Blogger intelliblue2000 said…

    Alex – clear as mud πŸ™‚ Interesting to read though.

    LOL πŸ™‚

    Soon I will right a book about my losses if I dont sell some while still green.

    It may have been just a short term trade, as the selling is picking up.

    Gotta go check things out…Good day 4 now guys!

  106. Gary

    Tim,
    Not so. I expect the value of the dollar to get crushed compared to commodities.

    If other countries debase their currencies as fast or faster than the dollar then the index could remain fairly stable despite experiencing extreme commodity inflation.

  107. Gary

    Russell,
    Currency debasement is the fundamental driver behind the gold bull market.

    There are periods of time in the dollar rises due solely to the euro falling. During those times gold will usually smell out the illusionary rally.

    At this time though I think the rising dollar is forecasting a deflationary period is upon us.

  108. Shalom Bernanke

    Miyagisan,

    Short SSO is essentially the same thing as long SDS, except that the leveraged etfs are just derivatives and often enough don’t do what they’re supposed to do. I’d expect SDS long to work, but if I can also benefit if there is a dislocation. These etfs do not have to keep up with the move in the underlying, it’s just the stated objective.

    I figure that longs will buy SSO and since it’s a short term trading vehicle, will sell soon enough and put pressure on it. It can even drop in a slightly higher market, so it’s just a possible extra edge.

  109. Shalom Bernanke

    I’m getting basted pretty good on some of these miners. It’ll be interesting to see how bad commodities get hit the rest of the week. I still intend to add into weakness tomorrow, but the miner charts are starting to look broken on a longer time frame.

    I might get my wish and be in these things for years! lol

  110. Poly

    SB,

    Most of us are 5 time bitten, 10 times shy when it comes to the miners πŸ™‚

    That type of sentiment often leads to far superior returns. I’m not convinced this is one of those superior returns coming necessarily, but boy once gold finds it’s ICL these miners will be one beaten down, severely under-loved and grossly undervalued sectors.

  111. Shalom Bernanke

    My bigger concern isn’t the rip we all know will occur just like the one last week, it’s that I want these holdings longer term (and out of funny money), but miners are starting to stay down for too long.

    If the charts get busted too badly, I might be forced to trim into the runup along with the guys that time the bottom perfectly. My intention was to stay invested. It’s too soon to tell right now, but the 200 MA on the HUI is getting a stress test of it’s own.

  112. Poly

    SB,

    When miners puked on Oct 4th, well ahead of the gold cycle, I knew they would be early, but low enough to likely hold. So I bought some NUGT just for a short term trade.

    But like the miners puke and rally in June a couple of weeks before the eventual July 1st Gold ICL, I had a suspicion miners will be coming back down to test the Oct 4th lows.

    Don’t know if we get close to Oct 4th, but it sure is shaping up like a great buying opportunity.

    I’m still torn on the final composition of my Gold ICL trade strategy.

  113. Neo

    Poly,

    Do you have any idea what will be your porfolio when DCL and ICL occur in Gold ? Jump to Silver, Miners since the beaten was worse on those ?

    Thks for your posts. Very usefull for newbies like me

  114. Haggerty

    I’m curious what you guys think of us testing the lows or making new lows in the miners?

    Shalom, yesterday at the worst time I jumped in to Dust just to hedge my old turkey positions, But it did help me today.

    Poly, I looked at the action yesterday and got scared our of my shorts. How did you see that as desperation. Obviously you were right, I just wish I could have seen the same thing.

  115. Poly

    Haggerty,

    Wasn’t a technical indicator, just “feel” more than anything. When the market ramped up so rapidly on obvious rumor-mill that could not have been true (Euro fund agreement), it just smelt of desperation.
    Then Spain was downgraded right after the bell. Funny how the market ramped (setup) and then Spain was dropped.

    IMO, Oct 4th lows will be tested in the least, no idea if they hold.

  116. William Wallace

    Gold has now formed on a daily chart a second branch of the falling fruit pattern I spoke of in past posts. The first branch was formed in 19 days from 8/25 to 9/21, with a back test of the 10sma being the end of the branch…before the fruit fell. The second branch is on day 19 now, with the 10/19 futures session back testing the 10sma and possibly the end of the branch…before the fruit falls.

  117. St. Deluise

    very unusual to see this sort of move so early in the evening. looks like people aren’t going to wait for the usual 3AM hijinks.

    volume very light as well.

    oh well, just hope this continues through the night! picked up a handful of lotto gld puts last week expiring friday. we test the lows and these are 10 baggers!

  118. St. Deluise

    someone bought over 400 /gc’s at 1633. epic.

    big money confident the bottom’s in or a test for demand.

    buying any and all double bottoms has usually been a good bet so far.

  119. RJ

    St. D,

    It is my thesis (obvious, actually) that the commercials are aggressively short covering on the way down.

    Like when you see the flutters of price rises among the downtrend.

    Maybe those 400 was a solid short cover.

    Question, though….How are the commercials always able to cover on the way down?

  120. St. Deluise

    interesting theory RJ. i was hoping to be able to spot whether or not it was a supply test watching the level 2 when the low broke, but there were way too many orders to spot anything.

    if it is short covering that would mean that someone is fairly confident we’re near the bottom.

    but like WW pointed out, these early evening sell offs usually mean something’s up.

  121. Shalom Bernanke

    paul,

    As it stands right now, miners are not gapping down enough for me to buy at the open, however I will look for some sort of late morning panic to start adding. The reason I want to wait for a puke out is the miners are not quite oversold on the daily charts, but are getting close.

    No matter what, I will not buy into any strength as the trend is lower. Keep in mind I intend to hold longer than most here, at least for my miner positions.

    Regarding SSO, if we get a sharp selloff today I’ll start to cover my short, and if not today I’ll likely cover before the weekend.

    Good luck and mind your position sizes. I can say the ONLY allowing me to think straight with all this volatility is proper position sizes for my risk tolerance. Otherwise it’d be a mess. πŸ™‚

  122. St. Deluise

    well it was nice of the european market to hold off on their morning gold buying this time. decline on very little selling though, in fact most people who bought the dip tuesday have yet to sell. this move lower has effectively overshot the mark and that is bullish (short term, at least).

    and still not exactly thrilled with this dollar “bottom”. each move lower there is more selling than buying on the pop higher. and aren’t pennants usually continuation patterns?

    i’m getting more open to the idea of more downside in /dx, if only a smidge. the 1597 hourly ma is around 76 even.

    i’m going to reduce my gold shorts back down to 1/4. i am probably wrong, but i see one more dip lower in the dollar and one more face ripper in gold. it still has 17-18 days to test the lows so there’s plenty of time for it to get up there to that 610 hourly sma (now at 1685) which i think would be the goldilocks short level.

    still holding a half position of SDS otherwise.

  123. Shalom Bernanke

    Here’s why I think focusing on USD is a distraction, at least when trading metals. Suppose that each component of the USD index prints 10% more money into existence, while the Fed also does the same. The USD, relative to the other currencies should not change, but gold should be valued higher with all the extra confetti circulating.

    I only watch the USD when trading the USD vs other fiat, which I have not done in awhile.

  124. Shalom Bernanke

    Looks like I won’t get the miner pukeout I was looking for this morning, however I still maintain that buying into strength could be costly until we turn the charts convincingly higher.

  125. Shalom Bernanke

    paul,

    I don’t have a specific level, but doesn’t feel like panic to me yet as some of mine are up and a couple are unchanged on the day. However, if I didn’t own any but was looking to buy, I would certainly start to step into them with a manageable size.

    Sizing is everything. One could start by purchasing an amount they don’t feel they even have to look at no matter how bad things get. πŸ™‚

    I also do not intend to buy the NUGT. Prices certainly could go lower, so if you decide to get involved you must be prepared for possible declines even from these low levels…and there they go as I type.

  126. St. Deluise

    WW, not looking for 1685 again necessarily, just the 610 hourly MA. not sure what price it’ll be if/when it ever tests.

    looks like i’m probably wrong anyway. tuesday dip buyers appear to have thrown in the towel.

    think i’ll still remain lightly committed so i can relax a bit and take the rest of the week off. good luck everyone else.

  127. paul

    SB
    thanx, i’ll hold off a little, I’m already in 40% GDXJ,SIL,AUY,GG. The problem is I’m on vacation for a week from tomorrow on, so I won’t be able to react fast, maybe at the end of the day only. Would you recommend puting in buy orders, at the last low for instance?

  128. Shalom Bernanke

    86d4life,

    You’re right, I was more excited about NUGT in the past. I still would consider it, if I thought we were about to turn higher immediately. It might happen but I feel it’s not probable. I need a high degree of confidence that the underlying will work very soon after entry.

    Also, my entire idea of getting invested (not just trading in&out) in miners is because I expect dislocations and do not want any disputes of ownership if things really turn sour. I’m also not trading GDX or GDXJ at this time for the same reason, instead preferring to own the actual shares of each company. Not saying I won’t take some for a quick trade when Gary gets involved, but I want things I can hold for years if it becomes necessary.

    That’s why I suggest paul know his expected hold time and total risk. If I were only to hold for a couple days or 2 weeks at most, I would not buy miners today. If one is willing to hold as I am, which tick I enter is not really important.

  129. Shalom Bernanke

    paul,

    I didn’t know you were already in 40%. In that case, you’ve got some exposure if they turn, and if they go lower instead you can add next week.

    I’d do the same if I were in your shoes. πŸ™‚

  130. Shalom Bernanke

    paul,

    Nahh, I wouldn’t put in orders at today’s lows, especially if you’re trying to have fun on vacation.

    Just like picking the bottom on the way down is not too important, it’s also ok to buy them in a few days even if they’re a little higher than current prices. No rush.

  131. W

    B Loves H

    Whoa, you’ve scored big the last couple days on your picks. Nice work and good to have you back!

  132. sophia

    I bought back my short Gold now…
    I am getting nervous and 50+ $ gain is always good…
    Reduced short Nasdaq, will definitely cover before the weekend

  133. rose

    Shalom, Paul and All,

    Very glad NOT to see any comments about a bruising specifically from AEM, The Eagle is down almost another 7% today.

    With very kindest regards,

    Rose

  134. Ben

    My vacation in late April, and then in August, coincided with the most extreme volatility of the year (in pm’s then the general market too). Makes me scared to go anywhere now… πŸ™‚

  135. St. Deluise

    dollar in 15 day downtrend.

    flags over the last 5 days.

    breaks upwards out of the wedge, then reverses.

    all while anyone with half a brain realizes the euro is either getting buried or printed.

    something reeks. (i probably just need a shower.)

  136. Danno

    The USD blasted out of a 4 month consolidation period with a huge gap-and-go on Sept 6th that tore right through the 200 ma.

    Then it naturally back tested the 200 ma where it picked up support from the rising 50 ma.

    Now the 50 ma is about to cross over the 200 ma (golden cross).

    Which means the USD is most likely going higher.

    The shock would be if it did not.

  137. David

    Miners outperforming on an ugly day for metals.

    Not saying one day is predictive, but it will be very significant if the trend persists.

  138. William Wallace

    Danno,

    Danno,

    The DXY 50sma crossed over the 200 on Monday, what are you looking at?

    ” The dollar’s 50 day moving average has crossed over the 200, so lets see how things go from here.”

    October 17, 2011 11:52 AM

    -WW

  139. Robert

    i know a lot of you are expecting a big drop in gold which is of course possible.Here ia a story from Eric King who i admitt is a gold bug ,but his sources as usually corect more often than not..I guess time will tell

    Gold and silver bounced off of the lows today because of massive buying from the Chinese. A trader out of London told King World News, “The price discount in gold is the most welcome thing to the entire Eastern Hemisphere. The Chinese are buying very relentlessly because they know what is going to happen. We had a major, major physical buy order today. The Chinese bought a massive amount of physical today at the lows.”
    They (the Asians) are aware of how tight physical supply is and they buy in London towards the fix because they know there is an 80% chance the commercials will take it down and they will get a better price. The Asians sit there and say, ‘Bring it on because we’ve got some orders to fill.’ They just want out of their dollars.

    The commercials are doing some surgical moves at key times during the day. This is an attempt right now to get the tech funds and momentum traders into going short. But guess who’s down there competing to buy along with the physical orders? The commercials, the same ones who kicked off the selling. The commercials want out of their shorts
    They (the Asians) are aware of how tight physical supply is and they buy in London towards the fix because they know there is an 80% chance the commercials will take it down and they will get a better price. The Asians sit there and say, ‘Bring it on because we’ve got some orders to fill.’ They just want out of their dollars.

    What we are seeing now is this consolidation pattern where the commercials are getting out of their short positions whenever possible. All the while they are squeezing fresh shorts. They take the metals down, make the charts look bearish to bring in fresh shorts and later they squeeze them out of their positions on a rally and pocket the money.

    As I said earlier, we had a major physical buy order today. The Chinese bought a massive amount of physical today at the lows and that is why the market turned where it did because of the intensity of Chinese buying.

    Having said that, most of the physical orders are sitting under the market now. There are major buy orders that did not get triggered yet and they sit between $1,585 and $1,605. We are talking about massive tonnage

  140. Robert

    i know a lot of you are expecting a big drop in gold which is of course possible.Here ia a story from Eric King who i admitt is a gold bug ,but his sources as usually corect more often than not..I guess time will tell

    Gold and silver bounced off of the lows today because of massive buying from the Chinese. A trader out of London told King World News, “The price discount in gold is the most welcome thing to the entire Eastern Hemisphere. The Chinese are buying very relentlessly because they know what is going to happen. We had a major, major physical buy order today. The Chinese bought a massive amount of physical today at the lows.”
    They (the Asians) are aware of how tight physical supply is and they buy in London towards the fix because they know there is an 80% chance the commercials will take it down and they will get a better price. The Asians sit there and say, ‘Bring it on because we’ve got some orders to fill.’ They just want out of their dollars.

    The commercials are doing some surgical moves at key times during the day. This is an attempt right now to get the tech funds and momentum traders into going short. But guess who’s down there competing to buy along with the physical orders? The commercials, the same ones who kicked off the selling. The commercials want out of their shorts
    They (the Asians) are aware of how tight physical supply is and they buy in London towards the fix because they know there is an 80% chance the commercials will take it down and they will get a better price. The Asians sit there and say, ‘Bring it on because we’ve got some orders to fill.’ They just want out of their dollars.

    What we are seeing now is this consolidation pattern where the commercials are getting out of their short positions whenever possible. All the while they are squeezing fresh shorts. They take the metals down, make the charts look bearish to bring in fresh shorts and later they squeeze them out of their positions on a rally and pocket the money.

    As I said earlier, we had a major physical buy order today. The Chinese bought a massive amount of physical today at the lows and that is why the market turned where it did because of the intensity of Chinese buying.

    Having said that, most of the physical orders are sitting under the market now. There are major buy orders that did not get triggered yet and they sit between $1,585 and $1,605. We are talking about massive tonnage

  141. ALEX

    FOR ANY THINKING OF MINERS LATER-

    I’m examining moves since the OCT 4th low in Miners.
    -The GDX is almost back at that low , as is NUGT.

    BUT NOTEWORTHY is that some have emerged here that prove to be stronger stocks ( SO FAR) , not even retracing 50% YET) .

    While GOLD was Down fairly Big today (Gold was down $40 / Silver down $1.45)

    NG from oct 4 ran from (roughly) $6 to $8 . A 50% pullback would be $7 (currently $7.47)

    NAK went from $4.87 to $8 ( $3 move, so a 50% retrace would be $6.50) currently still up at $7.18 ( down a penny today).

    EXK ‘roughly’ ran from $7.50 to $10.50, now still at $9.09

    So while SOME are retesting recent lows, OTHERS are Stronger (so far) ——Good to watch if building a basket of Miners later I.M.H.O.

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