Tuesday, March 31, 2009

Is that it?

I don't think so. Mainly because I think the dollar isn't done going down yet.

I'm looking for the dollar to perhaps test long term support at 80 before the current weekly and seasonal cycle bottoms. That should continue to support all markets for a while.

Keep in mind this will still be an artificial boost based on nothing more than Fed induced liquidity not on real productivity. Coincidentally the same thing that gave us the rally from 02 to 07.

I don't expect this time to have any better outcome except this rally will turn out to be nothing more than a short counter trend rally in an ongoing bear market. Let's face it, as much as Bernanke would like to go down this road again I think we've already shot our load with this strategy.

Monday, March 30, 2009

The B wave decline continues

Gold's B wave decline continues to unfold. So far this has been mostly a sideways correction. I kind of expect this to continue for two reasons.

First there is support at the 75 week moving average. That average has acted as strong support since 02 except during the correction into the 8/9 year cycle low this past October.

There is also the 1980 highs at $850 that should be powerful support.

Precious metals continue to be the only bull market still left standing. Interestingly enough in the extreme deflationary environment of the 30's gold was the only thing besides bonds that went up.

Tuesday, March 24, 2009

Make a living or get rich!

Does one want to make a living or get rich? That's the question that every investor probably needs to ask themselves when they enter this business. If the answer is you want to get rich then there are basically three ways to accomplish that goal.

The first one is by compounding over a long term time frame. This is great if one is young and has plenty of time to work with. It will virtually guarantee that you will turn a modest stake into riches if you have enough time and patience to let the magic of compounding work for you.

The second way to get rich is to find a profitable mechanical system and then have the discipline to stick with the system through thick and thin.

The third is to spot a secular bull market, jump on board early and hold on till the secular trend is finished.

You will notice that none of those include timing the market. History has shown repeatedly that over the long haul investors are not going to be able to time the market with any long term consistency.

I know I'm going to get flack from all the pattern traders, technical traders, etc. etc. but I can assure you that history has not changed. The market still has too much randomness in the short term to successfully time your way to riches.

That's not to say that traders can't make a living trading short term moves in the market, they can, especially if they are very good at controlling risk.

However I'm not in the market to make a living or to satisfy an urge for excitement. I'm only interested in getting rich :-)

So decide what your goals are. If they are to make a fortune, then pick one of those three proven methods and get started!

Monday, March 23, 2009

New bull market?

I'm already hearing the calls for a new bull market :-)

So is it or isn't it?

I'll give you my thoughts and you can decide for yourselves.

At secular bear market bottoms P/E's always become ridiculously cheap. That means single digit cheap. At the recent lows the P/E on the S&P was roughly 18.

We have an imploding credit bubble. The last time this happened it led to the Great Depression. Everything the Fed is trying today was tried in the thirties. Nothing worked then and I dare say nothing is going to work now. There is no magic bullet.

At true bear market bottoms Lowry's selling pressure has turned down at least a month before the nominal bottom. Buying pressure at bear market bottoms starts to surge higher before the nominal bottom is put in. Neither one of these two happened at the Mar. low.

At true secular bear market bottoms the Dow:gold ratio has approached at least 2:1. The recent low came with the Dow:gold ratio at 7.

At true bear market bottoms nobody believes the bottom is anywhere in sight. Amazingly enough after less than two weeks everyone seems to think the bottom is in.

At true bear market bottoms the public will never want to see a stock as long as they live. I suspect most Americans are still holding on to their 401K's.

At true secular bear market bottoms volume will dry up because everyone has given up all hope and no one is interested in trading stocks anymore.

Bear market rallies are characterized by violent moves higher. The S&P rallied 7% today. There wasn't one single day during the last 5 year bull market where the S&P rallied that much. As a matter of fact, I don't think there was even one day where the market rallied 4% or more.

Dow Theory just reconfirmed the bear market.

'V' bottoms are the hallmark of a bear market rally. True bull markets need to build a base.

The next four year cycle low isn't due until late 2010 at the earliest.

Just so you know there were 13 counter trend rallies in the 1929 to 32 market. Trying to continually pick a bottom is what bankrupted many otherwise sophisticated investors.

Just like bull markets go up much further than anyone expects, true secular bear markets fall much further than anyone can foresee.

So you can decide if you think this is a new bull market.

FWIW I'll be watching for the signs that the rally is topping and the next leg down is beginning.

Saturday, March 21, 2009

Bull vs. Bear

All the markets were up to some extent this week but the real stars were the precious metals. Many juniors were up 50% or more this week alone. Now you see why I have no desire to fight with the bear when much bigger gains can be had on the long side of a bull market.

Seriously how often do you see a whole sector move 20, 30 or 50% in a week? It took 18 months for the stock market to fall 50%. The reality is that most investors aren’t going to make a lot of money shorting stocks. By the time the counter trend rallies get done with you you will probably be lucky to come away in the green. Not to mention the stress of constantly worrying what the Fed is going to do next that could send the market rocketing higher without warning. As we’ve so often seen, many times they will pull a fast one before the market opens causing a large gap up and preventing the bears from exiting. That in turn creates a panic short squeeze. (Today is a prime example of this) Let’s face it, shorting a bear market is a nerve racking business.

Personally, it’s much easier for me to just hop on board the bull and then go play. All one has to do is check in once every couple of weeks to see where the gold:XAU ratio is at or if gold is getting stretched too far above the mean. How hard is that? No stress. Anything the Fed does can only help us not hinder us.

More in the weekend update...

Thursday, March 19, 2009

Here we go!

Let me start off by reminding everyone of the one universal truth. "You can't get something for nothing" I'm sorry, you just can't. Not in this world.

Now would someone please tell Bernanke!

I can tell you right now Bernanke is not going to be able to inflate. That chart is the reason why. It's the same reason why the Fed's wild printing spree last year didn't work and only led to a deflationary collapse. Oil, energy, the life blood of the global economy.

For some reason Bernanke seems to think that if he can only fix the banking system everything will heal. I've got news for him, Wall street and main street are interconnected. You simply can't fix one and at the same time destroy the other and expect to have a winning strategy.

We all saw what happened last year when Bernanke's printing presses had the unintended consequences of spiking energy prices. I had been saying for over a year that Bernanke's monetary policies would backfire, spike energy and put us into a recession.

I've got news for you spiking energy prices are ultimately deflationary. I think anyone can look at the CRB, global stock markets, Baltic dry index, etc. etc. after July 08 and see what I mean.

Yesterday the Fed made it clear they were going to inflate at all costs and today oil started the process of telling them "Oh no you won't"!
I want to continue my thought process from yesterday's post.

One has to ask will the Fed's actions bring the speculators back to the housing market? The sad fact is that we built too many houses driven mostly by demand from speculators looking to flip. Unless we see those speculators come back we simply have too many houses. Too much supply and too little demand equals lower prices.

Will the Fed's actions somehow drive people to spend? If people are maxed out on their credit lines and can't service their debt payments now how does anything the Fed does entice these people to take on more debt that they can't service.

Now add in rising unemployment to the mix and I just don't see how anything the Fed does can cure any of the underlying problems. Ultimately all they are going to do is heap a crushing amount of inflation onto the backs of the consumer who is already struggling to survive.

Wednesday, March 18, 2009

What just happened?

I suppose I should do a post on what just went down today :-)

First off let me say that nothing unexpected happened today. The market has known for months that the Fed was going to buy treasuries. They've been printing trillions of dollars for a year and a half. Does another trillion really make any difference? No, there were no surprises today.

There is one thing and one thing only going on. The market is simply bouncing out of the seasonal cycle low. That's it, nothing more. The S&P was going to hit the 800 level with or without the Fed. Maybe they managed to speed up the process by a day or two but it was going to happen.

Let me assure everyone that this is not the magic bullet anymore than anything else the Fed has tried over the last 18 months. Let me also assure everyone that the bear market will not end until valuations become ridiculously cheap. According to Barrons the S&P is now trading at a P/E of 23. That's not cheap.

Secular bear markets don't end until we get into single digit P/E's. This time will be no different.

All that being said we are at the beginning of another violent bear market rally. These rallies last on average 2-3 months. The ones that bounce out of seasonal cycle lows can be very convincing.

Sadly to say this is how the bear keeps everyone hanging on for the full ride down. Trust me, almost everyone will end up taking the full ride down either because they were too stupid to get off when they had the chance (most retail investors will fall into this category) or because they tried to repeatedly pick the never ending bottom in what will eventually turn out to be either the second worst or the worst bear market in history (most sophisticated investors are going to fall into this category).

Make no mistake, by the time this is finally over there will be almost no one left standing.

Scary you out or wear you out

Gold moves in a four wave pattern. The A wave advance rarely takes gold to new highs. That's followed by a B wave decline that rarely makes new lows. The C wave is where gold moves to new highs. Some times it can make huge moves higher as evidenced by the last C wave that took gold over $1000. At the completion of the C wave gold will fall into a D wave decline that serves to correct some part of the previous C wave.

It seems pretty obvious that the D wave decline is over. In fact gold just went through the most powerful A wave advance of the entire 9 year bull market.

Now gold is in the middle of another B wave decline. The question is will the decline drop further and scare investors out or will it chop sideways long enough to wear investors out.

I don't know the answer to that one. What I do know is that once the C wave advance starts I want to be on board. The year long consolidation from the Mar. peak is suggesting that the next C wave is going to be a monster.

Monday, March 16, 2009

Is it time for the financials to bounce?

From the peak in 07 at $120 to the recent trough of $18 the BKX has lost roughly 85% of it's value. At Friday's low of $17.75 the BKX was stretched 66% below the 200 DMA. That's pretty extreme for any bear market.

During the first phase the BKX retraced 50% of it's fall before resuming the down trend.

I'm guessing we could now see something similar. A retracement to the $45 area wouldn't surprise me.

I think the market may be putting in a seasonal cycle low right now. For the last two years that low has come in March. It has been followed by a strong rally each time.

If the Banks can put in a nice bounce we might see the market manage to recover the 200 DMA before things turn sour again.

Friday, March 13, 2009

4 day rule

If the market can close positive today it will trigger a "4 day rule" possible trend change.

The rule states that 4 days in a row counter to a long intermediate trend often confirms a change of trend.

However the weekly cycle isn't due to bottom until possibly mid to late April or early May. I think it's probable that we get a test of the bottom at that time. That would set up a more sustained rally.

This bear market is going to need to test the 200 day moving average at some point in order to keep investors riding all the way down.

I'm thinking the best time for that would be this summer after the weekly cycle bottoms.

I can hear the media now, rationalizing how the stimulus plan is working, etc. etc. Unfortunately I also expect the stimulus, easy money policies to again spike the energy markets (as I said in the previous post) thus driving the global economies deeper into the depression. Make no mistake this bear won't end until summer or fall 2010 when the next 4 year cycle low is due.

There really is no free lunch!

Thursday, March 12, 2009

Is the Fed going to do it two times in a row?

This is going to go along with the post I did the other day on oil and energy stocks. Notice in the chart that the 10 and now the 20 DMA are in the process of crossing above the 50 DMA.

We all know the Fed is desperately trying to devalue the dollar and create inflation. Heck the US is broke. The only way to pay our debts is to print money.

I don't know if the Fed is going to be successful or not. The deflationary forces aligned against them are huge. They may be temporarily successful.

If that's the case oil may be just beginning to respond to the inflationary pressures of the Fed.

Remember last year it was the Fed's ignorant inflationary efforts to stop the credit bubble from imploding that spiked oil prices. That was the straw that broke the camels back and sent the economy into a downward spiral.

Apparently Bernanke hasn't learned a thing. Now oil may be fixing to "teach" him the lesson again.

I dare say the only thing positive about the last 6 months has been the collapse in gasoline prices. If the Fed again spikes the price of energy with their crazy monetary policies it is going to intensify this, I can't even call it a recession with a straight face anymore, depression.

When will some one get these people out of power before they destroy what's left of our economy?

What's next, another tax rebate with gasoline at $3.00 per gallon so we can push it to $5.00 this time?

Wednesday, March 11, 2009

spam blocker

Just a note that if you haven't received daily updates lately you might want to check your spam blockers. Rick Becker this one's for you :-)

Tuesday, March 10, 2009

Where to play the rally?

In the previous post I said we had a tricky period ahead of us. There were two things I wanted to see before switching to the long side. First I wanted to see some sign that institutional money was willing to come back into the market. That means some heavy positive money flows on the SPYDER's. Then I needed to see a swing low as the buying into weakness is often a little early.

Well we got the positive money flow last night and the swing low this morning. The odds are now in favor of another bear market rally.

How long will it last? No one knows. I'll be watching the selling into strength data for some clues that big money is sneaking out the back door.

In the meantime where should we play this rally. Well if one is willing to accept a lot of risk they could buy the double or triple ETF's. Those that don't have a death wish might want to take a look at the energy market.

If oil can break through the $50 level then I think there's a decent chance we could see a 38% retracement of the bear market. That would take oil back up to the $75-$80 level. The big winners on a move like that will most likely be the oil service stocks. OIH for those not wanting to open themselves to company specific risk.

Sunday, March 8, 2009

Tricky period ahead

We have a tricky period ahead of us right here. For one the market is now entering the timing band for a cycle low. That means it's getting dangerous to press the short side.

However the T1 pattern we've been watching is still a bit short. Ideally I would like to see the market move down to the 650/630 area before looking for a bounce back up to test the consolidation zone and breakdown level of the multi month consolidation.

It's no surprise that the market bounced off the 665 level. That is the 62% retracement of the entire bull market from 1980 to Oct. 07. That is a logical place for shorts to cover and I expect every hedge fund in the world was watching that level.

There wasn't the normal surge in volume as the market reversed on Friday that we usually see at important intermediate lows. Also there was a bit of selling into strength at the close which makes me wonder if Friday really marked the daily cycle bottom.

I think we probably have one more daily cycle down before this is over, so I don't expect the coming low to be anything other than a short term bounce before we see the final move into a more lasting bottom probably in April or early May. (I went over this in depth in the weekend update).

For those wanting to play the long side as we bounce out of the now due daily cycle low I would urge that you at least wait for a swing low and not try to anticipate a bottom at this time.

Friday, March 6, 2009

Gold update

It's amazing how much angst a meager 10% correction in gold can instill in investors. Be honest how many of you freaked out during gold's pullback?

Keeping in mind that nothing is certain in the investing business let's take a look and see where we stand.

So far gold hasn't even broken the intermediate trend line. So we don't even have a possible 1-2-3 reversal yet.

Gold tested the consolidation zone of the T1 pattern in play and now looks to be breaking back out to the upside.

Finally, looking at the bigger picture we see gold pulled back far enough to test the breakout line and has bounced strongly off that level.

At this point I don't see anything to get negative about yet. Unless something changes I have to assume the secular bull is still intact. Heck, as far as I can tell right now the intermediate trend is still intact.

I suspect the bull managed to shake off quite a few investors without really doing any damage to the long or intermediate term trend. You have to hold on tight if you want to ride this bull all the way to the finish line.

Wednesday, March 4, 2009


So did we put in an intermediate bottom today or was this just an oversold bounce?

We were expecting a bounce as evidenced by the Bollinger band crash trade signal that I posted two days ago. That trade closed profitable today. As I said the BB trade has been one of the most productive mechanical long side trades during the bear market. (It was during the 2000-02 bear market also)

However I think the second scenario, just an oversold bounce, is probably the case, with more downside to come. I'll explain in tonights report.

The market still tied to the dollar

So far the T1 pattern we've been watching on the dollar chart is playing out exactly as expected. The size of the first leg suggests that the second leg of this move should take the dollar to the 94-95 range. I really won't be looking for a more sustainable bounce until the dollar reaches that level.

At that point we can expect a test of the blue consolidation zone. That should take quite a bit of pressure off the market. I expect the market will bounce back up to the 800/850 level.

Watch the dollar. If the dollar rally starts to accelerate we could see stocks start to move down rapidly like they did in the fall. If the rise in the dollar is more orderly then the decline will probably drag out for one more daily cycle in the stock market and bottom in late Apr. or early May.

Monday, March 2, 2009

QQQQ BB crash trade

With today's extreme move down we now have a Bollinger Band crash trade on the cubes for the first time since Jan.

I wouldn't expect too much though since we still likely have 1 or maybe even 2 weeks before the daily cycle is due to bottom.

This may be good for a one or two day minor snapback rally. That's probably about all one can expect at this point.

This actually may be a better signal to briefly cover shorts than as a long signal.

Sunday, March 1, 2009

The mining stocks are starting to decouple

Since the November bottom the mining stocks as represented by the HUI are starting to decouple from the stock market. I've noted the last three daily cycle lows on the chart. In October and November miners followed the stock market down into those bottoms. At that point something began to change.

As the market rallied out of the November bottom the miners started to pull away from the market. At the next daily cycle low in January the general market weakness did manage to pull down the miners to some extent but on a relative basis they held up very well.

Then as the stock market continued to slowly fade the miners went on to make new highs.

Now we are heading into the next daily cycle trough. The market is making new lows but the miners are still over 70% above the November lows. The miners are holding up even better than at the last cycle low with only a mild pullback so far.

When gold's corrective move is over I expect the miners will follow it higher despite anything that's happening in the stock market.