Monday, June 29, 2009

Has the economy bottomed and does that guarantee the stock market will rally?

Let me ask a question. When the recession ended in 2001 did it coincide with the stock market bottoming?

Did the market collapse in 87 signal a coming depression or even a recession?

Did the push to marginal new highs in Oct. 07 signal that the economy was running on all eight cylinders?

The answer to those questions are no, no and hardly.

Stock markets are and always have been governed by human emotions. Does anyone realistically think that the stock market, no matter how many investors this includes, really has the ability to "see" the future? I guarantee you it does not.

The stock market will just continue to cycle through periods of hope and negativity like it's always done for hundreds of years. At times the cycle of hope will correspond or even lead an upturn in economic activity. At other times the cycle of negativity will continue to bring the market down despite obvious economic improvement.

It really has no bearing on whether the economy has bottomed or not, the market still has at least another year to year and a half before we can expect the secular cycle of negativity to reach a final bottom.

As I've said many times before I expect at that bottom to see true bear market conditions as human emotions do their work and take valuations to absurd levels.

Sunday, June 28, 2009

Point of maximum risk

During bull and bear markets the 50 week moving average has acted as strong support and resistance. During the bear from 2000-2002 the 50 rejected every major counter trend rally. Then during the cyclical bull from 2002-2007 the 50 supported every decline.

Now we are entrenched in the worst bear market since the depression and so far the 50 WMA is again playing its role as rally stopper.

Unless we have somehow entered another cyclical bull market (unlikely) then longs are now at the point of maximum risk.

I'm seeing many signs that this rally is probably over. Not the least of which is the 22 week cycle low is due by mid August or early September at the latest. Since most declines into a weekly cycle low last at least 1 1/2 months up to 3 months it's probably time for the decline to start. (Actually I think it probably already started on June 11th.)

I'm back home BTW. We left one day early as our fingers were just too sore to climb anymore. I came back to 105 degrees in Vegas. Sheez!

Wednesday, June 24, 2009

Never short a bull market

A lesson I learned a long time ago was never short a bull market. One never knows when the secular trend is going to resume. Often it will resume with an explosive move as dumb money shorts panic and cover.

Today has the that possibility for gold. Since this is only day 25 of the daily cycle, and that cycle can stretch to 28 days and not be out of the ordinary, it's very possible that gold put in a cycle low yesterday. It's also entirely possible that gold will rnow ally back up to test $1000.

Of course I don't have a crystal ball so I don't know what is going to transpire in the coming days. Just in case gold does rally here is why I have not been willing to sell my juniors or silver miners.

There is only one time when one could short gold and possibly have the odds in their favor. That would be at the start of a D wave decline. We are probably at least a year from that. Even then C waves usually end with some kind of parabolic spike so it can be tough to spot the start of a D wave.

Shorting a secular bull market is a great way to get your head handed to you. It's much easier to short a market that's already going down. That way you at least have the larger trend in your favor. Let's faced it trading against the odds is just gambling and if you want to gamble there are plenty of casinos out there that could certainly use your money.

Monday, June 22, 2009

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Wednesday, June 17, 2009

1-2-3 reversal

With the break of the trend line the market should now begin another 1-2-3 reversal attempt. I suspect this one will succeed. By that I mean the trend will most likely reverse and the market will start heading down into the weekly cycle low due in late July or early Aug.

I have been expecting this initial break to bottom at or close to 903 as that is the break even point for the year. Since we are very late in the daily cycle I would say there is a good chance the market bottomed this morning. I would expect some kind of weak rally the rest of the week and maybe even into next week before the market rolls over and starts the trip down into the major low.

After we put in the short term top I doubt there will be many opprotunities on the long side until we put in that major low in July or August.

It's just about time for the bears to shine again.

Friday, June 12, 2009

Summer climbing trip

I will be heading up to Idaho tomorrow for my summer climbing trip. Daily subscriber updates will be posted to the website only, during this time. Any new subscribers contact Mr. T. at with your paypal receipt to obtain the passwords to access the premium site.

Thursday, June 11, 2009

Big move coming

Over the last week market volatility has dried up. We are setting up for a big move. Generally speaking the initial move out of a coil tends to be a false move most of the time. If by chance the Market does break out of the coil to the upside a touch of 9000 would probably be an excellent entry on the short side.

However I don't think I would look for a break lower to get long either. We are late enough in the daily and weekly cycle that we should start the move down into a major cycle low anytime now.

Tuesday, June 9, 2009

strong hand, weak hand

Tonight want to talk about the concept of strong and weak hands. I’m going to start off with an analogy.

Let’s say you just bought a business, a small restaurant. You open for business on Monday and after a week you’ve grossed $6000. You’re feeling pretty good about yourself. Then all of a sudden Saturday comes around and you get a bill for your first food order, payroll, rent and CAM’s. Maybe you also have the misfortune to get hit with the gas and electric bills on top of that. By the time you finish writing checks your +$6000 has turned into -$1000. Now let me ask you this, would you immediately throw up your hands, lock the doors, and walk away?

I dare say most of you would stick it out a little longer than that. I would hope that most of us have enough common sense to realize that sometimes we have to persevere to get to the reward .

However most stock market investors do exactly that, they walk away from their “business” after the first minor set back even if they logically understand that there is no fundamental reason to lock the doors.

Now in my opinion the difference between a strong investor, one who is not easily knocked out of their position, and a weak one, has nothing to do with how deep ones pockets are. It has nothing to do with how much experience one has. And it certainly doesn’t matter what one uses to give them an edge, whether it be technicals, fundamentals, patterns or chicken gizzards.

I can tell you this: everyone when they enter a position starts out as a weak hand. No matter how deep their pockets. An investor has to graduate to strong hand status. That, my friends, can only be earned with patience. Let me show you what I mean.

Let’s say you bought mining stocks back in November. Now it’s June and your position is up almost 100%. You are now far enough into the green that a normal correction is not going to be able to knock you out of your position. You’ve become a strong hand.

However when you entered that position you would have immediately suffered a drawdown and unless you had the conviction to hold on to your trade, you would have gotten knocked out right away. Look what you would have missed.

It’s very rare that an investor will graduate to strong hand status quickly. The market rarely moves that fast. 90% of the time the only way you are going to move into the strong hand category is with patience. You are just going to have to let your position work long enough to put a lot of green between you and your entry. Eventually though, you will reach a point where you can weather almost any correction unaffected.

Now here’s the problem with trading. You almost never make it into the strong hand category.
An investor who tries to get “cute” with his investments has the same problem. As soon as you sell you immediately become a weak hand again. “Old Turkey” knew what he what he was talking about.

Let me describe what happens to most traders, novice and professional alike. Let’s say you take a position and you time it pretty well so that the trade goes your way immediately. You’re making money and now you’re feeling pretty good about yourself. The problem comes if you don’t have a clear cut exit. If you hold too long the market will almost always pull back enough to take your trade back into the red at some point. When that happens most traders freak out and sell for a loss.

Or how about this one? You enter a trade but you don’t time it well. You enter at a short term top. The market goes against you immediately and you freak out and sell for a loss. Of course if you would only hold tight, the reason you took the trade in the first place will usually turn the trade back in your favor eventually. Of course by that time you will be no where to be seen. The market already took your money. “Thanks, come back soon”

In the last scenario you will probably have two periods where the market takes you into the red. How many of you can hold through that kind of torture?

I have a friend who trades several accounts. In early March he correctly identified the bottom. In one account he took positions in several badly beaten up stocks (which was a stroke of genius BTW, I’m pissed I didn’t think of it) and then proceeded to … ignore it.

Meanwhile in his trading account he tried to time the ups and downs of this bear market rally.

So here’s the outcome. In his smaller account it wasn’t long before he graduated to strong hand status. His positions were so far in the green that he just didn’t have any need to watch them. Any corrections were pretty much meaningless to him. That account is now up huge.

However in his larger trading account he never held anything long enough to move to strong hand status. Every time he sold he immediately started over in the weakest position. The outcome was a whole lot of trading for not much profit. If he could have taken the same approach with his trading account and let his positions work long enough to reach strong hand status he would literally be rolling in cash.

Now I’m not suggesting we should all take positions in Crox and GM. Realistically it would not have been prudent to fill ones main account with companies that could have been on the verge of bankruptcy. I’m just making the point as to the trading strategy for each account and the outcome of those two very different strategies.

Short sellers are in the same position. Short selling just by its very nature is going to be pretty tough to achieve strong hand status. Let’s face it there is no way to get 200-300% in the green like you can on the long side. Plus bear market rallies are violent affairs that can evaporate a nice short sell in a matter of days if not minutes.

I suspect most of you right now are still weak hands when it comes to your mining positions. When gold moves down into the next daily cycle low I expect most of you are going to experience that first test as your initial profits turn red. This is the stage of the game where you have to decide whether you want to hang on long enough to move into the strong hand category or whether you are going to remain cannon fodder for the pros.

Monday, June 8, 2009

That pesky 950 level

950 has been a pretty significant level over the last 10 years. It halted the four year cycle low in 98. It acted as support as the market sold off after the 911 terrorist attacks. It then acted as resistance three times during the bottoming process in 02.

It also acted as resistance during the last counter trend rally in Jan. On Friday it also halted the market even after the fairly bullish employment report.

Markets don't top on bad news, they top when good news can't push them higher. Add in the dollar probably making a major bottom and the important 950 resistance zone and I think the bears now have the best chance to regain control of the market.

More in the weekend report.

Sunday, June 7, 2009

Dollar has bottomed, but for how long?

I've been expecting a major low for the dollar for a while now. I was beginning to wonder if it came early in March. The move on Friday back above the key 80 level is suggesting that the weekly and seasonal cycles just stretched to the very end of their timing band.

I think we are now in a key period that will determine whether deflation remains in control or we see hyperinflation sooner rather than later.

If the dollar can close back above the 200 week moving average as it bounces out of this bottom I will have to give the edge back to the deflationary side. If however it rolls over quickly and takes out the recent lows I think we are going to be looking down the barrel of inflation and probably a currency crisis later this fall.

I'm guessing we are going to see pressure on everything from the stock market to all commodities as this rally gets underway. I expect the dollar will probably get rejected on it's first attempt to recover 83. That could probably set up a retest of the lows and a 1-2-3 reversal. Whether or not the reversal is successful should tell us whether to plan for inflation sooner rather than later.

Wednesday, June 3, 2009

$10,000 gold?

W. D. Gann noted many years ago that the larger and longer a commodity consolidates the bigger the rally usually is once the breakout occurs.

In last nights update I suggested the possibility that gold could ultimately go to $10,000 an oz before this bull is done.

Sounds totally ridiculous doesn't it? Hey it doesn't sound even vaguely possible to me either at this point but I can assure you it is possible.

First off let's consider that the US has run up 50+ trillion dollars worth of debt. Seriously, we are never going to be able to pay that. So our choices are default or inflate. Which do you think the government is going to choose?

The Fed is already monetizing debt even though Bernanke will sit in front of congress and lie through his teeth and say we aren't. We are!

50 trillion and counting isn't a precursor to mild or even moderate inflation. That kind of debt leads to hyperinflation.

Next take a look at that chart of gold. The sheer size of that 27 year consolidation is staggering. Gold has already broken out of the consolidation. It even tested the breakout level last month as gold put in the B wave decline.

Once gold breaks back above that psychological $1000 level there's nothing but blue sky as far as the eye can see.

Still don't believe me? Look what happened to oil once the $40 ceiling was broken.

It's a bit hard to see on the final chart but the stock market went through a very similar consolidation from 66-82. When it finally broke above that $1000 level it moved all the way to $11,700 before the bull finally came to an end.

In case you didn't notice that is an even bigger move than what I'm suggesting could be in store for gold.

How many people do you think could have possibly conceived of the stock market rising all the way to $11,000 dollars in 1982? I dare say virtually no one.

Here is one truth that you can take to the bank. A powerful secular bull market will invariably go higher than almost anyone can imagine. And by the same token a secular bear market will fall much farther than anyone can foresee.

Tuesday, June 2, 2009

One bull

Generally speaking a rising 200 day moving average is a pretty reliable sign of a bull market most of the time. Right now the only 200 day moving averages that are rising and probably in bull markets are gold, silver and miners.

China is on the verge of turning the 200 DMA higher.

With the Fed clearly on the path to hyperinflation I think I know where I want to have my money invested.