Picking tops

No charts on this one. None needed. Everyone who has continually tried to pick the top of this bull has been taught a painful lesson so far. I'll say this again. The only way that I know of to realistically have any chance of spotting a market top is by watching what the big money in the market is doing. Right now the big money is buying heavily. As long as the COT is long I will have to assume that any corrections are buying opportunities. Since commodities are where the real bull market is that means I want to continue to hold my positions in precious metals since they are due to outperform other commodities with the possible exception of agriculture which has also underperformed.

Point and Figure charts

I think it's time to take a look at the point and figure charts. Triple top breakout on SLV price objective of $190. Quadruple top breakout on GLD price target of $85. Finally a triple top breakout on the XAU with a price objective of $274. So far things are looking good in the PM world.

Inflation

I'm going to talk a little bit about inflation today but I'm going to come at it from a little different angle and try and show you how it affects everyone personally and why you should keep inflation in mind when you make investing decisions.

I'm going to use gasoline as an example because it's the most widely used form of energy but the principles can be applied to anything from food, tuition, housing, health care, you name it.

In 2000 right as the stock market was topping out gasoline would cost you roughly 75 cents to a dollar a gallon. So if you were to cash out one share of the Dow you could purchase 11,750 gallons of gasoline at that time give or take depending on the actual price of gas.

The Dow has been in a strong bull market right? We've been making new highs right? Stocks are a protection against inflation right? WRONG

As of yesterday gasoline was selling for $2.28 per gallon and the Dow was valued at $13,800. Well gosh darn it the Dow that has supposedly been in such an exceptional bull market now only buys 6,052 gallons of gasoline. Don't even get me started on how well the Nasdaq has done during this same period. Now if you were or are in bonds during this time you are getting eaten alive by inflation. Investors tend to view bonds as guaranteed but that only works if the government behind those bonds isn't destroying it's currency. (Ours is by the way)

During times like these investors must be invested in "REAL STUFF". Gold, silver, oil, wheat, soybeans, copper, you get the point. The government can print as many dollars as they want for free but they can't print a barrel of oil or an oz. of gold or a field of wheat.

Commodity bull: Second phase

I know many of you are familiar with my 5th year correction scenario. For any who are new to the site. All that means is that typically secular bull markets will have a serious counter trend decline somewhere around the 5th year of the bull market. The 87 crash is a great example. Last summer I think we saw that decline in the commodity markets. During the first phase energy and base metals outperformed precious metals and agriculture. During the second phase I fully expect PM and Ag to outperform. Notice how the correction in PM during this time was also milder than what took place in energy. During this next phase I think PM and ag is where an investor will outperform. These second phases can be rather long. The second phase in the stock market lasted from 87 to 98. During this time corrections should be bought not feared. Remember a correction is just the market doing something stupid. Your job is to take advantage of this stupidity.

How to get rich in the markets in 3 easy...errr hard steps

Tonight I'm going to post a clip from today's daily update.

"Now I’m going to tell you the three ways to get rich in the stock market. The first and most dependable is compounding. Start early in life, buy good companies that throw off cash flow as dividends, reinvest those dividends and in 30-40 years you will be rich.

Second: Find a superior system that consistently makes money and then stick with it thru thick and thin. Every system will have losing trades. Every system will have losing years. If you can stick with your system for 30-40 years you will end up rich. If you had invested $10,000 in the COT system in 1986 and used leverage as described above you would now be worth somewhere around 5-10 million dollars.

Third: Spot a secular trend as it begins, get on and hold on till it’s done. The third is how billionaires are made. If you had spotted the bottom of the bear market in 74 and just bought and held on till 2000 you would probably be worth many, many millions at that time. Do any of you happen to recall who was buying in 74? That’s right Warren Buffett. We have that very same opportunity right now or I should say we had. Commodities have entered into a secular bull market. Most will gain 1000-2000% before this bull is over some like silver may move 4,000 or more %. To realize this incredible potential you have to be willing to hold on. There are going to be countless investors who are going to jump ship especially in this second phase. The media will broadcast repeatedly that this is a bubble. The naysayers will be many. If you can ignore all this crap and just keep holding you will be rewarded, big time. We will know when the end is approaching because everyone you know will be investing in commodities. Everyone at work, at the gym and the guy filling up his car next to you will be bragging about his gold or silver or XOM stock. When you see this start to happen then you’ve got about a year to a year and a half before it’s all over. BTW at that time nobody will think it’s a bubble anymore. They will give you countless reasons why oil prices will rise into the foreseeable future even though we’ll see drilling rigs off both the FL and CA coast. Gold and silver mines will be sprouting up daily. We’ll be prepared though and we’ll know when to jump ship and move on to the next bull market. By that time you should have made your fortune. See you at the top!"

Can the precious metals runaway?

I pointed out the runaway move in the S&P last year. These kind of moves are characterized by very uniform and minor corrections. It's beginning to look like the PM could be entering into a runaway type move. So far the corrections in gold have held at roughly $25 and in Platinum at $35-$40. If this trend continues then we should look for a correction that exceeds these parameters as a hint that the run is over. The two strong metals will most likely pull the weaker two (Silver & Palladium) higher with them. Both are too cheap and I expect liquidity to begin flowing into both.

The real bull market (Commodities)

I suppose many investors assume that the rise in commodity prices is a monetary phenomenon. However looking at gold and oil in Euros, Pounds and Yen we see they are both in strong bull markets even when measured in currencies that are appreciating strongly. The US is exacerbating the problem by printing too many dollars but the underlying cause is a supply/demand imbalance.