At the risk of getting ahead of myself prior to being able to confirm the turn, I am suggesting stock market action over the past week bears the distinct odor of a bull trap, with even informed technicians still waiting for a push to 50% retracements on the indexes. In this respect then, you should realize the context of such a bull trap would be profound in that we are talking about the March lows being tested and violated, meaning for example the S&P 500 (SPX) could be on its way down to test its namesake at 500 before this next sequence is all over. You will remember from previous discussions, and in framing context correctly here, it's possible we could be looking at a Supercycle Degree Affair lower in global stock markets directly ahead, implying 500 on the SPX would be an optimistic target for a low.
It will be important to watch what happens after quarter-end Wednesday, because if the funds cannot jam stocks higher for a window dressing related payday, we will have a good indication that at least the intermediate term direction has turned for stocks, where we will be looking to confirm this with the penetration of key supports in stock indices that will be discussed below. Further to this, and to continue framing what the future could hold correctly, I bring to your attention the latest undertakings from two market observers that appear timely in this regard, both sticking to their guns as deflationists moving forward from here. The first is from Doug Noland discussing Jim Grant's recent defection from the bear / deflationist camp. And the second is from Mish, who amongst other things also touches on Jim Grant's change of heart, characterizing it as a contrary indicator.
If you know me, it should come as no surprise I could not agree more in this regard. What's more, and as discussed at length previously in the full body of my work, although I am not a deflationist, or any variety of permanent 'flationist' for that matter, based on the evidence before us today I do think the 'deflationists' finally have it right. Moreover, and to continue drawing on the compelling case in this regard, one should take a few minutes to view this video by Steve Keen, the link for which I am also borrowing from Mish, who appears to have is ducks in the appropriate row as well. Here, Steve correctly points out that collectively the global population is past 'peak debt', and that although private debt and credit creation do not play into some people's definitions of money supply, anyway one wishes to count it, when we are contracting in this regard so will the economy at large, government stimulus or not.
Hold the presses. Apparently we have a landslide victory for Angela Merkel in the German national election, providing her with an opportunity to create a right of center coalition. This will undoubtedly be viewed as a very good excuse to rally the markets, so who knows, we may yet get that squeeze into month's end after all. Be that as it may, it will of course not matter in the larger scheme of things, as neither does the German economy have a meaningful impact globally, nor will it negate the trend towards deleveraging in the larger economy. And that's all that matters at the margin, which is the primary point in Steve Keen's presentation, attached above. In the meantime it does in fact appear will get a window dressing related jam job into month's end however, providing traders / investors with yet another opportunity to get short / lighten up on equities, which is a sentiment we recommend you take very seriously at this time.
Of course the bulls could give you a plethora of wrongheaded arguments on why such thinking is crazy, as crazy as the gibberish you hear on CNBC day in and day out as they continually promote the gaming of stocks higher at the behest of their corporate sponsors. Here, the better arguments would point to the inventories that need replacing, and the 'new normal' when it comes to perceiving largely worsening news. Less bad, history doesn't matter this time around - you name it, these bozos are never lacking for words - only conscience and common sense. Thankfully, this is the sentiment that's required to put an end to the games however, with the degree of the short squeeze this time around commensurate with the tops in stocks witnessed in 2000, and 2007. So again, be very careful moving forward from here because not many are, not even some veterans who should know better.
In this regard I find it surprising just how few market commentators and investors have it right in terms of the big picture considering just how critical the situation is, which is why I think an important top in stocks is in the making here. What's worse is those who do know, and have attempted to protect themselves by hedging or speculating on the short side, have had their heads handed to them and will likely not be back during what is traditionally a period of seasonal strength directly ahead, spelling potential trouble for equities. As you should know from reading these pages previously, that's the mechanism that keeps our faulty and fraudulent markets moving in directions the consensus is not expecting. This is the mechanism, when combined with generous liquidity, that keeps stocks going up when they should be going down until both the bulls and bears become exhausted, allowing for the whole shooting match to collapse at this point.
And that's where we are in my opinion, very closed to the point where both the bulls and bears become exhausted, marked by what is the annual period of seasonal strength in stocks, which should see a cessation of shorting / put buying, thus enabling our faulty and fraudulent (and seriously overbought) markets to fall. Or in other words, the bears will finally be exhausted, joining the bulls in the financially strapped department after getting creamed since March. That's what a good mania does - first it financially destroys the bulls, and then the bears within the wild reactions to the eventual crashes. In terms of important technical points in the indices to watch for, let's take a look at the same charts that we used a few weeks back because they tell us everything we need to know in terms of measuring / identifying the end to this reaction higher since March.
http://www.safehaven.com/article-14725.htm
Showing posts with label hook. Show all posts
Showing posts with label hook. Show all posts
15 October 2009
11 March 2009
Getting From A To B
Are you scared yet? You should be because not many others are in spite of the growing carnage in the financial markets these days. This is set to change in a hurry however, where borrowing from the Kübler-Ross model on ‘death and dying’, which is the same process investors are going through right now, if I am right about this, in getting from A to B, with A being denial and B anger, the stock market could do the unimaginable. You can see it already, the spoiled brats, with Obama in the lead, are starting to realize reality does actually bite, and that no matter how much one attempts to change it, nothing will make it go away.
This is being accomplished by continued and persistent weakness in the stock market despite growing interference by the bureaucracy, where as I will show you below, people are now beginning to give up the ghost on their fantasies with respect to the economy, their wealth, and the future. And make no mistake about it; this will make the mob angry as they see their wealth vaporized. They will be out for blood, with the complacency presently gripping the collective psyche increasingly shattered as more and more people begin to realize their futures do not look so bright anymore. And this is why gold is not giving up its gains, because when angered, people will finally act, taking their money out of the stock market in attempting to secure what is left. Gold, of course, is a natural alternative in this respect.
With all this said, it’s important to realize the markets are very overextended in terms of longer-term trends, and could be subject to corrections in the weeks ahead? In this respect we still have six to eight weeks of potential post-crash pattern strength that could sponsor such a turn of events. However in being sensitive to the divergence from previous episodes, the basic message is don’t expect much even if this turns out to be the case. That is to say, don’t expect stocks and bonds to better their January highs. And conversely – don’t expect the double top in gold to last forever either. Eventually, whether by market forces or official decree, it will need to be valued higher in order to back former fiat currency fancy.
So you see, any pause in present trends, with particular attention to how gold is steeling the show due to grand scale deleveraging, would only be that – a pause within a secular trend of the highest order. And it’s very important you understand this, because the bad news doesn’t end there. No, the world is not just deleveraging a rotten and corrupt financial system. This is only a symptom of the disease. What is happening on a larger scale is the entire socio-political economy of our very existence is coming into question, brought on by Peak Oil, excessive population growth, etc., where up until now the prognosis appears to be increasingly bleak considering special interests still have far to much influence on the pace at which alternative energy systems are being developed. In this respect it appears the combination of faulty pricing mechanisms in concert with everything else (think misplaced intervention, deflation perception, etc.) keeping energy prices too low right now could manifest into an increasingly profound crisis in coming years, one where economic hardship, and even famine, reach populations presently viewed as insular. (i.e. that means you.)
This is scary stuff, no? And so is the nationalization of banks, collapsing economies, and the bureaucracy’s increasing inability to stop the slide. Such is life on the farm however, where the next ‘big card’ to drop will be when gold goes through four-figure resistance at $1,000 on it’s way to five. That’s right, once the cat’s out of the bag, meaning gold moves firmly into four-figure territory, you can begin entertaining such thoughts, especially since the socialists will not give up without a fight. Of course all the fiscal stimulus and bailouts are doing is delaying the inevitable, with systemic collapse unavoidable now. So don’t dismiss gold’s potential moving forward because as proved in last week’s analysis, the public is still in complete denial with respect to what the future holds, meaning they haven’t even started buying yet.
They are beginning to sell stocks now however, as evidenced in a noticeable turn lower in the Accumulation / Distribution Indicator (A/D) seen on the monthly plot below. You will remember our discussion on the ‘crash signatures’ in the charts of the broad indexes from last week, and that when the public finally began to sell stocks, a ‘crisis in confidence’ with respect to the establishment would ensue. If not please review it, because we are quickly going from A to B now, where the investing public’s desire to accumulate stocks is finally starting to wane, meaning stocks still have a long way to fall from here. In this regard both the Dow and S&P 500 (SPX) took out the 2002 closing basis lows yesterday, implying potential for a great deal more downside is ‘good to go’. (See Figure 1)
Figure 1 – Click Chart For Sharper Image
In terms of the crash signature in the above, I just had to show it to you again this week to drive home the point that only ‘crazy people’ are long stocks right now, and that they are about to get their heads handed to them. Of course with stocks already cut in half, the consensus is a bounce is in order off a double bottom. This fallacy is about to be crushed with the Dow plunging through 7,000 however, which again, is part of the process of the investing public going from A to B. They need to get angry enough to sell you see, because apparently fear doesn’t fit into the modern day equation. Most are not smart enough to be afraid. This understanding accounts for the willingness of brazen speculators to accumulate high growth tech stocks right up until the end, with the Nasdaq / Dow Ratio going to a new high yesterday despite the fact stocks were falling. (See Figure 2)
Figure 2 – Click Chart For Sharper Image
As incorrigible as die hard hedge / mutual fund managers still appear to be with other people ’s money however, based on the above profile, at the margin and increasingly the public will be forced to redeem moving forward, which will in turn force liquidation of these positions. What’s more, the fact the Nasdaq / Dow Ratio was rising right up until yesterday as stocks continued to fall is testament to the observation denial is still rampant. However, if a reversal lower takes hold soon, which is probable if annotations in Figure 2 are correct, again, the move to B will be underway in the collective consciousness.
Stocks have a long way to fall
This is being accomplished by continued and persistent weakness in the stock market despite growing interference by the bureaucracy, where as I will show you below, people are now beginning to give up the ghost on their fantasies with respect to the economy, their wealth, and the future. And make no mistake about it; this will make the mob angry as they see their wealth vaporized. They will be out for blood, with the complacency presently gripping the collective psyche increasingly shattered as more and more people begin to realize their futures do not look so bright anymore. And this is why gold is not giving up its gains, because when angered, people will finally act, taking their money out of the stock market in attempting to secure what is left. Gold, of course, is a natural alternative in this respect.
With all this said, it’s important to realize the markets are very overextended in terms of longer-term trends, and could be subject to corrections in the weeks ahead? In this respect we still have six to eight weeks of potential post-crash pattern strength that could sponsor such a turn of events. However in being sensitive to the divergence from previous episodes, the basic message is don’t expect much even if this turns out to be the case. That is to say, don’t expect stocks and bonds to better their January highs. And conversely – don’t expect the double top in gold to last forever either. Eventually, whether by market forces or official decree, it will need to be valued higher in order to back former fiat currency fancy.
So you see, any pause in present trends, with particular attention to how gold is steeling the show due to grand scale deleveraging, would only be that – a pause within a secular trend of the highest order. And it’s very important you understand this, because the bad news doesn’t end there. No, the world is not just deleveraging a rotten and corrupt financial system. This is only a symptom of the disease. What is happening on a larger scale is the entire socio-political economy of our very existence is coming into question, brought on by Peak Oil, excessive population growth, etc., where up until now the prognosis appears to be increasingly bleak considering special interests still have far to much influence on the pace at which alternative energy systems are being developed. In this respect it appears the combination of faulty pricing mechanisms in concert with everything else (think misplaced intervention, deflation perception, etc.) keeping energy prices too low right now could manifest into an increasingly profound crisis in coming years, one where economic hardship, and even famine, reach populations presently viewed as insular. (i.e. that means you.)
This is scary stuff, no? And so is the nationalization of banks, collapsing economies, and the bureaucracy’s increasing inability to stop the slide. Such is life on the farm however, where the next ‘big card’ to drop will be when gold goes through four-figure resistance at $1,000 on it’s way to five. That’s right, once the cat’s out of the bag, meaning gold moves firmly into four-figure territory, you can begin entertaining such thoughts, especially since the socialists will not give up without a fight. Of course all the fiscal stimulus and bailouts are doing is delaying the inevitable, with systemic collapse unavoidable now. So don’t dismiss gold’s potential moving forward because as proved in last week’s analysis, the public is still in complete denial with respect to what the future holds, meaning they haven’t even started buying yet.
They are beginning to sell stocks now however, as evidenced in a noticeable turn lower in the Accumulation / Distribution Indicator (A/D) seen on the monthly plot below. You will remember our discussion on the ‘crash signatures’ in the charts of the broad indexes from last week, and that when the public finally began to sell stocks, a ‘crisis in confidence’ with respect to the establishment would ensue. If not please review it, because we are quickly going from A to B now, where the investing public’s desire to accumulate stocks is finally starting to wane, meaning stocks still have a long way to fall from here. In this regard both the Dow and S&P 500 (SPX) took out the 2002 closing basis lows yesterday, implying potential for a great deal more downside is ‘good to go’. (See Figure 1)
Figure 1 – Click Chart For Sharper Image
In terms of the crash signature in the above, I just had to show it to you again this week to drive home the point that only ‘crazy people’ are long stocks right now, and that they are about to get their heads handed to them. Of course with stocks already cut in half, the consensus is a bounce is in order off a double bottom. This fallacy is about to be crushed with the Dow plunging through 7,000 however, which again, is part of the process of the investing public going from A to B. They need to get angry enough to sell you see, because apparently fear doesn’t fit into the modern day equation. Most are not smart enough to be afraid. This understanding accounts for the willingness of brazen speculators to accumulate high growth tech stocks right up until the end, with the Nasdaq / Dow Ratio going to a new high yesterday despite the fact stocks were falling. (See Figure 2)
Figure 2 – Click Chart For Sharper Image
As incorrigible as die hard hedge / mutual fund managers still appear to be with other people ’s money however, based on the above profile, at the margin and increasingly the public will be forced to redeem moving forward, which will in turn force liquidation of these positions. What’s more, the fact the Nasdaq / Dow Ratio was rising right up until yesterday as stocks continued to fall is testament to the observation denial is still rampant. However, if a reversal lower takes hold soon, which is probable if annotations in Figure 2 are correct, again, the move to B will be underway in the collective consciousness.
Stocks have a long way to fall
13 January 2009
Stocks to track lower, even Gold Stocks in danger if HUI goes below 250
Captain Hook.
"Unfortunately everything else is all down hill from there however, with a collapsing ratio on the Russell 2000 (RUT) suggestive small caps will not enjoy much of a rally at all, reflected in Figure 9. In terms of ratio related analyses, of which I will comment further later this week, having large caps continue to outperform small stocks will confirm the bearish picture taking things into spring if such a profile is maintained. So, it will be interesting to see if the collapse in the RUT’s put / call ratio in December was only a reflection of January Effect related positioning by small investors, or not. Continued low readings in the Triple Q (QQQQ) are suggestive this might be the case, as seen in Figure 8. If this condition is corrected in February after a disappointing performance this month however, such an outcome would provide fuel to extend the rally in stocks into April in mirroring the 1929 / 1930 post crash sequence.
And we are hoping for a change in heart amongst crude oil and precious metals investors post options expiry next week as well, where speculators have never been more bullish on the former, which is now evidently rubbing off on the later group due to gold and silver equities outperforming since November. This is evidenced in last week’s turn lower in the Philadelphia Gold And Silver Index’s (XAU) put / call ratio (see Figure 13), which again, is at least short-term bearish if not reversed quickly. If not, the rotation guys will continue to spin out of precious metals, which if accompanied by a continued reversal in the XAU’s put / call ratio, could spell real trouble if traction is not regained prior to April given larger degree sequential considerations. (i.e. the larger degree correction higher in stocks is anticipated to fade as spring is sprung.) Further to this, we are also watching for a reversal lower in the Amex Gold Miner’s ETF (GDX) (see Figure 12) as well, which would be particularly bearish considering readings never made it above unity.
In translating above perspectives into an action plan of what you should do for now then, without a doubt both the energies and precious metals should be faded immediately until more is known post expiry on the 16th. (Note: It’s not the 18th as the good people [heavy on the sarcasm] over at Microsoft would have you believe.) And while continued strength in the broads and talk of escalating tensions in the Middle East could maintain a bid in crude temporarily, it has been my experience playing with fire will burn you, so unless you enjoy such outcomes, the risk associated with long positions in energy related ETF’s knowing speculators have never been more bullish on oil should be considered untenable, and avoided for now. Again, things could change post expiry on the 16th, but for now, caution is warranted.
In terms of precious metals shares, in using them as a leading indicator for larger degree moves in the sector, watch for the December 22nd lows to be taken out, where if such an outcome does in fact take place, it will be possible to apply bearish counts to the larger sequence(s) (zigzags) across the sector coming out of the November lows. For the XAU, this would be 107.56, which as you will remember from recent analysis associated with the monthly plot, has now become support, formerly being trend-line resistance. And for the Amex Gold Bugs Index (HUI), this number is 263.59. Here, if this support is taken out, followed by a plunge through the large round number at 250, then a trip down to the 200 area would likely be in store, at a minimum. It could of course get worse than this if speculators were to become increasingly bullish during the drop, and the same was to return to broad market sentiment."
"Unfortunately everything else is all down hill from there however, with a collapsing ratio on the Russell 2000 (RUT) suggestive small caps will not enjoy much of a rally at all, reflected in Figure 9. In terms of ratio related analyses, of which I will comment further later this week, having large caps continue to outperform small stocks will confirm the bearish picture taking things into spring if such a profile is maintained. So, it will be interesting to see if the collapse in the RUT’s put / call ratio in December was only a reflection of January Effect related positioning by small investors, or not. Continued low readings in the Triple Q (QQQQ) are suggestive this might be the case, as seen in Figure 8. If this condition is corrected in February after a disappointing performance this month however, such an outcome would provide fuel to extend the rally in stocks into April in mirroring the 1929 / 1930 post crash sequence.
And we are hoping for a change in heart amongst crude oil and precious metals investors post options expiry next week as well, where speculators have never been more bullish on the former, which is now evidently rubbing off on the later group due to gold and silver equities outperforming since November. This is evidenced in last week’s turn lower in the Philadelphia Gold And Silver Index’s (XAU) put / call ratio (see Figure 13), which again, is at least short-term bearish if not reversed quickly. If not, the rotation guys will continue to spin out of precious metals, which if accompanied by a continued reversal in the XAU’s put / call ratio, could spell real trouble if traction is not regained prior to April given larger degree sequential considerations. (i.e. the larger degree correction higher in stocks is anticipated to fade as spring is sprung.) Further to this, we are also watching for a reversal lower in the Amex Gold Miner’s ETF (GDX) (see Figure 12) as well, which would be particularly bearish considering readings never made it above unity.
In translating above perspectives into an action plan of what you should do for now then, without a doubt both the energies and precious metals should be faded immediately until more is known post expiry on the 16th. (Note: It’s not the 18th as the good people [heavy on the sarcasm] over at Microsoft would have you believe.) And while continued strength in the broads and talk of escalating tensions in the Middle East could maintain a bid in crude temporarily, it has been my experience playing with fire will burn you, so unless you enjoy such outcomes, the risk associated with long positions in energy related ETF’s knowing speculators have never been more bullish on oil should be considered untenable, and avoided for now. Again, things could change post expiry on the 16th, but for now, caution is warranted.
In terms of precious metals shares, in using them as a leading indicator for larger degree moves in the sector, watch for the December 22nd lows to be taken out, where if such an outcome does in fact take place, it will be possible to apply bearish counts to the larger sequence(s) (zigzags) across the sector coming out of the November lows. For the XAU, this would be 107.56, which as you will remember from recent analysis associated with the monthly plot, has now become support, formerly being trend-line resistance. And for the Amex Gold Bugs Index (HUI), this number is 263.59. Here, if this support is taken out, followed by a plunge through the large round number at 250, then a trip down to the 200 area would likely be in store, at a minimum. It could of course get worse than this if speculators were to become increasingly bullish during the drop, and the same was to return to broad market sentiment."
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