Wednesday, January 27, 2010

Every Market for Itself! (Or All for One)

It appears that the short respite from this bear market is coming to a quick close.  As we have forecast for some time, the everything-but-the-USD bear market is underway and as such our goal is to notify you of topping formations, as the bottom is a little further into the future than our crystal ball is willing to tell.

Technically, the Dow looks ready for a solid breakdown to new lows, as does gold.  Silver seems to have already begun its next down-leg, having lost 11% in the last 4 trading days as of the time of this writing.  Gold has begun the larger portion of its bear market decline, which started on Jan 11.  We should see prices somewhere in the mid to low $900's before this portion is completed and we can expect a sizable correction.

For reference, here is a chart with technical labeling.

For our thoughts on the Dow, see here:


How so many people can argue that "fundamentals" drive the price of any asset at this point in the game is beyond me - or, worse yet, how some can say "stocks are not being fundamentally driven right now and are riding on hope" but "the fundamentals on gold are excellent and the price is going so high it will blow your mind!".

You can't have your cake and eat it too.  When I see headlines such as this:


Folks who argue that "gold goes up during downturns" and then in the next sentence say "the economic recovery is what is making gold prices higher".

and what about seeing things like the following:


Are you feeling any more enlightened?  I'm certainly not.  The traditional media's means of attaching an external event to a price movement that is purely psychological in nature is laughable at best - and often produces these comical results.

Here at Investophoria we use technical analysis because prices are unbiased - they are simply numbers that reflect past actions.  Certainly, the technician can be biased one way or the other, and we attempt to stay rigidly within the "cool, collected, and detached" category of forecaster.  As such, we can say with conviction that this bear has just taken the first step out of his cave after a long and deep nearly-comatose slumber.

What woke him up?

A bunch of happily cheering market participants who have come to yet again believe that no matter where they put their money, it will always go up "in the long term".

Best of luck all!


End of Day Update:

What we called for as the highest probability move did not occur today (that's the funny thing about probability, right?), however there are a few things I noticed when I pulled back the chart to a 30 minute bar and put my favorite 50 and 120 day moving averages to action.

One thing that does work in favor of a higher move is the fact that the moving averages are extremely spread apart, which often times will lead to either a sharp correction or a long sideways period - generally when your moving averages are closer together and moving more flat, there is a decent sized breakout brewing.  Just something to keep in mind.

Here's the end-of-day chart:

Best of Luck, and keep your heads out there!



  1. Thanks Derek.
    Once again your contrarian views seem to have a lot of support in reality! Any idea how long this deflationary bear market for everything but USD will last? And when gold/metals or other physical assets will bottom out? Also, do you see any good investments in this environment or just stay cash?

  2. Hi Derek, Good call on silver decline and I admit I took some advantage of it. I also thought the dollar would "strengthen" when the Chinese raised their rates. I am looking for an entry point in buying more silver bullion. Can you give an estimation on when your newsletter will be running and how much will the cost be? If you think a decent entry point might be forthcoming before your newsletter, what would you charge for that particular bit of information sent to our E-Mail?

  3. hmm.... DOW rallied considerably at the end of the day, contrary to expectations, beyond your suggested support line. Any thoughts?

  4. Like the comment above, I am curious on what you would do here. Really like your blog and plan on getting a subscription to your newsletter.

  5. I have to say your Kung fu is better then mine. As a Trend trader now for about 6yrs and got my but kicked in the fall of 2008, and in the past investment companies who say "your in it for the long run" then they run off with your money!I have to recomend not listening to main stream news, but bet on guys like Derek who do the homework, charts and history. Thanks Derek and keep up the good work!

  6. Ian and anonymous - I have posted updated Dow charts with a longer time scale that revealed a few different points of interest.

    I was suspecting a lighter correction and a final move down below 10,000, however this could be the first "real" corrective pause in the bear market and thus we could see one or two days of retracement against the current downtrend.

    I have posted my ideal entry point and minor support levels - if the price is rallying strongly through the MA and the initial resistance then hold back and lightly commit towards the secondary resistance. Remember the primary trend is down for at least several months, so point-by-point entries aren't as important as if we were trading a range-bound long-term market. This is a bear market. Bear markets are fast and surprise the vast majority of participants (and not in a good way!).

    Thanks for the compliments - as part of my new website I will be putting up some sort of an introductory gift for new customers. I hope to see you among them!


  7. Thanks for the Update Derek, good on ya for following up regardless of where things fall in the wild world of probability.

  8. We see headlines like these and it is bottom:

    Gold Price Volatile on China Issues:
    The end of the gold love affair? Not for long:
    Gold: bearish trend, trades in $1080-1120 range:
    PRECIOUS-Gold steady near $1,100/oz amid investor caution :
    Love Affair With Gold Turns Rocky :
    Gold returns to $1,100 an ounce :
    U.S. gold ends higher, but investors cautious : 2010 gold price will be vulnerable to downward correction - S&P :
    Gold Scary Price Drop, When Every One Panics, Buy? :
    Scared of Falling Gold Prices? :
    Is the gold rush over? :
    A Shift in Gold Sentiment :

  9. I use some different technical analysis, and some fundamental analysis of macros economics, to agree with Blain on a decline and some specific price targets and probabilities, but disagree with his call for *PHYSICAL* gold in the $600s ever:

    As Stewart Thomson says, it you are waiting to buy at the exact bottom or buying too much at the exact top, you are trading way too big. Meaning average into any investment, and excessive bearishness on gold is lacking an understanding of the fundamental math of current macro economics, e.g. how I proved that Deflation is Inflation.

  10. How does the Gold chart look like adjusted for inflation since atleast 1920s?


  11. Now he saying low to mid 900s. What to $600 to $700?

  12. The bottom is here see you at $1500 in spring and at the end of the year. Thank Mr. Soros

    Soros brands gold 'the ultimate bubble' - papers

  13. If a person had $100,000. to invest in bullion, what percentage would you recommend in silver and gold? Would platinum be a consideration?

    I realize platinum is not "money" but being many times rarer than gold and trading not that far off in price I was wondering.



  14. Carl,

    As I have mentioned before, we are calling for an "everything but the USD" bear market for some time - some areas more severe than others. Platinum has been driven upwards by speculators and not by any normal market psychology - just look at those nice new ETFs and others are on the way.

    We are recommending a short position on the broad US markets or cash/best equivalents for the time being.

    Platinum should suffer a correction similar in magnitude to that of silver when all is said and done, ending up well under $1000 per ounce.


  15. here's a good look at inflation adjusted gold:

    Average price when gold was still regarded as money (pre-1933) and even with a "reserve currency backing" was only around $300 / oz, inflation adjusted.


  16. It was gold was still regard as money up until 1971 when the window closed.

  17. the mention of the 1933 - 1971 period is in "reserve currency backing" - the government suspended private ownership of gold until 1946 in order to fund the war, and then made the USD technically convertible into gold post-war - 1971. But private convertibility was impossible and it was only used to settle international accounts. Thus it was more of a "gold standard" than a Gold Standard.

    Thanks for the comment.