Monday, March 8, 2010

Mystery Week 2010

This point of of a market is always the hardest to conjecture about.  It is the part that either proves or disproves a thesis - in the short-term, which can be a tough pill to swallow.  However, nobody ever knows will full certainty what the future will bring - only which is more likely than the next.

Not to say we're throwing in the towel, or anything.  But, as I have mentioned on here many times, the goal is to provide objective analysis and we are never fully committed (i.e. blinders) to one side of the trade or the other.  The market will do what the market will do.

There are a couple of things to note this morning, though, which are of key interest in terms of our open individual stock positions, and in terms of the broad markets as a whole.

The first is the VIX.  On Friday, it looked like it exhaustion-gapped down to a higher-low from the previous low made on the 11th of January.  The following is a quick look at where the VIX is, which might indicate where it's going.

Furthermore, the highest gaining sector in the S&P500 seems to be forming a very nice rising wedge pattern and is in the terminal phases of it.  Might it be possible that the sector that has led the charge both down and up could still have some say over what's going on?

I was considering one possibility for this move (this would be invalidated by a break to new highs, to get that out of the way first thing), which would fit into the psychology of a multi-year bear market and would draw in the maximum number of long participants.  I have made up a chart as to a possibility of what could play out in the next few weeks.

Again, this chart hinges on the next few days bringing a reversal below the January top.  Our stop is still in place just above the January highs.

As for the precious metals and the dollar, I will post an update in the next couple of hours to these charts.  I want to see if there's any telling action today to give any more clues as to the next few weeks of direction.

As for now, the primary direction for the metals still seems to be down, with gold potentially making a run up to $1,162 before turning and silver potentially running to the mid-high $17.00's before doing the same.

Will post my thoughts and charts soon.

Have a great Monday!


P.S.  The new site is coming along and every day brings us close to the launch.  Any questions or thoughts feel free to fire an email to:


Markets are still meandering sideways with almost everything consolidating.  This could lead to another breakout to the upside intraday over the next 1-2 days in the major indices.  

Gold and silver corrected sharply down, with gold breaking outside of a tight trading range that has held them in lock the past few trading days.  The conviction of this break is, as of yet, not strong enough to assume it will lead anywhere, and could just end up recovering through tomorrow.

Again, there is still potential upside in gold, to the $1,163.00 mark, and in silver to the $17.80 - $18.10 range, even higher if enough of a mini-blow-off builds up.  Here's the chart on GLD which, unfortunately, offers little clarity as to the primary direction for the next 2-3 months.  My gut is that its still down as the corrective pattern failed to make a new countertrend high compared to the first leg of the correction.

However we will have to wait for more information to get a clearer directional pattern.

Tomorrow is going to be a tricky day, because the market could easily do anything we expect and don't expect of it - it could run up 100 points, drop 100 points, or trade flat like today.  Either way its looking like a breakout or breakdown is in the works.

We will see if there are any more solid clues as to where the market is headed tomorrow, and see if the Asian markets do any confirming/leading overnight.

Until then,



  1. PMs correcting before next rally! How far down will they go!

  2. Derek, What do you think about Gary Savage's opinion on "Go away in May"? Seems kinda convenient how his C-wave offers the sell signal on May 15 and then the D-wave reflects a buy a month later. Too simplistic to be true?

  3. Every analysts that I check up on who use this technique are calling for a completed c-wave. More and more analysts are calling for 1000+ average gold price this year, including 26 major analysts for the London Bullion Market. See here:*1,119_oz_in_2010_-_LBM_report

    Keep in mind that gold bugs have a massively vested interest in rising prices of gold, to prove constant inflation (rationale for buying) and be vindicated.

    Meanwhile they shouldn't technically care, as gold always retains its purchasing power. Right?

    So gold bugs say that the markets are too bearish when in fact they aren't, and record inflows of speculative cash have migrated to gold in the last 18 months. A great example is Mr. Hulbert who was calling for a major bull run in gold in April 9,2008, citing that "analysts are too bearish".

    Gold was trading at $975 and subsequently lost 30% to the low from that point.

    See the article here:


  4. This "time is different" time?

  5. Those are NOT "rising wedge" they are ascending triangle and are a bullish pattern.
    TA 101...sheesh.

  6. The "mind" is the hardest part to control in trading. Gold is going down, but in the interim will reach $1182/1185 by April 2/5/16 and then downtown Freddie Brown to $640-627/614. Alas, the "enemy" in trading is your mind for it flips all the time and uses you...the person.

    This price of 1182 etc. could come earlier then April 2. The up down move with wide swings should play out till then. 1168/1165 was the last high so this time should be above it, get all the suckers long, and then is should follow the trendline down.

    US index should test the low of 77/78/76 and probably move below the uptrend line( fake out, common sucker ) and then on its way to 95.

    If Goldman Sachs and Whitney ( 2 weeks ago, as mentioned, check if this was reported in the news or WSJ) stated the S&P500 will be at 1300 by summer 2010 then YOU know this thing is going to crash to 550,but first to 983/977 area the previous monthly 50% prior to the drop from 1586.75.

    1166.75 was the natural number for the high on ES at Jan 11, 2010. It came at 1148. 654.70 was the natural high number for TF at Jan 11 but it only reached 648.80 and now it went to 668 area. The TF always does these pro S moves but the move up lks parabolic, like Cotton, and we know parabolic moves don't last too long.

    10640 was a natural high for YM and 10686 was it. Feb 5 low, March 5 high. Jan 5 high, Jan 11 high ( oct 11, 2007 high), so should see sideways action till March 16. Then down wham.

    ES 1126.25, YM 10364 are very important numbers and the sideways action should move from this low area to 1140.50 and 10578 area for a while.

    If Goldman Sachs says the ES is going to 800 by summer, then the ES will get to 1200/1220 by Summer 2010.

    "The sheep must be slaughtered before the feast can begin." Do you want to be on the BARBIE ( cue)? Mate.

    The "painting" is clear, but if you stand too close to it, you cannot TELL what IT is TRYING to TELL YOU!!!

    Good trading.........the ReBeL....really your 'friend.'

  7. btw Jerry,

    Does TA means T**s and A**??

    Sorry, I'm a chartist.

    Good Trading....he ReBel

  8. El Nino crisis brewing in Asia (1997 Asian Crisis Redux?):

  9. Why is there so much animosity between goldbugs and investors who disagree with them?

    I don't consider myself to be a bug but I am bullish on gold and I have to say if I was judging the "fight" I'd give it to the goldbugs since 2001. That's not to say they don't get too exuberant and call for an explosive price climb that doesn't materialise. Some of them obviously do.

    But there aren't 'stockbugs' or 'real estate bugs' or 'bondbugs'

    On a related note this comment by Derek baffled me:
    "So gold bugs say that the markets are too bearish when in fact they aren't... ...A great example is Mr. Hulbert who was calling for a major bull run in gold in April 9,2008, citing that "analysts are too bearish".

    Gold was trading at $975 and subsequently lost 30% to the low from that point."

    BUT Hulbert isn't a goldbug, the 'analysts' are. They are the gold timing newsletter writers with whom he frequently disagrees. They have been far more bullish on gold than bearish. Hulbert has been calling for gold to drop more often than climb and appears to be another guy who has an axe to grind with the 'bugs'.

    Hulbert has demonstrtated a knack for being completely wrong on gold's short term moves and considering his latest post I hope he continues the good work :)

    Mark Hulbert - not a goldbug...

  10. OK - I did a little more research on Hulbert's record.

    From memory he always seems to be wrong, but checking some of his previous posts it appears he is occasionally right. He's very hit and miss. He just takes the opposite view of the gold timing newsletters and since they are unreliable he is too.

    He has made some monumentaly bad calls though -Derek pointed one out - but Hulbert is definitely not a goldbug.

  11. Small corrective wave coming. SLV 17.75 max. GLD 115 max.
    Take profits/partial or hold on. Buy next correction after 3 waves above paralell of left shoulder and then hold on. Not written in stone, just an educated guess. I already took profits on friday on HZU just in case it turns sooner. Jerry

  12. Mark Hulbert sells newsletters. If this bloke REALLY KNEW WHERE ANYTHING IS GOING, HE WOULD USE FUTURES AND OPTIONS AND MAKE A TON OF $$$$$$$$$$

    Hulbert knows " nothing" like all the rest on TV, get up to go for a 9-5 Job and ALL the suckers listen to this nonsense.

    That's why they lose money.."Stupid News."

    Your smarter than "Hulbert" YOU just DON'T KNOW IT...because YOU don't trust your CHARTS NOR YOUR KNOWLEDGE.

  13. Derek the anonymous commentator on this post seems to have the same views as yourself. I was wondering if we could know his website or email to find out his rationale and time frame for the moves suggested for gold to 600-650,silver likewise perhaps to 7-8,USD Index to 76 shortly and and S&P to 550 if I understand correctly but perhaps 1400 first?


  14. Derek,

    What if this whole rally is for real? The current S&P EPS estimate is 75, which means the market is adequately priced at a P/E ratio of about 13.5. Granted that since the growth rate will be little low (probably close to 1-2%) in the 2nd half, tha market may come down a little. However, as of now, there is no indication that the market is grossly overpriced. Chances of a crash seem to be slim.

    Could it be possible that the effect of the deleveraging you are talking about is already priced in at the broader market level?



  15. Ajay,

    This rally is real in that all rallies are "real" - measurable increases in optimism.

    However the end decider of the direction of the stock market will be the winner between deflation and inflation - and I am one of the few left out there who is seeing a higher probability of severe deflation.

    I pay attention seriously to the P/E when it is related to the yield on a stock - the S&P500's yield was a paltry 1.95% at the start of 2010, indicating that retail and institutional investors are still chasing capital gains full tilt over income. The P/E is a useful tool for telling you if you stand a chance of making more money in income (dividend increases relative to your initial share purchase).

    However major analysts (the more publicly watched the better) are subject to being caught up in the optimism of the crowd just as much as a floor trader or anyone else.

    If you can find them, look up the broad analyst estimates for the P/E of the Dow and S&P500 at the end of 2007, or even the ones put out during the first quarter of 2008. You will see they are grossly mistaken in their estimates, as P/E's fell right alongside the stock market.

    Then, caught up in the negativity of a full, raging bear market crash, estimates for last year were far too low, creating the image of far superior performance of the companies being covered.

    When the next downleg begins, expect something similar, but probably to an even larger degree - when deflation wins out the depression of earnings will be a direct, automatic, and violent consequence (among other things).

    Best of luck.


  16. Thanks Derek.

    Your point about dividend yield is well taken. The current div yield is definitely far below the historical standards and from a yield perspective, the market is priced like the peak of a bull market. Although, at March lows, the dividend yield was still lot less than what you would expect in a bear market.

    I have been searching for good indicators that can help predit major changes in the economy. I have found that ECRI indicators are pretty useful in predicting market bottom and subsequent upturn.You have used one of them in one of your charts, i.e. Weekly Leading Indicator (WLL). One could have used the WLl readings to almost accurately predict this rally.

    The same indicator is predicting a slow down in the 2nd half of the year.So, if the market follows the script, the peak of this market should be around May. At this point, it is hard to say if it is going to be a lound crash or a soft thud. The readings over the next 2 months will give a better idea about the magnitude of the fall.

    Another important indicator seems to be the Future Inflation Gauge (FIG). After hitting a 51 yr low in march of last yr, this indicator has been trending up till January of this year. Though it came down a little bit in February, as per the institute, the trend is still up.

    Unlike WLL, the complete FIG data series is available only to institutional subscribers. Hence, I don't know how it can be used to accurately predict change in inflation/deflation trends. I am not sure if you follow this indicator for your analysis. Would like to hear your views regarding this.