Thursday, March 25, 2010

Waning, Waning, Waning...

Markets spiked upward today right off the open and continued to push higher, while a look at the underlying foundation shows cracks galore.

Gold has hardly rebounded off its move lower yesterday, trading a relatively tight range today, searching for its next move.  The odds are still much higher that the next move in the metals is a downward one, coupled with another small surge in the USD to finish off this first leg of the USD mid-term bull market.

The strength of recent rallies is waning fast, as indicated by the new highs on the broader NYSE versus the S&P500 index.

Every time we have seen this particul pattern play out in the past, the subsequent declines have been at least moderate, the most recent one bieing in January and shaving 8% off the index's value in less than 4 weeks.  The declines have also been getting larger, just as the divergence and underlying momentum has.  Can I say for sure that this one is "the big one"?  Absoulely not - the probability was higher in January where the actual price movement was a highly terminal one coinciding with the end of long-term rallies.

Still, a new low could be made in the broad indexes over the next 2 months, on the back of dollar strength and this next development:  China and the majority of asian stocks seem about ready to start another good-sized move down, which could pull much of the world markets along for at least part of the ride with it.  China is going to have its own probmes in the very near future (surplus cash or not, anyone who argues that every dollar of the Chinese government's investments are not at least partially malinvested needs to pick up a copy of Human Action  by L. von Mises and tell me they agree with that presumption after a historical examination of the success of any form of government spending), with the possibility of a strong deflationary period to correct many economic maladies.  This could be a good buying time for the RMB, especially relative to so-called "commodity currencies", many of which are also looking fairly terminal and ready for depreciated optimism relative to the USD.

The US markets are due for either a several percent correction or a longer period of sideways consolidation to build up momentum.  We will see what impact the rising dollar (its pull on stocks seems to be minimizing) and falling Asian markets have on North American soil.

Keep your heads up out there.


P.S. the CFTC meetings are today and, much to the surprise of many avid gold investors who emailed me over the past few days, gold has not jumped $50.00 in price at the mere thought of short-covering.  If restrictions are put in place they will take some time to be enacted, and furthermore, according to historical market psychology, they will be put in around a time that should mark a long-term bottom in gold prices, and will make an excellent reinforcing indicator to start accumulating larger quantities of physical metal.


Today's rapid push back down in the broad markets form a potential kangaroo-tail point for the markets to reverse down over the next several days.  Initial support is at 10,700, with 10,450 - 10,525 acting as an ideal retracement point.  There should be one more push upward once this correction is complete, to mark a terminal pattern in the rise from March 2009.  However, the impulsiveness and breadth of this decline are extremely important for measuring the mid-term direction of the market, as the commodities, precious metals, and also the Asian markets have turned down and made lower highs.  

This is a major non-confirmation when taken in the context of explosive credit growth which led to virtually every market topping at roughly the same time in 2007 (within months) and the CRB index following very shortly afterwards - once they all turned down decisively, the major bulk of the bear market move was underway.

Although it still appears that the bias once this correction is over will be to the upside, we will have more information once it is underway to see whether this is just a small turnback to rattle the bulls, a sideways consolidation to build momentum for another surge, or the start of something bigger to the downside.


  1. Derek, I agree with much you have said but wonder about gold dropping much even in a deleveraging environment. Commodites may drop along with stocks but that one commodity, gold, is "cash" supreme. Do you think most will run to gold "cash" rather than the fiat dollar cash? Silver is tied to gold as money but also a commodity so I would think that perhaps it might drop to a wider AU:Ag ratio again.

  2. Ask yourself, who in their right mind would be BUYING at these prices, in these economic conditions, at this time of the year, and in such strength as to push the market up, and up?

    We are seeing a alow bear squeeze on a large scale, nothing more, nothing less.

    Every short is a BUY, it is NOT a SELL.

    It has to be dragged out to let the large holders unload. They work together like 'ringers' at an auction so that they don't trample each other as they exit.

    As for gold, the mines generally lead the gold price, with the juniors at the head - and that applies whichever way it is heading. Nothing guaranteed, but that is generally the way it goes.

    So if the mines are not responding as they should to the gold price (either way), then be concerned enough to pay attention as to what this may be telling you.

    The large gold dealers are still asking me in their expensive TV advertising to sell them my gold.

    Why, if the price is going to fall dramatically? If anyone knows the score, and is backing it with their own money, they do. Or that is the way I read it because it fits logically. But we must accept fluctuations, and some wild ones, on the way up.

    The only fundamental that moves markets, certainly in the short term (and I don't mean just a few months), is PERCEPTION. That means where the mass have been conditioned to perceive how things are, not how they really are.

    'Reality', unless you are one of the privileged few on the 'inside' who make the 'reality.' can only be apparent when viewed long term which is usually a retrospective view.

    You cannot manipulate reality, only the perception of reality, until the true reality shows up.

    REALITY, TRUTH, LOVE, such vague, misused words that so easily roll of the tongue. intending to be meaningful, and impress the naive. What can they mean in a world so governed by the virtual..

  3. re ray's post,thanks, enjoyed your insights! thanks to derek also for allowing these posts!

  4. Mining stocks underperforming past days, indicates further downside:

    Also agree with Derek, that after this dip and one more push to the upside, so far the charts say the possibility of a dip to $900 - $950 remains significant. We should know more after this current dip is complete.


  5. Every single one of DB's chart fantasies has turned harder and faster in the opposite direction than the previous. Just take what he says to be a nearly perfect forecast that the opposite will happen. Call it the DBFactor. Just DO the OPPOSITE of the DBFactor and you'll survive.

  6. "...and you'll survive"

    We are all dying and decaying. It is a fact of nature. The concept of "accumulation" is guaranteed failure. The only point in saving, is for production and spending. You are supposed to save in order to enable someone else to produce and spend, because they need it more than you do.

    The point is that gambling, greed, insurance, and accumulation are failure oriented because they are in denial of reality.


  7. Prepare the coffin for the Euro:

  8. ".....Wonder how long it will take for the markets to figure out that Greece will have to borrow at too high of interest rates, and thus the Euro has just been destroyed. The Euro has now changed from a currency union to welfare state union, and this spells doom for the Euro....."

    The above is a quote from the link given in the previous post.

    I regret to say that nothing could be further from the truth. This stems from someone who feeds his knowledge from the US media.

    The US media hype which is a powerful tool of the 'establishment' - not to be confused with the US 'puppet' (elected), government, will seize and distort any event, or perceived problem outside its borders that will deflect the people's attention from those at home.

    Do not focus on the EU's problems, there will be more as it matures. Focus on how they are effectively resolved. It is building strength from cohesion as it goes along.

    The ultimate aim has always been to eventually, bring the Euro, and the US dollar to around parity. This will be achieved, almost certainly, by bringing one down, and the other one up.

    (There is a plan. Nothing happens by chance)

    The media has one raison d'etre - to confound the people, and to remove their power of reasoning (what little they have left). And it does an excellent job.

    And that is one lesson you should all drill into your skull. To not heed this is dangerous to your health, and wealth.