Thursday, July 29, 2010

Did the Market's Corrective Pattern Top Out Today?

I have been warning investors for many months now that this market is going to suck in the maximum amount of long participants before beginning its larger-scale decline.

Today's gap-up from the open was a very high probability exhaustion-gap which carried the Dow to a new intraday recovery high.  From that point on, prices started falling immediately and the movements look extremely impulsive.  This indicates that a new trend has developed.  Chances are, the correction going all the way back to June 8 is complete, leaving huge potential for downside all the way into Dow 8,000.

Gold, silver, and the stock market have been moving in a high-correlation lately, and with gold's turn down from all-time highs to rapidly break down from its rising trendline, it appears likely that a minimum target of $1000.00 / oz gold could be met sometime this fall.  Silver's initial target is $14.00 / oz with larger bearish potential as time goes on.

Another fantastic trading opportunity is in oil, which we recommended a short position on several months ago at $86.00 / bbl - Crude's downside potential is into the $50.00 / bbl range which makes this an extremely high-profit short potential.

The Bottom Line:  Virtually ALL asset classes without exception should decline in tandem as the next phase in the credit contraction gets rolling.  The USD also appears to be either just completing its multi-week correction or within days of doing so.  Once this trend reverses watch out.  Gold and silver are not an exception to this rule and they should decline in tandem with stocks, commercial paper, and other commodities.

While central banks around the world have beent trying, and will continue to try, to pump liquidity into the system and inflate credit markets, this activity has exhausted all their ammo and will soon exhaust their credibility.  This is a positive for the future as massive deflation will destroy many "wise" central bank balance sheets - these cartels have left themselves exposed 100% to current market forces and foregone the usual safe-falls.

The question might just be:  Who will bail out the Fed? 

The coming market behaviors will be one for the history books.  Make sure you have your cash safe (keep a significant reserve OUT of banks), and for investments are purchasing the safest cash equivalents in USDs.  When there is actually a real chance of inflation you will read about it here and the investment strategy will change to ensure that purchasing power is retained.  Until then, deflation is the name of the game and many will be taken by total surprise.

Make sure you aren't one of them.

Have a great week, and enjoy the summer days.

Derek Blain.


  1. This call for a breakdown makes sense also with the end of earnings season and no more smoke and mirrors to hold the market up.

    Your oil call appears to be based on bear flag technical chart, yet surprising since logic would suggest increased demand and therefore prices from chindia and less deep water drilling to crimp supplies, while the US suffers deflation.

    I would like to see your thoughts on gold and silver with some chart thoughts. I have been hoping for a pull back in silver to 14.50 this summer,( I have big orders in that range) sounds like you think it will take longer maybe fall or winter? and go lower, well below 14? This happened to me the last time silver crashed fall 08. I got long on the way down and went all in at 14 and paid extreme margin calls as it went all the way down into the 8's.

    I am ready for the fireworks show!

  2. I to am interested in your time line for the decline in silver and gold. I was one of those who luckily sold out at 21.50 a couple of years ago but then went long at 17.00 only to watch it go to 8.00. I was out at 19 again and am currently in cash waiting for the decline.
    Thanks, good to see you writing again - hope all is well.

  3. "Who will bail out 'the Fed'. A vexed question. It indicates naivety in who controls all central baks, and 'the Fed's' place in the system.

    This does not need me, or anyone to tell you. You have all been told by what has been happening over the past year (if you failed to notice before)

    None of it could have happened internationally without a 'hand rocking the cradle. If you fail to see this, then stay out of investing, you will continue to lose.

    You CAN win, at least avoid losing too much, if you accept the 'golden rule' of all golden rules - 'Those who control the gold make the rules.'

    Nothing will change this - it hasn't over thousands of years.

    Yes gold will timble a little more with the rest of the market but it will recover very quickly and will be the market to be in.

    Gold's day has yet to come. So far, it has been a warm up. Oil and gold are inter-related. I have previously explained why.

    Have a nice day.

    (Sorry for any typos I am on a 'foreign' computer as I am on vacation.)

  4. Derek, how is the best way to play the change in the price of oil? I put in an order for call options on DUG (ultra short oil) Oct 16th $59 strike. This should give enough time for oil to have a move down. Any ways you are playing it that you would care to share? I can't seem to muster the fortitude to short any metals. I have however sold some positions to free up cash for when or if we get a good correction in silver.