Sunday, August 29, 2010

Remember, Remember, It's Almost September

September is historically the worst month for the stock market. The stock market internals continue to weaken and I am keeping my crash helmet on for now. A few fractals in terms of September fireworks follow for those with a current bearish inclination towards equities like myself. First up, 2008 in the S&P 500 ($SPX):

Next up, 2001 in the S&P 500:

Or, an example from way back in 1946 (copied from chartsrus, a great site):

I think ol' Uncle Buck has a fall surprise in store for U.S. Dollar bears (again) and I think this will cause almost all asset classes to fall in a brief deflationary type drop. I am ready with cash, hoping to pick up some Gold miners on sale. My target level remains 40 for the GDX ETF and I expect to get there in the next 1-2 months. I think a disorderly move down in stocks is coming when "Wall Streeters" get back to their desks after Labor Day.

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Thursday, August 26, 2010

Secular Chart Porn - The View From the Top of the World

The global equity market world, that is, using the Dow Jones World Stock Index ($DJW) as a proxy:

The global stock markets of the world are going to be much lower a year from now. For the intermediate term, get short or get into ultra-safe cash equivalents (i.e. physical Gold) in my opinion. Ben Ber-spank-me and all his digital soldiers can't keep this Hindenberg afloat. We are in a classic secular equity bear market and the bell at the top rang during the "flash crash" in May. It's a long way to the bottom regardless of your opinions on the FOREX/fiat currency swings (ask Europe if a rapidly depreciating currency stopped their crash in 2008).

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Tuesday, August 24, 2010

Nikkei Breaks Down

The Japanese Nikkei stock index ($NIKK) broke important support today. Here's the chart, which shows it better than I can tell it (18 month daily candlestick plot):

And for those who think technical analysis is worthless, I ask how many fundamental analysts have had the same track record as the 200 day moving average for the $NIKK over the past 18 years:

The last chart I highlighted with a similar important breakdown was Ireland (see recent post here and older post on Ireland here). Ireland's stock market (using $IEDOW as a proxy) was down over 6% today, so don't think what happened today in Japan's stock market isn't important.

Gold had another great day while Gold stocks had another lousy day. I continue to wait patiently to get my greedy hands on some Gold stock indices at a lower price. In the mean time, I remain long physical Gold and heavily short the stock market. The next few days have the potential to be quite interesting...

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Friday, August 20, 2010

Ireland - First PIIG to Break Down

As the disintegration of paper continues, leaving shiny Gold holders with their wealth intact, it looks like Ireland is leading the so-called "PIIGS" into the next leg down in the bear market (see prior post here). This morning, it's stock market broke below it's spring lows.

Here's a 60 minute intraday chart of the action of the past 6 months in the Ireland stock market (using $IEDOW as a proxy):

Fellow squiggle watchers on this side of the Atlantic are making a mistake if they think this isn't relevant. The panic will likely again come out of Europe, which may cause another nasty round of deleveraging in equities and cause the U.S. Dollar to do another zombie death rattle higher. This time, I think Gold holds the line better than in 2008 and I wouldn't be surprised to see it go higher (with potential nasty volatility along the way).

Greece is already at the March 2009 Armageddon lows and threatening to go deeper into the abyss. The rest of the world will follow. I am staying long physical Gold and short the U.S. stock market. The Dow to Gold ratio will reach 2 before this mess is over and we may go below 1 this cycle.

Though it may seem at times as though I am rooting for bad things, I am simply pointing out the natural cycle that mainstream media won't ever tell you about. We must cleanse the rot in the system before a new cycle of prosperity can begin. We have a long ways to go in the "cleansing" cycle when it comes to "traditional" financial assets like stocks and real estate. In the mean time, Gold will flourish and Gold stocks will provide a speculative vehicle for bulls seeking higher risk (and its associated higher potential rewards).

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Friday, August 13, 2010

Gold in a Bull Market, Stocks in a Bear Market

To me, the title is stating the obvious. To many, such talk is ridiculous. To paperbugs, Gold is a bubble about to pop and only stocks make you money over the long haul. To paperbugs, capitalizing the word "Gold" labels me a tinfoil hat wearer, while to me, capitalizing the phrase "federal reserve" (not federal and has no reserves) is blasphemy. How supremely ironic that everything the ex-American presidents Jefferson and Jackson warned of when it comes to central bankstaz has come to pass and yet their countenances grace the $2 and $20 federal reserve IOU-nothing notes.

I am short the Dow to Gold ratio. It was the easiest and best trade of the last decade and it has much further to go - we will reach 2 and we may well go below 1 this cycle. Paperbugs scoff at such a notion just as they did at the turn of the century, but they have been so wrong they should be ashamed to prognosticate and comment on anything financial.

If you listen to the staff at mainstream media outlets (i.e. General Electric is now a bankrupt financier dependent on government largesse for survival), you just might be a sheeple. Cramer says "buy" because if he didn't, he'd be out of a job. Ben Stein is ignorant and complacent because that's what he's paid to be.

Those who say the "stimulus" failed are as wrong as can be. It worked remarkably well in continuing the keiretsu fascist business model that now plagues the senior economies of the world. Corporations have stolen hundreds of billions from the taxpayer kitty and are ready to take more on the next market plunge - which part of success did I miss? At least China and Russia admit to central planning. Small businesses are screwed, which means Main Street is screwed. No small businesses, no real jobs. Government, Inc. is the only large corporation that is creating a significant number of "jobs" for people who actually live in America.

One can choose reality or not. Truth is difficult for most when it isn't rosy. I guess I am comfortable in being a bear. I am comfortable shorting America as a trade and investing in real money (i.e. Gold) during an economic depression. We can't possibly double dip when the first recession of this new economic depression/secular credit contraction/Kondratieff Winter never ended. But we can see lower real estate and stock prices. And we can also see lower commodity prices due to a weak global economy.

Gold is in a bull market. It is unequivocal on a long-term chart and anyone who says otherwise doesn't know how to read a chart. Period. You can call it a bubble if it suits your sour grapes, but the trend line has not been broken. U.S. government bonds are also still in a bull market, which is also unequivocal. How many Gold bulls feel comfortable with this latter comment? How many Gold bulls are comfortable with Exter's pyramid? Hyperdeflation and hyperinflation are not as far apart as many like to think. Ice first, then fire, as federal reserve notes will be the last major asset class to hyperdeflate relative to Gold (the past deflation of private, for-profit, fascist, IOU debt notes backed-by-nothing relative to Gold has been just the warm up).

It is the monetary system that is breaking down. For those who think such tumultuous times will bring higher stock prices, I say "maybe." Ask Europe if a rapid currency decline relative to the rest of the world has been kind to their stock market over the past few years. Gold is money. Fiat paper backed by unpayable debt is a secular illusion that will be corrected by this secular equity bear market, which is far from over. No, you can't spend Gold at WalMart (yet), but you also can't eat T-Bills without a lot of hot sauce and mustard (Gold is a delicatessen on the other hand).

Of course Gold will continue to go higher when priced in federal reserve notes during the current debt/credit collapse. Of course Prechter is wrong about what money you should be holding onto for dear financial life. The mainstream media wants you to be confused about what Gold is and so most are. Gold is a currency. Yes, it can rise during inflation, as can any asset (or any currency not being debased by apparatchik madness) during a generalized inflation. But during a secular credit contraction, confidence is lost in those who hold the reigns of power as well as those in the private business world. Where can one turn in such an environment?

Since we are already there (just not at the bottom yet for stocks or real estate), the answer is right in front of your eyes: Gold has outperformed fiat paper IOUs (whether Dollars or government debt), but fiat paper IOUs have outperformed stocks and real estate. Commodities are somewhere in the middle, but I wouldn't want to be worrying about peak resources just yet: global economic collapse has a way of slowing demand for raw materials and energy.

My positions are simple right now: long physical Gold and shorting the stock market. Right now, my interests lie with shorting the stock market, since my physical Gold just lays there, looking all shiny and what not while increasing in purchasing power every year like clock work. For those who scream confiscation, I can only give them a patronizing smile. More paperbug sour grapes for missing the boat. I would rather have a 99% tax on a gain than a 0% tax on a loss and I lost all my Gold in a poker game (to a Mr. Karl Denninger) if the confiscation order comes down from above.

We are in a perfect position for a stock market crash and Friday's action did nothing to mitigate this. Yes, we may not get the big move until October, but an unconfirmed Hindenburg Omen on Thursday straddled by two near misses on Wednesday and Friday should make any seasoned trader willing to consider the evil bear side salivate, particularly in light of the hard economic realities lurking behind the financial markets. Stocks are way over priced using traditional metrics. No, I am not talking about price to estimated future operating earnings and, yes, excluding mark-to-fantasy accounting - Japan tried this latter scam in the early 1990s to prop up their large banks and how's that working out for 'em? Even the stars are aligned correctly for a major bear market move!

I remain with Richard Russell, Arch Crawford and Ian Gordon on this one - a hard rain's a comin' to a stock market near you, so batten down the hatches.

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Thursday, August 12, 2010

The Summation Index RSI Indicator

Trading is difficult and the odds are stacked against you. Any edge you can get when trying to figure out when to buy or sell helps. I have found the RSI on the New York Stock Exchange Summation Index ($NYSI) a helpful swing-trading tool for this ongoing equity bear market, which I believe resumed when the "flash crash" occurred in early May. I am currently short the S&P 500 using December expiration puts on the triple bullish UPRO ETF.

Simply put, when the RSI on the $NYSI reaches the 80-90-ish level in a stock bear market, it is time to consider establishing short positions and when it gets to the 10-20-ish level, it is time to consider closing them out. No one indicator is perfect, but this is a good medium term (1-3 month time horizon) indicator in my opinion (I made it up, by the way - more free original technical research from your pal at Gold Versus Paper). A picture is better than my words, so here's this "indicator" in action during the 2007-2009 bear market (a plot of only the RSI for the $NYSI is shown with the price action for the S&P 500 [$SPX] plotted on top of it):

And here's a slightly easier on the eyes and brain chart of the past 6 months with the RSI for the $NYSI plotted above the main $SPX chart and the $NYSI itself plotted below:

We'll see if it works out this time. I will be adding more to my short position on the first decent bounce (i.e. when the RSI gets over 50 on a 60 minute intraday chart of the S&P 500).

Gold remains firm based on its safe haven status - it continues to act as a currency. I am expecting some short-term volatility (i.e. BUYING OPPORTUNITY!) but sleep very well knowing I have a strong core physical Gold position. I remain wary of Gold stocks over the short term, as they continue to act weak relative to the price of Gold (though they continue to show relative strength compared with general equities as expected) and because I am still expecting a stock market melt down.

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Tuesday, August 10, 2010

Calling the Top in Global Equities

Top-calling is a fun exercise as long as one doesn't take it too seriously. I have been black bile bearish on equities for several months now. I think the bear market bounce is over when it comes to global equities. Let me show you a 6 month 60 minute intraday chart of the Dow Jones World Index ($DJW), which I use to track global stocks in aggregate, thru the early part of today's action (see prior post regarding $DJW):

Now, this doesn't mean that the top is in for every individual stock market index in the world - far from it. However, no global stock market will be spared in the next global equity plunge. The U.S. Dollar looks like it is trying for a trend change here, which likely means it is time for "risk off" among the suit and tie crowd in New York (6 month daily chart of the UUP ETF as a proxy to allow me to chart this morning's action):

I am only partially positioned on the short side. If we get one more pop to the upside in the S&P 500, I will be shorting the $%#@!* out of it. I think Gold will hold up fine when one looks a few months ahead, but some volatility would be expected and normal if we get into another stock market crash, which seems entirely feasible and reasonable this fall. I will be looking to buy Gold stocks hand over fist if they plunge as I am anticipating.

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Sunday, August 8, 2010

The Unshakable Faith in Magic Market Wizards

I see what I think is the same faulty herd mentality developing in financial markets that hammered investors in 2007-2008. This is the belief that infallible bankstaz and bureaucrats can create price levitation in any and all asset classes at will. Not only that, but the success rate of these manipulative, magical wizards is so high that you shouldn't "fight the fed" to use one oft-quoted phrase.

Yes, there is market manipulation. Yes, it occurs in every market. Wall Street has never presented a fair game to retail investors since its inception. Nobody said the game was easy. If you don't want to play, buy physical Gold, keep quiet about it and store the physical metal outside the financial system.

However, the belief that the federal reserve is all-powerful or the plunge protection team won't let markets fall is beyond ridiculous. This magical belief in secret forces that control all markets will never go away, but it has become more acute recently. Everyone in the market is trying to manipulate it! The larger the player, the larger the influence. However, the larger players are also more easily trapped in their positions due to a lack of parties able to take the other side of the trade. Ask the Swiss central bank how well currency manipulation works when Mr. Market has other ideas.

The federal reserve and U.S. government failed to stop the biggest bear market in roughly 40 years during the 2007-2009 time frame despite throwing the kitchen sink at it. Does everyone forget that before the prior cyclical bear market picked up steam that financial firms were bailed out, the entire U.S. mortgage market was nationalized, the fed cut interest rates aggressively and short-selling was banned? The amazing response of some of those steeped in market manipulation lore is that the bear market was caused on purpose by the same organizations that used all their resources to prevent it!

If the bear market was caused on purpose by the fed and their Wall Street cronies like Goldmun Sucks (ticker: GS) and JP Whore-gan (ticker: JPM), why did GS and JPM fail spectacularly in the crash and need a bailout to survive? GS and JPM are only ongoing concerns right now because they were bailed out by the fed and government. This isn't fair, but it ain't exactly new in the history of financial markets and doesn't really suggest a pre-meditated crash (wouldn't GS and JPM have made billions shorting the market if they saw it coming/caused it?).

Please don't misunderstand what I am saying. I am not saying that the fed and large Wall Street firms aren't powerful. They absolutely are and they absolutely abuse their power and cheat, lie and steal. But financial markets have been rigged since their inception hundreds of years ago. This manipulation cannot change the primary trend.

The bear market is getting set to resume in my opinion. This opinion is based on technical and fundamental analysis. I may be wrong in my opinion, but if I am, I certainly won't blame it on market manipulation. And I won't blame it on "QE II" or some new government policy to make it illegal to pay your mortgage. If I am right on my market call, however, hopefully it will convince a few more market participants that central bankstaz and their respective governments and keiretsu financial firms are not all powerful.

In fact, I believe it is one the jobs of this secular stock bear market to reveal how truly impotent our "masters" are to stop the carnage partially caused by their prior reckless policies.The Dow to Gold ratio will reach 2 (and we may go below 1 this cycle) before the ongoing secular stock bear market is over and the magical wizards are powerless to stop it.

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Saturday, August 7, 2010

Gold and Bond Prices Up - Must Be a Kondratieff Wave Winter

I am a Gold bull. I believe we are in a Kondratieff Winter or secular credit contraction. This is a very different view than many Gold bulls have, which revolves around the theme of "U.S. Dollar goes to zero, Gold and silver go to infinity." De-leveraging is very different than heavy, persistent inflation as a secular theme. But anyone long Gold will be right regardless of their reasoning. I will be buying more Gold if it gets to the $1150 level.

My main focus right now is on shorting general equities, however. I think the next leg of the stock bear market is imminent. I think it will occur in the setting of a rising U.S. Dollar and falling commodity prices. Since many investors and speculators see Gold as just another inflation hedge like copper or oil, I believe they will dump their Gold positions, creating another short-term buying opportunity for me in physical Gold. I may be wrong, but I am in no hurry to buy more Gold now that I have a large, "strong hand," core position.

Secular lows in the yields for U.S. sovereign debt (i.e. world's senior economy) at the same time Gold is at secular highs does not fit into a neat "deflationist" or "inflationist" box for those who think in paper fiat terms, but it fits a Kondratieff Winter like a glove. I believe asset price deflation has been ongoing and rather obvious since 2000, but only when the currency used to "demonstrate" deflation is Gold. The debt-based global fiat system distorts the picture significantly.

Now, in any monetary system ruled by bankstaz and their lap dog governments, the way out of the predicament is simple: destroy the value of the currency. However, the time line for such a "managed" versus chaotic free market adjustment to the value of the currency is unpredictable. How can one say the complete destruction of the U.S. Dollar will occur before the year is over with a straight face? Japan proves that obviously unsustainable government debt can take quite a long time to manifest as a serious currency event. No, the U.S. is not Japan, but we're not Zimbabwe either.

Taking "a stand" on the inflation versus deflation debate is as useful as taking a stand on the Democrat vs. Republican issue. Obviously, inflation will always win over the longer term cycles when a currency is not fixed rigidly to Gold. But this does not help the trader or speculator. It is important to recognize what is in a secular bull market (Gold, U.S. debt) and what is in a secular bear market (general equities and real estate).

When the current cycle is over, Gold will have outperformed cash. Why? Because no matter what happens, the nuclear option will always be on the table and the worse things get, the more palatable it becomes. The nuclear option always works from the viewpoint of a government or banksta. What is the nuclear option? Currency destruction. Those who say you can't devalue in a global, anchorless fiat world are naive and lack imagination. A global "trade" currency, whether or not backed by anything tangible, would allow everyone to devalue in spurts and fits relative to this "trade" currency. Nefarious organizations like the IMF stand ready to take on the task.

Gold has been and will continue to act as a currency in this ongoing saga. It remains the currency of last resort and we are getting close to a time when that last resort will be used to do what Gold has always done: reset the monetary system (for better or worse). Gold is the strongest currency in the world because it is immune from (and benefits from) the nuclear option. Gold is my largest position because it is the only no brainer long term investment for the current cycle. The purchasing power of Gold will continue to rise as the secular credit contraction grinds onward and destroys the bloated prices of things sustained by debt in the prior cycle (e.g., common stocks and real estate).

These big picture themes keep me focused and are obvious on long-term price charts. However, such themes are no fun for the trader/punter that seeks to profit from shorter term swings. These swings have nothing to do with the fundamental long-term themes described above. Not recognizing the difference between short to intermediate-term technical swings/moves and long-term secular trends can cause one to lose a fortune when playing in the casino (trust me, I know).

I am not recommending a speculative approach at all, but I use such an approach with a portion of my capital. Most with excess savings would be best served by buying physical Gold, holding it outside the financial system and waiting for the storm to pass. Once the Dow to Gold ratio gets to 2 or less (we could go below 1 this cycle), selling most of one's Gold position and buying equities "for the long term" will make sense unless one is thinking in multi-generational time frames (i.e. keeping some family wealth in the form of physical Gold to be passed on to future generations without telling the tax authorities).

All the short-to-intermediate term charts I follow for trading purposes are now stretched and looking for a catalyst for another trend change. I am hoping to load up on shorts this week, but will only take the trade if the opportunity presents itself. Here are a few short-term charts with my thoughts. First, the copper to Gold ratio (using JJC:GLD as a proxy to allow intraday charting) over the past 4 months using a 60 minute intraday plot:

And here's a 6 month chart of global equities using the Dow Jones World Stock Index ($DJW) as a proxy (60 minute intraday plot thru Friday's close):

Following is a 3 year daily chart of the Gold ($GOLD) to commodities (using $CCI as a proxy) ratio thru Friday's close:

The anticipated upward move in the Gold to commodities ratio chart above is bullish for Gold stocks, but only in a fundamental sense, not a trading sense (i.e. a rising Gold to commodities ratio often occurs as Gold stocks are falling, at least initially). Gold stocks continue to lack leverage to the Gold price and I believe they will be transiently caught up in what I think will be a big move down in the world's stock markets. I continue to wait patiently for what I think will be a dramatic buying opportunity in Gold stocks within the next few months. I will be buying Gold stock indices hand over fist if senior indices decline about 20% from current levels (e.g., looking for GDX level around 40). This week, though, my focus will be on building a big equity short position primarily using puts on the triple bullish UPRO ETF that tracks the S&P 500.

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