Gold Scents

ARGUING WITH THE MARKET

2012-01-29T17:08:00.001-08:00

I figured out early in my career that arguing with the market more often than not ends up costing one money. If you are one of those people who are unable to change your mind, this business will almost certainly chew you up and spit you out. Never has that been more true than today.

Folks, we are in the middle of an ongoing currency war. That is creating investing conditions unlike anything most of us have ever seen before. There's a reason why very few money managers have been able to make any profits over the last year and most of them have lost money. That reason is an ever-changing investing environment.

As most of you probably already know my investing strategy is based around cycles, sentiment, a long-term bull market in precious metals, and a dash of technical analysis thrown in to help spot entry and exit points. Those tools give me a rough outline of what to expect going forward. I then place my trades based on the best odds for success. However, none of that excuses me of the responsibility to change my mind if the market tells me my expectations are wrong. It is precisely the ability to reverse direction 180° that enabled us to generate a 25% plus gain in the model portfolio during the last six months, despite being in a market that has confounded most professional money managers. Additionally, our portfolio has always been unleveraged with never more than 75% of capital invested at any one time. I daresay that, on a risk-adjusted basis, the SMT model portfolio has outperformed probably 99% of the money managers in the world.

As an example let's use my recent expectation for 2012 to be one of the worst years in history. First off, let me explain how I came to that expectation. To begin with, the dollar's three year cycle low was due to bottom in the spring of 2011. And indeed, it actually did bottom in May of 2011. Further, the stock market's four year cycle low is due to bottom in the fall of 2012.

Since most bear markets tend to last about 1 1/2 - 2 1/2 years it was reasonable to expect that the next bear market would begin as the dollar started to rally out of its three year cycle low. Low and behold what happened in May as the dollar cycle bottomed? That's right, the stock market started to collapse as deflationary forces began to push the dollar higher and asset prices down. Everything was unfolding exactly as our cycles tool had suggested it would.

However, in late November the markets started to deviate from our expectations. As the dollar continued to rally stocks began to decouple from the strong dollar. At this point one could either stubbornly hold on to their bearish outlook and lose money, or they could accept that the market was doing something different than what they expected, change their mind, and deal with reality as it is, instead of how they wished it to be.

The fact that the S&P wasn't doing what it should have been doing was the main reason I've been warning (pleading really) with traders not to sell short. This market should have begun the move down into a daily cycle low two weeks ago. The fact that it refuses to move down into that overdue correction is sending a strong message that something else is going on.

The inability to change one's mind when the market tells you that you are wrong is one of the toughest habits to break, but one that is absolutely necessary if you are going to make money in this business. For whatever evolutionary reason, human beings have a very hard time admitting when they are wrong, and an even harder time reversing their thinking 180° even after they know they're wrong. For the vast majority of traders it is less painful to lose money than it is to admit an error and reverse a trade.

In my previous post I went over my expectation for gold to move down into its daily cycle low along with the stock market. This should have corresponded with the dollar rallying out of its cycle low. On Wednesday morning everything was set up perfectly for this to unfold. Gold had formed a swing high and was beginning the move down into its daily cycle low, stocks were in the process of reversing back down through the coil, and the dollar had bounced off of the 50 day moving average and was holding strongly above support at 80, clearly in the process of putting in a cycle bottom.

However, as you can see from the chart all of that changed Wednesday afternoon on the Fed statement. The stock market reversed the early-morning weakness, closing strongly. Gold reversed dramatically, closing up over $40, and the dollar collapsed back down through 80 negating what would have almost certainly been a powerful rally out of that cycle bottom. One could either ignore what had just happened, thus exacerbating losing trades, or they could recognize that something fundamentally changed that afternoon and quickly get on the right side of the market.

That is exactly what we did. When the dollar reversed and gold started to rally we immediately bit the bullet on our long UUP trade, took a small loss, and reentered GDX. None of our tools (cycles, sentiment, or technicals) were predicting this. However, that still doesn't give us an excuse to ignore what had happened and quickly make the correct adjustment.

Bernanke didn't actually confirm QE3 Wednesday afternoon, but the market obviously perceived the Fed statement as a guarantee that QE3 is in the works. That has the potential to break the dollar's rally out of its three year cycle low and derail the expected move by stocks down into a four year cycle low later this year.

If Bernanke can break the dollar rally and get the dollar moving south again there is no way we are going to experience a deflationary bear market this year. In this scenario 2012 would be the beginning of an inflationary period, culminating in a dollar crisis at the next three year cycle low, due in late 2014. If this is what is about to unfold then we need to alter our expectations from a deflationary bear market to an inflationary bull market.

The four year cycle low for stocks, instead of occurring in late 2012 would probably get stretched out to late 2014. And the recession we should experience this year will be pushed out to 2013/2014 once inflation raises high enough to poison the economy.

The big question now is; did Bernanke break the dollar rally? Confirmation will come once the dollar finds its daily cycle low, and if the rally out of that low fails to move to new highs and rolls over quickly forming a new pattern of lower lows and lower highs.

If this scenario plays out then we can jettison the deflationary bear market hypothesis and begin positioning for the inflationary scenario which should culminate with a dollar crisis in late 2014. This scenario also has the potential to drive the bubble phase of the gold bull market.

A lot is riding on the dollar right now.

BROKEN DOLLAR

2012-01-26T06:15:00.000-08:00

It has been my theory that this year we would see one of the worst performances by the stock market since 2008. However that has always been dependent on Bernanke not being able to break the dollar's rally out of its three year cycle low. As of this morning the dollar has printed a failed daily cycle. More often than not a failed daily cycle is an indication that an intermediate degree decline has begun.

I have begged and pleaded with people not too short the stock market over the last several weeks. For one it's very hard to make money on the short side for the simple reason that markets move down differently than they move up. Now I'm going to give you another reason not to short the stock market.

If the dollar has begun an intermediate degree decline then we should see it continue generally lower for the next 7 to 10 weeks. If this turns out to be the case then we are not going to see any meaningful declines in the stock market during this period. As a matter of fact the risk is great that the stock market could enter a runaway type rally if the dollar has begun the move down into an intermediate degree bottom.

As you can see in the chart below the last runaway move in 2006 lasted almost 7 months.

Runaway moves are characterized by randomly spaced corrections, all of similar magnitude and duration. As you can see in the chart above the corrective magnitude in this particular runaway move was about 20-30 points.

Keep in mind we don't have confirmation that a runaway move has begun yet. We would need to see how the first correction unfolds. If it is mild and brief, followed by the market moving back to new highs, then the odds would escalate that a runaway move has in fact begun.

Another big clue will come when the dollar bounces out of its daily cycle low, which is now due at any time, and if that bounce fails to make new highs before rolling over. If that happens it will reverse the pattern of higher highs and higher lows and confirm that an intermediate decline has indeed begun.

The scary part is that this may also signal the top of the three year cycle. If so then we are looking at an extremely left translated three year cycle that should generate huge inflationary pressures by the time the next three year cycle low is due in the fall of 2014.

It has been my expectation that we would see another deflationary period in 2012 before the cancer infected the global currency markets. As of this morning I'm not so sure that process hasn't already begun and the deflationary period has been aborted. Bernanke may have broken the dollar rally yesterday.

If this scenario unfolds it has the possibility of generating the bubble phase of the gold bull market. I elaborated on this in last night's premium report.

I am currently still running the one week, $10 introductory offer for the SMT premium newsletter.

HAS GOLD'S D-WAVE BOTTOMED?

2012-01-17T07:44:00.000-08:00

It seems like most analysts, and gold bugs are now assuming that the reversal on December 29 marked the bottom of golds D-Wave decline. It's certainly possible that we saw a bottom two weeks ago but it's still too early to make that assumption. Gold, and most assets are about to be severely tested. How gold handles that test will be a big clue as to whether or not the correction is over.

What many analysts are overlooking is the impending daily and intermediate cycle correction that is coming due in the stock market. When the stock market moves down into a cycle low, especially an intermediate cycle low, it generates a tremendous amount of selling pressure. Invariably that selling pressure bleeds into virtually every other asset class, even gold, as you can see in the chart below. Over the last two years there were only two daily cycle corrections in the stock market where gold was unaffected (I've marked them with green arrows).

The stock market is now in the timing band for a move down into a daily cycle low. As you can see in the chart below those tend to occur almost like clockwork about every 35 to 40 days. As of Friday the stock market was on day 33. On top of that we have a larger intermediate degree cycle that should bottom sometime in March/April. The selling pressure generated at an intermediate bottom is much more intense than a mere daily cycle low. That means sometime around the middle of March or early April things are going to be looking pretty bleak. My best guess is at that time interest rates will be spiking in France and maybe the UK (along with all of the other countries that are already having debt issues).

It's late enough in the daily cycle that there is a good chance the market began that move down into its daily cycle bottom on Friday, despite recovering most of the sell off before the close. I say that because we have a coil pattern playing out in the stock market.

Contrary to what most people believe, the initial break out of a volatility coil is usually a false move that is soon followed by a much more powerful and durable move in the opposite direction. In our case the volatility coil broke to the upside and by Friday it was already trying to reverse. Once the stock market moves back through the coil zone it would be very unlikely to recover those levels until after the next intermediate degree bottom, which like I pointed out isn't due until March/April.

Sometime in the next 4-8 days we should see the stock market break its cycle trend line. It's very rare for a move down into a daily cycle low not to break the cycle trend line. So for our purposes I think we can probably assume that it will.

If the stock market just retraces 50% of the daily cycle advance (assuming 1297 is the top) then we should see a pretty hefty sell off in the next week or two.

That kind of selling pressure will almost certainly have some affect on gold. If the D-Wave is still in progress it's going to have a sharp affect on gold, probably forcing gold back below the $1523 December bottom. How gold handles the stock market moving down into its daily cycle low will give us a big clue as to whether the D-Wave has bottomed or not.

And even stiffer test is going to occur as the stock market moves down into its intermediate bottom in March/April. If gold can't hold above $1523 as stocks move into a daily cycle low then it is going to get driven much lower during the intense selling pressure that will be generated when stocks move down into a larger degree intermediate bottom.

A couple of things to keep in mind.

The last C-wave was the greatest in both magnitude and duration of the entire secular bull market. Is it possible that a 2 1/2 year, 100%+ rally can be corrected with only a 38% retracement in four short months?

There is also the problem with the last intermediate cycle in gold running very short at only 13 weeks (normal duration is about 20-25 weeks). More often than not a short cycle is followed by a long cycle that evens out the next larger cycle. In this case the next larger cycle would be the yearly cycle.

If December 29th did mark an intermediate bottom then we would've had two intermediate cycles of only 13 weeks each. A short cycle followed by another short cycle is a pretty rare occurrence. In this case exceptionally so because the yearly cycle low isn't do until February/March. If I take into account nothing else I would have to assume that gold still has about 5 to 6 more weeks before the final D-Wave and yearly cycle low are formed.

That doesn't mean that gold has to drop a considerable distance below $1523. If it does turn out that gold continues lower into a more normal intermediate timing band I doubt that gold would move below the 50% Fibonacci retracement level, which is at about $1400. That also corresponds with the extensive consolidation zone in the summer of 2010.

One other thing to consider is the powerful correlation of a stronger dollar whenever the stock market moves down into a cycle low. We should continue to see the dollar spike higher over the next couple of weeks as the stock market drops down into its daily cycle trough, followed by a much more powerful rise during the intermediate degree decline due later in the spring. As you can see in the chart below gold has had little ability to resist a rising dollar.

So unless you think that the stock market will never drop down into a cycle low again, or that the market and the dollar will drop simultaneously (very unlikely), then gold is going to be severely tested as the dollar spikes sharply higher during the next few weeks and months as the stock market works its way down into first, a daily cycle low, and then a much more serious intermediate degree correction.

Right now investors need to be on the sidelines while we wait to see how gold handles the stock market's move down into its daily cycle low. If gold can hold above $1523 while the stock market suffers what is likely to be a rather sharp correction then the odds will improve dramatically that the D-Wave did in fact bottom in December.

If however gold follows the stock market down and breaches that $1523 pivot then the odds are very high that the D-Wave is still in progress and will not bottom until late February/mid-March.

I am currently still running the one week, $10 introductory offer for the SMT premium newsletter. Since we should see the stock market form its daily cycle low sometime in the next 1-2 weeks now would be a perfect time to sample the newsletter.

THE PARTY MAY BE OVER!

2012-01-06T07:24:00.001-08:00

About it every 35 to 40 days we get a major profit-taking event occur in the stock market. In bull markets that's all it is, a profit-taking event. In a bear market it is a resumption of the cyclical downtrend triggered by deteriorating fundamentals. It still remains to be seen whether or not stocks have rolled over into another cyclical bear market.

However we are entering the timing band for one of those daily cycle corrections. It's not unusual to see this begin as a profit-taking event on the employment report, as we enter earnings season.

As long as earnings season meets expectations then that is all this should be, just a profit-taking event. However, if earnings season disappoints then this could intensify significantly. If in addition we start to see stress in the European debt market escalate it would magnify the rally in the dollar increasing the downward pressure as stocks begin the move down into that cycle low. Let's face it the problems in Europe aren't going away. The cancer in the debt markets is going to continue to chew its way up the sovereign food chain until it finally reaches the US bond market.

The fact that the dollar has consolidated for several weeks above the double top breakout is a strong sign that another powerful leg up is beginning.

Even more concerning for the bullish case is the fact that the next daily cycle should roll over into a much larger degree intermediate decline. That would almost certainly power another leg higher in the dollar and depending on how severe the stress has become in Europe we could see the October lows tested, and even broken if this is a new cyclical bear market.

The kind of selling pressure that is generated at daily cycle lows and especially during an intermediate degree decline effects every asset class to some extent. Gold will be no exception. This is why I have been warning people to wait for the daily cycle low to form in stocks before jumping heavily into precious metal positions.

Gold may or may not have put in a final D-Wave bottom last week. But there is a good chance that bottom is going to get tested in the next couple of weeks. And then of course we will have to contend with the selling pressure as stocks move down into their intermediate degree decline in February and March. That could conceivably drive gold back down below $1523, although I think any dip below that level will only be marginal and quickly recovered.

Right now patience is the name of the game until the stock market has formed a daily cycle low which is due sometime in the middle of January. Cash or a modest position in the dollar index is safest bet for the next couple of weeks.

GOLD'S D-WAVE CONFIRMED

2011-12-29T06:17:00.000-08:00

With the move below $1535 this morning gold has confirmed that it is still moving down into a D-Wave bottom. There has been some question as to whether or not the D-Wave had bottomed in September. The penetration of that intermediate low this morning confirms that the D-Wave did not end during the overnight selloff on September 26.

In the chart below I have marked with blue arrows the last several yearly cycle lows. As you can see they tend to occur in January or February. The timing band for the next cycle low should occur sometime in early to mid January. That should mark the bottom of this D-Wave decline with the slight possibility that there could be one more short daily cycle down, bottoming in early February. This will almost certainly be dependent on whether the dollar cycle has one or two more daily cycles higher before rolling over into an intermediate decline. Current sentiment levels on the dollar index are suggesting only one daily cycle higher, which should signal a final bottom in the gold market sometime in the next 2-3 weeks.

If gold can make it back to the 50% retracement in the next couple of weeks I would probably be inclined to call a yearly cycle low at that point. If however gold holds above $1500 at the next daily cycle low due in early to mid-January then I would be wary of one more daily cycle down to test the 2010 consolidation zone and 50% retracement ($1400) sometime in early February.

The combination of the dollar rally out of its three year cycle low, gold's yearly cycle low, and a D-Wave decline are going to produce a very sharp correction in the gold bull market. Before this is over most analysts will declare the gold bull dead. On the contrary, sometime early next year you are going to get the single best buying opportunity we will ever have to reenter the secular gold bull in preparation for the bubble phase that should top in late 2014 or early 2015.

As a matter of fact, now that we have confirmed that this is an ongoing D-Wave decline, once its bottom has formed it will generate a violent A-wave advance that should test the 1800 the $1900 level rather quickly later this spring.

Serious money will be made during the A-wave advance. One just needs the patience to wait for the D-Wave to bottom before jumping back into the pool.

GOLD IS ON THE VERGE OF MOVING INTO THE BUBBLE PHASE OF THE BULL MARKET

2011-12-15T17:38:00.000-08:00

I know that during a correction of the magnitude we are seeing right now it seems more like the gold bull is dead than on the verge of moving into what I expect will be one of the greatest parabolic moves in history.

However, all of the conditions necessary to launch the bubble phase are now in place. Gold is in the process of putting in an intermediate degree bottom. That bottom, which is only days away if it didn't already happen today, is going to be the single greatest buying opportunity, probably of the decade.

Gold sentiment is at multiyear lows. Retail traders that bought at $1900 have gotten wiped out. The media is full of stories calling for the death of the gold bull. Institutional traders from John Paulson, George Soros, and Dennis Gartman have all gotten knocked off the bull.

Breadth in the universally hated mining sector is back down to levels that have only been exceeded during the crash in 2008.

This sector has consolidated for so long that no one believes in mining stocks anymore. This is exactly the same sentiment that was prevalent in the silver market in the fall of 2010.

All the conditions are in place to launch the next stage of the secular bull market.

Up until now my expectation has been that we would see gold consolidate for probably the better part of a year before the next C-wave breaks out to new highs.

However, the scenario that is unfolding in the CRB and dollar indexes has me wondering if the gold bull isn’t going to start evolving much faster than I originally expected. Let’s just say that if I am correct and the dollar is on the verge of topping then we are probably going to see a much shorter consolidation than originally expected. Gold could launch much more quickly out of the B-Wave bottom than I expected and move to new all-time highs as early as the next intermediate cycle.

As a matter of fact I’m pretty confident that if the dollar turns down it is going to trigger the beginning of the third and final, bubble phase, in the gold bull market.

The public is already starting to become aware of the gold bull. All we need at this point to start the flood is for gold to recover quickly from this selloff. If gold quickly shoots back up and tags, or penetrates that big psychological $2000 number I expect it will be the siren call that draws the public into the bull market. And it is the public coming into a market that triggers the bubble phase.

During this phase of the bull I expect we will see the normal ABCD wave pattern break down as gold starts to accelerate into what will almost certainly be the most incredible parabolic advance, maybe in history. By the fall of 2014 I expect we will see gold somewhere between $7,000 and $20,000 an ounce.

I think tonight's premium report is important enough that I'm going to reopen the $1 trial subscription for two days. You will have access to the entire site for the next two days for the price of one George Washington. You can either keep your subscription and it will convert to a monthly at the end of the trial period or cancel it and you won't be charged another dime. Either way you will get access to a report that I think is important for every gold investor to read.

If you decide to cancel do so by following the directions on the home page of the website. Please allow one day to process your one dollar payment before canceling. Click on the link above to go to the premium website and then click the subscribe link on the upper right side to link to the subscription page.

Offer only valid for new subscribers. Former subscribers or previous $1 trial subscriptions will auto charge at the monthly rate.

The $1 offer has expired.

WEEKEND REPORT

2011-12-10T10:35:00.001-08:00

I think this weekend's report is probably one of the most important reports I've written for gold traders and investors as to what I think is in store the next couple of months.

I'm going to make the report available over the weekend for $1. Actually you will have access to the entire site for the next two days for the price of one George Washington. You can either keep your subscription and it will convert to a monthly on Monday morning or cancel it Sunday night and you won't be charged another dime. Either way you will get access to a report that I think is important for every gold investor to read.

If you decide to cancel do so by following the directions on the home page of the website.
Click on the link above to go to the premium website and then click the subscribe link on the upper right side to link to the subscription page.

THE OFFER HAS NOW EXPIRED

THE SECULAR BEAR MARKET AND GOLD'S A-WAVE ADVANCE

2011-11-24T08:44:00.000-08:00

I have decided to post the weekend premium report to the blog this week. In this report I'm going to take a look at what has transpired and what is likely to come, as the third leg down in the secular bear market begins to intensify.

Back in April of this year I warned investors to get out of stocks in their 401(k) accounts. At the time the dollar was moving into the timing band for a major three year cycle low. It has always been my expectation that the rally out of that major bottom would correspond with the stock market moving down into the third bear market leg of the secular trend that has been in place since 2000. As we now know the dollar did bottom in May of this year and that did correspond with the top of the cyclical bull market that began in March of 2009. It has also been my expectation that the next four year cycle low would occur in the fall of 2012, and that 2012 would be one of the worst economic years in human history.

This is already starting to unfold across the globe as social unrest that began in the Middle East has spread to Europe and now the United States. Economic data has been steadily eroding for months now. We should expect this trend to continue and intensify as we get into 2012.

As most of you know I use cycles and sentiment analysis to determine likely timing bands for major turns in the stock market, gold and the dollar. This is what allowed me to anticipate a bottom in the dollar cycle at a time when everyone was expecting the dollar to collapse, and a top in the stock market when everyone was bullish and expecting a move back to new highs.

An interesting development in the yearly cycle for the stock market has now emerged. Generally speaking most yearly cycles run about 12 months, trough to trough. However, the Fed's quantitative easing programs have stretched the yearly cycles from March 2009 into June of 2010, and this year the yearly cycle has stretched again to arrive in October. The market is now set up for the next yearly cycle low to occur in the fall of 2012 which, not surprisingly, is exactly when I have been expecting the next four year cycle low in stocks to bottom.

I have also indicated the expected timing bands for the next three intermediate degree cycle lows. For reasons explained in the nightly reports I don't think the current decline is going to move below the October low. I expect we will find a bottom sometime in the next 1-4 days followed by a Santa Claus rally into the middle of December.

If the market avoids making a lower low it will embolden the Bulls to continue holding long positions. Their hope for a miracle will be misplaced though as the market will almost certainly begin to roll over before making higher highs and by the next intermediate degree bottom in February/March we will see the October lows broken, and the summer 2010 lows tested.

The recent rally out of the October low will undoubtedly prove to have been the most powerful countertrend rally of this bear market. Any further countertrend rallies (and there will be several) are likely to be short-lived and weak. The window of opportunity for these long side trades is probably going to be too brief for the average investor/trader to successfully trade. From this point on investors should keep 401(k) accounts solely in money market funds until we reach the bottom sometime in the fall of 2012.

This brings us to the topic of gold. Despite what is happening in the stock market gold is clearly still in a secular bull market. That being said the days of easy money from the gold bull are probably over for the next year as stocks move down into their four year cycle low. In the chart below you can clearly see the affects QE1 & 2 had on the gold bull.

The QE programs drove the largest C-wave advance of gold's entire secular bull market. However, and for reasons I will explain below, I think the C-wave topped in September and gold is now going to enter an extended consolidation phase for the next year.

That begs the question if the C-wave has topped then where was the D-wave? Well, I think we just saw it in September. Let me explain.

Because of the massive liquidity floating around the world I now think the D-wave terminated with the overnight spike down to $1535 on September 26. I'm now seriously considering that the last D-wave was exceptionally mild because of the extreme global liquidity. If that is the case then gold has now entered an A-wave advance. As most of you know A-waves don't tend to make new highs. So my best guess is that gold will test the $1900 level sometime in the next three weeks followed by an extended corrective move down into an intermediate degree bottom in February (B-wave). That bottom should hold above the $1535 level. What should then follow will be a year-long frustrating and whipsawing consolidation that should terminate slightly before the stock market bottoms in the fall of 2012.

At that point gold will start to sniff out the next round of massive quantitative easing as the Fed and central banks around the world go into full panic mode and begin printing unimaginable amounts of money in the attempt to halt the global sovereign debt implosions and economic depression that will have developed.

As usual central planners will not account for the unintended consequences of their actions. This time quantitative easing is going to have the opposite affect that it did in 2009. Yes, it will put a bottom in stocks, at least temporarily, but it is also going accelerate the cancer that has now infected currency markets. And as currencies start to collapse so will global bond markets. This is the recipe for the final bubble phase in the gold bull market.

While gold is in this long consolidation phase/bear market phase for stocks, trading strategies will be vastly different than they were during QE1 and QE2. Trades are going to be shorter and there will be long periods of time where the correct strategy is to just sit in cash. I started to make the transition to this new trading strategy back in July. The recent breakdown in stocks has now eliminated any reservations I had about the bear market. With that confirmed, there is little doubt that gold has now entered an extended consolidation and that new trading strategies are called for.

Make no mistake; we are now entering what will be one of the toughest markets ever to make money in. So far the model portfolio is performing admirably even in these tough conditions.

For anyone who would like to sample the nightly premium newsletter, I have opened a $10 one week trial subscription. You will have full access to the SMT premium website including all historical archives, model portfolio, and terminology documentation for a full week. If during the week you decide the subscription is not for you, or the shorter term trading strategies don't suit you emotionally, then simply cancel your subscription by following the directions on the homepage prior to your week expiring. If you do enjoy the newsletter then simply do nothing and your subscription will convert to a yearly membership at the end of the one week trial. Click here to link to the premium website. You will find the subscribe link on the upper right-hand side of the home page.

Interview with Kerry Lutz of the financial survival network

2011-11-19T18:13:00.001-08:00

Interview

HAS THE BEAR RETURNED?

2011-11-18T09:17:00.001-08:00

The recent market action has me wondering if the next leg down in the cyclical bear market has begun.

I always expected that we would see a very convincing rally out of the October yearly cycle low. I thought it even possible that we would test the 200 day moving average. Most bear markets do rally out of the initial leg down and test the 200 day moving average.

Recently the S&P made two attempts to close and hold above the 200 day moving average. They both failed. That was a loudly ringing warning bell.

As a matter fact every index, except the utilities, is now trading below its declining 200 day moving average, and that includes all the major European and Asian markets.

At the moment my concern is that the market is now moving into the timing band for a major daily cycle low (due in the next 5 to 10 days). The current daily cycle is left translated (topped in less than 20 days). That is relevant because most of the time left translated cycles move below their prior cycle bottom. The last cycle low occurred in October at 1075.

Now I'm not suggesting that the stock market is going to crash below 1075 in the next 5 to 7 days. However the S&P has broken below the 1220 support zone. When support was broken in July it led to a seven-day 17% crash.

I don't know if breaking of support this time will lead to another climax selling event or not. I do know that the market is now in the timing band for some serious selling. And, this is beginning to look like a counter trend rally in a bear market that is in the process of topping. If that's true then we are in the period of time when the next leg down should begin.

Confirming this is the fact that the dollar index has rallied back above its 200 day moving average and completed an intermediate cycle bottom. The dollar index is currently on only the third week of this new intermediate cycle. Those cycles tend to run about 20 weeks, so there is potentially many more weeks of upside left before the dollar moves down into another significant correction, which presumably would drive the next bear market rally in stocks.

The safest position at this time is to be in cash, and that's exactly what I did with the model portfolio yesterday morning.

DOLLAR TEETERING ON THE ABYSS

2011-11-13T18:43:00.000-08:00

We all better hope I'm wrong on this one, but I think the CRB just put in its three year cycle low in October. I'm also afraid that Bernanke has done irreparable damage to the dollar. If I'm right about both of those assumptions then we are on the brink of a historic inflationary period.

I've marked the major three year cycle bottoms in both the CRB index and the dollar index on the chart below with blue arrows. (Actually the CRB cycle tends to run about two and half years on average).

The dollar is now a great risk of forming a left translated three year cycle. A break below the October 27 intraday low would initiate a pattern of lower lows and lower highs of an intermediate degree. When the intermediate cycles start to roll over that is usually a sign that a major cycle has topped. If the dollar's three year cycle has topped after only five months we will be at great risk of a severe currency crisis in the fall of 2014 when the next three year cycle low is due. Even more concerning is if the CRB cycle has bottomed. If it has then commodities are poised for a huge surge higher during the next two years as the dollar deteriorates.

The next couple of weeks are going to be critical for the dollar. Sometime in the next two weeks the dollar is going to drop down into its next daily cycle bottom. On average that cycle lasts about 20 to 25 days. Monday will be the 12th day of the cycle.The reversal last Thursday has the potential to mark the daily cycle top. If that top holds then the dollar is at great risk of moving below the October 27 intraday bottom sometime in the next two weeks as it moves down into its next daily cycle low.

The dollar must hold above the October 27 low. Failure to do so would indicate that the cancer has now infected the currency markets, most specifically the US dollar. A penetration of the October 27 low would indicate that the current intermediate cycle topped in only two weeks. That should potentially lead to another 15-20 weeks of generally lower prices on the dollar index with the next intermediate degree bottom due sometime in early to mid March.

If that scenario plays out we are almost certainly going to see the CRB break its down trend line confirming a major three year cycle bottom has been formed.

The extremely mild nature of the decline so far is a serious warning sign that QE1 and QE2 are going to eventually trigger massive commodity inflation.

At this point all we can do is hope that the three year cycle in the CRB will stretch slightly long and bottom early next year. If it fails to do so and the major three year cycle low did occur in October, then we have some serious inflation heading our way in the next two years.

More importantly to precious metal investors, if the dollars three year cycle has already topped then there is a very strong possibility that the next two years, as the dollar collapses down into its 2014 bottom, will drive the bubble phase in the gold bull market.

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NEW INTERMEDIATE CYCLE CONFIRMED

2011-11-06T09:20:00.001-08:00

Gold has now confirmed that an intermediate bottom was set on September 26. The double bottom at $1600 is a powerful basing pattern that should generate a test of the $2000 level by sometime in December.

For reasons covered in the nightly reports I don't really expect gold to push much above the $2000 level during this particular intermediate cycle.

Also for reasons discussed in the nightly reports I think the mining stocks, which have been unloved for the last year, are probably going to be the recipients of most of the hot money during this intermediate cycle. Both silver and gold have already generated parabolic, or semi parabolic moves. I think it's time for a big rally in the mining stocks over the next four or five months.

D-WAVE ABORTED

2011-10-26T16:24:00.001-07:00

In my last post I hypothesized that the bear market in stocks had finally sunk its teeth into the precious metals sector. I was looking for a final move down into a true D-wave bottom, coupled with the HUI dropping down to test the 200 week moving average. I could not have been more wrong!

Instead gold formed a double bottom at $1600 and yesterday confirmed a trend change to a pattern of higher highs and higher lows.

As is usually the case the miners played follow the leader and reversed their downtrend also.

It is now clear that gold put in an intermediate degree bottom on September 26. The double bottom is a much stronger basing pattern then a V-shaped rebound and should launch a test of the $2000 level at some point during this intermediate cycle.

THE BEAR IS ABOUT TO SINK HIS TEETH INTO THE LAST HOLDOUT SECTOR

2011-10-20T17:21:00.000-07:00

At this point I think it's pretty clear the general stock market is now in the initial phase of a new bear market. It's trying to generate a bear market rally over the last three weeks, but so far it's been pretty weak. That doesn't bode well once the cyclical and secular bear trend resumes.

The HUI mining index is now on the verge of breaking down out of the multi-month megaphone topping pattern. Once it does that will confirm that the bear now has his teeth in the last holdout sector. The sector that led the bull market over the last 2 1/2 years and now the last sector to succumb to the deflationary forces.

As I have noted in the chart I do expect the miners will find at least temporary support at the 200 week moving average. That should correspond with gold putting in an intermediate degree bottom sometime in the next two or maybe three weeks. Presumably it will come with gold below $1535. My best guess is that gold will make an attempt to test the 75 week moving average at that intermediate bottom.

At that point gold should be severely oversold enough to generate a very powerful, snap back, A-wave rally. That should be followed by a multi-month consolidation as gold works off the huge gains of the last 2 1/2 years. This while the stock market continues down into its final four year cycle low.

I expect the miners will produce a substantial rally off the 200 week moving average also but I'm afraid they will continue to get dragged down by the general bear market in stocks even if gold does form a high-level consolidation over the next year.

So while I expect to see a great buying opportunity on miners in the next few weeks I doubt it will be a long-term type trade. That probably won't occur until the stock market puts in its final four year cycle low sometime in the fall of next year.

THE MOST IMPORTANT DECISION BERNANKE WILL EVER MAKE

2011-10-15T11:58:00.000-07:00

As many of you know who have read my work in the past, the dollar put in a major three year cycle low back in May. It has been my expectation all along that the rally out of that major bottom would coincide with another deflationary period and the next leg down in the stock secular bear market. So far this has been the case as stocks topped in May at the same time the dollar bottomed.

After a 15 week consolidation the dollar has initiated its first powerful thrust up out of that major bottom. As you can see in the chart below the rally out of a three year cycle low generally lasts at least a year and turns the 200 day moving average back up.

I've also noted that once the rally out of a three year cycle low rises above the 200 day moving average, it shouldn't dip back below that level, at least not for the next year to year and a half.

Sometime in the next few days the dollar will put in a daily cycle low and bounce. My expectation is that it will either bounce off of the 200 day moving average or bottom slightly above that level. It's what comes next after that bounce that is absolutely critical.

Bernanke is now about to make the most important decision of his life. The correct decision is to allow the dollar to appreciate, which in turn would continue to drive the stock market down into its next four year cycle low in the fall of 2012, and would facilitate a much-needed recession to cleanse at least some of the massive debt that has been accumulated in the last two years. That is the correct decision. It is also a very hard decision because it will lead to severe short-term pain and undoubtedly another depression on the same scale as 1932.

However if Bernanke chooses to kick the can down the road again and continues his failed policy of monetary debasement then the dollar is at great risk of forming an extreme left translated three year cycle.

For those of you that are new to cycles analysis, a left translated cycle is generally associated with a bear market. Left translated means that the cycle tops in the front half of its cycle timing band. In this case any top that forms prior to 18 months would signal a left translated three year cycle. Furthermore the more extreme translated a cycle is the more severe the decline tends to be, simply because the cycle has a lot more time to move lower.

If Bernanke decides to avoid short-term pain and kicks the can down the road again with further currency debasement, then the dollar is at great risk of having already put in the top of this three year cycle.
The unintended consequences of a three year cycle that tops in only four months are, to put it mildly, horrendous. That would indicate that the dollar is going to head generally lower for the next three years culminating in a hyper-inflationary event at the next three year cycle low in 2014.

The next couple of weeks and months are going to be of grave importance. The dollar needs to find support at the 200 day moving average and resume moving strongly higher. That would of course put pressure on the stock market and probably terminate the current bear market rally somewhere around the 200 day moving average (roughly SPX 1270ish) before the next leg down begins.

If however the bounce out of the now due daily cycle low is weak and the dollar rolls over quickly and moves back below the 200 day moving average then all bets are off. Stocks could even rally back to marginal new highs. However that would also guarantee that the CRB has put in its three year cycle low and we are now at the very beginning of an inflationary Holocaust.

If Bernanke makes the wrong decision then gold is on the verge of moving into the bubble phase of the secular bull market. That being said gold should still experience one more move down in the next couple of weeks as the dollar rallies out of its impending daily cycle low. After that, everything hinges on Bernanke's decision whether or not to continue his failed monetary policies.

THE BIG PICTURE

2011-10-13T17:12:00.000-07:00

More often than not we as investors get caught up in the day-to-day action and never take the time to step back and look at the big picture. Today I'm just going to post some long term charts with appropriate annotations.

THE LIGHT AT THE END OF THE TUNNEL.

THE 75 WEEK CEILING

2011-10-11T21:13:00.001-07:00

The 75 week moving average has been a very clear dividing line between bull and bear markets for the last couple of decades.

The S&P is on the verge of running in to that roadblock soon.

It's possible that the S&P could penetrate this level briefly, and possibly even rally back to the 200 day moving average (about 1250) before the bear market resumes. That being said I doubt the market will be able to penetrate this major resistance level on the first try, and it may even end up capping this bear market rally.

We already have three warning signs that popped up today that should make bulls wary. More in tonight's report...

GOLD AT A MAJOR CROSSROADS

2011-10-08T12:00:00.000-07:00

I think next week will mark a major turning point in the gold market. Depending on whether the dollar continues higher or turns back down we will either see a resumption of the D-Wave decline or this will just turn into a normal run-of-the-mill intermediate degree correction followed by another leg up in this 2 1/2 year C-wave advance.

First the pros:
The COT report has now reached a maximum bullish level on the commercial contracts. In the past this has always marked major bottom turning points.

Sentiment & breadth have reached extreme bearish levels (contrary indicator).

Chart courtesy of sentimentrader.com

It's possible that gold has formed a small T-1 continuation pattern (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.)

There is a small problem with this interpretation as the second leg of a T-1 pattern is generally slightly smaller than the first leg.

The cons:

The current intermediate cycle is too short. Barring a shortened cycle, which does occur rarely, there should be one more leg down into the normal timing band for an intermediate degree cycle bottom (20-25 weeks).

Also the HUI mining index is potentially forming a megaphone topping pattern. If gold does have one more move down into a true D-Wave bottom then the bounce off the lower trend line should fail followed by one more aggressive move lower.

Also there is a much larger T-1 pattern in play that fits the normal parameters much better than the smaller version.

You can see from the chart above that unlike the smaller T-1 the larger version does feature a second leg slightly smaller than the first, and if this pattern is playing out then we need one more move lower to test the midpoint consolidation zone.

Right now the battle is being fought at the $1600 level. So far every time gold reaches that level buyers step in.

If however gold closes below $1600 that would be a serious warning sign that the current daily cycle will be left translated and that gold is indeed caught in a true D-Wave decline. If that's the case it still needs to test the consolidation zone of the large T-1 pattern and the intermediate degree cycle will bottom in the normal timing band (November). If this scenario unfolds then we can look for an A-wave advance to begin once that final D-Wave bottom is in place.

As I have noted before A-waves usually test but fail to exceed the prior C wave top. They are almost always followed by a lengthy 1-1 1/2 year consolidation before the next leg up can begin.

In my opinion next week is going to be critical. Either the current daily cycle is going to break down below $1600 in a left translated manner, in which case we will probably see gold continue sharply lower to test the 75 week moving average and the consolidation zone of the large T-1 pattern. Or if gold can gain some traction and breakout of the recent trading range to the upside then the smaller T-1 pattern comes in to play and we should see gold make another run at $2000.

I've had quite a few requests for a trial subscription link, so I'm going to add a permanent trial subscription offer. $10 for 1 week of full access to the premium SMT report. If you decide you like the premium newsletter your subscription will automatically convert to the yearly rate after seven days. If not, just cancel your subscription prior to your week expiring by following the directions on the premium website homepage.

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EUROPE TO THE RESCUE

2011-10-04T16:19:00.000-07:00

It appears that the news out of Europe, right before the close, that the EU is looking at further measures to recapitalize the banks, was enough to halt what was likely going to turn into a very nasty drop into the employment report on Friday. Instead what started as potentially very ugly morphed into a key reversal day. Since the market was getting very late in its daily cycle this will likely mark not only a daily cycle low, but a greater degree intermediate cycle low.

I've noted in the past that these intermediate degree bottoms are often accompanied by a significant divergence in momentum. You can see on the chart below that this often plays out as a large divergence in the McClellan oscillator.

The market should now make another attempt at a respectable bear market rally. I would think a very minimum would be a return to the 75 week moving average.

And considering the amount of time the market has been consolidating a move back to the 200 day moving average is not completely out of the question.

I think we probably just saw a major turning point today. One that should mark a bottom for at least a couple of months.

I've had quite a few requests for a trial subscription link. The last $5.00 offer seemed to garner quite a bit of interest so I am going to add a permanent trial subscription offer. $10 for 1 week of full access to the premium SMT report. If you decide you like the premium newsletter your subscription will automatically convert to the yearly rate after seven days. If not, just cancel your subscription prior to your week expiring.

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BACK TO THE BEGINNING

2011-10-01T19:57:00.001-07:00

Bear markets are about cleansing the excesses of the prior bull market. Secular bear markets are about P/E compression, a move from extreme overvaluation to extreme undervaluation. The current secular bear market is now in its 11th year and in the initial phase of its third leg down.

As many of you know I expect next year to be one of the worst years in human history, at least economically speaking. Certainly on par with 1932 if not worse. This should drive one of the worst stock bear markets in history. Before this secular bear market expires we need to cleanse all of the excesses that were generated during the final bubble years leading up to the top in 2000.

I'm expecting at next year's four year cycle low, which should occur in the fall, that we will see a true secular bear market bottom. That means single-digit P/E ratios, along with a dividend yields on the S&P above 5%. I also expect this leg down will erase all of the gains during the bubble years from 1995-2000.

However I don't think we will be quite out of the woods yet. We will probably have to endure one more nasty leg down in this secular bear market before we put in an inflation adjusted low, likely it will occur in 2016 with a final bottom slightly above the 2012 bottom. At that point we should begin a new secular bull market that I think will be driven by truly astounding discoveries made in the field of biotech and nanotechnology.

But first we have to get back to the beginning.

THE D-WAVE BEGINS

2011-09-24T16:24:00.000-07:00

It's taken much longer than I originally expected, but we now have confirmation that gold's D-Wave decline has begun.

A D-Wave decline is a normal, regression to the mean, profit-taking event that occurs when gold gets too stretched above the mean. It is not a take down by an anti-gold cartel. Anyone with a modicum of common sense can look at the long-term chart of gold and tell that this is not a manipulated market. This is just a normal secular bull market, and it is acting exactly like a normal bull market acts.

Folks, these conspiracy theories are now bordering on the insane. I even heard the other day someone blame margin increases for the drop in gold. I guess they completely forgot that we've already had two margin increases in the last two months that had virtually no effect on gold.

Every bull market in history has its share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc. The gold manipulation nonsense is just one of the many scams that are going to hitch a ride on this bull. Actually it's one of the oldest scams in the book. You find a bull market, make a one-way bet on rising prices, tout these "to the moon" prices to suck in subscribers lured by the reward of gigantic financial gains, and then blame an invisible cartel every time a correction occurs that you don't foresee. It's a great way of not having to take responsibility when subscribers get caught in a normal corrective decline.

Needless to say I don't play those kind of games. I try to get subscribers out ahead of intermediate declines. Yes, I'm usually a little early. I have the same problem with tops that every other human being in the world has. They are virtually impossible to call in real time. Subscribers to the SMT/Gold Scents newsletter have sidestepped all of this D-Wave decline and instead have been 100% invested in the dollar index. The only asset initiating a strong trend higher.

Actually there is a fundamental reason for a D-Wave decline besides just a normal regression to the mean, profit-taking event. The dollar has now moved into the aggressive stage of the rally out of the three year cycle low. Deflation is starting to take hold in the world again. In a deflation defaulting debt collapses the money supply. There is a growing shortage of dollars in the world. That's the reason why the dollar index is rocketing higher. As the value of the dollar rises during this deflation it takes less and less of them to buy an ounce of gold. You can see this same process unfolded as the dollar rallied out of the 2008 three year cycle low.

On a much shorter timescale gold is now in the timing band for a daily cycle low. My best guess is that sometime over the next 1 to 2 weeks gold will move down to tag the 200 day moving average. That will trigger short covering and a very convincing snapback rally. However it's still too early for an intermediate degree bottom. There should be one more daily cycle down into November before the D-Wave puts in its final bottom.

I suspect the next daily cycle is going to be a volatile nightmare that will chew up bulls and bears alike before a final plunge down below the 200 day moving average somewhere between $1300-$1400. As all D-Wave declines have retraced at least 50 to 60% of the previous C-wave advance that would be a minimum target for the November bottom. At that point we should see a very powerful A-wave advance triggered by the extreme oversold conditions generated at the D-Wave bottom. More in the weekend report...

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THE NEXT SELLING WAVE IS ABOUT TO BEGIN

2011-09-21T06:11:00.000-07:00

As many of you already know I expected the dollar index to put in a major three year cycle low sometime this year. The normal timing band would have been for a bottom in the spring. The recent breakout and move to new highs has confirmed that the May bottom did in fact mark the three year cycle low. As expected that also marked the top of the cyclical bull market in stocks.

It's widely expected that the Fed will announce operation Twist at today's FOMC meeting. Obviously if printing several trillion dollars didn't save the economy, then rotating the Fed's balance sheet from short-term interest rates to long-term in the attempt to hold down the long end of the yield curve isn't going to have any effect at all as the approaching recession intensifies. Interest rates are already at historic lows.

Interest rates aren't the reason why people are not borrowing.With continued high unemployment There simply isn't enough demand for businesses to expand their operations. The American consumer is so deeply in debt that he can't service it. Unfortunately, we can't print money like the US government so it doesn't help us to go deeper into debt. The US consumer will not be borrowing money any time soon.

The bottom line is operation twist will be a miserable failure just like QE1 and QE2.

The stock market, and gold are now moving into the timing band for the next daily cycle low (selling event). The only question now is whether the announcement of operation Twist this afternoon will initiate a short term knee-jerk reaction higher, or whether the market will immediately continue to sell off into that next cycle low that is due to bottom sometime in the next 11 days.

I expect gold to bottom a little sooner as its daily cycle tends to be slightly shorter.

But gold also is at a critical stage. It must hold above the prior daily cycle low of $1705. If it fails to do that it will signal that an intermediate degree decline has begun. It would also signal a left translated intermediate cycle which would have high odds of moving below the prior intermediate degree bottom of $1478.

As you can see in the chart below gold began to struggle just as soon as the aggressive stage of the dollar rally began.

As the stock market moves down into the next daily cycle low and the selling pressure intensifies, this should drive the dollar index much higher. It remains to be seen if gold can reverse this pattern of weakness in the face of dollar strength, especially since the dollar will almost certainly be rallying violently during the intense selling pressure that is coming in the stock market.

All we can do now is wait to see what the initial reaction to operation Twist will be this afternoon. Will there be a temporary knee-jerk rally that quickly fails, or will the market just continue down after yesterdays reversal?

CAUTION IS WARRANTED

2011-09-15T05:45:00.000-07:00

I realize that most people that come to this blog are bullish on gold. I myself am definitely bullish long-term. That being said warning signs are starting to build.

Since gold is down this morning there's a good chance that the mining stocks are going to break the intermediate trend line today. The complete failure to follow through on the move above 600 is also concerning. Usually after an asset has tested an area three times the breakout occurs with strong follow-through.

Gold is also in jeopardy of breaking the intermediate trend line.

A move below $1705 would confirm a failed daily cycle and a left translated intermediate cycle. That would almost certainly lead to a D-wave decline.

Every D wave so far has retraced 50-62% of the preceding C-wave advance. If it turns out that $1923 was the top of the C-wave then we can expect a move back to the $1400 to $1500 level.

Moreover as this would be a left translated intermediate cycle it should move below the prior intermediate low. Taking that into consideration it would be more likely that gold would decline to test the consolidation zone around $1400 before putting in a final D-wave bottom.

I've mentioned before that C-wave tops tend to occur slightly above a big round psychological number. We currently have a 2b reversal at $1925.

For those people holding gold or mining stocks your position size needs to be small enough that you don't do serious damage to your account if gold takes out $1705 as that would confirm that a D-wave decline has begun and probably still has another $300 to go before a final bottom.

THE BEAR MARKET RALLY HAS BEGUN

2011-08-29T16:52:00.000-07:00

I've been warning bears for a couple of weeks that the market was due for an aggressive bear market rally. That rally has clearly begun.

I have often referenced the Rubber Band theory in my nightly reports. For those not in the know, the rubber band theory is nothing more than the tendency for any market to regress to the mean. And the further a market is stretched away from the mean the more violent the snap back tends to be once the pressure is released.

In the case of a rubber band, the further you stretch it in one direction, the harder it snaps forward once you release it. Simple action and reaction.

Markets are really no different than a rubber band. The further you stretch the stock market the more violent and persistent the snap back tends to be once the turn occurs. At the recent yearly cycle low on August 9 the stock market had stretched to ridiculous levels, both sentiment wise and technically. This should generate an extremely convincing bear market rally.

A normal bear market rally will typically last from 4 to 10 weeks. (They have to last long enough to reverse extreme sentiment levels.) Generally speaking that takes a minimum of 4 weeks, and 6-8 weeks is about average.

A bear market rally out of a yearly cycle low (other than a four year cycle low, the move into a yearly cycle low tends to be the most damaging decline in the stock market. This year was certainly no exception) will quite often tag, and occasionally penetrate the declining 200 day moving average. I tend to think that will be the case this time also. My best guess is the market will rally up to the 200 day moving average, then dip slightly into the next daily cycle low around the end of September. That should be followed by an extreme left translated daily cycle that tops slightly above the 200 day moving average (I guessed at about 1300 on the chart below) and then moves down into the next intermediate bottom due in late November or very early December. At which point the market will make a lower low, confirming a new cyclical bear market.

Actually the market has already met all three confirmations that a new cyclical bear market has begun.

1. Dow Theory sell signal.

When the industrials and the transports both broke below the March low a Dow Theory sell signal was triggered.

2. A move below a previous intermediate bottom.
When the S&P broke below the March low it triggered a new pattern of lower intermediate lows.

3. The 50 day moving average dropping below the 200 day moving average, and the 200 day moving average turning down.

Investors need to be prepared. This is going to be a very, very convincing rally. The tendency is going to be to buy into the media hype, that this was nothing more than a severe correction in an ongoing bull market.

This was not a correction. This was the first leg down in a new cyclical bear market. And like all bear markets it will be subject to violent countertrend rallies that toy with trader's emotions, and ultimately cause investors to ride the bear all the way to the bottom.

DOW: GOLD RATIO & THE SECULAR BEAR MARKET

2011-08-22T20:59:00.000-07:00

As I have been warning investors for many months, stocks have now entered stage III of the secular bear market. Gold on the other hand is now in the final parabolic phase of a 2 1/2 year C wave advance.

My best guess was that we would see a Dow:gold ratio of between 5-6 before this C wave ended. The ratio was at 5.71 as of today. For reasons explained in the nightly reports I think we may still have a little further to go on the downside for stocks and a little further upside in gold. So it's entirely possible that we could see a Dow gold ratio of 1:5 before the trends reverse.

However the low risk, large potential trade is now in the stock market, not playing chicken with the gold parabola (also explained in the nightly newsletter).

Cyclically the stock market is now in the middle of the timing band for an intermediate bottom. Presumably a sharp bear market rally in stocks will trigger a regression to the mean, profit-taking event in the precious metals market (the D-wave).

D-Wave's almost always test, and sometimes marginally penetrate the 200 day moving average. I've illustrated in the chart above a rough guess as to where I expect the countertrend rally in stocks and the D-Wave correction in gold to retrace.

Keep in mind that the fundamentals for gold have not changed. A D-Wave is simply a profit-taking event triggered by an unsustainable parabolic rally. It has nothing to do with fundamentals. Once the D-Wave has run its course gold will enter a sharp snapback rally (the A-wave), after which it should consolidate for the remainder of the bear market in stocks.

Stocks on the other hand, after what should be a very convincing bear market rally, will roll over and continue down into a final four year cycle low, probably in the late summer or early fall of 2012.

Depending on whether or not the Fed tries to fight the cleansing process stocks should either test the March 09 lows, or if Bernanke tries to stop the bear market with another round of quantitative easing, we could see the March 09 lows breached.

Either way I expect that 2012 will go down as one of the worst years in human history. Certainly in the same category as 1932 if not worse.

PRIMED FOR A TREND REVERSAL

2011-08-13T16:03:00.000-07:00

"Liquidity will eventually find its way into undervalued assets" Gary Savage

I think it's time for liquidity to drain out of gold and flow back into a severely beaten up stock market. Depending on how quickly the market tests the 200 day moving average will likely determine whether or not it can make marginal new highs before resuming the cyclical (and secular) bear trend.

More in the weekend report...

WHERE HAVE ALL THE CLOWNS GONE?

2011-08-11T20:11:00.000-07:00

"This looks more like wishfull thinking rather than divergence.
As one can clearly see in the first two examples, there are two CMF tops or highs on which divergence was based."

"There is no divergence whatsoever.
Falling money flows mean one thing, divergence is something else."

Eri

Or how about this buffoon.

"Oh by the way you are dead wrong on your analysis...you know nothing about financial markets.....at best you are a good plagiarizer of others material and a child...as you attacked my comments for no reason...there is a good reason why you are always offering your worthless analysis at 99.9% off the regular price.."

"AS I SAID BEFORE YOU AND YOUR 2 FOLLOWERS ARE AMATEURS AND THE BOYS IN NEW YORK LOVE AMATEURS LIKE YOU GUYS"

Jimmeysmith2

"there is no basis for your comment on this being a SECULAR BEAR MARKET....show some ORIGINAL data....your comments are based on being a follower of others claims"
from an ELLIOT WAVE perspective we are about the see a Wave 3 and it will catch most totally off guard"

Notgoodenough

This is just a small sampling of the nonsense I had to put up with since May. As we all know now, I was 100% correct on all of my calls. Anyone who listened to me completely sidestepped the first leg down of the new cyclical bear market.

Anyone who listened to the clowns got their teeth kicked in.

WE ARE WATCHING HISTORY BEING MADE

2011-08-09T05:16:00.000-07:00

We are truly seeing history being made as the stock market moves down into its yearly cycle bottom.

The last time the market was this oversold was after 9/11.

Breadth has moved to levels even more extreme than the crash of 2008.

When this bottoms, and I think it is days, if not hours away, we are going to see a rally unlike anything we have ever seen before. A rally back up to the 200 day moving average is almost a certainty. Plus the degree of stretch we are seeing right now probably even guarantees a move considerably above the 200 day moving average.

It seems like a great many folks have got it into their head that one is only allowed to make money in the precious metals market. Take a look at the long-term chart of gold though.

This has now become the steepest parabolic move of the entire secular bull market. As we found out in May, parabolic moves are prone to crashes. At this point I have no desire to be in the gold market. I could care less whether it goes to $1800, $1900, or $2000. The risk of getting caught in the crash when the parabola collapses has become too great.

I don't care where I make money. Gold, silver, or stock market, it's all the same to me. Profits are profits.

At this point I would rather put capital at risk in a severely oversold stock market than a parabolic gold market.

IS THE FED ABOUT TO MAKE THE MISTAKE OF THE DECADE?

2011-08-03T17:47:00.000-07:00

Just as I expected, when the market failed to rally on the debt ceiling resolution, panic set in. As I have been telling people the stock market is not dropping because politicians are debating whether or not to spend more money. They have a long record of raising the debt ceiling whenever it threatened to interfere with their spending spree. So the resolution to the debt ceiling was never in question. We knew from day one that Washington would add another trillion or so to the deficit without any real attempt to cut spending. The market has been in trouble since May because it is starting to price in the next recession.

The S&P has now breached the March intermediate cycle low. In a mature bull market that is almost always a signal that a new cyclical bear market has begun.

I've been warning investors since late April that this was coming. Many were fooled by the phony manufactured rally at the end of June. I knew at the time that the Fed's pitiful attempt to manufacture a momentum move as QE2 came to an end would fail.

All that being said, the market is now moving into the timing band for a major intermediate cycle bottom. My best guess is that the reversal today will probably trigger a weak bounce up to the 200 day moving average, followed by one more leg down. That should mark a more lasting bottom and trigger a 6 to 8 week bear market rally. That rally is going to look very convincing and I'll tell you why in just a second. But just like the rally in June it is going to fail.

Folks, a recession is unavoidable at this point. The piper is going to have to be paid for printing trillions of dollars and bailing out the financial system. Unfortunately there's no way around that. The question is will Bernanke make the ultimate blunder and initiate QE3? I'll explain in a second.

Next we need to take a look at the dollar chart. It's not a pretty picture. With the market in free fall the dollar should be rallying violently. If May marked the three year cycle low like I originally thought then the dollar should be rising rapidly by now.The fact that it's not is a very ominous sign.

I'm starting to worry that Bernanke is going to initiate QE3 and he's going to add a currency crisis on top of the economy sliding back into recession.The combination of both of these at the same time will trigger a collapse much worse than what we went through in 2008.

If the market decides that QE3 is in the cards that would be the trigger for our bear market rally. Unfortunately it would also be the trigger for another spike in commodity prices at the very time that the consumer is least able to withstand them.

What Washington and the Fed don't seem to realize is that the problem isn't the size of the dose, it's that we are using the wrong medicine. We've already spent trillions to save the economy and it failed. Let's pray that the powers that be have enough sense to recognize that more trillions are not going to cure the problem, they are going to exacerbate it.

Unfortunately what no one wants to admit is that there is no cure for our problem. We can't stop it. It can't be "fixed". All we can do is make it worse. We desperately need to face reality and initiate the painful policies that are required to halt the car before it drives off the cliff. Failure to do that will mean that the market will force reality upon us as a major global economic collapse.

Before this is all over and done I fully expect the Keynesian economic model will get tossed into the trash heap where it belongs. If it wasn't for politicians desire to spend more than they can afford Keynesian policies would have been discarded decades ago.

For the next week I'm going to reopen the 15 month special to the Smart Money Tracker premium newsletter. For the normal yearly price I'm going to throw in three free months. The premium newsletter is published nightly along with a more detailed weekend report. I cover the stock market, dollar index, and commodity markets with special emphasis on the gold and silver market.

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TIME FOR A MUCH DESERVED REST

2011-08-01T19:34:00.000-07:00

Let's face it, gold bulls have had it pretty easy the last 2 1/2 years. During that time QE1 and QE2 drove a gigantic rally out of the 2008 eight year cycle low.

Folks, at some point a move like that has to enter a lengthy consolidation.

With quantitative easing coming to an end (and QE3 not politically feasible at the moment), the economy likely rolling over into recession, and the dollar possibly setting up for a powerful rally out of the three year cycle low, I think the next deflationary period is now upon us.

The last two deflationary episodes forced a severe (2008) and a moderate (2010) correction in gold.

I do think demand is strong enough in the gold market that gold should hold most of its gains. However, I suspect it's going to be a lot harder to make money during the next year and a half as I expect that gold will be locked in a volatile trading range as it consolidates that gargantuan rally.

DEVILS ADVOCATE

2011-07-28T17:40:00.000-07:00

The persistent and mindless bullishness on gold lately has got me nervous. When I get nervous the first thing I do is pull up a multi-year chart and look at the big picture.

A couple of things are apparent when one looks at the chart below. First as I've noted many times in the past gold has a tendency to move above a big round number before topping. It did it at $1025, $1225, $1432, and gold recently tagged $1630.

Another glaring discrepancy in that chart is the utter failure of the miners to participate in the last 200 point rally in gold. As a matter of fact the miners could possibly be forming a head and shoulders top.

We can also add to this the fact that sentiment has reached levels that in the past have triggered intermediate declines. Plus gold is now stretched above the 200 day moving average.

Now I don't want anybody to think that I have all of a sudden become bearish on gold, I haven't. Gold is quite obviously in a secular bull market. I am however beginning to question whether or not the low we saw three weeks ago was an intermediate bottom. I have been riding this bull market long enough to know that when everyone is rabidly bullish (especially me) it's about time for gold to throw a curveball.

Until the dollar breaks below the May bottom I think we need to be very careful in assuming that gold is going straight up.

THE REAL STOCK MARKET AIN'T SO PRETTY

2011-07-24T20:15:00.000-07:00

When priced in something that has real value and cannot be debased (gold), one can clearly see that stocks have been in a severe bear market since 2000. (If one were to look at PE valuations during the same period they would see the same bear market.)

In the chart below I have marked the final phase of several gold C-waves. These highly speculative periods tend to end as a parabolic blowoff rally with gold stretched quite far above the 200 day moving average. The final phase of a C wave rally also tends to correspond with another leg down in the Dow:gold ratio.

After an extended two year consolidation I think we are now due for that final explosive move that should drive the next repricing of stocks against gold.

I expect we will see a combination of gold rallying wildly higher while stocks rollover into the next cyclical bear market. I'm looking for a Dow:gold ratio somewhere around 6 to 1 later this fall. If gold rallies to $1800 (my best guess) then we can look for the Dow to drop down around 10,000.

As many of you may have noticed stocks tend to put in major intermediate lows in November and March. The dollar often forms it's yearly cycle low in November. If the dollars three-year cycle bottom is still ahead of us, and it's starting to appear that it is, then the currency crisis that we avoided in May should come in late October or November this year.

That currency crisis should drive the final parabolic C-wave move in gold and the first major leg down in the stock market.

We should then see a relief rally in stocks as the dollar crisis comes to an end and gold will enter a severe D-wave, regression to the mean, profit-taking event.

The relief rally in stocks unfortunately will be short-lived. With no true productivity to drive it the stock market is not going to be able to fight a rising dollar.

Now that the last true period of productivity has ended (the personal computer and Internet boom) the only way stocks can resist the forces of the secular bear is through expansion of the money supply. That becomes painfully obvious when one looks at a 10 year chart of the Dow priced in gold.

The problem of course is that printing money is not true productivity. Printing money has consequences, as we found out in 2008.

It won't be long before we begin to suffer the consequences of Bernanke churning out trillions of dollars to save the financial system.
give me a break

But who's gonna save us from Bernanke!

MONEY FLOW DIVERGENCE

2011-07-19T19:26:00.000-07:00

I often keep tabs on the weekly Chakin money flow indicator, especially when I'm expecting an intermediate degree correction. More often than not there will be a divergence in money flow at intermediate tops as smart money exits ahead of a correction.

This indicator also diverged at the last two bull market tops. It is now showing a huge divergence that I think is probably indicative of a third cyclical bull market top forming.

18000 NEW NAILS IN THE COFFIN

2011-07-09T15:36:00.000-07:00

As many of you know I believe that we have begun the topping process of this cyclical bull market. In a healthy market an intermediate decline is a profit-taking event after a significant leg up. It should hold well above the prior intermediate bottom. The decline into the June low was not a profit-taking event. The market had not rallied long enough or far enough to warrant an intermediate correction and certainly not one that would test the March lows. The decline in May and June was the first shot over the bow that something is wrong with the fundamentals driving this market.

Now let me be clear because I think many people got the wrong idea from my last article. I don't recommend anyone sell short the market. All I'm saying is it is too late to have retirement funds positioned long at this time.

Asset appreciation is the FED’s stated third mandate. Bernanke is going to fight the bear tooth and nail. There will be continued interventions into the markets. The rules will be changed as we go. Anything and everything will be tried to keep stock and bond markets levitated. That is not the kind of environment conducive to making consistent gains on the short side. That is the kind of environment that can and will whipsaw traders to death.

Even in a market free of intervention the topping process is always volatile and dangerous. But in a market that is being actively managed it is especially dangerous on the short side. Case in point - the June bottom was way too early for a final intermediate bottom.

As I said in my previous articles we should have seen a counter trend bounce to relieve sentiment extremes followed by another leg down into a more lasting bottom. Unfortunately that was not allowed to happen. The powers that be manufactured an explosive rally on the low volume preholiday week in an attempt to create a massive momentum move ahead of the end of QE2 that would be hard to turn around. Needless to say Bernanke didn't want a repeat of last year when QE1 ended.

The Fed can temporarily turn the markets higher but what they cannot do is reverse the economy. I said when QE1 began that no amount of printing or stimulus would stop the underlying cancer in the economy. All it would do is create a brief reprieve which would be followed by an even deeper and more severe recession once the sugar high wore off.
The simple fact is that we cannot cure a problem of too much borrowing and too much spending with more borrowing and more spending. We tried this in the `30's and it caused a 15 year depression. Japan tried it and it led to two lost decades.

The cure is to bite the bullet and allow the deleveraging process to run its course. Yes it will be painful. We've put this off for so long that it isn't just going to be painful it's going to be catastrophic. But the longer we kick the can down the road the worse the endgame becomes. The only ray of sunshine I can offer is that if we let the markets work they will complete the deleveraging process fairly quickly. Within 2 to 3 years the world can be back on a sustainable path of growth. Continue to fight this and we could be stuck in an on-again off-again recession for another 20 years with the final end game collapse so devastating that it will make the Great Depression look like a picnic.

The last two employment reports are clearly showing that the economy is slipping back into recession. I suspect by August the employment report could, and probably will, turn negative. All the manufactured rallies in the world cannot prop up the stock market if the economy is rolling over into another recession. They can postpone the inevitable only so long and ultimately will just make the bear that much more severe.

The Fed's efforts have only extended the topping process, they haven't stopped it.

DOLLAR UP OR DOLLAR DOWN

2011-07-04T11:01:00.000-07:00

For my call of a new bear market to remain valid one very important assumption has to be true. That assumption is that the dollar put in its three-year cycle low in May. If that assumption is wrong and the dollars three-year cycle low still lies ahead then most asset classes should still have one more leg up to at least marginal new highs.

My assumption that May marked a major cycle bottom was based on:
1. Sentiment had reached multiyear extremes.
2. The May low occurred right in the middle of the normal timing for that major cycle bottom.
3. And QE2 was scheduled to end shortly thereafter.

When QE1 ended last year the deflationary pressures slammed back down on the stock market and economy. There didn't seem to be any reason to expect something different this time (unless quantitative easing really isn't ending).

The next couple of weeks are going to be important. The dollar should form a short term daily cycle low sometime in the next few days. If the bounce out of that low is weak, rolls over quickly, and breaches that pivot then the odds are going to be high that May did not mark the final three-year low. If the dollar still has one more leg down then the deflationary scenario is going to be put on hold while that runs it's course. As a matter of fact it would be more likely that we would see a pronounced inflationary period during this process.

The start of the next bear market will depend on whether May marked the final bottom in the dollar or whether that bottom will come later this year. Either way once that bottom is in it will mark the beginning of the next deflationary period and the next cyclical stock market bear.

LOOKING FOR A BREAK

2011-07-03T07:33:00.000-07:00

We've been waiting patiently for gold to move down into its intermediate degree correction. Now that the last daily cycle low has been breached we have confirmation that that correction is underway.

I've noted previously that bottoms tend to occur when smart money drives gold below a key technical level triggering stops . Big money needs liquidity to enter large positions. They achieve that by taking out the technical traders stops below a key technical level.

As this progresses over the next couple of weeks I'm fairly confident that the May $1462 pivot will be breached. I expect gold will at least retrace 50% of the recent rally back to the 150 day moving average .

Click on chart to enlarge

The 150 has contained the last seven pullbacks. It's probably about time that quits working though. What I would really like to see is a test of the winter consolidation zone at around $1425.

This pullback should be the single best buying opportunity for the rest of the bull market as it is highly unlikely this intermediate cycle low will be violated again before the final blow off top later this decade.

STRIKING SIMILARITIES

2011-06-30T04:59:00.000-07:00

It appears that the approval of Greece's austerity measures has finally halted the correction in the stock market. But has it really?

I would suggest that this correction has never been about Greece. The market has known for over a year that Greece would be back looking for more money. Let's face it no one is under any delusions that Greece is going to be able to solve their problems. Greece is going to default, there's no avoiding that. What the EU is trying to avoid is a domino effect of cascading sovereign debt crises.

Last summer the crisis was solely centered around Greece. Does anyone really believe that this is going to stop with Greece this year? I doubt it. I suspect in the next week or two were going to see bond yields spike in Spain or Italy or Portugal, or maybe in all of the PIIGS.

What started as a financial crisis in `08 has now infected sovereign debt as countries around the world have acted to bail out the banking system. I really doubt that this is going to start, and stop, with Greece again this year. As we found out during the real estate bust, there is never only one cockroach.

Striking similarities to last years correction are now starting to pop up. In May of last year the market put in what looked like a final intermediate low. It was followed by a higher low and higher high. The only problem was that the daily cycle was too short for the May bottom to be a final cycle trough as the bottom had occurred on day 13 and a normal daily cycle runs 35 to 45 days.

I also noted on the chart that we saw a large selling on strength day (smart money distribution day) one week from the top. The market then proceeded to move down into a final intermediate low in the normal timing band. I can tell you that many technicians got caught during the May bounce.

Now take a look at the current chart.

This time the market appears to have bottomed on the 15th day of its daily cycle. Again we have a pattern of higher lows and higher highs, convincing technicians that the bottom is in. Also note that we have another large distribution day just like we saw last year.

We have been expecting some kind of counter trend rally all along because sentiment had become too bearish by the middle of June. In order for the market to continue lower we were going to have to see some kind of relief rally to work off the oversold technical and sentiment conditions. The question is, is the rally for real or is it a counter trend move to be followed by another leg down. In bear markets the counter trend moves are very convincing.

I tend to think that this is probably not over yet. If the daily cycle runs a normal duration then we should look for a final bottom somewhere around July 22. However Congress is going to vote on the debt ceiling August 2. It's possible that this daily cycle could stretch just a bit long and bottom on that vote.

Traders should probably be careful about placing too much trust in charts right now. Last year trading the charts suckered investors into the counter trend rally only to drag them down into a final intermediate bottom.

One final note. The market is now nearing the 50% retracement level. This is the same level that turned back the market last year.

Let me caution everyone that while I think we have probably entered a bear market no one has any business shorting the market yet until we get complete confirmation that a bear market has begun. The first confirmation is a penetration of an intermediate cycle low. In our case that would be a move below the March 1249 pivot. The second confirmation would be a Dow theory sell signal. And the final confirmation would be the 50 day exponential moving average moving below the 200 day exponential moving average. Until those three confirmations are complete bears should remain on the sidelines.

RADIO INTERVIEW

2011-06-28T05:49:00.001-07:00

Radio interview with Tekoa Da Silva of the Contrary Investors Café.

SIGN OF THE BEAR

2011-06-26T18:20:00.000-07:00

Today I am going to teach you a little about cycles.

First a little background information. I'm going to be discussing almost exclusively the intermediate degree cycle. Now to start let me correct some misconceptions. Cycles are virtually worthless for timing tops. Cycles are measured from trough to trough. All we can really do with cycle theory is develop timing bands for bottoms, tops can occur at any time.

Next I want to go over the concept of left and right translated cycles as it is pertinent to what is happening in the stock market.

Now in order to understand how a cycle is translated you first have to determine the average duration of the cycle. In our case we are going to focus on the intermediate degree cycle in the stock market. That cycle averages 20 to 25 weeks trough to trough. The median being 22 weeks. If we divide 22 weeks by 2 we come up with 11 weeks. That is an important number. It is the dividing line between a left translated cycle and a right translated cycle.

Any cycle that tops on week 12 or later constitutes a right translated cycle. Right translated cycles are the hallmark of bull markets. Let me explain.

In a healthy bull market an intermediate degree correction is a profit-taking event, and that's all it is. The media will find some scary reason for why the market is correcting but the real truth is that the market has just rallied long enough and far enough and is due a corrective move to consolidate the gains. There is one exception, which I will go over in a minute. Healthy bull markets are composed of multiple right translated intermediate cycles.

Left translated cycles, on the other hand, are the hallmark of markets that are in trouble. A left translated cycle is a sign that the fundamentals of the market are broken, or in the process of breaking. A left translated cycle is not a profit-taking event. A left translated cycle is a sign that institutional money is selling into the rally.

Next I'm going to show you the 2002 to 2007 bull market. The intermediate cycle troughs are marked with blue arrows.

In the chart below you can clearly see that every intermediate cycle, with one exception, rallied more than 12 weeks. This is a sign of a healthy bull market. The rallies are moving to new highs. When the intermediate rallies mature they top late in the cycle followed by a profit-taking event that holds well above the prior intermediate trough.

The one exception, and I have marked it with the blue box, is that sometimes an intermediate cycle will top in a left translated manner and make a lower low after the second leg up in a new bull market. This is just a sign of a market that needs to consolidate a huge move out of a bear market bottom.

Next, let's move into the latter stages of the 2002-2007 bull market.

Again we see the familiar pattern of higher highs and higher lows, and intermediate cycles that are topping deep into their intermediate cycles.

However, in the summer of 07 something happened that was a glaring warning sign that the cyclical bull market was in trouble. And that sign; the summer intermediate cycle dropped all the way down to test the prior cycle low in February. In a healthy bull market that should not happen. As you recall this was right about the time that subprime mortgages began imploding. Smart money could read the writing on the wall, and they began exiting the market.

The deathblow came when the next intermediate cycle topped in an extreme left translated manner on week eight. That was the warning sign that institutional buyers had left the market. At that point the bull had officially died.

Now let's take a look at the current bull market.

Up until last summer this was a healthy bull market. The intermediate cycles were all right translated, and we were making higher highs and higher lows.

Last summer that started to change. To begin with the intermediate cycle topped on week 12, right on the dividing line of right and left translation. The market had managed to rally 16%, so even though time wise it was a bit early for an intermediate decline, in magnitude a 16% rally is enough to trigger a profit-taking event. However, this did not turn into just a normal profit-taking event. The decline moved below the February intermediate cycle low. Alarm bells started to ring and Bernanke he heard it. Thus began QE2 and the markets were pulled back from the brink... temporarily.

I don't think anyone is under any delusions about what has powered this bull market and propped up a deeply flawed economy. Trillions and trillions of freshly printed dollars that's what. But that is now coming to an end. Does anyone really believe that the economy or the stock market can continue to levitate without a constant flood of liquidity? If you do I have some beachfront property I want to sell you here in Las Vegas.

The market doesn't believe either! We now have an extreme left translated intermediate cycle in progress that topped on week eight. Notice how the rally out of the March bottom was only able to make marginal new highs with absolutely no follow-through. That is a sign that institutional traders sold into the breakout. And now we have a market that is on the verge of penetrating a prior intermediate cycle low.

If the March low gets breached we will have the first confirmation that a new bear market has begun. The second confirmation will come if both the industrials and transports close below the March lows. That would constitute a Dow theory sell signal. The last confirmation will come when the 50 day moving average moves below the 200 day moving average and the 200 day moving average turns down.

Next I want to look at the dollar. In a deflationary environment the value of currency rises. As many of you know I have been predicting a major three-year cycle low for the dollar to occur in the spring or early summer of this year. It came during the first week of May.

These major cycle bottoms tend to produce very powerful rallies, often lasting up to a year. Now if we were just coming out of recession and productivity was increasing, or we had a new industry that was creating massive job growth then yes I would expect the market to be able to resist a rising dollar. Actually in that scenario a rising dollar is signaling a healthy economy.

In our current environment however a rising dollar signals deflation!

You can see that during the rally out of the `08 three year cycle low the stock market came under severe pressure. I think it's safe to say that the same thing is going to happen this time as the dollar rallies. Unfortunately, we don't have a new industry to drive job growth, power a sustainable economy, and allow the markets to resist a rising dollar. All we have is commodity inflation created by the Fed in a vain attempt to print prosperity.

I've been warning for months that once the dollar bottomed and started to rally it would signal the end of the bull market and the start of the third leg down in the secular bear market.

At this point I think the only hope the Bulls have is for Bernanke to turn the dollar back down into an extreme left translated three-year cycle. Unfortunately, he has decided to turn off the money spigot (don't worry he will be turning it back on soon, although by then it will be too late).

Let us all hope that Bernanke has at least some modicum of common sense left. To turn the dollar back down into a left translated three-year cycle this early will almost certainly destroy the currency by 2014. Not to mention the dollar will lose reserve currency status. Actually, that is my next big macro prediction. By 2014, the dollar's next three year cycle low, Bernanke will have wrecked the currency, and the dollar will no longer be the world's reserve currency.

So far this bear market is progressing as expected. It started with the tech bubble bursting that transformed into a financial crisis. It has now infected sovereign debt, and will ultimately end in a massive currency crisis.

With QE2 coming to an end next week I think we are about to enter a very volatile and critical period in all asset markets. For the next three days I am going to offer everyone a five dollar trial subscription.

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OFFER HAS EXPIRED

DEFLATION IN OUR FUTURE

2011-06-22T17:41:00.000-07:00

Make no mistake, the four-day rally we just saw was nothing more than short covering in front of the Fed meeting just in case Bernanke surprised us with QE3. As expected he confirmed that QE2 would end on schedule. The dollar rallied and the market sold off on the news.

Folks, I don't think this is over yet. In the chart below you can see that every intermediate cycle low exhibits some kind of capitulation volume as market participants panic.

We clearly have not seen any kind of a selling climax yet. As a matter of fact volume has been running slightly lower than average. This is not what happens at a true intermediate bottom.

The average duration of an intermediate cycle is between 20 and 25 weeks. Two of the last three intermediate cycles bottomed perfectly in that timing band. The March cycle was slightly shortened by the Japanese tsunami which generated tremendous bearish sentiment in a very short time.

However there is no serious calamity that should shorten the current cycle to 13 weeks. One could claim that the Greek situation is driving the decline, and once it gets resolved the correction will end. I think that's highly unlikely. The market has known for over a year that Greece is going to default. There's no surprise there. I suspect the next Black Swan will come in July as Spain, or Portugal, or Irish bond yields spike, or something completely out of the blue occurs, like an implosion of the Australian housing market. It's in times of stress that flaws in the system break.

Since we don't have any capitulation volume yet, and it's still too early for the intermediate cycle to have bottomed, the assumption is that this correction isn't finished.

So far the market is still following the template I laid out in "The Bear is Back" post. I expected some kind of counter trend rally to relieve extreme bearish sentiment levels and oversold conditions. We are getting that rally now (it may have already ended).

Once the counter trend rally runs its course the market should have another leg down, bottoming in late July to mid August. At that point I expect Bernanke to freak out and initiate QE3. That will be the signal for a more durable, and probably explosive rally.

But remember, the most violent rallies occur in bear markets !

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GOLD OIL RATIO

2011-06-21T18:23:00.000-07:00

The gold:oil ratio is nearing the upper limits of its trading band. When this level has been reached in the past it usually signaled a decline in gold (move down into an intermediate cycle low) and a rally in oil was eminent.

Normally I would expect the same this time as gold is very deep into an intermediate cycle and overdue for a major corrective move. There is a problem though. Oil is still very early in its intermediate cycle. Also oil has broken below its prior intermediate cycle low signaling a failed and left translated intermediate cycle is in progress.

Taking into consideration a normal intermediate oil cycle lasts 50 to 70 days, and this cycle is only on day 32, then oil should generally continue lower for another 20+ days.

As oil and stocks have been moving in lockstep lately it's not surprising that the stock market's daily cycle also has 20 or so days before an expected final intermediate bottom.

So if the gold:oil ratio is to regress back to the mean, and oil still has a month before an expected bottom the only way the gold oil ratio can decline is if gold starts to accelerate to the downside, dropping significantly faster than oil.

GOLD'S INTERMEDIATE DECLINE

2011-06-20T19:02:00.000-07:00

I've said it before, gold will do everything in its power to draw traders in at intermediate tops. Then it will kick them off at intermediate bottoms.

There are a couple of dependable signals that almost always occur during an intermediate degree decline. The first one is a MACD crossover on the weekly charts. Second; gold almost always dips below the 10 week moving average (50 day moving average).

You can see in the above chart the divergence that is forming in weekly momentum. Gold is now starting to hug the 10 day moving average, possibly in preparation for a move down into the next intermediate cycle low. As the current cycle is now 21 weeks old gold is due, actually overdue, for an intermediate degree corrective move.

Another tell that occurs is a break of the intermediate trend line. That also has yet to occur.

Until we have confirmation that gold has completed its intermediate decline we will remain on the sidelines.

THE BEAR IS BACK AND THIS TIME IT WILL BE MUCH WORSE

2011-06-16T05:27:00.000-07:00

Don't let the perma bulls fool you, this is not a normal correction, and it has nothing to do with Greece or Spain. This is the beginnings of the next leg down in the secular bear market and the start of the next economic recession/depression. And this time it's going to be much much worse than it was in `08.

For months now I've been warning investors to get out of the general stock market. I was confident that once the dollar put in its three year cycle low the next deflationary period would begin and stocks would enter the third leg down in the secular bear market.

Well, the dollar did put in the major three year cycle bottom in May and stocks almost immediately started to head down.This won't end until stocks drop down into the four year cycle low due sometime in mid to late 2012.

Let me explain to you what is unfolding so you don't listen to Wall Street or CNBC and get sucked down into the next bear market.

In a healthy bull market intermediate degree corrections hold well above the prior cycle troughs. Higher highs and higher lows. When that pattern of higher highs and higher lows on an intermediate time frame gets violated it is almost always a sign that the market is topping. We are at that stage now as the market is moving down to test the March intermediate cycle low.

Oil has already violated it's intermediate bottom. Energy stocks are a big part of the S&P and they are going to be a big drag on the index going forward.

In a healthy bull market we shouldn't even come close to testing the March low. Actually this market hasn't been healthy since last summer. That was the point at which I recognized the large megaphone topping pattern that was being driven by a double dose of QE.

Last year the market was able to push higher for almost a month on momentum after QE1 ended. This market has already rolled over even though QE2 isn't scheduled to stop until the end of June. The conclusion is that the market is much weaker now than it was when QE1 ended. We all know what happened last year when the money pumps were shut off. It led to the flash crash and a severe stock market correction. It would have led to a new bear market except Bernanke quickly started QE2.

Actually QE is the reason the market is in trouble. Just like I said over two years ago, all QE did was give us a brief reprieve and temporarily reflated asset markets. I knew all along it wouldn't create jobs and it didn't. (Well I guess a few bankers got to keep their jobs and pay themselves some big bonuses, but the general population was never going to prosper from QE).

As a matter of fact just as I said it would, QE ultimately spiked commodity inflation, and just as I knew it would commodity inflation has now poisoned the global economy, crushed discretionary spending, squeezed profit margins, and is sending the world down into the next recession.

Unfortunately we are entering this recession in a much weaker state than we went into the last one. Real unemployment is somewhere around 12-15%. It is going to get much, much worse. I often wonder how in the world we could appoint such fools to run our monetary policy. I mean seriously, how many times must they make the same mistake before they figure out they are the cause of our problems?

Ok enough of the Fed ranting, back to the market.

Not only do we have a market that is testing the prior intermediate cycle low when it shouldn't be, but we also have a clear topping pattern in place. Just like in `07 the market managed a marginal breakout to new highs in May that failed to follow through. You can see the same thing occurred in October of `07. This is quite often how markets top...or bottom for that matter. A technical level is breached, technicians either buy the breakout or sell the breakdown. Smart money fades the move and the market reverses. This is exactly how the `07 top was formed. It's also how the market bottomed in `02. And now the cyclical bull has topped with that exact same reversal pattern in 2011.

This isn't the only warning sign unfortunately. The banks and housing have been diverging from the rest of the market for some time. These two sectors are still impaired and will remain so no matter how much money the Fed throws at them. They led the market down into the last bear and they are leading it into the next bear.

Here is what I expect to happen over the next two months. We should soon test the 1249 intermediate cycle low. Actually I think we will probably marginally break below that level. As most of you probably know by now breakdowns and breakouts almost always fail to follow through. So I expect we will see a violent counter trend rally once the March low is penetrated. That should wipe out all the technicians who sell into the breakdown.

However the rally, although I'm sure it will be convincing, will almost certainly be a counter trend affair that will quickly fail. The problem is that the current daily cycle is only on day 12. That cycle on average runs 35-45 days trough to trough. So once the counter trend rally has run it's course we should have another leg down. And that leg down will almost certainly cause tremendous damage to the global stock markets.

Once the market penetrates the coming low it shouldn't be long before traders recognize that something is terribly wrong. At that point everyone is going to head for the exits at the same time which should lead to some kind of waterfall decline bottoming around the middle of August. This is when I expect Bernanke to freak out and initiate QE3. I have no doubt the market will rally violently on the news as traders have become conditioned to expect QE to drive stocks higher. I expect we will see the market test and maybe even penetrate the 200 day moving average during the fall rally.

However this too will only be a counter trend affair. QE is the cause of our problems and more of it isn't going to make things better, it will only make them worse as it will start to spike commodity prices again into a rapidly weakening economy. Remember spiking commodity inflation is what caused this in the first place. Doing it again as the economy rolls over into recession is only going to guarantee that this turns into a depression instead of just a severe recession.

Traders and investors need to start preparing for what's ahead. If you ignored me previously and are still invested in the general stock market, exit, either now, or into the rally that should come off the March lows in the next week or two. Don't get fooled by the analysts who will be telling you the correction is over, it won't be. This won't be over until late July or early August.

Get back into dollar denominated assets as the dollar will continue to rally and gain purchasing power in a deflationary environment.

Once it's appropriate we will transfer assets back into gold and precious metals, but it's still too early for that. Gold needs to move down into an intermediate cycle low before we want to buy. My best guess is gold will dip down to somewhere around $1400 over the next 4-5 weeks. I am monitoring not only the stock market but also the gold cycle in the premium newsletter and will let subscribers know when I think it's time to get back into precious for the next ride up.

For the next week I will re-open the 15 month subscription special. Click here to go to the premium website. Then click on the subscribe link on the right hand side of the home page to go to the subscription options page.

GOLD CRAWL

2011-06-15T04:13:00.001-07:00

I'm assuming that gold's latest cycle low was the mild pullback on June 2. If that's the case then gold is now in a left translated daily cycle that topped in only two days. It's also starting to form a crawling pattern along the 50 DMA.

Crawling patterns are usually continuation patterns and when they break down they tend to move aggressively down to the 200 day moving average.

Considering that gold is now 20 weeks into it's intermediate cycle, has formed a weekly swing high, and the extreme weakness in the mining sector, I think the odds are high the crawl is going to break down soon and the aggressive part of the intermediate degree correction will begin.

AT A CRITICAL JUNCTURE

2011-06-02T03:22:00.000-07:00

Wednesday's massacre was a serious shot over the bow for the stock market. The market is now in extreme jeopardy of having formed a left translated intermediate cycle. When that happens late in a bull market it almost always signals the beginning of a new bear.

There's no way the market should have sold off like that on Wednesday if this market was still healthy. I'll explain in a minute.

Fundamentally; I think it's starting to become painfully obvious that QE2 didn't work (just like I said it wouldn't). I said over a year ago during QE1 that this wouldn't create jobs or fix any of our problems. It would just make the problems bigger. Ultimately all QE1 & 2 was good for was to allow the bankers to rake in another year of large bonuses and to spike inflation (mostly commodity inflation). I've said all along that commodity inflation would eventually poison the fragile global economy.

I think it's becoming more and more obvious that the global economy is now headed back down. Surprisingly, or maybe not surprisingly an economy with over 10% unemployment couldn't withstand $112 oil, $4.00 gasoline, and surging food costs.

Now the markets are at a critical juncture. The current daily cycle has topped in only three days. That means we are now looking down the barrel of an extreme left translated daily and intermediate cycle. Left translated cycles tend to do serious damage because they have a long time to decline. In this case another 35 to 40 trading days. Left translated cycles are the hallmark of bear markets. This cycle topped in only three days. There has been only one other cycle in recent history that has topped quicker, and that was the September 08 cycle. We all know what followed after that.

A left translated daily cycle is a problem in and of itself but it will also force the next larger degree intermediate cycle into a left translated orientation. Left translated intermediate cycles, especially ones that occur late in a cyclical bull market, almost always trigger a Dow Theory sell signal and the beginning of a bear market.

I've marked the the last two intermediate cycle lows with the blue arrows in the chart below. You can see that the current intermediate cycle has now potentially topped in 7 weeks. Any cycle that tops in less than 11 weeks would be classified as a left translated cycle.

Generally speaking most left translated cycles move below the prior cycle low. That is also a big problem as a move below the March intermediate bottom would almost certainly trigger a Dow Theory sell signal. A move below the March intermediate cycle low would confirm that the next leg down in the secular bear has begun.

On May 15th I posted that we were seeing warning signs and that individuals should exit stock funds in their 401K's if they hadn't done so already. Now that we have confirmation of a cycle failure, not only of the short term degree, but very likely of an intermediate degree it becomes even more important for investors to get retirement funds out of stocks and back into a money market fund.

Folks the odds are now very high that the next leg down in the secular bear market has begun. This is not the time to hope and pray that the market will rebound. This is the time to protect your assets before the storm hits. And it will not just be a squall. This will be a hurricane of titanic proportions. The Fed virtually guaranteed that with QE1 and QE2.

One has to wonder at what point does the Fed finally figure out that every action has consequences and the bigger the intervention the greater the unintended consequences. We got a front row seat to the repercussions of Fed meddling in 08. If Greenspan hadn't tried to abort the tech bubble collapse and recession we wouldn't have had a real estate and credit bubble to begin with. And we would never have had the Great Recession. Bernanke in his infinite wisdom has now set the stage for the next depression and the stock market is saying it has probably begun.

GOLD T-1 PATTERN?

2011-05-28T15:14:00.000-07:00

There is quite a bit of speculation lately as to where the impending intermediate cycle decline will take gold down to. Today I'm going to throw my guess into the fire.

Some people expect gold to drop to $1400. Some $1300. Some even doubt that gold will ever go down again. However after watching gold for years and studying its history I think I can safely say that gold never misses an intermediate decline. Next week will be the 18th week of the current intermediate cycle. That means gold is now in the timing band for a bottom. If gold is in the timing band for a bottom a top can't be far off.

In the weekend report I discussed the impending stock market yearly cycle low and three year cycle low in the CRB that are both coming due together this summer. A yearly cycle low in stocks is the second most severe selling event ever seen in the stock market, only exceeded by a four year cycle low, which by the way is due in 2012. The three year cycle low in the CRB is the single most severe selling event for commodities.

By a twist of fate these two major selling events should happen simultaneously this summer. The combination of of these two major cycles bottoming together will almost certainly intensify selling pressure into the stratosphere. In an environment like that fundamentals will go right out the window.

In theory gold put in it's yearly cycle low last January at $1308. Barring something extraordinary I would not expect that low to be violated. However we could very well see something extraordinary.

While the pattern isn't "clean" there is an ongoing T-1 pattern in play on the gold chart that suggests that $1575 probably was the top of the current C-wave and if that is so and the T-1 pattern plays out as expected we should see a test of the the mid-point consolidation during the summer sell off.

That consolidation zone for gold's T-1 pattern comes in at roughly $1225- $1250.

Of course I have no idea if this will play out as we move into the summer but if in July gold touches the $1250 level I think it will be the last great bargain we will get in the secular gold bull market.

WARNING SIGN

2011-05-27T04:40:00.000-07:00

The debate lately is whether or not gold still has one more leg up. For the many reasons I went over in last night's report I think it has become too dangerous to continue to play the long side in the precious metals so I don't really care anymore whether gold is going up. The risk is now high that one gets caught in an intermediate decline or worse a possible D-wave.

Here is one more reason. The miners have broken below a prior daily cycle low.

This isn't a perfect signal. Of course nothing in this business works 100% of the time but this particular signal works about 80-90% of the time and those are the kind of odds it usually just isn't worth bucking.

You can see in the above chart that every intermediate decline in gold was preceded by the miners falling below a prior cycle low. That condition is now active in the current market.

As a case in point a violation of a daily cycle low in gold is the main confirmation we look for to confirm that gold has entered an intermediate degree decline.

I've marked the expected timing band for when the next intermediate low should bottom in late June to mid July. You can see that the summer low came last year in late July. The yearly cycle tends to run about 12 months on average so I wouldn't expect this to be over for at least another month to a month and a half. As it stands today gold topped on week 14. That gives it a lot of time to grind lower. As a matter of fact every intermediate decline since this phase of the bull began has dragged gold considerably below the 50 day moving average and fairly close to the 200 DMA. That would suggest gold would at least move back to $1400 if this is just a normal intermediate degree correction.

If this turns into a D-wave then we can expect at least a 38% retracement of the prior C-wave advance. This C-wave began in April of 09 at $860. A 38% retracement of that rally would drag gold back to roughly $1300.

Folks this is what you are risking getting caught in by trying to squeeze the last few pennies out of this sector. Now if gold was doing what I think it should be doing I would be happy to hang on to positions. But it's not! The weak dollar yesterday and today for that matter should be sending gold rocketing higher. So far it's not happening.

Combine this with the warning sign from the miners and I simply don't want to play the game anymore. It's easier to just wait for the intermediate correction or D-wave to run it's course and then get in as close to the bottom as we can for a much safer trade and one we will be able to hold onto for 12 to 15 weeks with little fear of significant draw downs.

BIG MOVE COMING

2011-05-25T05:52:00.001-07:00

Often when we see small moves in the McClellan oscillator it proceeds a large volatile move in stocks. Kind of like a spring compressing.

Since it is now very late in the daily cycle and sentiment has reached exceptionally bearish levels (especially in the Nasdaq) the assumption is that any day now the market is going to rocket higher out of the three week bull flag.

My guess is we will get some news out of Europe that they have successfully kicked the can down the road for a few more months and the market will take off.

WARNING SIGNS

2011-05-15T09:53:00.000-07:00

It is been my belief that stocks and the economy have been locked in a secular bear market since March of 2000. During that period we've had two recessions and two cyclical bear markets. One of those recessions was the worst since the Great Depression and the last bear market in stocks was the second worst in history.

I've said all along that printing money will not cure the problem we've gotten ourselves into. It's never worked in history and it's not going to work this time either. We can't solve a problem of too much debt with more debt. All we will accomplish is to make the problem bigger.

We are now fast approaching the period when the next crisis should arrive.

On average the stock market suffers a major correction about every four years. In a secular bear market that cyclical trough arrives as the economy sinks into recession and a stock market bear bottoms out.

The last four year cycle bottom formed in March of `09. That just happened to be the longest four year cycle in history. I've noted before that long cycles are often followed by a short cycle that compensates for the extended nature or the prior cycle. If that's the case then the next four year cycle low is due sometime in 2012. (My best guess is in the fall).

As we are still in a secular bear market then the move down into the four year cycle trough should correspond to another economic recession and cyclical bear market for stocks. Bear markets tend to last about a year and a half to two and a half years. If the next four year cycle bottoms in the implied timing band then the current cyclical bull should be topping soon.

As a matter of fact the stock market is already flashing warning signs. Three of the largest and most important sectors in the S&P have not confirmed new highs.

Another warning sign; Despite record earnings the market has only been able to move to marginal new highs and is now in jeopardy of reversing the recent breakout.

I've noted in the past that this is how major tops and bottoms are often established. Smart money sells into the breakout, or buys the break down in the case of a bottom. The trend then reverses and a major turning point is formed. Both the `02 bottom and the `07 top were put in this way.

The market is now at risk of a similar event as we've experienced a marginal breakout to new highs that is threatening to fail. Don't forget this is happening against a back drop of record earnings.

When a market can't move higher on good news something is wrong. And don't forget bull markets don't top on bad news, they top on good news.

If the market can recover and move to new highs the cyclical bull will be confirmed, but if the market continues to fade and drops back below the March 16th "tsunami" bottom it will constitute a failed intermediate cycle. If both the Dow and the Transports close back below that level we would have a Dow Theory sell signal and that would confirm the next leg down in the secular bear has begun.

It would also be a signal that the economy was unable to handle the spiking food and energy costs that were the direct result of Bernanke trying to prop up the financial system with his printing press.

Like I said, printing money has never been the answer. Every empire in history has tried this approach and not one of them has ever succeeded with it. We won't either.

TRANSITION COMPLETE

2011-05-12T06:25:00.000-07:00

Despite my bias to see new all time lows in the dollar index, I think the dollar probably put in the three year cycle low last week. Sentiment at the time had reached multi-year lows and as of yesterday the dollar had moved back above the 50 day moving average.

If I'm right then this should usher in the next deflationary period just like the rally out of the `08 three year cycle low signaled a coming recession, the next leg down for stocks in the ongoing secular bear market, and a collapse of the CRB into it's 3 year cycle low.

This should also drive gold down into it's D-wave decline. Yesterday the miners made a lower low and this morning silver made a lower low. It's probably only a matter of time before gold breaks below the $1462 pivot. That would confirm that gold is now in an intermediate decline and this late in the C-wave that would almost certainly turn out to be a D-wave correction.

The good news is that sometime in late June or early July we are going to get the single best buying opportunity we will ever get for the rest of this bull market.

At this point the goal is to preserve capital and get to that major D-wave bottom with plenty of dry powder.

TRANSITION TO THE D-WAVE

2011-05-08T07:23:00.000-07:00

Don't let the title fool you, for reasons I've outlined in this weekend's report I think gold likely has one more move to new highs before the D-wave begins.

However, the action in the dollar and silver this week have probably taken the parabolic phase of this C-wave off the table. Rather than the normal sharp spike up it appears that this C-wave is going to end with a more modest move than prior C-waves. That being said it did last much longer and gain just as much above the prior C-wave top as any other C-wave. So in terms of duration and magnitude this C-wave has fulfilled every expectation.

I've noted in the past that a D-wave is a regression to the mean, profit taking event. That regression tends to be most severe when the C-wave ends with a parabolic move. Action and reaction.

However this time it appears there will likely be no parabolic rally to top the C-wave. In that case the D-wave will probably be milder than prior D-waves. As a point of reference every D-wave so far has retraced at least 62% of the prior C-wave advance.

Without the parabolic stretch I think it's likely that the impending D-wave will only retrace roughly 50% of this C-wave. If gold pushes up to a marginal new high slightly above $1600 (in the weekend report), then it will probably only drop to around $1250 which just happens to mark the upper boundary of last summer's consolidation zone.

What should follow after that is a fairly strong A-wave surge. A-waves usually test but don't break to new highs. At that point gold will enter a long sideways period to consolidate the massive gains made during the this last C-wave. During this period it will get very tough to make money in the precious metals market.

However there is still some upside potential once gold puts in the daily cycle low that is trying to form now. Great potential during the D-wave if you know how to use puts and excellent upside potential during the A-wave next fall, before the metals sink into the consolidation doldrums.

This year still has great opportunities left and of course we still have the next C-wave to look forward to in 2013. That one should make this C-wave look puny in comparison.

NEARING THE BUY ZONE

2011-05-05T04:37:00.000-07:00

Gold is on day 4 of the decline into it's daily cycle low. On average gold puts in a cycle trough about every 20-30 days. This one has stretched slightly long, no doubt driven by QE2. As a matter of fact almost all cycles have been stretched the last two years by the Fed's printing activities. Consequently all markets have been swinging wildly between bullish and bearish extremes.

Think of it as a rubber band. The further you stretch it the harder it snaps back once the pressure is released. Gold and especially silver were stretched extremely tight during the last couple of months. Now that the profit taking event is here it is understandably severe simply because the upside was so powerful.

However QE hasn't ended. So once the correction runs it's course we should see another massive swing to the upside, again driven by free money and the extremes to which gold moves to the downside. The further the correction goes the more powerful the rebound will be once selling pressure exhausts.

It will also be driven by the many investors and traders that got thrown from the bull during the correction chasing as the metals surge higher out of the cycle bottom.

I've noted in the subscriber reports that gold will usually reach certain short term oversold conditions at daily cycle bottoms. We are now getting close to those conditions with this mornings move.

As you can see a daily cycle correction will almost always drive the 5 day RSI into oversold levels before bottoming. We also usually see a tag or penetration of the lower Bollinger band at daily cycle lows. As I write gold is about $1499/$1500. The lower Bollinger band will rise to about $1490 today.

Someone trying to pick a bottom should be fairly close if they buy on a touch of the lower Bollinger band.

Stocks and oil are also moving down into daily cycle lows. Oil especially is very deep in it's cycle and due for a bottom soon. I would guess it will bottom within a day either way of gold. Oil is slightly ahead of gold and has already moved to short term oversold levels deep enough to form a cycle bottom. I doubt it will drop too much further than $105 and I certainly think buyers will step in at $100.

There is a possibility that gold, stocks and oil will all form a bottom sometime tomorrow on the May jobs report. If the report is weak (which is a strong possibility) we could see a gap down open. If the gap is recovered by the close and especially if the market can close positive we will probably have our cycle low in place.

We would then need to see a swing low on Monday to get the first confirmation that the correction has run it's course.

GREATEST PROFIT POTENTIAL OF THE LAST DECADE

2011-05-03T05:34:00.000-07:00

After what should be a brief pause this week commodity markets will move into the greatest rally of the last decade. As usual I will stay focused on the precious metal markets. They have been the leaders during this entire move out of the `08 bottom and they will see the largest parabolic move of all commodities during the final leg up.

I've noted in the past that consolidation size is usually a good leading indicator of how large the following rally will be. Gold just consolidated for 5 months. That is going to produce a massive rally. It's already produced a large move and it's just started.

Gold and especially silver have already come much further than I originally expected at this stage of the game. I was looking for gold around $1650 and silver at $50 by the top of this C-wave. Silver has already reached that level and gold tagged $1575 yesterday. This has unfolded in only the first two daily cycles. The third daily cycle is where the real parabolic gains are going to occur.

The third and last daily cycle higher during the semi parabolic move in `09 added 200 points in a little over a month.

The coming parabolic move will be significantly more powerful than what happened in `09 as this will be a final C-wave move. We should easily see a 300- 350 point move in gold and it's anyone's guess as to how far silver rallies during the final parabolic finish. $65 or even $70 isn't out of the question.

Now for the downside. The final dollar collapse is also going to drive the rest of the commodity markets wildly higher. That will include the energy markets. Oil is due for a brief move down into its cycle low this week too. Once that has run it's course we will see oil soar higher, possibly even reaching the `07 high of $150.

$150 oil collapsed the global economy in `07 and the economy was in much better shape with much lower unemployment than it is now. In an environment of already high unemployment $150 oil and soaring food prices are going to drive the global economy into a recession even worse than what we suffered in `08.

Social conflict in the middle east and many emerging economies is going to intensify. People in depressed countries already can't buy food to feed their families, what do you think will be the response if food prices double again?

The world is about to pay the price for Bernanke's attempt to print prosperity and it is going to be a very steep price and cost many lives.

BERNANKE BOTTOM OR CRASH!

2011-04-27T05:02:00.000-07:00

Today's FOMC meeting and press conference has the potential to either put in a daily cycle bottom in the dollar index or initiate a waterfall decline into the dollar's three year cycle low. There is a lot riding on this meeting.

Let me explain. Today will be the 26th day of the current dollar cycle. That cycle typically lasts about 20-25 days. So it's already starting to stretch here. The last few days the dollar has been consolidating while it waits to hear what the Fed has to say. I suspect if the Fed clearly states it will close down QE2 in June that will give the dollar the impetus for another dead cat bounce.

Make no mistake though, this will only be a dead cat bounce. Just because Bernanke ends QE2 in June doesn't cure the problem of the trillions of dollars he's already printed. The foolish attempt to print prosperity is going to have dire consequences, it is going to cause a dollar crisis. There's no way Bernanke can avoid that now. The damage has already been done. There's no way to push the toothpaste back in the tube.

In the event that the Fed does clearly state their intention to end QE (and I think this is the most likely scenario) the minor dollar rally should drive a continuing correction in gold and silver. They are due for a daily cycle correction. It will only be a correction though. The dollar catastrophe isn't done yet and Gold's C-wave still has further to go (alot further).

The other scenario, and the one I think is less likely, Bernanke doesn't state a clear intention to halt QE and the dollar tanks. Thus initiating a final dollar crisis immediately.

Only an Keynesian academic would think lasting prosperity can be created, with no unintended consequences, by printing money. But only an imbecile would risk sending the dollar over the cliff that it's hanging on. Bernanke had better say the right things this afternoon or all hell is going to break loose in the currency markets.

DOLLAR CYCLE

2011-04-20T04:19:00.000-07:00

For many months now I've been warning we were going to have a dollar crisis and that dollar crisis would drive the final leg up in gold's ongoing two year C-wave advance. We are now on the verge of the panic selling stage of this three year cycle.

On Monday the dollar briefly rallied on the S&P downgrade of US debt (who knew?). That had the potential to mark the bottom of the current dollar cycle. But by this morning the dollar has given back all of those gains and then some.

I've noted in the premium report that the dollar's daily cycle often turns on the employment report at the beginning of each month. The previous cycle bottomed one day after the March report and the current daily cycle topped on the April report.

If this pattern continues then we can probably expect the current dollar cycle to stretch for another 2 1/2 weeks into the May report (give or take a day or two either way).

I seriously doubt gold is going to suffer any meaningful correction as long as the dollar is in free fall, so I expect we are going to see the gold cycle stretch also.

If the dollar does continue lower into the May employment report before putting in the cycle low it would then be set up for a more normal duration decline into the final three year cycle low due on or around the June report.

However with the dollar losing it's chance to rally here gold and especially silver are now at risk of entering a runaway rally.

Details in last nights subscriber report.

MARKET UPDATE

2011-04-17T04:21:00.000-07:00

Stocks:
On Friday stocks formed the swing we were looking for to mark the half cycle low.

The bottom came on day 5 of the move out of the coil (usually a coil will reverse in 3-5 days). So if the pattern plays out like it normally does we should see the stock market move to new highs.
Now for those of you that are playing the Bollinger band crash trade and/or the VTO trade put a stop below Thursdays intraday low. Technically this is modifying the rules of the trade but there are a couple of warning signs that have sprung up. (More on that in a minute.)

The reason I'm suggesting a stop as opposed to following the normal rules is because if the half cycle low gets violated then the market will have initiated a new pattern of lower lows and lower highs. Don't forget we are only 4 weeks into an intermediate cycle. If the coil pattern were to break down and the market starts to head lower this early in it's intermediate cycle the odds will increase significantly that the cyclical bull has topped and the next leg down in the secular bear market has begun.

As most of you know I've been expecting the secular bear to return sometime this year. I was expecting it to happen a little later but if the coil fails then there is a good chance the bear has arrived a little earlier than I was expecting.

Now here are the warning signs I was talking about. First off, we've seen two large selling on strength days in a row. That by itself is just a mild warning sign because this indicator hasn't been terribly reliable lately, and even when it does get it right it's often early. So take that one with a grain of salt.

The next warning is the action in AAPL. If you recall last week I mentioned that I watch AAPL as a sign of speculative demand in the market. After getting deeply oversold AAPL had a chance to rebound and reverse the pattern of lower lows and lower highs. It has failed miserably and is now on the verge of confirming another lower low.

Another negative is the action in the banking index. The BKX was not able to hold above support at 52, and is now in jeopardy of breaking below the Japan bottom.

All in all I think if the market can't catch a bid next week and breaks that half cycle low the best course of action is to get the hell out of Dodge and ask questions later. It's just way too late in this cyclical bull market to hang around once things start acting iffy.
Folks the general consensus is that earnings will reach record levels this quarter. Think about that, record earnings yet the stock market is still 16% below it's all time high.

What do secular bear markets do? That's right they compress P/E ratios over time. We have record earnings yet the market isn't willing to pay the same price for those earnings as it did in 2007. Heck earnings have almost doubled from the 2000 top but the market is still priced lower. Folks what we are seeing is a secular bear market at work grinding away at valuations. Actually not only are we seeing valuations fall but we are also seeing earnings artificially inflated by currency debasement. The market isn't fooled. That's why it's not willing to pay up for those phony earnings.

Now let me ask another question. Do bull markets top on bad news? No of course not they top on good news. What could be more bullish than record earnings? On the other hand what would be more bearish than a market that can't translate those record earnings into higher prices and instead we see the market drop through earnings season?

We've now got two lines in the sand. A break above 1340 and the cyclical bull is still intact. A move below 1300 and the odds are high that the secular bear has emerged from his 2 year nap and is ready to get back to work.

SILVER STRETCH

2011-04-14T19:36:00.000-07:00

I'm starting to get the feeling that many people have now come to the conclusion that silver is bullet proof. First off let me warn you that we still haven't seen anything that looks like a daily cycle correction yet, and gold is now moving into the latter part of the timing band for that short term correction. When gold dips down into that trough silver is going to follow.

Next let me show you a couple of longer term charts so you can get some idea of just how overbought this market is and how dangerous this is becoming especially this late in the cycle.

In the first chart I've noted that silver has now rallied 100% above the last C-wave peak.

That's much larger than any other C-wave rally. It's pretty rare to ever see an asset rally 100% above a prior peak. That alone warrants caution. I also noted that silver is currently stretched 60% above the 200 DMA, also a new all time high.

I suggested in a nightly report that we could easily see a $3-$6 correction in silver once the move down into the daily cycle trough begins. I have a feeling most people at this point think that's virtually impossible. But is it really? Look at a $6 correction on that long term chart.

A $6 correction is almost insignificant. It wouldn't even take silver back to the 50 DMA. A $6 correction would just be a normal pullback to test the March pivot and ease the extremely stretched conditions.

I'll tell you what else a $6 correction would do. It would destroy all the over leveraged players. It would convince everyone that the silver rally is finished. And more importantly it would set silver up for the final spike higher to my expected target of $50 during the final daily cycle.

Ask yourself, are you so heavily leveraged that a move back to $36-$37 would completely freak you out and knock you out of your positions?

When gold gets this deep into a cycle a move higher by the dollar almost always triggers a correction.

The dollar is due for a short term bottom any time now. I expect this time won't be any different in that a dollar rally will trigger gold's move down into the impending cycle low.

This late in a daily cycle and this stretched above the mean it is becoming increasingly dangerous to keep your foot to the metal (pun intended). If you're driving 200 MPH you might want to slow down to 100-120 for the next week or two.

STOCK MARKET COIL

2011-04-08T09:23:00.000-07:00

The S&P is currently forming a volatility coil. I've noted in the past that the initial move out of a coil tends to be a false move that is quickly reversed and followed by a more powerful and durable move in the opposite direction.

The assumption is that the coil will break to the downside early next week as earnings season begins. Stocks are now in the timing band for a half cycle low which also lends credence to the downside theory.

Usually the initial move only lasts 2-4 days. So I expect by the end of next week we will see the market start to reverse. Stocks should then enter a powerful uptrend for another 5-7 weeks.

This should push sentiment to levels consistent with bull market tops. By this time oil will have spiked high enough to poison the economy. I expect by early June will start to see signs that that the economy is rolling over again.

Bernanke in his infinite wisdom will have made the same mistake he did in `08. In the effort to print prosperity all he will have done is spike inflation and collapse the economy again.

My expectation is for the current intermediate cycle to play out as a left translated cycle (top in less than 11 weeks). I think a tag of the upper trend line of the megaphone topping pattern we've been watching for the last year would be a reasonable level to establish short positions in preparation for the next leg down in the ongoing secular bear market.

One caveat: I would not trade a break higher by shorting, expecting a reversal back down. It's too early in the daily and intermediate cycle to expect a prolonged correction in stocks. If the coil breaks up then I would assume that this will be one of those 30% that the initial move is the correct move.

INTERVIEW

2011-04-06T20:34:00.000-07:00

Interview with Tekoa Da Silva of the Contrary investors cafe.

BREAKOUT

2011-04-05T08:46:00.000-07:00

As long as the rally holds into the close we will finally have the breakout from the huge triangle consolidation we've been waiting for. Plus a close above 580.

END GAME

2011-03-20T07:02:00.000-07:00

For months and months I've been warning investors that the dollar was going to come under extreme pressure sometime this year. I expected it to probably happen in the spring. Many people thought I was nuts. They were sure it was the Euro that would collapse, despite the fact that the EU is doing everything they can to protect their currency while Bernanke is doing everything he can to destroy ours.

On Friday the last confirmation occurred to signal the final collapse is now underway. On Friday the November yearly cycle low was violated. Cyclically this event is a major catastrophe.

We are now going to see the dollar get absolutely hammered for the next couple of months. The viability of the dollar as a currency will be questioned. There is a decent chance it may start to lose its status as the world's reserve currency. (Coincidentally about the time everyone becomes convinced the dollar is going to hyper inflate that will be the point where the three year cycle low will bottom and we will see an explosive rally, along the same lines as what happened in the latter half `08.)

This is what all the top pickers in gold and silver fail to understand. They are all trying to call a top based on charts without any understanding of what is happening to the currency.

In a currency collapse the market will flee into assets that will retain their purchasing power. Four weeks ago we went past the point of the stock market being able to protect one from Ben's printing press any longer. So buying stocks as protection is no longer a viable solution.

Four weeks ago spiking inflation rose to the point where profit margins are now being hit. Ben will no longer be able to prop up the stock market by further debasing of the currency. Stocks have now decoupled from their inverse correlation with the dollar and will now follow the dollar down.

The more Ben prints and the faster the dollar collapses, the faster the stock market is going to fall...and the quicker the economy is going to roll over into the next recession.

What will happen is that liquidity will rush into the commodity markets as the only true protection against the accelerating currency crisis.

This is why one has to ignore the top pickers and chartists. Overbought oscillators and stretched conditions are meaningless in a currency collapse. This is all about fundamentals. It's about protecting your purchasing power. You can't do that by exiting the one sector fundamentally best suited to protect you during this storm, which are the precious metals.

Now isn't the time to be selling your gold, silver or mining stocks, it's time to be buying more.

For the next couple of days I am going to run a special on the 6 month subscription at $20 off the normal price.

6 months should be long enough to get investors through the currency crisis, allow you to ride the final parabolic spike in gold and silver (C-wave finale), avoid the inevitable crash (D-wave correction) that always follows a parabolic move, and then get long again at the bottom in preparation for the next major wave up in gold.

Click here to access the premium website, then scroll down and click on the subscribe link. Enter '6monthspecial' in the promotional code box and then click 'continue'. You will be linked to a page with the special offer.

It's Time to Get Out!

2011-03-13T07:45:00.000-07:00

This is for all you folks out there with retirement accounts in the general stock market. I've been warning for many months that the cyclical bull we've been in for almost two years is still just a counter trend rally in an ongoing secular bear market. I made that same warning about the last cyclical bull market from `02 to `07. Many people ignored me in November `07 when I said the second leg down in the secular bear had begun. I suspect many people wish they hadn't.

There are now warning signs that this counter trend rally may have topped, and even if it hasn't the potential upside is so small that it's not worth the risk of getting caught in the next bear leg to catch a few more percentage points.

As of Thursday and Friday the stock market has now broken below the prior daily cycle low. When a daily cycle low gets violated it invariably signals the start of an intermediate degree correction.

The warning bells are going off not so much because an intermediate degree correction has begun, those happen like clock work about every 20-25 weeks, but because of how quickly this daily cycle has topped. In only three days. That means we are now locked in an extremely left translated daily cycle.

It is those extreme left translated cycles that do the most damage. The daily cycle following the flash crash last year was a left translated cycle that topped in only 4 days. We all know what that led to.

The bigger picture is the intermediate cycle. Notice the market is now on week 16 of the current intermediate cycle. I noted earlier that an intermediate cycle low is due about every 20 to 25 weeks. On an intermediate term basis the market is now due to move down into that major cycle low. The next larger cyclical structure is the yearly cycle. That is also due to bottom with this daily and intermediate cycle. The combination of all three cycle durations bottoming at the same time will almost always produce a very severe correction.

Because of how the dollar cycle is unfolding (available to premium subscribers) I expect the stock market cycles to bottom pretty close to the 1 year anniversary of the flash crash.

As a point of reference the last intermediate cycle low occurred in November. The danger is that both the industrials and transports might drop below the November bottom during this correction. If that happens a Dow Theory sell signal will be generated. If a Dow Theory sell signal is generated the odds will be very high that this counter trend rally is over and the next leg down in the secular bear market has begun.

And unfortunately Bernanke is not going to be able to just crank up the printing presses and rescue the markets like he did last summer. The problem isn't that there is a shortage of liquidity. The problem is that there is too much liquidity. It is causing commodity prices to surge out of control.

Oil is back over $100 despite continued high unemployment and impaired demand. Food prices are going through the roof and have already trigger social revolt throughout the mid east and most emerging markets. Once the next leg down in the dollar crisis gets underway it won't be long before we here in the US will be looking at $4.00 or $5.00 for a gallon of gasoline.

As the dollar crisis intensifies Bernanke will be forced to end QE or risk breaking not only the currency but also the bond market. Without an endless supply of fresh money the markets and economy will quickly start to collapse. We saw this last summer when QE1 ended. The same thing will happen this time only Bernanke's hands will be tied by the dollar crisis and surging commodity inflation. He will be powerless to prevent the return of the secular bear forces. Well unless he's prepared to risk hyper inflation that is.

Personally I don't think Ben is willing to completely destroy the dollar and crash the bond market just yet. I suspect when he finally realizes that Keynesian economic principles have led us down a path of no return he will resign and someone else will put the finishing touches on his master piece.

The only question is whether those finishing touches will be to allow the deflationary depression that is required to cleanse 5 decades of debt from the system or whether we will choose the hyper-inflationary path to service the debt spiral we've gotten ourselves into.

In any case it is time to exit all general stock market funds and position oneself in cash to ride out the next leg down in the secular bear market. If one has a gold or precious metal fund available in their IRA we should have about two months left of spectacular gains as the parabolic finale unfolds in the gold and silver markets. But once that has run it's course even those positions will need to be exited as there is no real way to diversify against another severe bear leg down.

The simple fact is that in a severe bear market everything gets taken down to some extent. Gold will hold up much better than practically all other assets but even gold will take a 20-30% hit during a D-wave correction. And all parabolic C-wave finales are invariably followed by an severe regression to the mean profit taking event.

Unless one has the option of a gold fund, it's now time to get out of general stock funds and move IRA's to a money market fund until the next four year cycle low is reached (probably in late 2012).

DEJA VU

2011-03-10T21:20:00.000-08:00

The charts say it all. Ben is going to make the same mistake all over again.

STOPS AND TRADE TRIGGERS

2011-03-10T06:22:00.000-08:00

I have added a stops & trade triggers link to the premium site with the current trade trigger levels for stops and levels where we will add to positions..

UNINTENDED CONSEQUENCES

2011-03-07T18:28:00.000-08:00

The recent rally in gold, oil, and commodities in general has been extremely powerful. Despite protestations to the contrary by our clueless Fed president, it's very clear what is driving this massive commodity inflation when you look at this next chart. That's right we are now seeing the unintended consequences of printing money.

Just as soon as the dollar started to collapse commodities began to surge. And if you think it's bad now wait till the dollar breaks below the November pivot. When that happens, and it will happen, it will signal that we now have a yearly cycle that has topped in only 4 weeks and has already moved below the last yearly cycle bottom. That my friends is an incredibly bearish sign.

At that point the market will no longer be able to delude itself that everything is OK. At that point inflationary pressures will surge out of control. At that point Bernanke will understand the magnitude of his catastrophic blunder when he ran QE2. And at that point it will be too late to stop.

Actually this path was already determined when Ben opted for QE1 to abort the debt cleansing process that was underway in 08 and 09. Yes he bought us a little time but the ultimate cost is going to be much greater than anyone could have foreseen. It would have been much better if the depression was allowed to run it's course. We would be most of the way through the pain by now and ready to come out the other side into a golden age. Instead we have another decade or more of misery ahead of us. All because our leaders don't have the foresight to see the consequences of their actions.

Now on a more immediate note the dollar is due for a dead cat bounce anytime now. When it does it should force a brief correction in gold, oil and commodities in general.

This will be your last buying opportunity before the final parabolic move begins in earnest. Once the dollar breaks below that November low all hell should break lose in the currency markets forcing all commodities, especially gold and silver into what will likely be one of the most powerful rallies in history.

THE RECOGNITION STAGE

2011-03-06T18:09:00.000-08:00

At some point in any bull the market finally "catches on". That recognition phase shows up as an explosive expansion in volume on the weekly charts.

In early `05 the market finally figured out that the steady rise in oil price wasn't a fluke. That it was in fact a massive bull market in the making. You can clearly see this "recognition phase" in the two charts below.

The same thing happened with the major mining stocks in early `09.

Silver has now reached the recognition stage.

The market has also figured out what the bellweather mining stock of this secular bull is.

WHAT'S AHEAD

2011-03-04T03:55:00.000-08:00

From the March 2nd nightly report.

"Folks I want to start preparing you for what’s ahead. Once we get into the final daily cycle up in gold I think we are going to see a parabolic move unlike anything we’ve seen yet. And on the flip side as the dollar starts to drop, or maybe crash is a more appropriate term, into it’s final three year cycle low we are going to see an absolute horror show unfold. That combination is going to drive gains unlike anything any of us have likely ever made before.

The world will be in an utter panic to get rid of dollars. And the stock market is not going to provide protection from this kind of inflationary storm so a lot of those dollars are going to end up in the commodity markets, and especially in the precious metals. When that kind of money hits a thin market like gold, and especially silver, it will drive gigantic gains.

There is going to be extreme temptation to jump off early simply because one can’t believe they could possibly make that much money that fast. Let me warn you now don’t give in to that temptation. We know what to look for at a three year cycle low and we know what to look for at a C-wave top. Until we see those signs sit tight. Trust me it’s going to be one of the hardest things you’ll do all year.

Folks, fortunes are going to be made in the next two months."

GOLDEN FIREWORKS ARE ABOUT TO BEGIN

2011-02-27T08:47:00.000-08:00

The gold bull is now on the verge of launching the most spectacular up leg of this 10 year bull market. This spring we should see the final parabolic rally of the massive C-wave advance that began in April `09 with a test of the 1980 high at $860.

First off let me explain gold's 4 wave pattern (and no it has nothing to do with Elliot wave).

Gold moves in an ABCD wave pattern, driven not only by the fundamentals of the gold market (which I will get into in a minute) but also by the emotions of gold investors and the thin nature of the precious metals market.

The A-wave is an advancing wave that begins and is driven by the extremely oversold conditions created during a D-wave decline (more on that in a second). A-waves can often test the all time highs but rarely move above them. Usually they will retrace a good chunk of a D-wave decline.

The B-wave is a corrective wave spawned by the extreme overbought conditions reached at an A-wave top.

The C-wave is where the monster gains are made. They can last up to a year or more. The current C-wave is now almost two years old. They invariably end in a massive parabolic surge as investors and traders chase a huge momentum driven rally.

Of course as we all know parabolic rallies are not sustainable. So the final C-wave rally ends up toppling over into a severe D-wave correction as the parabola collapses. This is about the time we hear the conspiracy theorists start crying manipulation. In reality all that has happened is that smart money is taking profits into a move that they know can't be sustained.

Then the entire process begins again.

Next, let me show you the fundamental driver of the secular gold bull. It's probably no surprise to most of you that the Fed's ongoing debasement of the dollar is one of the main drivers of this bull. But let me take this one step further and show you how the dollar's three year cycle drives these major C-wave advances and how the move down into the dollar's three year cycle low always drives a final parabolic C-wave rally.

Let's begin with a long term chart of the dollar. I've marked the last 7 three year cycle lows with blue arrows. The average duration from trough to trough is about 3 years and 3 months. As you can see the dollar is now moving into the timing band for that major spike down in the next 2 to 3 months.

The extreme left translated nature (topped in less than 18 months) of the current cycle gives high odds that the final low when it arrives will move below the last three year cycle low. That means that sometime between now and the end of May we should see the dollar fall below the March `08 low of 70.70.

That crash down into the final three year cycle low will drive the final parabolic move up in gold's ongoing C-wave advance. Every major leg down in the dollar has driven a major leg up in gold since the bull began. I really doubt this time will be any different.

I will be watching the dollar over the next couple of months for signs that the three year cycle low has been made. Because once the dollar bottoms and begins the explosive rally that always follows a major three year cycle low it will initiate the severe D-wave correction in the gold market. Gold investors will want to exit at the top of the C-wave if at all possible and avoid getting caught in the D-wave decline.

There is a developing pattern on the gold chart that once it reaches its target will be a strong warning for traders and investors to exit so they don't get caught in the D-wave profit taking event as the parabola collapses.

This T1 pattern is a four part pattern with the first and second legs up being almost equal in magnitude, separated by a midpoint consolidation that allows the 200 day moving average to "catch up". The current T1 has a target of roughly $1650ish once gold breaks out of the consolidation zone.

The fourth part of the pattern is the D-wave correction which should retrace to test the consolidation zone between $1300 and $1425. At that point the next A-wave will begin and we'll repeat the whole process all over again.

Let me be clear though. I have no desire to buy gold. I doubt I will ever buy another ounce of gold again. The real money will be made in silver during this final C-wave advance and in the miners (I prefer silver miners).

During the last major moves higher in the gold market, miners, which are leveraged to the price of gold, stretched 35% to 45% above the 200 day moving average. At the latest peak the HUI was only 25% above the mean - a strong clue that this was not the final C-wave top.

I expect we will see the HUI stretch 40 to 60% above the 200 DMA at the final top later this spring. But like I said, I really have no desire to buy gold or the major gold miners. The real money is going to be made in silver and silver miners.

Silver has been exhibiting exceptional strength compared to gold for 7 months now. The consolidation on the silver chart is much larger than on the gold or gold miner charts. I expect that massive consolidation to drive silver up to test the old 1980 high of $50 by the time gold puts in its final C-wave top.

The time to get on board is before gold breaks out of the consolidation. Once it does the parabolic move should be underway and your chances of a significant pullback to enter the market will decrease significantly.

I've been helping investors time the gold and silver bull for several years now. If you are the kind of person that needs a coach to keep you focused on the big picture, someone to cut through the meaningless noise of all the myriad top callers and bubble proponents, someone to show you how these long and intermediate term cycles operate so you can actually make money from the gold bull, consider a subscription to the premium newsletter which includes the daily and weekend reports. To subscribe click here.

Now is the time to act before the bull comes roaring out of the gates and the golden fireworks begin.

Rebate

2011-02-25T07:42:00.000-08:00

I've known this has been a problem for quite some time but have just chosen to mostly ignore it. I think it's now time to address the problem of subscribers forwarding the nightly reports.

Realistically there's no way to police this kind of theft, and if you just want to forward one or two reports to a friend so they can sample the SMT I have no problem with that.

I do have a problem when someone copies the report and forwards it to 20 of his investing buddies though.

I think we can all agree that the price of the newsletter is chump change, especially compared to the profits we made last year or even so far this year for that matter.

I've kept the cost of a subscription down to a reasonable level to where virtually anyone can easily afford a yearly subscription. So price really shouldn't be an issue.

So here's what I'm going to do. I'm going to give everyone an incentive not to pass on the reports freely. I'm going to rebate $50 for every friend or associate you send to the SMT that signs up for a yearly membership.

If you sign up 4 people your membership for the year is free. If you sign up 8 people not only is your membership free but you will make $200 (go buy some silver Eagles).

They have to sign up for a year. They will need to tell me at the time who referred them and give me your email address so I can deposit the funds in your Paypal account.

There will be no limit to how many people you can refer but I'm not going to try and keep track of this on a yearly basis, and I'm not going to do retro rebates. The program will begin today. It's just going to be a one time rebate of $50 whenever you refer a new subscriber for a yearly membership.

Hopefully this will be enough incentive to cure this problem.

THERE GOES THE FIRST SECTOR

2011-02-23T19:47:00.000-08:00

Bear markets begin when something fundamental breaks. Usually the sector initially affected will roll over before the general market and tends to be a warning sign of what lies ahead.

The last bear market was triggered when the credit bubble created by Greenspan's foolish monetary policy burst. It was exacerbated by Bernanke's foolish attempt to debase the currency and reflate the bubble. All he succeeded in doing was to inflate oil to $147, which put the finishing touches on an already crumbling economy.

The market gave us a warning when the financials began to diverge from the rest of the market. Considering that the banks were one of the leading sectors during the `02-`07 bull the fact that they couldn't follow the rest of the market to new highs after the February `07 correction was a big red flag that the bull was on its last legs.

I've been saying for more than a year now that the unintended consequences of QE would be to spike inflation, which in turn would poison the global economy. I knew all along that Ben was never going to create any jobs by printing money and of course he hasn't.

So if inflation is going to sink the economy and kill the stock market we should see warning signs from the sectors most affected by rising inflationary pressures, just like the banks warned us in `07 that the fundamentals were broken.

Sure enough I think we are starting to see those warning signs.

Emerging markets have been the hit hard by food inflation. We are now seeing food riots in many third world countries. Emerging markets just like financials during the last bull were one of the leading sectors. EEM is now starting to diverge from the rest of the global stock markets. It's now on the verge of breaking back below the November cycle low.

The other sector that is extremely sensitive to inflation is the transports. When energy costs spike shipping companies profit margins are squeezed. The last two days have seen the Dow Transports fold under the pressure of surging oil prices. Keep in mind oil is only on the 17th day of its intermediate cycle. That cycle lasts on average 50-70 days. I think we are going to see $5.00 gasoline by the time the dollar collapses into its three year cycle low later this spring.

If the market can recover from the recent correction and make new highs I don't expect the transports will be able to follow. That will set up a Dow Theory non-confirmation and most bear markets begin with a Dow Theory non-confirmation.

China is already in a bear market. I think most emerging markets have probably topped and I doubt the rest of the global markets have more than 2 or 3 months left before the next leg down in the secular bear market begins.

I think the brief party created by Bernanke's printing press is about to come to an end.

$5 EXPIRATION

2011-02-22T06:41:00.001-08:00

The 15 month & $5 subscription offers will expire at the end of the day.

$5 FOR FEBRUARY

2011-02-21T06:56:00.000-08:00

I think we are on the cusp of an amazing run in the precious metals markets. The time to get on board is now before the train completely leaves the station.

Starting today I'm going to do a $5 for the rest of February offer. For $5 you will get the nightly reports for the rest of the month and access to all historical reports, COT data & terminology document.

At the beginning of March this will convert to a reoccurring 6 month subscription. This should be long enough to get new subscribers through the rest of the C-wave and possibly through the D-wave this summer.

If you decide you don't want to subscribe for the 6 months just log in to your account, go to the manage subscription page and cancel your subscription any time before the end of the month. Your subscription will stay active till March and then expire without any further billing.

To activate the $5 special offer click on the link below and click on the $5 February offer.

https://smartmoneytrackerpremium.com/?pagename=Subscribe

I will also reactivate the special 15 month subscription for the next few days. In order to view that option you will need to enter the word smtwebinar in the promotional code box and then click continue.

DOLLAR ON THE EDGE OF THE ABYSS

2011-02-17T05:15:00.000-08:00

The dollar is now poised on the edge of the abyss.

The current intermediate cycle has rolled over and is making lower lows and lower highs. The current daily cycle has formed a swing high and is in jeopardy of rolling over into a left translated cycle. If the dollar breaks below the November intermediate bottom of 75.63 it will be an incredibly bearish sign as not only will the current intermediate cycle have topped in only 4 weeks but the larger yearly cycle will also have topped in only 4 weeks.

If that happens there is little chance the dollar will be able to hold above the March 08 lows as the crash down into the three year cycle low begins in earnest.

This will not only drive the final leg up in gold's huge C-wave it will also drive a huge spike in inflation in all other commodities. Food riots world wide will intensify. The rest of the world will be in an uproar over the collapsing dollar. Spiking commodity prices will collapse discretionary spending just like it did in 08 and 09.

The phony economy driven by Ben's printing press will roll over when he's forced to turn off the presses to halt the dollar collapse. (Just like it started to do last summer when QE ended and the stock market started to collapse.)

The dollar's rally out of the three year cycle low should correspond with stocks beginning the next leg down in the secular bear market and the next brief deflationary period just like the bounce out of the 08 three year cycle low drove the second leg down in the secular bear market.

The rally out of a three year cycle low usually lasts about a year to a year and a half. The next 4 year cycle low in the stock market is due in 2012. I expect that year long rally out of the coming three year cycle bottom to drive stocks down into the next major 4 year cycle trough and drive the CRB into it's next major cycle bottom.

A lot is riding on the next 2/3 weeks. If the swing high in the dollar yesterday does signal the top of the dollar's daily cycle then the November low will almost surely be broken and the chain of events I laid out will be set in motion.

PORTFOLIO CHANGE

2011-02-15T04:08:00.001-08:00

A portfolio change has been posted to the website.

SILVER BULL

2011-02-12T19:59:00.000-08:00

I've pointed out in the past how consolidation size is usually predictive of how large a move will be once a breakout occurs. I thought I would take a quick look at the silver bull today using that criteria.

As most people know I'm mostly interested in silver during this bull market. I really doubt that I will ever buy another oz. of gold again.

So let's start by taking a look at the long term chart of silver.

As you can see the consolidation principle works perfectly in the silver market. So far we've had three major consolidations and each one as been followed by a powerful rally driven by the size of the preceding consolidation.

The relevant fact is that the longest consolidation has also produced the biggest breakout. If that continues to hold (and I think it will) then the current rally is probably only half over.

A meager 46% breakout is way too small for a 30 month consolidation. If I had to guess I would say silver might be in the process of forming a triangle consolidation pattern, especially if gold has one more drop down into a final intermediate cycle low.

Ultimately I expect this breakout to launch silver to somewhere between $43 and $50 before the next consolidation phase begins.

1-2-3 REVERSAL

2011-02-10T03:26:00.000-08:00

While I don't think gold is likely to head back down and make a lower low I'm going to lay out a simple strategy to protect against getting caught in case it does.

It appears likely that we may see our first reaction against the new uptrend. This is the #2 test of the lows in a 1-2-3 reversal.

If gold then reverses and breaks through the pivot it will complete the 1-2-3 reversal and it will have begun a pattern of higher highs and higher lows.

That would be the signal that the down trend has been broken and one could add in full positions or leverage (don't get carried away) as they see fit.

The downside is of course one will lose some profit potential waiting for confirmation and if gold reverses the early morning weakness you will just have to immediately buy back.

The action would be to lock in some profits this morning and then wait for the pattern of higher highs and higher lows to complete before putting positions back on.

WEBINAR

2011-02-08T07:28:00.000-08:00

Sunday night webinar

SUMMER BREAK

2011-02-06T10:21:00.000-08:00

It has been my contention all along that the Fed would print until something breaks. Once that break occurs we will enter the next leg down in the secular bear market. This time I don't expect it to be the credit markets, although we will almost certainly have trouble in the municipal and state bond markets. Some may even default.

I actually think the greater risk is from massive layoffs by state and local governments in an effort to cut expenses and avoid default. When that begins we will see unemployment levels start to spike again.

The real danger is going to come from inflationary pressures unleashed by the Fed's QE programs. We are already starting to see severe inflationary pressures in food and energy and it's already causing social unrest in many third world countries. Expect this to continue and intensify as we move into the summer months.

Besides starting an inflationary spiral QE is also stretching the stock market cycles.

To explain; The `09 yearly cycle low occurred in March. The 2010 yearly cycle low should have arrived in the early spring roughly 12 months after the March `09 bottom. We did have a decent correction in early February. That should have marked the yearly cycle low. However, because of QE1 that cycle stretched into July, and was more severe that it should have been absent Fed meddling. We even witnessed another mini-crash. A direct result of the extreme complacency generated by the QE driven rally in March and April.

Under normal conditions the cycles would adjust and we would get a shortened cycle this year that should have bottomed right about now. Obviously that isn't going to happen since we don't even have a top yet.

It's now clear that QE2 is going to stretch this cycle also. I now look for the next intermediate bottom to arrive this summer sometime around July (roughly 12 months after the 2010 bottom).

This should correspond with a violent rally in the dollar index as it blasts out of the three year cycle low.

This should mark the beginning of the next leg down in the secular bear market. Confirmation will come if the correction is severe enough to test the July 2010 lows. In a healthy bull market each intermediate correction should bottom well above the prior low (higher highs and higher lows). A move down to the 1050-1000 level will be a clear sign the bull is in trouble.

We should also see the dollar rally out of the three year cycle low force the CRB down into it's 3 year cycle low (actually the cycle runs about 2 1/2 years on average).

And gold down into a severe D-wave correction. (We still have one more parabolic leg up before the D-wave starts.)

Even though I have been expecting the market to correct (into the normal yearly cycle timing band) I've been warning subscribers not to short the market because the dollar is dropping down into a major cycle low. I suspected there was the possibility the dollar collapse would stretch the cycles and make selling short very risky.

The time to short will come once the dollar puts in the three year cycle low and all markets begin the move down into the timing band for the next yearly cycle low this summer.

I will be watching for signs the dollar cycle has bottomed sometime in April or even as late as early May. At that point one might consider looking for a sector, or sectors, that are extremely stretched above the mean to sell short. (Not precious metals though. I never short a bull market.)

Until that time its still too early to play the short side. The odds are better positioning for the final leg up in gold's massive C-wave advance.

ENERGY? NO THANKS

2011-02-02T17:31:00.000-08:00

Seems like everyone has now jumped back on the energy band wagon.To be precise energy, solar's, uranium and rare earths. I hear it constantly in the media.

However if something has gone up long enough and far enough to garner the attention of the media it's usually closer to a top than a bottom.

For instance, the oil service ETF is now stretched 33% above the 200 day moving average.

One has to wonder how much upside potential is left after a 5 month rally.

What I don't hear anyone talking about anymore is gold or mining stocks (unless it's to tell us that the bubble has popped).

While virtually every other sector has gotten extremely stretched above the mean the precious metal sector, the only sector in the world that is still in a secular bull market, has quietly moved down into an intermediate degree correction.

So when you hear the countless analysts spouting nonsense about the gold bubble bursting, or the fear trade coming off, or any number of ridiculous reasons they dream up for why gold has moved down, you will know the real reason for golds pullback is nothing more complicated than the average run of the mill profit taking event. An event that happens like clockwork about every 20-25 weeks on average.

These intermediate degree corrections are the single best buying opportunity one ever gets during a C-wave advance.

Also in the bullish column, sentiment in the sector has now reached bearish extremes. Even better is the fact that most of the sector has pulled back to long term support, and or tested a major breakout level.

The upside potential in many of the mining sector ETF's and bell weather stocks is now huge, even if they were just to get back to the recent highs.

One has to ask themselves whether they think the profit potential is biggest in a sector where everyone is falling over themselves to buy. A sector that has already had a huge move and is incredibly stretched above the mean.

Or if the odds might be better buying a secular bull market that has experienced a nice pullback. A sector where a return just to the old highs would already constitute a huge gain, not to mention gold should still have one more parabolic move higher this spring as the final leg of this two year C-wave finally tops out.

My money is on the area where no one is looking.

Buffett said it best. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Be sure to sign up for the free webinar this weekend.

http://www.AskAboutGold.info

SUNDAY NIGHT WEBINAR

2011-02-01T04:48:00.001-08:00

If you'd like to learn more about trading, gold and the
secular bull market… here's an invitation to a private event.

A long time SMT subscriber has convinced me to go
on a live call and answer your questions about gold, cycles, the stock market and the economy…

Here's what you need to do.. Go here:
http://www.AskAboutGold.info

Enter your name, email address and whatever question
you have for me.

There are less than 150 seats left so register now to get all the details. We will be looking at massive gains from the gold bull in the next few months so don't miss out: http://www.AskAboutGold.info

REGRESSION TO THE MEAN

2011-01-29T16:53:00.000-08:00

All markets are subject to the forces of regression. Newton's basic laws of motion; Action and reaction.

At current levels both the S&P and Nasdaq 100 are stretched further above the 200 day moving average that virtually any other time in the last 10 years.

Not surprisingly the further a market stretches in one direction the harder it snaps back in the other once the forces of regression gets its hooks into the market.

The Fed is exacerbating this process with their constant meddling in the markets.

The flood of liquidity unleashed by Greenspan and Bernanke from 2002 to 2007 in the vain attempt to abort the bear market was directly responsible for creating the conditions that led to the market crash of 08/09.

The rally last April was pushed much higher than it would normally have risen by the forces unleashed during QE1. The end result; the correction when it finally came was much more severe than it would have been normally, even including a mini-crash in May.

QE2 has now driven the market even further above the mean than in April. Unless the law of action and reaction has been repealed we should soon see an extreme regression to the mean event .

I believe the Fed has put into place the conditions that will bring about the end of this cyclical bull market and usher in the next leg down in the secular bear.

During the next 3 months we should see the dollar begin to collapse down into the 3 year cycle low unleashing the currency crisis we've been expecting. This will drive a massive surge in inflationary pressure that will poison the fragile recovery and send the global economy back down into the next recession. A recession that should be much worse than the last one as it will begin with economic conditions much weaker than in `07.

The last time the Fed did this it produced a brief period of prosperity by creating a real estate and credit bubble. We all know how that ended. This time I expect the party to last two years tops, which means this cyclical bull should top by March. In their ill fated attempt to get something for nothing the Fed is going to cause a currency crisis and a massive surge in global inflation.

The price we will all pay when the house of cards comes crashing down again will be multiples more expensive than last time.

THE "PLAN"

2011-01-26T17:09:00.001-08:00

I've posted a trading "plan" in tonight's report for subscribers.

DIVERGENCES ARE BUILDING

2011-01-26T06:09:00.000-08:00

Warning signs are starting to build. To start we have a Dow Theory non-confirmation. Usually this is a sign of distribution.

Breadth is diverging. This often happens at intermediate tops.

Emerging markets have failed to make new highs.

China, the driver of global growth appears to be in a bear market.

Oil has now broken the pattern of higher lows. The odds are high that the oil cycle has topped.

Throw in the fact that the current daily & intermediate cycles are stretching and the risks are very high on the long side at this point.

50% PLEASE

2011-01-24T06:23:00.000-08:00

I've noted in the nightly updates that gold is now deep in the timing band for a daily cycle low. My best guess is gold should tag the 38% Fibonacci retracement before bouncing out of that short term bottom.

However the stock market still hasn't moved down into it's yearly cycle low yet.Both gold and stocks are now due for a major yearly cycle low. This is a much higher degree correction than a daily or intermediate cycle pullback. So the corrective moves in both gold and stocks should be very severe. I would be very surprised if both don't correct at least to the 50% retracement.

Notice on the gold chart how the rally out of the yearly cycle low in the dollar halted (temporarily) the C-wave rally in gold.

The dollar is now moving into the timing band for another short term bottom. I expect the rally out of that coming bottom to drive the final leg down in gold and to power the move down into the yearly cycle low for stocks.

While I fully expect gold to bounce off the 38% retracement I doubt that will be the end of the correction. A yearly cycle low usually has to do more damage than that, especially if it's coupled with the massive selling pressure of stocks also moving down into a yearly cycle low.

Those that want to speculate could enter precious metal positions at around $1325, but be prepared to get stopped out if gold dips back below that point next week on it's way down to $1290.

Personally I'm going to wait until I think the stock market has bottomed before I'm ready to jump back into heavy positions.

HERE WE GO AGAIN

2011-01-15T08:35:00.000-08:00

Humans, for whatever reason, tend to project the past into the future. It is an emotional flaw in our genetic makeup. It is also the reason why so many otherwise intelligent people miss the big turning points in the economy and stock market.

A classic example occurred in the summer of `07. The sub-prime market was just starting to implode. With the benefit of hindsight we now know that was the beginning of the end for not only the stock market but the global economy.

Unfortunately because we couldn't read the writing on the wall we trusted that the Fed would "fix" this minor blip but cutting rates aggressively and spewing out an avalanche of freshly counterfeited dollar bills. It did not fix the credit markets and instead spiked the price of oil to $147 a barrel. That turned out to be the final straw that broke the camels back and sent the global economy spiraling down into the worst recession since the Great Depression. The stock market rolled over into the second worst bear market in history.

Amazingly enough we are ready to repeat this process all over again. The writing is on the wall and virtually no one can see it.

I'm now going to lay out the the series of events that will ultimately lead to the next leg down in the secular bear market and the reaction by the Federal reserve that will end up pushing the economy over the edge into the next depression.

It is going to start in the municipal and state bond markets. I should say it's already started.

So far the stock market is ignoring the cancer growing in the city and state bond markets... just like it ignored the initial stages of the sub-prime implosion in the autumn of `07.

At some point it is going to dawn on the market that there may be a serious problem developing. I expect that recognition to come as the market starts to drop down into the next intermediate cycle correction (which I expect to begin next week). If so, then what should start out as just a profit taking correction will turn into a much more serious decline, possibly even erasing all of the fall rally.

We've already seen big warning signs that smart money has been exiting this market for a couple of months now, basically since the first signs of stress in the muni markets appeared in November. Big money has used the QE driven rally to unload stock on the clueless public over the last several months.

It will begin as the first cities and states start to default. That will correspond with massive layoffs as cities and states will no longer be able to borrow to meet payrolls. Their only option will be to make drastic cuts any and everywhere they can.

The Fed will panic and start running the printing presses in overdrive just like they did in `08 and just like in `08 that will spike the price of energy and food (it's already starting. Gasoline is back above $3.00 a gallon and a loaf of bread is pushing $4.50-$5.00).

Spiking inflation in a very high unemployment environment will understandably destroy the fragile economy just like it did in `08. (I have no idea why Bernanke thinks rising prices along with 20% unemployment is a good thing.)

This will be the period when gold will enter the final leg up in its ongoing C-wave advance and the dollar will collapse down into the 3 year cycle low unleashing the currency crisis we've been expecting.

I fully expect by fall the economy will be heading back into recession/depression and the global stock markets will have rolled over into the next leg down in the secular bear market that began in 2000 with the bursting of the tech bubble.

TOO SOON TO JUMP BACK IN

2011-01-12T05:32:00.000-08:00

It's still too soon to jump back into the precious metals sector. Gold is now due for a yearly cycle correction. A correction of that degree should take gold down to $1300 or lower. Maybe even as low as the $1265 breakout level.

February will mark the one year anniversary of the last yearly cycle low. So we are now deep in the timing band for that correction.

Gold is now in a down trend so perhaps it is working its way down into that major cycle low now. In order to jump in front of that trend we either need to see something that looks like a major yearly cycle low OR we need to see the down trend reversed.

As of last week gold had formed a weekly swing high.

That swing has to be reversed before gold can continue higher.

Barring a severe correction we would need to see the pattern of lower lows and lower highs reversed in the sector before it is safe to jump back in the pool.

Patience is called for right now. Ideally we would see gold continue down into an obvious yearly cycle low. If that happens we will try to enter as close to the bottom as we can.

Barring that the sector would have to break the pattern of lower lows and lower highs before we reload positions.

YEARLY CYCLE LOW APPROACHING

2011-01-09T19:04:00.000-08:00

Sometime between early February and early April the market should drop down into a major yearly cycle low. Last year that cycle low came during the first week of February.

Since the current daily cycle is now in the timing band for a bottom we should see an intermediate top fairly soon.

Yearly cycle corrections are major corrections, only exceeded by the four year cycle low in severity. So once the correction begins it should be a doozie. The severity of the impending correction will tell us whether the cyclical bull is on it's last legs or not.

If the correction retraces back to or maybe a little below the 200 DMA then it will be a normal intermediate correction within a cyclical bull market.

If, however, the market were to retrace all of the autumn rally and test the summer lows that will be a very strong sign that all the stimulus and money printing was for naught.

Keep in mind the next four year cycle low is due sometime in 2012. And since bear markets tend to last about a year and a half I strongly suspect this cyclical bull will top sometime this year.

As a matter of fact the market is already potentially forming a megaphone topping pattern. This pattern of wildly expanding volatility is caused by the underlying debt cancer and inflation trying to pull the market down while at the same time the Fed tries to counter the bear market forces with ever larger monetary stimulus.

The result is a market being whipped back and forth in larger and larger swings.

In the end the Fed will fail and the next leg down in the secular bear will begin, only this time will be much worse than the last one. All the Fed will have succeeded in doing is making the problem bigger.

I would suggest if one has retirement funds still invested in the stock market they get them out and back into a money market at this time until we see just how far down the market drops as it moves into the yearly cycle trough.

HUGE MISTAKE OR GOLDEN OPPORTUNITY?

2011-01-05T07:07:00.000-08:00

Let's face it almost every trader or investor dreads a draw down. Traders do everything they can to avoid them, even if it means they drastically reduce their ultimate gains.

It looks like the stop at $1361 will be hit and gold will begin the trip down into an intermediate low. I get the feeling that many traders assumed the stop was there only as a token gesture, but really had no chance of getting hit.

I'm also afraid that despite my many many warnings that too many traders took on way to much leverage. They never really planned on gold hitting the stop. When it does they are going to take a much larger loss than they planned on. I suspect they didn't plan on a loss at all. They planned on huge profits.

If you are one of these people let this be a lesson. Always plan for the worst and hope for the best.

Now is this the end of the world. Was it a huge mistake ...or is it a golden opportunity?

Without a doubt it is a golden opportunity! As soon as the stop is hit traders can return to a minimum core position and build up dry powder because there is going to be an amazing opportunity in the not too distant future. An opportunity that has the potential for 100%+ gains this year, just like last.

We've yet to see anything that looks like a final C-wave top so I think we will see one final leg up after this intermediate correction has run it's course. By triggering our stops we now have the opportunity to re-enter at lower prices for a much larger ride up.

Look at the chart below and ask yourself does it really matter if one gets stopped out for a minor loss now if it enables one to re-enter at the cycle bottom and ride a final move higher?

Personally I'll be ecstatic if I get stopped out of positions. It will virtually guarantee another hugely profitable year this year despite the fact that it may start out a little rough.

NEW SUBSCRIBER WEBSITE

2011-01-03T05:42:00.000-08:00

The new subscriber website is up and running. www.smartmoneytrackerpremium.com

15 MONTH SPECIAL

2010-12-31T06:03:00.000-08:00

Today will be the last day for the 15 month special. Click here to purchase the extended subscription.

THE BEAR WILL RETURN IN 2011

2010-12-25T10:43:00.000-08:00

It's almost impossible to find anyone who is long term bearish on the stock market or economy at this time. In the recent Barron's poll every single analyst expected a rise in stock prices next year and continued economic expansion.

I think they are all going to be wrong, horribly wrong. I believe next year the stock market will begin the third leg down in the secular bear market. And the global economy will tip over into the next recession that will be much worse than the last one.

I've gone over the 3 year cycle in the dollar index many times. The dip down into the next 3 year cycle low this spring should drive the final leg up in gold's massive C-wave. What I haven't talked much about is what happens after the dollar bottoms.

I actually expect this three year cycle in the dollar to play out almost exactly like it did during the last three year cycle. When the dollar collapses this spring it will not only drive the price of gold to a final C-wave top, it will drive virtually all commodity prices through the roof, the most important being energy and to some extent food.

It was the sudden massive spike in energy that drove the global economy over the edge into recession in late `07 and early `08. The implosion of the credit markets just exacerbated the problem. You can see on the following chart just as soon as Bernanke drove the dollar below long term historical support (80) oil took off on its parabolic move to $147.

What followed was a collapse in economic activity and the beginning of the second leg down in the long term secular bear market for stocks.

This was mirrored by the dollar rallying out of the 3 year cycle low. That rally was driven by the severe, but brief, deflationary pressures released as the global economy and then credit markets collapsed.

We will see the same thing happen again. In his attempt to print prosperity and reflate asset prices Ben is going to spike inflation horribly as the dollar collapses down into the three year cycle low next spring. Just like in `08 that will tip the global economy back into recession and another deflationary period as the dollar rallies out of the three year cycle low.

The stock market will begin the trip down into the next leg of the secular bear market that it's been in since 2000. The global economy will roll over into the next recession which I expect to be much worse than the one we just suffered through, mainly because it will begin with unemployment already at very high levels.

Contrary to what economists and analyst are telling you, at the dollars three year cycle low next year it will be time to put our bear hats back on, prepare for hard times, and the next leg down in the stock market bear.

I will leave the special Christmas subscription offer, (15 months for the price of 12), up for a few more days. If you want to take advantage of the discounted price, click here.

15 MONTH CHRISTMAS SPECIAL

2010-12-18T14:55:00.000-08:00

I've temporarily unlocked this weekend's update. I'm also going to run the special 15 month subscription until Christmas.

Click here to read the weekend report.

If you want to take advantage of the Christmas special (a perfect Christmas present for that hard to buy for investor) follow this link and click on the yearly subscription. I will add three free months to the yearly subscription.

Sorry this offer is only for new subscribers and or current subscribers converting a monthly subscription.