Gold bugs argue that Gold is far from being a Bubble. Especially
not when you look at the following comparison, which plots Gold’s rise
versus the Nasdaq’s rise in the 1990′s.
I like comparisons because – although history doesn’t repeat exactly –
I think it rhymes, and when I look at both charts seperately, I think
both are very nice.
However, what if the Bulls are comparing the wrong asset to the Nasdaq Bubble? What if they should rather look at Silver prices?
Back in April, I felt silver was a Bubble, as price was going
VERTICAL, which (as all good things) never lasts forever. The parabola
burst in April, and usually, it takes a LONG time before the next move
up will start (if it ever will).
Chart courtesy Prorealtime.com
Now how is that related to the Nasdaq Bubble?
Let’s first look at how most (if not ALL) bubbles evolve.
* First, the Smart money comes in. They buy it because it’s
undervalued, and they see a lot of potential. The markets are not aware
of this.
* Second comes the insitutional money. The institutional investors are now also aware that the asset has a lot of potential.
After the nice run up, price corrects. Everybody says: this is the end of the bull market, but actually it’s a bear trap.
* When price resumes its uptrend, then comes the public: “look at what
this asset has done over the last couple of years, it can definitely go
higher”.
It starts with enthusiasm, then comes greed and eventually, we get a
“New Paradigm”: Look at fundamentals, this is a 10 bagger from this
point (forgetting that it already rose 10-fold).
Then the markets drop. The bulls say that it’s just a temporary
correction after the huge run up over the last couple of years.
Then the markets rise again. The bulls will say: You see, the bull market has resumed. This is the Bull Trap.
When suddenly price falls below the previous low, the chartists get
scared, and stoplosses are being hit. More selling follows. Now
everybody panics. Then they capitulate: “I’ve had enough of this. I’m
sick of it, I’m out”. Usually, price drops too much, too fast.
Eventually, price returns back to the mean.
We can clearly see this pattern in the Nasdaq “Bubble” of the 1990′s:
Chart courtesy Prorealtime.com
In fact, the Nasdaq is not the only “Bubble” of recent times that has
burst. Think about the Chinese stock markets for example, hereby
represented by FXI (iShares China 25 ETF). Do you see how similar FXI
behaved to the NASDAQ (even AFTER the bubble had burst)?
Chart courtesy Prorealtime.com
Now let’s have a look at the “Silver Bubble”.
It’s following nearly EXACTLY the “Bubble Pattern”
discussed above:
Chart courtesy Prorealtime.com
In fact, when we compare Silver to the Nasdaq, we get a much better comparison than when we compare Gold to the Nasdaq Bubble:
Chart courtesy Prorealtime.com
We might now get the “Bull Trap”, which means Silver might rise back towards $37-$39.
This would also be the target of the red channel in the following chart:
Chart courtesy stockcharts.com
When price hits that level, and then turns down, the last phase of this Bubble can start: Capitulation.
There is one sector which I believe is at or very close to forming a “post-Bubble” bottom.
To find out which sector that is, please visit www.profitimes.com and feel free to subscribe to our services!
Could Oil Prices Intensify a Pending S&P500 Selloff?
Last week we received reports that the unemployment rate in the
United States was improving markedly. In addition, sentiment numbers
were released that confirmed my previous speculation that market
participants were becoming more and more bullish as prices in the
S&P 500 edged higher. The exact numbers that came in demonstrated
that bullish sentiment had not reached current lofty levels since
February 11, 2011. The table below illustrates the most recent sentiment
survey:
Chart Courtesy of the American Association of Individual Investors
Clearly investors are growing considerably more bullish at the
present time. The bullishness being exhibited by market participants is
rather interesting considering the notable headwinds that exist in the
European sovereign debt markets, the geopolitical risk seen in light
sweet crude oil futures, and the potential for a recession to play out
in Europe.
To further illustrate the complacency in the S&P 500, the daily chart of the Volatility Index is shown below:
The VIX has been falling for several weeks and is on the verge of
making new lows this week. If prices work down into the 16 – 18 price
range a low risk entry to get long volatility may present itself. For
option traders, when the VIX is at present levels or lower there are
potentially significant risks associated with increases in volatility.
My expectations have not changed considerably since my article was
posted last week. However, I continue to believe that the bulls will
push prices higher yet in what I believe could be the mother of all bull
traps. Let me explain. As shown above, we have strong bullish sentiment
among market participants paired with general complacency regarding
risk assets.
As I pointed out last week, my expectation if for the S&P 500 to
top somewhere between 1,292 and 1,325. A lot of capital is sitting on
the sidelines presently and if prices continue to work higher I suspect
that a move above the 1,292 price level will trigger a lot of long
entries back into stocks or other risk assets.
We could see prices extend higher while the “smart” money sells into
the rally. Retail investors and traders will point to the inverse head
and shoulders pattern on the daily chart of the S&P 500 and the
breakout above the key 1,292 price level. The pervasive fear of missing a
strong move higher will help fuel long entries from retail investors.
At the same time retail investors begin buying, a lot of committed
shorts will be stopped out if prices push significantly above the 1,292
area or higher toward the more the obvious 1,300 price level. Thus,
there will be few shorts to help support prices should a failed breakout
transpire. A perfect storm could essentially be born from the lack of
shorts to hold prices higher paired with the trapping of late coming
bulls.
The daily chart of the S&P 500 Index below illustrates what I expect to take place in the next few weeks:
I want to reiterate to readers that it is not totally out of the
question that the 1,292 price level could hold as resistance or that we
could roll over early this coming week. Additionally a breakout over
1,330 will certainly lead to a test of the 2011 highs around the 1,370
area.
If the S&P 500 pushes above the 1,370 area we could witness a
strong bull market play out. Ask yourself this question, what reasons
could produce such a rally and what are the probabilities of that
outcome transpiring in the next few weeks?
Obviously earnings season is going to be upon us shortly and if
earnings come in below expectations a potential sell off could
intensify. Furthermore, economic data in Europe continues to weaken and
slower growth appears to be manifesting within the core Eurozone
countries like Germany and France. If most of Europe plunges into a
recession, deficits will widen beyond economic forecasts and the strain
in the sovereign debt market of the Eurozone will increase dramatically.
One key element that many analysts are not even discussing is the
potential for higher oil prices to present additional economic headwinds
for developed western economies.
Clearly the situation in the Middle East is unstable, specifically
what we are seeing taking place in the Strait of Hormuz involving Iran.
If a “black swan” event occurs such as a military conflict between the
United States and Iran or Israel and Iran the prices of oil will surge.
In a recent research piece put out by SocGen, nearly every scenario
that is referenced involves significantly higher oil prices. According
to the report, the Eurozone is considering the banning of imported
Iranian oil which could cause Brent crude oil prices to surge to a range
of $120 – $150 / barrel according to SocGen.
The other scenario involves the complete shut down of the Strait of
Hormuz by Iran. If this shutdown were to persist for several days the
expectation at SocGen for Brent crude oil prices is in the $150 – $200 /
barrel price range.
Clearly if either of these two scenarios play out in real time, the
impact that higher oil prices will have on European and U.S. economies
could be catastrophic.
The daily chart of light sweet crude oil futures is shown below:
I want readers to note that I am not suggesting that oil prices are
going to rise or fall, just outlining the report from SocGen about where
they expect oil prices to go should either of the two scenarios
presented above play out. If oil prices were to work to the $125 /
barrel level and remain there for a period of time, I would anticipate a
very sharp decline in the S&P 500.
Currently there are a lot of headwinds for bulls, some of which could
persist for quite some time. I intend to remain objective and focus on
collecting time premium as a primary profit engine for my service at
OptionsTradingSignals.com.
Once I see a confirmed move in either direction I will get involved.
For now, I intend to let others do the heavy lifting until a low risk,
high probability trade setup presents itself. Risk is increasingly high.
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.
Chris
Vermeulen shows you what is next for stocks, gold, silver, oil and the
dollar index. Depending on your trading abilities you will see this as
huge opportunity or very sobering video. Find out more at www.GoldAndOilGuy.com
The last week of the year volume tends to be light due to the
fact that big money traders are busy enjoying the holidays and waiting
for their yearend bonuses.
I was not planning on doing much this week
because of the low volume but after reviewing some charts and risk
levels on my top 5 trading vehicles I could not help but share my
findings with everyone last Friday.
This Wednesday turned out to be an exciting session with all 5 of my trade ideas moving in our favour right on queue.
Charts of the 5 investments moving in the directions we anticipated …
- Dollar bounced off support
- Stocks are topping and selling off today
- Oil looks to have topped and is selling off
- Gold and Silver are moving lower
- VIX (Volatility Index) just bounced
Many of my readers took full advantage of my recent analysis and
trade ideas which is great to hear. All the different ways individuals
used to make money from Friday’s analysis is mind blowing…
The most common trade is the oil one with most traders adding more to
Tuesday when the price reached its key resistance level on the chart.
Also many traders took partial profits Wednesday locking in 3% or more
in two days using the SCO ETF.
It’s amazing how many people like to trade the vix using ETFs. The
best trade from followers thus far was an 8% gain in TVIX which was
bought 4 days ago anticipating the pop in volatility which I had been
talking about last week. Keep in mind ETFs for trading the vix are not
very good in general. I stay away from them, but TVIX is the best I
found so far.
Currently stocks are oversold falling sharply from the pre-market
highs. Meaning stocks have fallen too far too fast and a bounce is
likely to take place Thursday.
Also we saw some panic selling hit the market today with 14 sellers
to 1 buyer. That level tells me that the market needs some time to
recover and build up strength for another selloff later this week or
next. We will see this pause unfold when the SP500 drifts higher for a
session or two with light buying volume. This will confirm sellers are
in control and give us another short setup.
In my Wednesday morning video I explained
how/where to set stops when using leveraged ETFs because I know 90% of
traders using them do not have a clue as to how to do this and they get
shaken out of their trades just before a top or bottom. So if you want
to learn more about it watch this morning’s video please: http://www.youtube.com/watch?v=lDagN5Vpvys
I hope this helps you understand things more… Over time you will
pickup on a lot of new trading tips, tools and techniques with this free
newsletter so just give it time and keep trades small until you are
comfortable with my analysis.
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.
Market looks poised to reverse hard to downside within days
The market has been in the process of a near 13 Fibonacci week corrective rally since the October 4th
2011 lows at 1074 on the SP 500. So far the highs reached on the
initial rally of 218 points were in October at 1292. That has remained
the high water mark as we have consolidated over the last many weeks. I
expect the market to complete this counter-trend ABC bounce during the
Dec 27th-29th window, followed by a good sized correction into Mid-January ahead of the earning season.
The patterns that I am seeing are based on crowd behavioral “Elliott
Wave” analysis that I perform at my TMTF and ATP services, and this
analysis now favors a 70% probability of a bearish decline beginning
very shortly to the 1150’s area on the SP 500 index. To wit, Investment
Advisors in recent surveys have over 45% Bulls and only 30% bears with
typical tops forming around 47-48% Bulls in surveys. In addition, the
rally has been on light volume and recent action seems to be forming a
rising “bearish wedge” pattern at the same time.
Reversals in the market often come when few expect it whether they
come near bottoms or tops. My most recent forecasts called a bullish
turn after Thanksgiving Day when most were bearish in the 1160’s on the
SP 500 index. We then rallied 109 points to a 1267 high, which we are
re-testing now. As we recently pulled back into the low 1200’s, I again
said to watch for a major market turn on Dec 20th. We then immediately rallied so far into the 1270 area from the 1203 lows.
Below is a chart I sent to my subscribers on Dec 24th, having projected a continuing rally into the 27th-29th
window of trade. If you’d like to benefit from our market turn calls
and crowd behavioral based pattern analysis on the SP 500 and Gold and
Silver, check us out at www.MarketTrendForecast.com to sign up for our FREE FORECAST or GET 33% HOLIDAY DISCOUNT ON OUR PREMIUM GOLD AND SILVER FORECASTS.
Bonds About To Plunge? Implications For Stocks and PM’s
Are Bonds about to plunge? And if so (or if not), what are the implications for stocks and precious metals?
Let’s have a look at TLT, which is the iShares Barclays 20+ Year Treasury Bond Fund.
Back in 2008, at the climax of the financial crisis, TLT was very
stretched above the 200MA, and the RSI was very oversold on a weekly
basis.
Recently, we had a similar situation, although right now, RSI is not
oversold anymore but instead is forming negative divergence, as it sets
lower highs and lower lows on the weekly chart, while price recently set
a potential double top.
Chart courtesy stockcharts.com
When we look at TLT until 2010, we can see that price retraced
exactly back to the 50% Fibonacci Level, where it found strong support.
This level also happend to be a level where the long term trend line came in…
Chart courtesy stockcharts.com
If bonds would top here, that would likely be caused by investors
rushing out of this (perceived) risk-free asset class, and into more
risky assets like stocks.
That would probably involve a more sustainable (or at least more
sustainable as perceived by the market participants) way out of this
Euro Crisis, which has been making headlines in recent months, causing
investors to rush out of risky assets and into bonds.
We can see from the Commitment Of Traders (COT) reports that
Commercials (usually seen as the “Smart Money”) have taken on HUGE long
positions in the EURO, while Speculators (usually seen as the “Dumb
Money”) have taken on HUGE Short positions:
However, Commercials have deep pockets and can stand the dips (which they usually keep buying)…
If bonds haven’t topped yet, we can expect a potential top around 132 for TLT, based on Fibonacci Retracement levels.
If it would top there, and retrace 50% of its move, it should drop
towards 92.5, where once again, the long term uptrend support line comes
in…
Chart courtesy stockcharts.com
A continued rise of Bonds would probably mean more worries about the Euro Crisis.
In the EURO chart, we can notice a potential Head & Shoulders
pattern, which could send the EURO as low as 1.15 if the pattern holds…
Chart courtesy stockcharts.com
However, on a short term daily basis, the Euro shows (weak) signs of Positive Divergence.
On the other hand, it also seems to be stuck in a bear flag (very short term).
If the MACD would fall below the low of last week, this would
probably lead to a further decline in the EURO, meaning we should keep
an eye on the Head & Shoulders pattern…
Chart courtesy stockcharts.com
I keep finding it fascinating to look at the similarities between now
and 2008, as the SP500 still hasn’t broken that 200MA and heavy
resistance at 1265-1280… Once it does, I think we would see new highs
pretty soon.
If it doesn’t, look out below…
Chart courtesy stockcharts.com
Last but not least, let’s think about what will happen to Precious Metals if Bonds top here.
We can look at it in 2 ways:
* A top in bonds probably means investors become less risk-averse,
meaning Gold could also sell-off (as it is often perceived as a hedge
against turmoil)
* However, gold has rather acted as a risky asset lately and has already
sold-off quite a lot, meaning investors could start to load up the
truck as they see the recent dip as an opportunity to buy…
Let’s have a look at the TLT:GLD chart, which divides the price of TLT by the price of GLD.
We can see that during the last 7 years, TLT has severely underperformed Gold, as the ratio has declined substantially.
When we have a closer look, we can notice 5 times where the ratio showed signs of Negative Divergence.
Everytime this happened, it marked a top in the TLT:GLD ratio, meaning
TLT started to underperform GLD soon thereafter (or equivalently, Gold
started to outperform TLT). Will this time be any different?
Chart courtesy stockcharts.com
Based on Sentiment in Gold (but especially Silver) and the recent
decline, I would assume this time Gold is seen as a “risky” asset, and
should thus profit from a top in TLT/Bonds, although the risk of further
declines still exists.
Typically, the week before Christmas, stocks and commodities drift
higher due to the lack of participants. Light volume favours higher
prices, which is why stocks want to rise going into the holiday season.
The big money players, like hedge fund managers, are finished for the
year. They’re sitting on the sidelines enjoying the holiday season
while waiting for their year-end bonus checks.
Let’s take a quick look at how the week finished…
Friday was an interesting session as stocks and oil reached some key
resistance levels. Below are my thoughts, charts, and a possible trade
idea for next week.
Gold & Silver Thoughts:
Looking at the long term charts of gold and silver, I feel they could
head much lower in the first quarter of 2012. The inverse relationship
between the dollar index and gold makes me think this is a high
probability scenario.
The weekly dollar index chart remains strong at this point and could
start another very strong rally any day. Once the dollar starts heading
higher, expect precious metals to move down along with equities.
SP500, Dollar and Volatility Index
Below are three charts stacked on top of each other. They are marked
with my analysis and thoughts for next week. Personally, I don’t feel
shorting stocks is a safe play. The last week of the year, we can see
the volatility index (VIX), and the dollar, rise without putting
pressure on stocks. So be aware of that.
TRADE IDEA – View Chart:
Crude oil looks like a great low risk opportunity (a real
“Christmas” present!) from Mr. Market. SCO would be the ETF for US based
traders. HOD, which is listed on the TSX, is good for Canadians. I
favour this setup because I don’t feel that oil will be as affected from
the holiday bulge as will American equities.
Pre-Holiday Trading Conclusion:
I was planning on avoiding the market Friday, but the charts were
calling my name… The session ended with what looked to be a short
squeeze. The remaining short positions didn’t get their expected drop in
price. Consequently, when the traders all started to cover their
shorts (buy) just before the close, it caused a strong surge higher.
I do not recommend shorting stocks next week because of the light volume. However, oil looks good to me.
Just thought I would share my end of the week thoughts, and wish you a Merry Christmas!
The past few months have been tough for those holding precious
metals stocks, PM futures contracts or physical bullion. With silver is
trading down 41%, precious metals stocks down 30% and gold 15%. It has
people scratching their head.
The question everyone keeps asking is when can I buy gold and silver?
Unfortunately that is not a simple answer. With what is unfolding
across the pond and the bullish outlook for the US Dollar index the next
move is a coin toss. That being said, I do feel a large move brewing in
the market place so I am preparing for fireworks in the first quarter
of 2012.
If you step back and look at the weekly trend charts of the dollar
index and the SP500 index you will see the strength in the dollar along
with a possible stop in equities forming. What these charts are telling
is that in the next 3 months we should know if stocks and commodities
are going to start another multi month rally or roll over and start a
bear market selloff.
With the holiday season nearing, hedge fund managers sitting on the
sidelines just waiting for their yearend performance bonuses, I cannot
see any large selloff start until January. Selloffs in the market
require strong volume and the second half of December is not a time of
heavy trading volume.
This leaves us with a light volume holiday season, major issues overseas and no big money players willing to cause waves.
So let’s take a quick look at the charts as to where the line in the sand it for the dollar index, gold and silver.
Dollar Index Daily Chart
This week we have seen a strong shift of money out of risk off assets
(Bonds) and into risk off (Stocks). This shift is happening before the
dollar has broken down indicating the dollar may be topping and could be
an early warning of higher stocks prices going into year end. Also note
that light volume market conditions also favour higher prices.
Gold Price Daily Chart
Gold could still head lower but at this point it is holding a key
support level. If we see the dollar breakdown below its green support
trendline then I expect gold to have a firm bounce to the $1675 – $1700.
Silver Price Daily Chart
Silver continues to hold a key support level. If the dollar breaks
down the silver should bounce to the $31.50 – $32 area. But if the
dollar continues to rally then silver and gold may drop sharply.
Mid-Week Trend Conclusion:
In short, I think the best thing to do is enjoy the holiday season
with family and friends. Trading right now is not that great and with
the market giving mixed signals. I am keeping my eyes on the market in
case it flashes a low risk setup and I will keep you informed if we get
one.
Be aware that Monday is a holiday and once
January arrives the market could go crazy again. If you want all my
swing trades that I personally do be sure to join my alert service www.TheGoldAndOilGuy.com
The wild and manic year of 2011 is finally starting to wind down
as 2012 rapidly approaches. Market participants are waiting to see if
Santa shows up with a present or a lump of coal for Wall Street this
year. Performance anxiety is becoming apparent as professional money
managers are running out of time to meet their stated benchmark
performance.
Hyper-beta stocks such as AAPL and GOOG are likely to be well bid as
money managers will chase Beta into year end if prices grind higher.
This time of year volume generally dries up and volatility comes out of
the marketplace giving the bulls a slight edge in terms of short term
price action. While I expect some choppy price action the next two
weeks, I believe strongly that we are at a major inflection point.
There are potential warning signs showing up in guidance reductions
that seemingly continue to come out. Semiconductors as well as
industries which are exposed to emerging markets seem to be indicating
that economic conditions may be worsening as a result of the fiscal
issues stemming from Europe and a possible slow down in emerging market
economies like China.
Just as the end of the year usually leads to light volume drifts
higher, it also produces predictions from economists, traders, and
famous market prognosticators. No worries, I am not about to produce a
list of my predictions as I think it is a futile endeavor. However, I
want to point out a divergence in price action in 2011 that continues to
defy what most market professionals would have expected in 2011.
The divergence is not some fancy proprietary indicator, but the
performance differentials of the S&P 500 Index and 30 Year Treasury
bonds. The table below, courtesy of Morningstar illustrates the
performance of Treasury bonds year to date as of Friday’s close:
As can be seen above, the Long-Term U.S. Government Bond has returned
23.16% in 2011. Back in January of 2011 had I been informed that as of
the close on December 16, 2011 30 Year Treasury Bonds would have
returned more than 20% to investors I would have been shocked.
Furthermore, I would have expected U.S. equities to have been pounded
lower. Treasuries truly have rallied, but the S&P 500 was only
trading 3% lower for the year as of the close on December 16th. So what does this divergence mean?
Obviously astute readers would point out that the Federal Reserve’s
monetary policies have had a major impact on Treasury prices and I do
not disagree. However, the divergence is remarkable in that either
equities are extremely overvalued or Treasuries are overvalued going
into 2012. From a long-term technical standpoint, the price action in
both underlying assets reveals that we are truly at a major inflection
point and the near term price direction will give us clues. The daily
chart of the S&P 500 and the weekly chart of the 30-Year Treasury
Bond are shown below:
S&P 500 Daily Chart
As can be seen above, a smaller wedge broke down back in November
which resulted in a loss of roughly 80 S&P handles in a matter of a
few weeks. The price pattern on the daily chart is now in an even larger
wedge formation. This type of formation stores significant amounts of
“market energy” which will result in a significant move in the price
action when a breakdown or a breakout occurs.
30-Year Treasury Bond Weekly Chart
The 30-Year Treasury Bond is on the verge of breaking out to new all
time highs as early as this week. The flip side of the bullish argument
is that price will fail carving out a double top and sending Treasury
prices considerably lower. The S&P 500 is trading in a triangle on
the daily chart and the 30 Year Treasury Bond is on the verge of
breaking out to the upside. Typically cycles break with the news and I
expect a major announcement to take place in coming days / weeks that
will enlighten us as to whether the S&P 500 or long term government
bonds are expensive.
Clearly Europe will have a major impact on which direction price
action ultimately breaks for both Treasury Bonds and the S&P 500.
Fourth quarter earnings and final gross domestic product numbers will
also be quite telling as to the strength of the marketplace. However,
the U.S. Dollar and the Federal Reserve’s forward monetary policy in
2012 will likely seal the fate for both government bonds and equities.
My contention is that the Federal Reserve may find themselves in
quite a predicament which may not have a positive long term outcome for
the United States regardless of their decision. If Europe starts to fall
apart, I will be shocked if the Federal Reserve does not come out with
QE III.
The implication of QE III could be quite severe and could cause the
Dollar to fall off of a cliff. The Federal Reserve would rather have
inflation than deflation, that is without debate. If Europe starts to
falter, deflation will become the buzz word and the Federal Reserve will
likely act.
If Europe starts to break down and the Federal Reserve does nothing I
expect to see a major selloff in risk assets as money will pour into
the short term safety and liquidity of U.S. Dollars and Treasuries.
If the Fed initiates QE III, risk assets will rally sharply as gold,
silver, oil, and the S&P 500 will benefit. Commodities will enter
their final bubble while the S&P 500 eventually would break down
violently as interest rates and higher commodity prices hammer the
economic cycle.
The daily chart of the U.S. Dollar Index and the Reuters/Jefferies CRB Commodity Index are shown below:
U.S. Dollar Daily Chart
The U.S. Dollar is trading in a consolidation zone near the recent
highs. In addition, the U.S. Dollar Index has traced out a rising wedge
pattern which could ultimately break in either direction and reinforces
that a major inflection point is upon us.
A pullback that tests the lower support level seems likely based on
seasonality. These charts are all indicative that something is brewing
in the early part of 2012 which may result in major moves in a variety
of underlying asset classes.
Reuters/Jefferies Commodity Index Daily Chart
The CRB Index is trading right at key support. Price action could
form a double bottom and bounce higher to test the descending resistance
line shown above. I would point out the oversold nature of the CRB
Index presently. A bounce appears likely, the question is whether price
will be able to push through resistance.
A bounce may work off oversold conditions and allow for a major
retest of the October 2011 lows. It is not an accident that major
underlying asset classes are all coiled up in what is going to be a
major move in the early part of 2012. The stage is set, the only
question is which outcome and price direction occurs.
I would point out that the Dollar is trading in a tight consolidation
zone presently and could break in either direction while the Commodity
Index could either be putting in a double bottom (bullish) or possibly
could breakdown to new lows. The stage is set for 2012, the question is
which direction Mr. Market will choose?
I do not have an opinion at this point in time as to how this
situation will finally be resolved. I plan on monitoring the price
action while waiting patiently for breakouts in either direction to be
confirmed. Europe and the U.S. Dollar are going to be critical in 2012,
that is obvious.
We are presently at a major inflection point and frankly whether
Santa Claus comes to Wall Street in 2011 is not nearly as important as
what happens in the 1st Quarter of 2012 as all of these charts will likely see some form of resolution. Be careful out there.
This material should not be considered
investment advice. J.W. Jones is not a registered investment advisor.
Under no circumstances should any content from this article or the
OptionsTradingSignals.com website be used or interpreted as a
recommendation to buy or sell any type of security or commodity
contract. This material is not a solicitation for a trading approach to
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the reader or by his or her registered investment advisor. This
information is for educational purposes only.
Bullish & Bearish Arguments For Precious Metals in 2012
After the sharp drop in precious metals recently, many people
(including me) wonder what will happen next with Gold & Silver
(& other PM’s).
To be honest, I don’t know where gold will be in 1 week or a 1 month
from now. However, there are some facts that are compelling, which can
help us in our decision-taking process.
In this article, I will describe both the Bullish & Bearish arguments for Gold, Silver and PM Stocks.
Fundamentally, the outlook for precious metals has never been better:
the crisis seems to be far from over, and a lot of money needs to be
printed. This should bode well for precious metals.
Also, the fact that we haven’t had a “mania” fase in Precious Metals yet
(perhaps we had some of it earlier this year with Silver) is also
supportive for the PM sector.
Short term, sentiment in Gold is pretty bearish, as the charts from
Sentimentrader show us: Sentiment is below the green dotted line.
Those charts use a relative measure of extreme, that being 1.5 standard
deviations from a one-year moving average. So when Public Opinion moves
above the red dotted line or below the green dotted line in the chart,
it means that compared to other readings over the past year, we’re
seeing a statistically extreme value.
However, back in 2008, Public Opinion on Gold was even more bearish,
which should hold us back from concluding that we are at the bottom for
Gold.
(Chart courtesy Sentimentrader)
Public Opinion for Silver however, is at extremely bearish levels and
has been bearish for some time now. Back in 2008, a similar situation
occured.
(Chart courtesy Sentimentrader)
However, the commodity sector is still very much influenced by the US
Dollar. When people panic, they tend to rush into the US Dollar, as
they perceive it to be a “safe” currency as it is very liquid. The
following chart from Sentimentrader shows us that Public Opinion about
the US Dollar is extremely Bullish, meaning a top in the US Dollar could
be within a hand’s reach. Whenever Public Opinion was this bullish over
the last 5 years, the US Dollar was close to – or in the process of –
setting a top.
(Chart courtesy Sentimentrader)
A lot of this “US Dollar Strength” is due to the weakness in the
European currency. Please notice that Public Opinion for the Euro is at
extreme Bearish levels, indicating that the Euro could be close to or in
the process of setting a bottom, which would be bullish for precious
metals (and stock markets).
(Chart courtesy Sentimentrader)
When we look at the weekly chart of the Gold Price during this bull
market, we can see that price ALWAYS found support at the 50EMA (50
weeks Exponential Moving Average), except for 2008 when Deflation was
the bogeyman. I marked all those events on the price chart, but also on
the indicator on the bottom of the chart, which shows us the %
difference between price and the 50 weeks EMA. Right now, price is very
close to this 50EMA, meaning Gold might be in the process of bottoming.
(Chart: Prorealtime)
Historically, the Bullish % index for Precious Metals stocks has been
a good indicator. Currently, it stands at only 13.79, which is a very
depressed level. The only times it reached these bearish levels was back
in 2008 and recently in early October.
(Chart courtesy stockcharts.com)
The factors above tell us Gold (and especially Silver) might be in the process of setting a bottom.
When we compare the Bull Market in Gold with the Technology Bubble in
the 1990′s, we can see that Gold is still far away from topping…
(Chart: Prorealtime)
Serge from ETF-Corner
made a similar analysis a couple of months ago, which shows us gold
could even drop as low as $1,250 without doing any harm to the bull
market:
Let’s now have a look at the latest COT (Commitment of Traders) chart.
Commercials are still holding low Net Short positions. This should be a bullish sign for Silver.
However, we can see that in the past they have held even smaller Net Short Positions:
Commercials are considered to be “Smart Money”, while NonCommercials are considered to be “Dumb Money”.
If we combine both, we get a good view of the general market. Bullish
Commercials (=low Net Short Positions) combined with Bearish
NonCommercials (=low Net Long Position or even Net Short Positions)
would be a very Bullish sign, as the Smart Money would be set for a rise
in prices and Dumb Money would be expecting a drop in prices.
Currently this “indicator” is pretty low, although it went even NEGATIVE
in 1997. This was because in 2007, Commercials held a low Net short
position, while NonCommercials held Net SHORT positions (which doesn’t
happen often). Right now, we are still pretty far away from that
situation.
What followed was an amazing run up in Silver prices, as Silver rose more than 80% over the next 6 to 7 months:
(Chart: Prorealtime)
In what follows next, I will show some worriesome charts.
Silver dropped below support at $30 and still has not managed to
close back above it. Below current prices there is little support on the
way down to the high teens (18-19$).
We are still far away from a buy signal on both the RSI and MACD.
(Chart courtesy stockcharts.com)
Gold could be in an ABC down wave, which could take it as low as $1,400.
(Chart courtesy stockcharts.com)
Back in April 2011, when silver was close to hitting my target of
$48, I shared the following Quarterly Silver chart with my readers:
(Chart: Prorealtime)
We all know what happened afterwards. Perhaps it’s time to get worried about the Quarterly Gold chart:
We now have 2 possible Exhaustion Candles, and Quarterly RSI is EXTREMELY overbought, which is unsustainable.
(Chart: Prorealtime)
A larger correction is needed for RSI to cool down. Perhaps Deflation will show up again in 2012?
Take a look at the following chart which compares the SP500 (currently) to the SP500 in 2008.
The similarities are striking.
IF (and yes, that’s a big IF), the pattern holds, we would expect the
SP500 to be catching its last breath right now before plunging in 2012.
(Chart: Prorealtime)
I’m not saying it will, but if it does, what should we expect from Mining Companies?
Just like in 2008, they would most likely sell off, even more than physical gold, which can be seen in the HUI/GOLD ratio.
Notice that the HUI/GOLD ratio is showing the same pattern now as in
2008 (a bearish flag), and that the MACD is about to break out of a flag
pattern. If it breaks to the downside, watch out…
(Chart courtesy stockcharts.com)
Based on the analysis above, I would conclude that Precious Metals are in the process of bottoming right now.
However, if the bottom falls out, look out below, as we could then be headed for a 2008-like CRASH.
I wish everybody a Merry Christmas, and a Prosperous, Healthy and Happy New Year!
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GOLD IS ON THE VERGE OF MOVING INTO THE BUBBLE PHASE OF THE BULL MARKET
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.
It’s that time of year again and I’m not
talking about the holiday season… What I am talking about is
another major market correction which has been starting to unfold over
the past couple weeks.
I have a much different outlook on the markets than everyone
else and likely you as well. However, before you stop reading what I
have to say hear me out. My outlook and opinion is based strictly on
price, volume, inter-market analysis, and crowd behavior and you should
put some thought as to what I am saying into your current positions.
Since my warning we have seen the financial
markets fall:
SP500 down 2.6%
Crude Oil down 4.4%
Gold down 9.6%
and Silver down 12.2%
If you applied any leverage to these then you could double or
triple these returns through the use of leveraged exchange traded
funds. The amount of followers cashing in on these pullbacks has been
very exciting to hear. The exciting part about trading is the fact that
moves like this happen all the time so if you missed this one,
don’t worry because there is another opportunity just around
the corner.
While my negative view on stocks and precious metals will rub
the gold and silver bugs the wrong way, I just want to point out what
is unfolding so everyone sees both sides of the trade. I also would
like to mention that this analysis can, and likely will change on a
weekly basis as the financial markets and global economy evolves over
time. The point I am trying to get across is that I am not a
“Gloom and Doom” kind of guy and I don’t
always favor the down side. Rather, I am a technical trader simply
providing my analysis and odds for what to expect next.
Let’s take a look at some charts and dig right
in…
In short, stocks and commodities are under pressure from the
rising dollar. We have already seen a sizable pullback but there may be
more to come in the next few trading sessions.
Overall, the charts are starting to look very negative which
the majority of traders/investors around the world are starting to
notice. With any luck they will fuel the market with more selling
pressure pushing positions that my subscribers and I are holding deeper
into the money.
Now that the masses are starting to get nervous and are
beginning to sell out of their positions, I am on high alert for a
panic washout selling day. This occurs when everyone around the world
panics at the same time and bails out of their long positions. Prices
drop sharply, volume shoots through the roof, and my custom indicators
for spotting extreme sentiment levels sends me an alert to start
covering my shorts and tightening our stops.
Hold on tight as this could be a crazy few trading
sessions….
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Gold – 2006
Similarities & Correction Over?
I guess a lot of people wet their pants last night, as gold
was down over 4% at some point. The chart incurred technical damage
over the short term, and if current support fails to hold, gold could
be headed for about $1,440 (or the equivalent of $140 GLD), as we will
discuss later on.
When we look at the following charts, we can see that the
pattern is still valid so far.
The pattern would become invalid if gold fails to hold above the green
support line without reversing soon.
Last night, GLD hit a low of 152.05, and thus hit the target
PERFECTLY, as we can see in the chart below.
The RSI is oversold on a daily basis, and volume spiked to panic levels.
Those are facts that should bode well for gold going forward.
If GLD fails to hold above the green support line, we can
expect a drop towards $140.
When we look at the Bullish % index for mining stocks, we can
see that it reached an extremely low level again at 13.79.
This should also bode well for both gold and gold stocks. However, the
HUI might still retest the pink support/breakout line over the next
couple of days…
However, if we would get a remake of 2008, even those
indicators can’t stop prices from falling, so be cautious!
