Tuesday, August 23, 2011

The Crisis In Leadership

No, I'm not referring to the clowns on vacation from our congress. We have an astonishing lack of leadership when they're in town, too. I guess they're all tuckered out. Screwing up the world like they have done is hard work.

My title refers to the market leadership. The leader groups that have been signalling the future direction of the market for the last 3 years, the retailers (RLX), technology (QQQ), the consumer discretionary stocks (XLY), and the transports (TRANQ) have a conflict going right now. One says new bear market. Two say bull correction. And one is undecided. They've typically been in agreement up until now. Let's look first at the one screaming new bear:

This would be the Dow Theory important transports. They have broken down from any semblance of a continuing bull and are leading the charge down. The same can be said of the important financials. It's hard to have a bull market without the financials participating. Doug Kass, who called the March '09 bottom to a tee, is now saying the banks have bottomed. Jim Cramer says the group is still toxic.

If you look at the retailers, supposedly the sore point of the recovery, you see this:

A trend line from the March '09 bottom appears to be intact. But if you look at all the consumer discretionary stocks, you see a breakdown more like the transports:

The accumulation trend is beginning to break but holding, but the price action has already broken. As for technology:

This looks just like the retailers - a brief puncture of the 140/200 day ema moving average pair but on a bull trend support line.

This sets up a battle between these stock groups. Either the groups that are barely clinging to bull mode will be pulled down into what the transports are doing or the transports will be pulled back up into confirmation. Stay tuned.

Sunday, August 21, 2011

Silver Technical Update

If you hate to chase anything at an all time high, and don't we all, then you don't really like buying much gold right now. But maybe we can cheat and buy gold's rocket ride via silver. This bifurcated metal constantly has to decide whether to follow its industrial use self and follow the stock market or to follow its monetary metal self and follow gold. The monetary self usually wins out over the long haul as is evidenced by the R squared for gold/silver being around 0.95 long term. So any straying of silver behind gold is a good buy-the-massacre move. Buy-the-massacre is so much better than chasing.

The massacre in silver has it nearly 20% down from its high now, right at the 20% decline bear market classification. But it will very likely slingshot to par with gold. This is after all a monetary crisis we are in.

The silver/gold ratio chart looks like this now: (click on charts to enlarge)

Silver is just now emerging from an RSI turn point where it begins outclimbing gold. Even if it stays bound in the horizontal channel it's in, it will match the climb in gold for awhile. You can't complain about that.

The price chart looks like this:

The consolidation of last year looks to be repeating and is probably ending now. The channel appears to be thoroughly broken. If we get a post consolidation climb like last time, we are at a prime buy point.

Wednesday, August 10, 2011

Gold Technical Update

Gold may be breaking into the next phase of its bull market. Jim Sinclair's math has a long history of correctly predicting gold, not just in this bull market but in the 1970s bull market. He is now saying that the $1764 level is a swing point into a steeper climb similar to $524 was in late 2005.

Then, as now, gold was faithfully obeying the 140/200 ema moving average pair (red and blue lines) as support and the trend line shown as resistance. Then a break of this resistance occurred with a move to $524, a test of old resistance as support, and a huge new move into the next bull phase. As a weird coincidence from an entirely independent means of analysis, David Nichols' monthly fractal forecast is currently putting gold into a 64 day growth cycle into early October that he says will be the strongest yet in the entire bull market. That's 64 trading days (closer to 3 months calender). For those of us who simply like to study lines of support and resistance, it is also obvious that a change has occurred:

This chart is very similar to the 2005 chart above with the $524 swing point, but with the new $1764 swing point. It shows a pretty stable 3 year phase of gold's bull where a persistent line of resistance turns all the rallies into declines. There was a brief breach at the end of the strong 2009 four month cyclical move. The current breach is occurring at the beginning of this typical August to November strong period. This all implies a big bust of the 3 year channel.

I have outlined my disagreements with David Nichols' fractal analysis in other articles. My only problem back in 2010 was with his 64 month fractal or about a 5 year time limit on the high growth part of the overall bull market for gold, which he reckoned was to turn to bear market in February, 2011. I argued that this parabolic bull fractal pattern had other variations longer in duration that would go well beyond February, 2011, and that the current gold bull seemed to be an example of these. Well, February has come and gone, and I think it's safe to say there was no arrival of a bear market. But I can find little fault with Nichols' month-to-month range fractals - they have been stunningly accurate over the years. Jim Sinclair's call about $1764, David Nichols' call for the strongest 3 month move up yet, and the above simple support/resistance map all agree - gold is entering a new phase, and it ain't a bear market.

The cold calculating methods above also agree with a phase change in psychology that I believe has occurred over the last 3 years. This involves the basic question "What is money?" Well, it's that green and gray stuff passed around or it's electronic equivalent you may say. But is it? Is it really? That's what we used to think back in 2007. Is that what they're thinking over in Europe today? You can see this sea change in a 3 year chart covering the last two mega market crashes:

Here we have the gold stock index / S&P 500 ratio charted from mid 2008 to now. It drops when the gold stocks are under-performing the broad market and vice versa. As you can see, there is a vast difference between then and now. Why? There is a fundamental change in view going on as to what is money.

I have posted a discussion of this rapidly changing view with some interesting testimony by Ben Bernanke last month before Congress over at seekingalpha.com - just put my name in their search bar. The post is "Gold's New Phase And The Coming Revolution". It should be up in a day or two if it's not there yet.