Update on gold

We are still in the fake out breakout phase...triggering stops at 1.272. There definitely are options for gold to go parabolic. I favor a fake out as the markets over all seem to be de-correlating significantly. One of the symptoms of that is the constant fake outs that we have been seeing.

Tops are all around us...

People are convinced that certain things will happen - like inflation or hype-inflation. The gold chart shows that people think that the new currency is gold and that QE means gold to infinity...

I think we are in for downside surprises in all markets...in addition to a lot of false breaks. This is one of them IMO. And if that is the case, its NOT good for any inflation asset.

JP Morgan then and now

If anyone is intersted to understand the reason that JP Morgan Chase keeps getting the gravy deals from the government and the Fed...there is quite a lot of precedence...fake accounting and all. Also, please read: More dollar what-if discussion this is a post I wrote last year and paints a clean picture if the lengths to which central and fractional reserve banking goes to short currency into existence.

Short-Term Dollar Chart - but still unfinished business

Below is a chart from Mathew Fraily from yesterday...its great chart of the short-term dollar

Please see his blog: here

and here is an updated view version from today

Interestingly, in my brief look at the dollar today, since it is the main symbol I watch these days, looks like it could have a continued near-term bounce...but it still looks like it has work to do on the downside to create an emotional bottom...this is also reinforced because Gold, Silver, Oil, DBA and some other commodities look like they still have an up move left. Gold targets 1085 to 1090, DBA 27.8 to 28 and Oil 87 to 90. Perhaps we get a gap down in the equity markets and a rise in the dollar on Monday am...followed by a chaotic few days of trading with big reversals. I do think that a new low in the dollar will not result in a new high for most of the equity markets...but commodities look like they will be more sensitive to the move...and could produce nice parabolic type tops.

If there ever were contrarian indicators, they are popping up all over the place, Saudi Arabia, Faber, Weiss to name a few recent ones. Now, Lazard, ostensibly for marketing purposes, is changing currency denomination for their World Trust Fund to Pound Sterling. Anytime the basis for a decision is mass market perception - you can count on one thing. Its popular and wrong.

Change of share trading currency and proposed sub-division

In response to comments from a number of shareholders and potential investors in the Fund about the liquidity of the Fund’s shares, the Board, having consulted with the Fund’s brokers, Arbuthnot Securities, believes that having a larger number of shares in issue with a lower share price than at present and changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base.

Change of share trading currency – the London Stock Exchange has confirmed that the currency in which the Fund’s shares are traded will change from US dollars to Sterling with effect from 8.00 am on Friday 30 October 2009.

Market Observations - Not Pretty - Warning Shots

Apparently, JP Morgan and Goldman Sachs need to sell some of the assets that they acquired using those hundreds of billions of dollars of crony capitalism supplied dollars they obtained through the manipulative tactics of their friends at the Fed and Treasury. Not satisfied that that money was enough, they leveraged up even further - so they could invest even more in risky assets and further the confidence game. Duping american investors and public out of more of they're money is a favorite past time for these guys.

Are assets really risky if you and your friends own most of them? Certainly JPM and Goldman prove the axiom that if you own the market, which these participants alone most likely owned, at the very least. a significant percentage of...you can squeeze prices up and then you can tear them apart when you are good an ready. Mind you I am not here to spout conspiracy theories...these guys are so flagrant do they even count as conspiracies? So, back to the mundane, while Goldman MAY actually survive the upcoming catastrophe, JPM will most likely not. Regardless, remnants of most of the financial firms will certainly exist, but the firms will be shells of their former selves and the economy will likely be significantly damaged by their demise and misdeeds.

Fittingly, financials topped in ironic fashion earlier in October...with an island top. Financials are indeed in need of an island, Rikers Island would be appropriate for the gamesmanship they have demonstrated this year. All the earnings reports from the largest banks inspire distrust and are absent integrity...we will have to see how that flies. In any case, I am happy to report that JPM has more than enough money to lend to the FDIC to bail itself and most of the other banks that will fail out.

Back to the markets, today may not be classified as a confirmed failure for the transports...but a break of 3890 will do so. the SPX closed beneath a recent sell level at 1083.5...it would not be surprising to see some sort of a test slightly above those areas...but I certainly am under the impression that the buy side is extremely dangerous at this point. My diatribe above was important in understanding the motivations of the sellers at this point. The sellers are the largest banks. They MUST sell...given the profits they have made selling will not be ruled by trying to eek out little profits...they already have big ones...they do not have to be choosey about prices. When you are liquidating trillions of dollars of leverages purchases, it takes time and the average prices are more important than any single price. Though there may be attempts to retain prices supports to allow higher priced distribution, there is a dramatic need for these institutions, who misused the benefits of America's money, to get out stage left. The specter of this dynamic means that we have to on guard for waves of downside pressure - probably much more persistent than in last years bear market moves.

Another interesting leading indicator for the markets is the Canadian Dollar which has failed its breakout...something to keep a close eye on.

There is unfinished business - potentailly a remaining pop to the upside for commodities. Gold needs to reach its target of 1080 to 1085, Oil should still make an upside push to the 85 to 87 area, Silver looks primed for a little up move. The dollar looks complete, but also looks like it needs to get that emotional drop below 75 convincingly. As seen today, a dramatic drop in the dollar is no longer fuel for rising equity prices.

So, what I am looking out for are small upside tests for equity markets followed by larger downside swings. There could be some unfinished business with regard to the markets...as per my usual comments - the dollar rules this game. I suggest having extremely disciplined rules for selling resistance and only buying support when its absolutely clear. It is important to recognize, that this type of market has the possibility to not let you in. Everyone is waiting for perfect backtests, retracements and kisses as in the LQD chart above. There is no guarantee that equity market need to give that courtesy. LQD has been breaking down for a month now, unconfirmed by equities. It may be time for some acceleration. Perhaps, some convenient excuses will come out this week - like MSFT earnings on friday.

Personally, I will be extensively using trade automation to trade the upcoming turbulence. Today, in fact, I released a price quantization system with extensive risk controls that absolutely killed it on the CL contract - up $3000 on a single contract today alone.  I think mechanical templates can be a tremendous support for managing emotions during extreme and persistent repricing episodes...especially if you are lucky enough to be able to build some good ones...or get your had on some.

Market Observations

Ok, I have been remiss...I did not feel that well today and did not get around to posting until now.

First lets look at the markets. I have my concerns. It is easy to paint a bearish brush on the market in the form of market structures or counts that are bearish until they are not.

This is what I see:

1. Gold looking bullish. 
2. Dollar under resistance and not impulsing
3. Oil looking like it may want a push up
4. Gaps remaining to be filled

Ok those are not buy signals, but they are warning signs that the market may want to probe up for a better retest. The charts are not making me comfortable.

What am I looking for? 
What would make me comfortable, would ideally be a gap up tomorrow followed by an energetic sell down reversal. This would apply to equities, Oil and Gold. However, I am concerned that we can get a fake out here and end up with a rally back to test some gaps and resistance in the 1050 to1060's. There is a benefit to this occurring if it were to do so. Bear's who have finally gotten a taste of a small win after being beaten up may misinterpret a move up to retest as something more bullish than it would likely be. Additionally, it would serve to convince weak handed bulls, that the waters really are safe and they can buy dips even if they are scary ones.

One of the negatives to any move up in gold is that silver has reverted of its old warning signal of non-confirmation. We should see Silver remain in a non-confirmation of Gold if we do get a pop.

VIX has triggered a standard dev short-term buy signal and there are still a lot of constructive looking charts out there. So, all of this should not surprise to work together to create a push up into the Wednesday to Friday area. Gold, Oil, and Equities...are what I am keeping an eye on. I am just laying out a case. Its not a bullish case, but certainly a push up here will feel bullish to a lot of market participants...and that may be the objective.

CCI array is showing supports here and a potential bounce. But we are getting high quality divergences (plotted over prices) that usually only occur at tops and bottoms for the daily SP500 emini futures.

While I am not in love with the count below for Oil, it is not totally out of the question...its on the table.

Very Recent Dollar Related Headlines...

Gee, people are getting a little sure of themselves...

1. Sentiment suggests gold pullback a mere correction

2. Five ways to profit from the weaker dollar

3. A pledge from the Group of 20 leaders to bring the global economy back into balance is not seen as good for the dollar

4. Warning over US dollar as world reserve

World Bank President Robert Zoellick on Sunday warned that the United States should not "take for granted" the US dollar's role as preeminent global reserve currency.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency, Zoellick said, in excerpts of a speech to be delivered Monday.

6. The dollar is dead - long live the renminbi

Gold Rallies, Silver Rallies, Stocks Rally and the Dollar Rallies

I have been sick today...so, I have not posted. I will post some charts later. However, I did want to get this out.

Well, that is an interesting setup. As I have discussed in previous posts I expect the dollar to be stable relative to rallies in inflation assets. That does not mean that the dollar will not go down. But does mean that it will show relative strength...and that this Gold and Silver trade is NOT an inflation (hyper-inflation according to Peter Schiff) trade.

Strength in the dollar definitely confirms that this is not a market to rely on for long trades. Sit on hands would definitely be more profitable than getting trapped. Ideally, I would like to see the market move up more to truly convince the inflation camp - that means that anything under 1039 is fine with me. But what I anticipate is that the market makes a move up to the 1015 area and gold make its sharp jump - and then both fall out of bed.

In the chart below, you can see the wave count and the proper channel for the dollar. Just in case you are wondering, the "End of Bear Trend" indicator is automatic not manual. Its based on some of my recent programming work. The interesting thing is that this indication usually only presents itself prior to or in wave 5. Twice is much better than once - with support at 77.84. If we were make another low that would be allowable and a huge buying opportunity based on this indicator alone.

Be forewarned, the dollar's strength will bely any strength in inflation assets. The trap is set.

So, its all getting very interesting...

The inflationists are getting confused because the trade they have been planning for years is finally looking like its partially coming to pass. Stocks have gone up and gold and silver are rallying while we have a weak dollar. Problem is the dollar is not that weak and even if inflation assets such as gold and silver can rally a little bit...i think its rather ironic that its taking the same course that it has in the past.

This is rather ideal actually, since the fear trade is clearly what is occuring...but inflationists will grasp at any potential outlook that promotes the inflation thesis. Interestingly, the market selling off, gold rallying, Oil in a downtrend, CRB in a downtrend and the dollar essentially relatively stable is not inflationary action in my opinion.

As we can see in the charts below, in 2007 gold tended to move with the market until after the first crash and recovery. The fear of in the market at that time was never far away. So, almost to the day the SP500 failed to confirm its highs gold broke out and continued as a fear trade (with a little inflation talk through in). The reality is that if we are looking for inflation stocks should participate as well since they represent assets that should increase in relative value to the dollar.

Gold has a 72 day cycle which coincidentally comes due on Sept 10. I have in previous posts mentioned that the time projections for the completion of this countertrend rally were optimally occurring on September 11.  (666 and Sept 11 interesting if that were to happen)  Gold projects to 1050 to 1080 and could make a quick jaunt up there...I would expect some weakness similar to what we had in the dollar today and perhaps a move down to complete an ending diagonal. I would expect the market to bounce but not make new highs. And I expect that the Fear trade will be overcome by inflationists needing to sell when the realize they have been most likely hoodwinked by the Gold and Silver trading pattern and the contradictory movements in the stock market. All of which  scream - DEFLATION is coming.

So, the trap is set...now the beast has to fall for it.

see also: Issues arguing against the top of Primary Wave 2 here

chart courtesy of Mattew Fraily at http://breakpointtrades.com 

Gold and Silver - the Fear Trade is taking off

Gold and Silver are curious beasts...If we look at their behavior in the past we can see some interesting dynamics. Firstly, they tend to be stable when the markets start pulling back from a bullish run. Then, as that run accelerates to the downside for equities - people become emotional but as Gold and Silver are not rising they do not chase them. However, when the equity market recovers people have a fresh crash in their mind...so, the first few days that the market pulls back off its recovery - people trying to avoid new losses in Equities flock to the safety trade - Gold and Silver. After a time, that safety trade falls apart as pressure builds Gold and Silver need to be liquidated to raise cash.

So, my interpretation is that this is not the Inflation Trade that I was worried about (see: Issues arguing against the top of Primary Wave 2 here), but rather the fear trade. I think we are likely to see Gold, Silver rallying and the Dollar stable/consolidateive/rallying near-term if that is the case.


I will post charts later...in any case, the Triangle for Gold looks like the best analysis pattern. If 981 breaks 1085 is a reasonable target. Daneric had a very good analysis of the gold setup on his blog...please check it http://danericselliottwaves.blogspot.com/.

Dollar is not confirming market move

Dollar has remained solidly above support even while the market squeezes the shorts. The dollar is holding strongly to that magenta up trend line. And gold is getting close to pushing into the apex of the triangle too far for a successful breakout.

Issues arguing against the top of Primary Wave 2 here

One of the problems that I have with the market topping here is that we have not seen a single Hindenburg Omen. I would expect to see atleast one before we top...so, this does leave the possibility of an A = C or one higher fib ratio for C to A type situation - possibly pointing to the 9,950 to 10,522 area on the Dow and 1,048, 1,090 to 1,158 on the SP500.

Gold is not cooperating. Pattern looks very much like danerics chart from last week. (Daneric's Elliott Waves) Break over 972 in Gold would be bad for the deflation trade. Best case scenario, in my opinion would be to get Peter Schiff and all the inflationists screaming victory if the trade seems to work even a little bit and then shock-the-monkey with the deflation trade. So, quick pop in Gold and then a drop. Deneric suggested that Gold could rally from this pattern even if the dollar is not cooperating or does not have a commensurate sell-off. 


We have to watch the Dollar pattern closely - as it is potentially unfinished. And the wave structure is very sloppy. Sloppy patterns can be successful, and there are some good things about the dollar action here, so, if the dollar index breaks over the declining trendlines at 77.62 decisively - then this would be a go for the dollar. If the dollar fails here - it does not have much lower to go in my opinion...probably 77 to 76.5ish. (let's hope gold does not make it to 1085 if it does breakout though)

There were three very small moves in the McClellan Oscillator last week - all in a row...one small McClellan move usually indicates a big move is about to happen. At least one range day, but this is a little more abnormal so it could mean more. This is an argument that if we breakdown here, that its a serious breakdown. Otherwise, we could get a rally that's also a signifcant move.

Dollar- Pattern still valid but probabilities shift

The dollar made it to the top of the wedge and was rejected - rather viciously this afternoon. This resulted a break of support at the wave 1 high for this wave at 78.42. Triggering a 78.38 stop. That break resulted in a volume move down just ticks above the previous lows at 77.87. Clearly this is creating a different pattern.

Critical for the dollar market tomorrow is the lower green trend line below. That may hold but it seems more likely that the dollar bottom will be carved out of lower prices. Most likely a falling wedge with targets in the 76.70 area if the trend line on chart 1 breaks.

Dollar Falling Wedge and Gold

Break above 78.80 breaks dollar out of 5 month decline.

Break of 940 sends gold out of pattern and starts downtrend.

click on chart for a clearer view

Euro - Bear Flag evolving...

Watch for  break of the flag

Dollar Update

It looks like we could get some divergent trading action between the indexes and the dollar...there is an alternative for the indexes which considers the pattern complete. But for now things look up...ironically for both the dollar and the indexes.

1. One scenario we should prepare for is a gap up to the 1044 to 1049 area on the GDP numbers and immediate selling on the cash markets. (chart is below)
2. The other scenario is that the market has topped already at the 1038 SP500 area and that we are already in wave 3 down or at best in the middle of wave 2 flat of some sort of a down impulse pattern. (no chats of these patterns in this post since i am not leaning in that direction)
   

Right now, my trades are concentrating on the dollar as that chart is clear. The indexes are not clear yet and may rally a bit with the dollar. But if gold fails that wedge and the dollar breaks its huge falling wedge then its likely the market will not be able to hold up.

Technically, the indexes look like they may want another high...but the dollar looks like its in a bullish falling wedge (possibly a very small wave 4). (See chart 1) I have included count for the dollar. (See chart 2) Initial targets are for the 81.3 area...with higher targets possible. The larger structure points considerably higher than that.

Also, note that the volume was the highest of the pattern and very light in the decline.

I know the small charts are hard to read...but click on the for a larger view then it is clear.

Falling Wedges on the Dollar longer-term

Bearish pattern on Gold unless it takes out 972 on GDP tomorrow.