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The
stock market is overbought like never before and speculators are already
looking for targets to buy
the dip, which means whenever this thing does top, it should be profound.
Does this mean stocks will go straight down when they finally top. Answer:
No, this is not implied at all. It does mean that a process would have begun
associated with the four-year cycle that will likely run its course however;
suggestive stocks would be looking for a bottom sometime closer to the end of
next year - in the neighborhood of the much-anticipated end of days targeted
for December of 2012. And things might be worse than otherwise at the
four-year cycle bottom because of fear surrounding anticipated trouble in
2012, which could see stocks take a nasty spill into this timeframe no matter
how much soon to be pressured authorities attempt to intervene again, as they
did in starting with QE1 in March of 2009.
No,
this time around quantitative easing (QE) will not work like it did
only a few years back because the inefficiencies created by the increasing
largesse since then has become too profound. Here, while personal debt in the
US has started to come down more recently, this is only because of rising unemployment and demographics (older people are less willing to take
on debt), both of which are not preconditions for a growing economy. Add to
this total debt, where the government
has been making up for the public in attempting to keep the larger credit
bubble inflated, is also at unsustainable levels now, levels that will soon
necessitate either hyperinflation or deflation because of unserviceable deficits, and you get the picture,
with deflation the more likely candidate to grip macro-conditions
moving foreword if the bond market (or history) has anything to say about it.
Because
if it's not the result of voluntary cutbacks in living standards, which is
not the American way, and is certainly not the way of the lunatics
running the larger fiat currency economy, the market will need to
force austerity on a spoiled ruling class, bureaucracy, and larger
population, and it will be the cost of money at center that will accomplish
this certainty. This is of course why Treasury yields have been climbing and
are triggering major buy signals as we speak (see Figure 4), along with why key players in the
market have been lightening up on their holdings considerably more
recently. What's more, it's not so much what's happening in the US that's the
big concern anymore (but it's still a concern), but what's happening in the rest
of the world, with increasing riots and accelerating (food) cost increases a potential
powder keg economically if these conditions worsen.
And
they might just do that because the Fed, who is reacting to worsening
deflationary forces in the States, maybe forced to export even more
inflation, which could send food prices (and more) soaring abroad, where
already it's important to note apparently China has witnessed 400% annualized gains in just 10-days, which is
approaching hyperinflationary conditions (50% per month increases), and is
obviously unsustainable. So it's not surprising both gold and silver are up overnight, each breaking out of
multi-day consolidation patterns, and possibly set to tack on more gains if
the larger equity complex remains firm for the remainder of the week, which
is what we expect running into options expiry this coming Friday. (i.e. with US index open interest put / call ratios still
high, this remains the probability.)
This
may change beginning next week if stock market speculators hedgers don't
renew their bearish bets however, which is our expectation either this month
or next based on previously exhibited bubble top behavior from the North
American population. Of course because this is such a big top from a cycle
perspective, which is discussed here, the turn in stocks this year might
not come until later in the fall, where a corresponding bottom might not come
until 2014. So it will be instructive exactly how gold performs in coming
days, because as pointed out in Figure 1 below, if it cannot achieve the
Fibonacci resonance related target at approximately $1500, this could be
construed as a profound negative moving forward, where the words 'deflation
scare' should be omnipresent in the good speculator's mind. (See Figure 1)
Figure 1
 
Further
to this, and as you can see above, if the RSI channel on the monthly gold
plot were to be broken, then, all the other potentially negative technical
dispositions (think indictors and oscillators) would also be released,
meaning gold would at a minimum be correcting the advance from the 2008 lows.
What's more, it should be noted that despite this is gold we are talking
about, and that on many scales (inflation adjusted basis, etc.) it remains
'undervalued', you don't buy charts that look like the one above, not until
the indictors and oscillators have corrected considerably. And it doesn't
help the bullish case indicators and oscillators are already rolling over
either, where as you can see below on the monthly Philadelphia Gold and
Silver Index (XAU) plot from the Chart Room, RSI has already broken down and
now we are waiting to see if channel support will go next. (See Figure 2)
Figure 2
And
the potential bad news for precious metals doesn't end there unfortunately
(and technically), where as can be seen below, we
maybe currently witnessing a breakout (break back into the structure) failure
in the monthly Amex Gold Miner's Index (GDM) / Gold Ratio, which would of
course be bearish. Now I am not saying that gold will not hit $1500 plus
before it corrects and the gold stock to gold ratios will not blast off,
where heaven knows there is more than enough new money being printed to
justify such price action. However, at the same time, we know the Boys From
Brazil (they are a bunch of little Hitlers) who
live in New York and London don't want this, so they have adjusted the
computers accordingly, and it's working because gold and silver remain way
below where they should be trading right now with the larger equity complex
on the cusp of potentially turning lower into a Grand Supercycle
Degree deflationary event. (See Figure 3)
Figure 3
Unfortunately
we cannot carry on past this point, as the remainder of this analysis is
reserved for our subscribers. Of course if the above is the kind of analysis
you are looking for this is easily remedied by visiting our web
site to discover more about how our service can help you in not only this
regard, but also in achieving your financial goals. Along these lines, you
should know your subscription to Treasure Chests would include daily
commentary from either the myself or Dave Petch. As you may know, I cover macro-conditions, sector
timing, and value oriented stock selection, while Dave covers the HUI, XOI,
USD, SPX, and TNX technically each week. Mr. Petch
is a world class Elliott Wave Theory technician.
In
addition to this, you would have access to all archived commentaries, the
Chart Room, exhibiting 100 annotated charts of the precious metals and stock
markets, along with stock selection and sector outlook pages. Here, in
addition to improving our advisory service, our aim is to also provide a
resource center, one where you have access to well presented
'key' information concerning the markets we cover.
And
if you are interested in finding out more about how our advisory service
would have kept you on the right side of the equity and precious metals
markets these past years, please take some time to review a publicly
available and extensive archive located here,
where you will find our track record speaks for itself.
Naturally
if you have any questions, comments, or criticisms regarding the above,
please feel free to drop us a line. We very much enjoy hearing from
you on these matters.
Good
investing and best of the season all.
Captain Hook
Treasure Chests.com
Treasure Chests is a market timing service
specializing in value-based position trading in the precious metals and
equity markets with an orientation geared to identifying intermediate-term
swing trading opportunities. Specific opportunities are identified utilizing
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