Weekend wrap.

A nice rally to the end of the week and month put new highs on many charts that I follow. Not much to complain about. SPX broke decisively resistance and appears to be on its way to 1400 and beyond.

Russell 2000 printed new all-time high, getting rid of overhead resistance and is trying to squeeze the best out of the remaining favorable season before the summer doldrums hit.

US dollar keeps dropping and got ahead of schedule threatening to land on 71 in a week or two if this free-fall continues, instead of 1 or 2 months. A bounce is expected from that level and that could mess up my timing for gold and commodities which I expected to run well into June.
Gold picked up the pace to the dollar's tune and ended the week and month against the long-time trendline, breakout of which would put it into a steeper trajectory, after eventual correction.

That takes us back to the longer-term dollar chart, that suggests the final bottom in the low 60s.

Silver is getting well to much attention, and truly I do not like it.
Oil is trying to climb over 115 and it is starting to hurt at the gas station.
Natural gas made its move and broke out, making it probably the only commodity around that looks fresh and not loved to death (this sentence has interesting connotations).

It should get to 6 bucks by the summer before required rest and then Fall/Winter rally which I am planning to use to help paying for the heating bills.
In summary, all as expected and a little worry about potential timing issues for the dollar that could influence the commodities and all the rest.

Weekend wrap.

After an ugly start, this short week turned out really nice, with SPX running by the close on Thursday right up to the resistance at 1337, were, if you look closely, a potential reverse H&N neckline is.

The pattern obviously needs to be confirmed. Once that done the standard upside target would be 1430, with the caveat that measured moves work better with H&S tops and for the consolidations are largely useless and targets tend to be exceeded. What I have for the target on some other charts is 1440-1460.
Russell 2000 is getting ready for new all-time highs, and I am quite curious how this wave will evolve. I have put an outline for an ending diagonal, but it has potential for better rally than that.

US dollar fell again and seems to be aiming at 70-71 by this summer. Potential falling wedge I drew on daily was obviously a fake as expected. Just to repeat my old opinion about wedges that I usually put as disclaimer when drawing them: Wedges are the least reliable patterns and most of the time they morph into a parallel channel, or extend much further than expected, so trading them is an easy way to lose money.

Silver is obviously making a run at the all-time high of 48 and I wish him good luck.
Oil is looking to challenge 147 before its favorable seasonality ends in July.
Natural gas is making nice progress and could break out next week.
In summary, I am expecting higher prices  and not more than minor pullbacks for now.

Everybody knows (consensus).

Bear with me. There will be no charts or music in this post, just a little rambling.
I do find it truly amazing, how from time to time in a society that is so diverse and divided, all of the sudden a consensus develops. Even more curiously, it is not a benign agreement, but aggressive, malignant consensus, attacking you whenever you try to put the news on or read a paper. Have you turned TV,  radio, or computer on lately? If not, beware. Otherwise, I am sure you could not miss it. It's the latest rendition of America Got Talent, with a strange chorus performance.
The first row of the chorus reciting the wisdom: balance the budget, balance the budget, balance the budget,  are the brewers of the ice tea, a very southern special, made of backwater and folly, sweetened with a spoon of libertarian honey.
The second row is made up of various victims of the hair transplant or hair dying procedures and their accomplices, aging and fattened by corporate lard, having difficulty keep up with the youngsters, just murmuring: kill medicare, kill medicare, kill medicare.
In the third row you will find all the well-meaning spenders of the other people's money (normally called thieves) yelling to the beat: tax the rich, tax the rich, tax the rich.
What brought this curious ensemble together, is the consensus over the solemn idea that the US is bankrupt, and the urge for revelations how to fix the problem.
Now, an obvious question comes through the mind of a skeptic observer: have we finally entered the utopian era when everybody knows what the problem is and even the solution? Is this the world where everybody is smart? Or just we can't spot the idiots?
To a stock market observer, this pitiful consensus is just another sign that the magnificent bull market we have been riding for the past 2 years could be entering its final phases. That's all.
My guess would be that just in two years, when another bear market will be at its depths, all this self-confident chorus will be singing to an entirely different tune.

Everybody knows.

Lyrics | Leonard Cohen lyrics - Everybody Knows lyrics

Weekend wrap.

Stock market is still showing a bullish posture, staging recovery rally after recent mild sell-off brought by failing at resistance SPX 1340 and RUT 850. RUT 856, the old bull-market high from 2007, was briefly penetrated before retracement. That would suggest plentiful energy for the index that should propel it to the new bull-market and all-time highs soon. SPX has also briefly penetrated resistance at 1320 on this recovery run before falling back just under that threshold.
All that said, I am starting my watch for the seasonal top, and putting together some charts helpful  in spotting such event, concentrating on RUT as it is expected to lead the SPX in the topping process/sequence. The following chart (also posted in my charts list) captures both 2007 and the upcoming tentative tops looking at the similarities and differences  between the two.

Another useful chart is the bottom-spotter combing daily SPX and put-call ratio in the background as a histogram. This chart requires interpretation of the PC ratio dependent on a specific market situation, but in general there is no sight of a bottom in a selloff unless PC ratio goes above 1 (1.2-1.3 for bigger selloffs) and the genuity of the bounce is confirmed by PC ratio at least 0.9 (the higher the better).

Another new chart is the oil priced in gold chart, showing that that ratio is half what it was in the Summer of 2008 and the trend is up now, closing on a resistance. ( Oil is twice cheaper in gold that it was then). This chart truly deserves watching because of  implications of this observation. If the oil breaks out against gold, and the gold keeps going higher as the current trend would suggest, by the next summer we all will be longing for the 100 bucks oil. Just very superficially: if gold approaches 2000 and the ratio goes back to the 2008 top, the oil should be around $300.

That leads us back to the energy. I added another chart for natural gas with better snapshot of the current price action. Note the apparent triangle (not an orthodox though). It appears to be coiled enough for an upside breakout that I think is imminent.

In summary, I am expecting bullish continuation for the next few weeks and preparing for much rougher waters ahead.

Silverado.

I truly, truly dislike saying obvious thing. So, if you live on this planet, you are probably aware that silver had a very nice (but expected) run since August of last year more than doubling and easily outperforming other investments. The run went so well in fact, that silver has met its price target of 40 dollars and is close to the old top from the Hunt brothers era.

This situation certainly deserves some consideration and comments.
It is conceivable, that silver continues to run unabated, particularly in the context of dollar breakdown and gold breakout. However, my suspicion is that the further upside potential for silver is rather limited in the short term and that there are better opportunities within the PM sphere for the next 2 months or so.

HUI, the index of unhedged gold stocks as other PM stocks has terribly underperformed silver, but there is a good chance it is about to change, at least for a while. Looking at the index itself, it looks nice and bullish.

As to when to switch back to the silver itself, the answer is in the charts above as well

Bear hunt- First Bear sighting.

Well, we have the first bear spotted.

More to follow:

For the Gold Bugs:

Assuming near-perfect repeat of the prior bear, early October or July remains the ETA for the S&P, early March or January for gold and PM stocks and Summer 2012 for oil. Obviously, that's all a major conjecture.

Weekend reading- revisiting 5-year bulls.

 What I find interesting this weekend is that few folks who actually manage some serious money piped up on CNBC with some bullish voices. In very brief, the themes are that the stock market is undervalued, this bull market has ways to go, and we should expect it to take us significantly higher. For details these are the links: Laszlo Birinyi.
Bill Miller
Larry Fink
 Obviously, each of them has some research and tons of experience to back-up his opinion. Here, I am just going to see how these extremely bullish calls fit with my assumptions about this ongoing bull run. My current assumption is that this cyclical bull will follow the pattern of bulls from late 1960s through 1970s, where bull runs took form of ABC zigzags lasting on average 2.5 years, followed by very vicious bears. Then, something fundamental must have changed in 1982, and new pattern emerged, with each bull lasting around 5 years.

Looking further in time, at the period from 1932 to 1966, longer duration of bulls is apparent again. The very first bull that started during the Great Depression run for 5 years (seems familiar), and the subsequent bulls, averaged about 4 years (if you try to split 1949-1966 into separate bulls), with the caveat that entire 1949 to 1966 may be easily considered one bull run lasting 17 years. Keeping that background in mind, it is conceivable that this bull may actually last much longer than most people expect (with exception of few quoted above). What may be helpful in this debate, is the following chart.

DAX seems to have the most revealing and clean TA pattern, appears to be drawing an ascending triangle. That pattern would suggest 2.5 year bull for this episode and I am sticking with this prediction until proven wrong (not a triangle but flat that ended in 2009).

Spring Roll- Seasonal Forecast

Current picture.

The March correction had come on schedule and could had run its course already with the Ides of March mini-panic. Retesting of the March 16th low is likely, but  the worse near-term scenario I am expecting now is marginal new low around 1240, where the 62% retracement of the prior same-degree upward move is, with divergences showing up on the oscillators.

 Russel 2000 came right up to the resistance zone in the area of the prior bull market top and is correcting in order to gather a momentum to punch through that resistance into new all-time highs on the next wave up.

Gold has been remarkably steady running in 5-months spurts, interrupted only briefly for mild corrections. If this regularity continues, the current run should carry till the scheduled end of QE2 in June.

Dollar has just suffered a major breakdown and should not undertake any major rally until finds its support around 70-71 where it becomes a conundrum to watch. There are plenty of dollar charts in my list so I will save some server space here.
Oil has become a loose cannon thanks to the Middle-East turmoil, but the safe bet is that it will reach $147 sometime this year.
Natural gas is interesting and appears to be at the beginning of an uptrend (again, plenty charts in my charts list).

Spring vista.

There are some obvious headwinds but markets have been behaving remarkably well. The cyclical bull market that commenced 2 years ago remains in force and appears to have still few power bars left.
The pattern of ABC wave apparent in 1970s cyclical bulls is being followed quite faithfully. If that continues, the top should not arrive until September/October of this year.
The favorable seasonality  and monetary stimulus should continue to propel this market higher until the end of May, but a serious correction  may not  begin in earnest until July, with expectations for the small caps to underperform significantly after May.

On Nuclear Spring, frozen brains, repressed memories and flashbacks.

Let's  take it backwards.
Flashbacks.
Almost 25 years ago to the date; I was a mostly cheerful fellow, taking my prescribed courses at a University and  a busy social life of a student with a stride. A spring was in full blossom, vacations not-to-far away, and grueling exams  not-tomorrow yet, along with the usual bag of things that tend to make young person happy. The news broke out, first through unofficial channels, but soon even the state-controlled media picked it up. There were elevated radiation levels detected somewhere in Sweden, with the source most likely being in Soviet Union. Within the next few days the news became clear. There was a major disaster at a nuclear power plant some 1000 kilometers to the east from my homestead with radioactive plumes spreading over the Europe and around the globe. I left my student's flat in a Big City and arrived at home for the weekend, bringing my usual load of dirty laundry to be washed and a craving for home-made food. My Mom was working the weekend as usual and soon after greeting my Grandmother, ravaging the food and setting up the the washer, I was on my way the the hospital to show myself to her before heading to visit my old friends to commence the other weekend routine.
Here the core of the flashback comes in: my Mom, the most cheerful person I know, with a deep concern or fear in her eyes and slightly shaking hands, handing me a medicinal cup filled with potassium  iodide solution she prepared herself insisting I drink that untasty treat before disappearing into the night.
Repressed Memories.
I am not believer in many thing, I guess it comes with skeptical nature. Among the myriad of things I do not believe is repressed memories. I believe that there is always some awareness of any important events that happened in the past. While not always on the surface (for good information-management reasons), memories are always there, imprinted in the neuronal network and they are accessible for recall, with more or less details when triggered or called for. What I find interesting, is that the collective memory appear to function exactly same way. There is always some awareness in the society of what happened in the past, sometimes elevated to a category of an Urban Legend (see previous post) if the underlying event was serious or curious enough.
Frozen Brains. 
One day, a some kind of quake happens and and the flashbacks are in full force, put in front of your eyes by the media, happy having the very important news of the day and folks glued to TVs gulping on others misfortune. There is a usual parade of experts bringing their three dimes (inflation) largely misinforming the public, not out of ill will but of ignorance. I have been taking my time out of my vacations participating part-time, watching Bill O'Reilly playing down the Fukushima or Sanjay Gupta (generally a lovely fellow) talking about clothing being protective against gamma radiation. In fact, it may help with beta radiation, but for gamma is about as effective as a sunscreen, and there is whole issue of radioactive isotopes getting build-in into living organisms. Radioactive cesium and strontium being the prime example, fitting nicely in the place of calcium in the hydroxyapatite crystals of the bones.
Simply, the news coverage of the events has been pathetic so far, the only stand-out being physicist Michio Kaku who bluntly recommended starting the entombing the faulty reactors now or rather yesterday.
Chernobyl disaster comparisons, frequently deployed now, mainly to tell us that this one is not as bad, seem to be misplaced and in perfect place at the same time. Misplaced mainly because the Fukushima reactors seem to be of different design then Chernobyl's, using water rather than graphite as a moderator.  Graphite was the main source of fuel for the fire and explosion in Chernobyl and the main fallout. The correctness of the comparison is in the fact that in both cases the controlled nuclear reaction in the reactors became uncontrolled and that results in the nuclear fuel meltdown. Believe me, even 4 or 6 inches of steel is a wimpy shield for the nuclear fireplace, and likely we will see open-pit nuclear campfires soon, thanks in part to the bureaucrats' ignorance, denial and negligence. What will be the aftermath? I do not know, but when you finally hear in the media the flood of dire predictions, like about the need to evacuate Tokyo or entire island of Honshu, or the mainland China being affected to the point of economic calamity, or Alaska expecting such a fallout that a human foot would not be able to make a stand there for another 5 thousand years, you could assume that actually the new season is setting in.
Nuclear Spring.
Seasons turn into another, both in nature and in economic activity. Major natural and man-made disasters (wars as prime example) tend  to result in increased economic activity and as likely in change in people's thinking and behaviors. Just keep your eyes open through the blizzard.