December to Remember

Well, this is not a Lexus add, just quick few thoughts on what's going on in the markets, or rather a certain theme that bothers me about them. I'm just worried about all those kids in Germany trading stocks who instead of St. Nicholas will host a terrible Krampus this Christmas. You can look it up but in a true german tradition of brothers Grimm variety Grinch is a harmless, warm fellow compared to Krampus.
Going back to the markets. DAX is following its pattern of head and shoulders top that was finally retested this week and failed in a spectacular fashion, pulling down all the other markets with it.

What bothers me with that, is that there is no news about Germany, while clearly that is what's bringing the markets down now, not China as the usual market commentators are getting excited about. So if there is no news now, there is still lots of positioning to unwind, and DAX may exceed the target and end up around 8000 instead of the H&S target of 9700. That would be 41% drop in par with the initial 1929 DOW decline. If that would come to fruition, the Grinch will make the visit here as well. Now, if you go back to my previous post, you will see why it bothers me a lot.

1929

It is supposed to be about the stock market, but before I will get there, a bit of detour first. I am just wondering if 2018 will be a memorable year. Most of the history is basically a blur. Just try pick up a random year and than bring one event that happened. Most of the time you will end up blank. Yet, there are years that stand out, that are memorable. Just a little quiz, an easy one: 33, 476, 1492, 1776, 1789, 1914, 1918, 1929, 1939, 1945, 1987, 2000. Congratulations!
Mathematically, those numbers are random. Yet, some folks believe that there is some order in the history and it conforms to predetermined cycles. One theory percolating around that Fibonacci sequence has some predictive power. This is obviously a quackery. Nevertheless, finding some rules, no matter how spurious can make us feel better, providing a comfort of illusion that we have understanding or maybe even control over something that we really do not have. So, we keep trying. Anyway, where I am really going here is simple observation that 89 is a Fibonacci sequence number and it has been 89 years between 1929 and 2018. Does it imply anything particular? Nope, absolutely nothing, just a bit of rambling on my part.
Another interesting and related belief is that history repeats itself, or rather rhymes. This one is actually a good observation, the only problem is that this still does not have a predictive power, since at any given moment similarity may end and the outcome completely diverge, so it is only good in the retrospect.
Well, speaking about similarities, one caught my eye this weekend.
This is Nasdaq chart in the Summer of 2011:

Next is current chart:

Does the similarity determine what's going to happen next?
Obviously not.
Nevertheless, I take seeing possibilities over being oblivious.
Have a blissful Memorial Weekend to All!

Summer's Gold

Well, it's been a while since my last post here and I am seriously considering renaming this blog to "The Forgotten Blog", but than I would have to change the name to "I am Back Blog" again, which would be obviously silly.

The Memorial Day is upon us and with that the official kick-off to the Summer season. For those who wonder where the "precious" is going this Summer, let's look at the seasonal patterns for this time of the year. Gold has a tendency to repeat seasonal patterns with an uncanny regularity. It tends to bottom in June/July and stage a decent rally into September. That's the good news. The bad news is that May is usually a weak month for the metal, and the current consolidation is likely to resolve downwards. To illustrate that  I've got two charts to show.

The top chart is the summer 2012 the bottom 2014.

 

Admittedly, I allowed myself for some free-hand drawing on the second picture just to make the point clear.

Longer-term gold appears to be still in a bear market, and the target for the bottom in December 2016 remains unchanged.

As always, more charts in my stockcharts public list.

Scratching Gold Bear.

Well, the elections are over and the landscape has cleared immensely with that, but I have been scratching my head a lot lately, not from some kind of an itch (I have been using Head and Shoulders shampoo diligently and my scalp is a TV commercial example of health), but from bewilderment: what are the Gold Bulls thinking?
If you turn to the media, including internet, there is a broad chorus of voices quite convinced that the only way for gold is up, to $2500 in 2013 or higher, citing the relentless money printing of our FED, Central Banks gold buying, bearish perspectives of the US dollar and slow but sure recovery of the housing market. Investors seem to be following dutifully putting their money in gold, with the most broadly held gold ETF GLD relentlessly hitting new records of the amount of gold it is holding: at 1340 tons in November 2012. That compares to the holdings of 1232 tons in September of 2011 when the actual top was made and 1282 tons in May of 2012 when the last rally off $1530 started. So let's do the math: 200 dollars down from the top and 100 ton-plus more in GLD holdings. Is this the smart money accumulating? Yes, right.
Now, excuse me for this following diatribe on fundamentals, a sin that I have been trying to avoid in this sanctum of Technical Analysis and Charts, but it is entirely self-serving exercise trying to relief some of the discomfort that I have been always experiencing while visiting psychiatric wards to consult for medical problems.
Let's do a forensic exam what brought the "golden bull" to life and fueled it in first place. Some would say that after 20 years of bear market it was simply time for the bull to be born, and it was my main view over 10 years ago, when I became bullish on gold. However, with the perspective of time and events, a nice chain of events can be coined together. The chain is made of financial/economic troubles that were remedied with government and central bank response to undo those undesirable conditions. The first identifiable link was the Asian financial crisis of 1997-1998 that was "solved" during the 1998 market meltdown by central banks intervention. That stimulus in turn put a fan onto the already bubble-ready NASDAQ that ended up in the burst in early 2000 and a bear market that followed, which was again met with more easing and interest rates cuts. Along the way a tragedy of 9-11 was inflicted on our country and two wars were staged in response to that, resulting in countless billions of dollars being spend inside and outside of the country and dollar depreciation. Well, with low interest rates and forceful government spending, a bubble in the housing blossomed, bursting of which caused banking collapse and another forceful central bank and government interventions acronamed as TARP and QE (1,2,3...). With all of that, 2000-dollar gold seems to be natural and granted. So, why did it top out in 2011 and why should it not be going up?
For the careful reader of this text, it should be quite obvious. Simply, most of the conditions that had driven this bull market in gold, have (let's put it this way) expired. The wars are either over or drawing to their conclusions. There is no housing bubble with its credit and liquidity excess. Bailouts and hand-outs have been already done and the government is rather looking to recover the money spend on those. QEs were front-loaded and the latest one is just a muddle-through QE. Interest rates are and have been at a rock-bottom for a while. Elections are done and all parties are seemingly bent on rising taxes or cutting spending or both.
So going back to the question what those folks who think that gold will keep going up are thinking? I guess they follow same logic as at the top of the NASDAQ and housing bubbles- extrapolating current trend to infinity (never mind that the trend has already had changed over a year ago).

For those who never noticed, gold made a top in early September 2011 (yes, over a year ago) at $1923 per ounce and suffered a precipitous drop to its 200 days moving average at 1530 within the same month. Since then it has been oscillating in a broad range finding support at around 1530 and resistance at 1800.

 

 

 

The latest upswing that started in the Summer of this year failed to break out through the 1800 level for the third time- a bearish development. After recent drop from the unlucky 1800 level, gold found expected support at 200 days moving average printing a nice bullish weekly engulfing candle, but not penetrating above 50 days moving average at around 1750. Last week gold backed off from its recent high again and got support at the round-number of 1700.

 

So what are those charts telling and where gold is heading next?

Let's look at the life-time chart of this bull to see what may be coming, on the bearish side.

 

There is a channel with lower trendline support that is currently at around 1450 and will get to just under 1500 by the end of the year that may be the initial stop for the drop. After an initial bounce from that level, if fundamentals wouldn't change (read lots of pork thrown around by government), the target is the support trendline rising from the initial trajectory of this bull that is currently at $1000, give or take and that is were gold could be heading.  If that seems excessive, there is a precedence in the last gold bull market of 1970's, where after reaching a high of $197 in December 1974, gold collapsed to $103.5 in August 1976, before resuming its uptrend (just divide by 10, it would be quite eerie if this prediction were fulfilled).

It may be surprising to some, but the secular bull market would still be intact if gold pulls back to this trendline (without breaking it), and all of the decline still would be a secular bull market correction.

Now, if that's not enough and stupidity at the government level prevails and we enter a full-blown depression, 700 level would be in the sight.

 

Interestingly enough, the unhedged miners index HUI has been nicely on track predicting such an outcome, as you can see on the charts I posted in my charts list on stockcharts.

 

And my favorite shampoo brand.

This H&S nicely corresponds to the same pattern on copper's charts that I have discussed in my prior posts.

 

What's the Real news?

It's one of the best clues for investors when the market rallies in the face of bad news, or sells off when flooded with good ones. On Friday clearly the latter happened. So a tempting question is what is the Real news?
Is the market fearing and predicting Obama's re-election?- could be.
Is the marked sensing that the latest everlasting QE doesn't have enough oomph! to push the markets even higher?
Is the EU unraveling even further in spite of relative calm on the surface?
Is China entering their "1930s like" depression?
The answer is that's likely all of the above and that it doesn't really matter, at least from the technical analysis perspective.
Let's just look at some of the charts from my stockcharts.com collection.

US Dollar has been signalling  lately that it wants to make a double bottom, rather than sell further to the last year's lows, by breaking the red resistance line. It consolidated at 50 DMA resistance and broke out decisively above it on Friday. Granted, there is still a downsloping 200 DMA that may act as resistance, but the outlook seems to be bullish for the USD now. Please also note that same season last year has seen a major dollar rally, that extended to early January despite a dip caused by ECB easing.
On the other side of the coin are commodities, and if you look at the gold's chart, there is a triple top at 1800 with logic calling now for revisitation of the triple bottom at 1525. Which brings a question: is there a such thing as quadruple bottom?

Copper just hit a major support line .

And if you check the monthly chart, if the next support at 3.25 is broken, 1.50 becomes a target.

On the equity side, check this long-term SPX chart to see how transitions from cyclical bull to cyclical bear look like.

Index breaking 40 weeks MA, MA turning down and failure of the index to break out from below. Admittedly, there was one false bear signal last year, but do not expect false signals to become a norm, so watch it very carefuly for the signal.
Lastly, another of my old charts, showing that NASDAQ has reached a level that is a perfect setup for a top: 50% retracement of the early 2000s decline and the bottom of the first wave of the decline from that era.

Now back to my cycles charts, showing that a major top is due.

 

 

Well, having said all that bearish stuff, please keep in mind that others' opinions are important for their contrarian value mainly. 



 

Copper blues.

Not that copper brings anything new to the story told by silver and gold; rather complements it.
Few charts of that industrial metal.
On both daily and weekly charts copper is sitting on a crucial support at 3.3 after breaking trendline supports.

However, monthly chart is the most bipolar.

It's either H&S with obvious consequences or if you had not enough lithium it's a triangle. Good thing is that we should know very soon the real story here.

July's Gold- what the precious metals are trying to tell us.

It's been a while since I commented on silver and gold here. I have kept some of the PM charts in my public chart for your peruse though. Now it seems to be perfect time to put up some fresh comments here too. You can clearly see that July has given a kickoff to a gold rally three Summers in the row.

If you look closely, all those rallies came out of very similar technical background and were clearly a part of a one, powerful wave up. If you expect the same outcome now, I am afraid you may get disappointed. Just see the setup and the outcome of the same season in 2008. Well, July is when the collapse started. It does not take much of the pattern recognition skills to recognize that current setup is much more like 2008 than the subsequent hat-trick.
Very telling is silver chart, on which I have been pointing that a new wave of collapse appears to be coming, and we got the confirmation yesterday and today with silver breaking down under 28 and failing to regain that level.

So what silver and gold charts are trying to tell us?
I presume they are anticipating a deflationary event similar to the Lehman's failure in September of 2008. Why July downside acceleration? Likely another upcoming European meeting ending with a whimper.
OK, just to make it clear, I am not predicting the future, just reading what the charts are trying to tell.
At the end, another show of my long term gold chart as a reminder.

The 4 year gold half-cycle is scheduled to bottom in December of this year, but the full cycle is in the down phase until December 2016, and I suspect that it will not be until then that precious metals will get really interesting again.

On eclipses and general weirdness

I can't really help, I have been getting this feeling of weirdness so frequently lately. Maybe it's just because of the bad habit of tuning to the Bloomberg's on my XM radio on the way to work, or it's the planetary alignments. Actually, first thing this morning I got grossly surprised hearing on the radio there that we will have a Venus eclipse of the sun today. Well, before you get really scared and start imagining total darkness and the end of the world scenarios, be aware that it was just a usual media superficiality. The technical term for this rare event is not eclipse but a passage. Apparently a small disk of the planet Venus will be crossing in front of the solar disc today, and definitively no darkness is expected. Than again, on the way back home, radio folks were having this elated, giddy talk about the impending rescue for the financial and the rest of the world, coming from the G7, FED and the God himself (the last one is my addition) as the reason for the market's rebound.
This bring a bigger question forth: why should I or anyone in fact bother to strain my (his/her) eyes and keep looking at those charts where I see only doom if they on the radio know better and there is in fact a Guardian Angel? Or is that just a matter of someones faith? Whether someone is faithful or just gullible, time will tell.
I think it's time to put on the sunglasses and take a look at that Venus passage.
In the meantime, you can listen to this weird  German guy's song about eclipse.
Enjoy!

(he was certainly talented and believed in the Guardian Angel, I presume)

Surging Euro update

Just a brief update on Euro. We do have potential divergence on the hourly chart and no collapse after breaking 125. Just an alert for a potential bounce.

It should be clear early tomorrow if the bounce or further collapse is in the cards.

Surging Euro, flying pigs.

Do you believe in flying pigs? I don't.
No, I am not a hard-headed atheist. If I see it, I will believe (I will not have to touch it).
What left me quite perplexed today is my reading of the safehaven.com . There are three fresh articles, written by thoughtful and certainly bright gentlemen, plainly calling a rally in the Euro, and one even predicting  a glorious event of "soaring" of this much beleaguered currency. That site is a place where independent thinkers and folks with contrarian traits tend to congregate and publish, and that's what makes me go there for others' opinions and thoughts, so I certainly do not take their opinions lightly.
Clearly, I need to take another look at my charts, and bear with me when I am doing it.
The very first is the weekly Euro chart, clearly showing breakdown of the support at 126.

Admittedly, there is some potential support at 125, which was a secondary low in March of 2009, that is likely in play now since Euro has had a minor consolidation above that number today, but support from 3 years ago is purely psychological. No trader has kept any position for that long. However, when I go to my long-term Euro chart, I can see 125 support that I have drawn really long time ago, based on several points of it being a resistance or support going back to 2004.

So, maybe be there is some importance of this number (yeah, just since it is a round/quarter-like number).
Drilling down a little further, there is the chart with a head and shoulders pattern that broke down and reached it's target.

So maybe that's it. Target reached, time for a bounce. I still do not see the "soaring" though.
Well, let's take another look at the same chart.

This time I marked a large H&S pattern with red letters. Granted, the head is very ugly (ragged, indented top like would be in a victim of the attack with a sledge hammer), but the rest is a classical pattern with a breakdown and retest and target of 113 if the red neckline is counted, or in a multi-head version if we count the blue neckline at 126, the target would be 103. I also see a clean wave starting from 133 at the beginning of May, that had only one weakly blip mid-month bouncing from 127 to 128, that appears to be targeting support at 119-120 and certainly does not appear to be completed yet.
Thank you for bearing with me, if anyone did.
Have a nice long weekend and let's see if pigs can fly

Weekend wrap- giddy feeling- turning the clock back

What a week!
It truly deserves the exclamation sign and more.
There are unrelenting waterfall declines across the board, carnage everywhere, with markets giving up practically all the gains for the year.
And yet,  yesterday, the Bloombergs and CNBC on my XM radio just having that also unrelenting, but giddy talk about the FB IPO. The closest feeling to that I had during March of 2000. Well, maybe I am oversensitive but that felt very, very strange.
Lets go back to the charts.
The very first one to illustrate the point that  the gain for the year has been given up.

Interestingly, the 200 days MA is at the level of the market at the beginning of the year, thanks to it being flat of course. I believe that puts additional pressure on institutional investors to defend it, but also makes the potential breakdown even more damaging (being under water is not a pleasant feeling and may evoke seizures-like activity,  as some clients of certain agencies of our government could attest).
SPX itself stopped exactly on support that I have drawn a while back.

R2K wasn't so lucky and closed under its 200 days MA. On that note, if you look further abroad, FTSE seems to be leading the pack (for "developed economies") and is very un-comfortably sitting under the water already, and actually already crashing if you ask me.

Ditto for Brazil, that has been falling like a BRICK since the beginning of March.

There is obviously a multitude of charts around that I could add to illustrate the same point- please feel free to browse my chartlist. There is practically no bullish charts around, well, with a little exception of bonds, VIX and the US buck.
The dollar long-term chart would be the most depressing though to the crowds of the gold bugs that I was swearing my allegiance for quite while, if get it correctly.

In brief, it looks to me that the dollar is in a very early bull run, that may last till 2016-7. That would fit nicely with the next major through for the gold that's due in December 2016.
Now, once you know all about the future, have a very nice weekend folks.

Silverado 2- silver bottom.

Do not get me wrong folks. I am a silver bug and has been ever since 2000. Just taking a hiatus ever since silver hit $40 last year- my long expected target. I did share my thoughts at that time, see my earlier post Silverado. My current suspicion is that we may need still to wait a bit for the final low in silver. I just updated two silver charts with potential targets for the silver bottom around 20 bucks.

From the technical perspective, silver did make a double bottom at 26, but failed to do anything suggesting that that number will hold, finding resistance at 30. The only pattern that would make turn me bullish near term, would be crossing 30 and then finding support at 30 again. Unless that happens, I will be expecting further downside with an excellent support at 20, which I suppose would be a buying oportunity of a lifetime.

Just to sidetrack to the rest of the market, it has the feeling like it wants to move in another downside leg unless something dramatically positive happens next week. Anyway, my guess is that next week will tell.

Ordely Bull chart list 2nd aniversary reflexions.

Well, entire 2 years just passed since I started to publish my charts on stockcharts, and I am truly surprised I found time and energy to keep doing it fairly regularly. The cyclical bull was then only few months old and there were plenty of bears rampaging on the public list, so I felt compelled to dust off my crystal ball and share whatever I could have glimpsed looking at it. I can say, truly nostalgically, that it was a very easy time for the propheting. The bull was very young, bearishness was still rampant, and those in power around the world were committed to providing stimuli to the economy. Moving fast forward to today, there has been a dramatic change in all those factors. My prediction of the bull run till the Summer of 2011 was fulfilled. The powers of the word are showing such tremendous stupidity and ignorance now, that it is just my stubbornly contrarian nature that makes me looking for possible bullish resolutions.
Going back to predicting the future business, the good news though is, that we should get a pretty good clue very soon, maybe even next week.
The markets made a nice but predictable rebound to the 200 days MA and if they can't decisively break, the bear will be confirmed. If the rally continues, another leg of the bull is on the way and should last for several more months, and likely the retest of old tops at just above 1500 for the SPX is eventually in cards.

The resolution of this setup will dictate how the other markets will fare, whether the dollar, gold or crude.
Having said that, lets look at the setups in those markets.
US Dollar has made an honest attempt at the launch two weeks ago, but the second-stage engines did not fire and it failed to archive the escape velocity last week, printing in the end indecision to bearish weekly candle.

Interestingly, Australian Dollar may be drawing an inverse head and shoulders bottom.

The fate of the XAD is also closely linked with gold and the PM miners. Interestingly, the miners seem to be leading gold on this rebound/rally (that's positive).
The GDX gold miners ETF and it's younger sibling GDXJ are clearly tracing ascending wedge patterns, that could turn out to be either very bearish or very bullish (ending versus leading diagonal respectively).

Crude oil has been behaving most bullishly of the pack, but pulled just to the resistance at 100 bucks and obviously still may turn on a dime if other markets falter.

And finally, bonds may have seen a historic once-in-a-lifetime top. But that also needs a confirmation.

On the side, it will be interesting to look at all of this 2 years from now.

Weekend wrap- listening to the bell ring.

I presume you have heard or read a phrase that the bell does not ring  at the top or at the bottom. Do not believe in it, it does. It is just like the Christmas bell in the Polar Express movie, not everyone will hear it.
 To me it rung quite loudly when the DAX after breaking down from what appeared to be a triangle printed a bullish daily candle.

With US markets holding the early August low, it was quite convincing that the bottom was in. Objectively, we still are missing the confirmation of the bottom- that would come with breaking of the thick red resistance. But that is likely to happen sooner or later.
For the SPX the picture is also quite clear, breaking 1225 would confirm the bottom as well. Just notice how both indices stopped right at the crucial resistance today. Once that happen the run to the 200 days MA seems assured.

Longer-term technical picture appears on the surface still grim though, unless 200 DMA gets decisively broken, but that's the scenario I am putting more and more faith in now.
I will post more extensive review next week, time permitting.

Stupidity galore- political rambling.

This will be not-market-related. Just few thoughts about the republican presidential debate aired tonight.

Just as I started to notice some some folks returning to sanity, I got again surprised how pervasive stupidity is in the media and our political leadership.
The first idiocy I am referring to is the belief that the US budget deficit is the biggest problem that we have and I commented on that in my prior blog everybody-knows-consensus
For a shrewd market observer, it should be clear that with the interest rates near zero, the problem is the opposite- not enough borrowing by our government. With the private sector and the public on the spree of deleveraging and with "debt aversion", the US government became the "borrower of last resort". It is actually an interesting spin on the theory nicely explained by Charles Kindleberger in his book "Manias, Panics, and Crashes" that I had pleasure to read in the runup to the 2000 market top. In that book he explains the role of the central bank as the "lender of last resort". My spin is that while the European central Bank does not get that it's its role to be the "lender of last resort", our central bank (Federal Reserve Bank) does not get it that it should play a role of the "borrower of last resort", could be because there is no book written about it yet (at least nothing came my way). Not surprisingly, you could discover that the same concern of "balancing the budget" was very prevalent in the aftermath of the 1929 crash, as depicted in the "The Great Crash of 1929" book by John K. Galbraith.
Well, after getting the first idiocy out of the way, let me tell you what other idiocy bothers me tonight.
 And it bothers me very much. I guess I just can't stand cunning idiots. Two of the candidates attacked Rick Perry for issuing an executive order to vaccinate young girls against HPV (a virus causing cervical cancer and some of the head and neck cancers) in Texas. One of them is sadly a physician, and the second a woman. Michelle Bachmann then went on and on about the great harm and violation of the innocent girls that Rick Perry caused  by his order. Well, the problem is that by vaccinating you can prevent majority of cervical cancers and save multiple lives (annual mortality from cervical cancer is 4000 and from head and neck 11000). So, you can see what my problem with those folks is. Unfortunately, Mr. Perry did not handle the argument well and did not bury those two idiots the way he should. In the meantime, while I am still waiting for Ralph Nader, Rick Perry is the only candidate that gained my sympathy and respect.

Just on the side, likely a significant day in the markets today with possible bottom for Europe (US might have bottomed at SPX 1100 a month ago).

Weekend wrap- Nader for president.

The good news is that the market did not collapse on Friday and held 200 days moving averages as well as June lows. The bad news is that it may easily collapse next week and that would confirm for me the transition to a bear market. From the Elliott Wave analysis perspective it is simply a choice between two wave 5 outcomes as below.

The move in ether direction will be swift and totally news dependent.
We are in a window for this cyclical bull top and any further drop will be just a confirmation that a top was build up over the past several months and that will be as clear as it could be. In case of a surprising "solution" over the weekend a blow off rally to cap-off this bull will likely materialize in short-term.

From the political perspective it just becomes clear to everyone (if you did not know before), that we truly need protection against our own government, and the best idea I could find about that is that we should  mobilize and start molesting Ralph Nader to try another run for the Commander-in-Chief spot.

Weekend wrap- Sequential tops revisited.

It seems to be a good time to follow-up on the sequential tops theme rather than concentrate on short-term noise which is anyway just a part of the larger scheme of things and any political outcome will get interpreted according to the stock market outcome.
Just one comment: no fools in sight yet- see my old post Everybody knows-consensus.
Time has validated my contention that airlines cyclical bull has topped in November of 2010 and the sector is already in a cyclical bear, now accelerating.

Having one bear confirmed, let's look at the last cyclical bear topping sequence. I put together this chart a while back and it shows SPX top 9 months and oil top 18 months after airlines.

If that relationship is upheld this time, we are looking for SPX top in September.
I lost my gold chart so it is a recreated one. If you look closely, we may be at a beginning of a sweet 6-months rally to the top for gold and the miners.

Now a close-up of the last oil top.

If history rhymes enough we may have some rally till September followed by trading range till January where a final blow-off would commence. If the blow-off repeats its past performance it would take us to 200 bucks per barrel.
Now the disclaimer: things are not likely to repeat exactly same way.