Saturday, November 22, 2014
The bottom to beat happened on Nov 7 at just a bit above the silver $15 price level. Since then we have what looks like the start of a nice rally. I am starting this count like an impulse wave which should get into a stronger phase as we move forward in time. Many times this same type of a bullish phase can be a diagonal in which my impulsive wave will fall apart much sooner than expected.
Both types of bullish runs can always be in progress and one or even both can fall apart in dramatic fashion. The last wave that crossed to new lows was a 3 wave which I read as part of a declining diagonal.
There is not that much of a difference between a triangle and a diagonal wave except for where we will find them in the basic idealized wave pattern. Triangles happen most frequently in "B" and 4th wave corrections as diagonals can be found in any 5th wave or "C" waves.
I would like to see silver travel much further until such a time when the silver bulls start to return. If this return of the silver bulls happens at $25 or at $30 is impossible to tell as the degree of bullish news has to show itself as well.
I am sure it is very hard to understand any deflation or inflation scenarios when we don't see prices go up and down in the economy. Prices do go up and down in the economy but by the time we read these numbers they have been lagging by a long time already. In 2011 when gold was shooting past $1900 all the experts were reciting all the future inflation that is going to happen and gold would go to $3000, $5000 or even much higher.
In reality what happened gold starts a decline, goes sideways for a year and then crashes into a bottom in 2013. Gold is the most sensitive to deflation and inflation which is the velocity of money. If money is doing nothing then it has no affect on golds price at all. When we try to forecast the price crash of gold from an inflationary high down to any level then we are forecasting for deflation to come back in the fundamental economy as well. Price changes fundamental news, not fundamental news changing the price.
Now after three years of golds deflationary decline all the fundamental indicators come out to the point that the majority of experts can see these numbers as well. We get the same regurgitated reasons why not to own gold because of deflationary fundamental reasons. That would be all fine and dandy but all these fundamental reasons or indicators are lagging and they have taken since 2011 to come out. 95% of all the experts did not see deflation coming in 2011 just like 95% of all experts did not see inflation coming in 2000.
It's not like this information is not available it has been around since gold has been set free in 1971. In 1980 they did not see deflation coming because all those inflated dollars headed over into the stock market which is stock mania. Stocks will always trump gold in the longer run because one reason is that it is next to impossible to maintain a bubble under fear. Gold and all commodities are basically fear related which gold has demonstrated again in the beginning of Nov. This month the talk about deflation increased dramatically but again these numbers are all lagging numbers. After you heard them a few times, fundamental numbers become irrelevant rapidly.
Now that gold has made a price turn from an extremely bearish mood, all the fundamental numbers for gold should also change. Smart gold watchers will be the first to find the inflation again, but it will not be until the majority also repeat any good gold fundamentals that another gold reversal should happen.
One good way to visualize this lagging process is think about a bull or a bear with a big ring through its nose. Yank on the ring and chain (price) and the bull or bear (fundamentals) will follow behind you.
At this time I am going to keep my potential "A" wave at the 2013 bottom as that bottom contained many gold stock insider buying news as well. With gold recently crossing $1200, gold has not lost any money since June 2013 and is already above every major bottom gold has made since June 2013.
Can gold go much lower? Sure it can as anything can always travel to a new extreme, but the lower that gold would go only assures a much higher jump after. The bearish news would all have to come back and it would also have to intensify dramatically at the same time.
I am not completely satisfied that gold has made a major 4th wave bottom even though the pattern looks like a triangle in a 4th wave. Looks are deciveing as many of these so called 4th waves actually contain expanded patterns. As long as there is a small amount of doubt about the fact that gold may have crossed to a new low in a 3 wave pattern then I will keep the wave count open until it is completely trashed.
So far gold is off to a good start and the $1132 price level has to hold. The recent gold crash or downside breakout is also a good example how downside breakouts fail more than they ever work.
At $1250 gold will run into the long term bearish resistance line and to show us a bigger bullish move, gold will have to break past that price level with gusto or lets say, "With bullish enthusiasm". If this power is in gold, then gold should soon pick up speed in its bullish move.
So far I can still get gold into a basic impulse but I will be looking for that to fall apart early, if I am wrong. Any price move past the $1400 price level sure would help smash all the gold bears and bring back all or many of the , "Golden Parrots". The louder these expert parrots sing in unison, the better. At exactly what price level this will happen at is impossible to forecast, as I could be out 99 cents! Just kidding on the 99 cents comment, as nobody is even expecting a bullish phase, when they are still saying we should dump gold now.
The idea that the 2011 peak is a wave three in Intermediate degree is still alive and well but where we are in this 4th wave is still up for debate. Any potential "C" wave bull market can act just like a perfect start to a big bullish phase, but it would fall apart at a potential wave 1 in Minor degree.
Any gold run that is still to come will be a big test for the contrarians as a gold move back to 2014 highs will give them a good profit. If gold stock insiders don't sell then they could potentialy leave a huge gain on the table as well.
Friday, November 21, 2014
The Stock markets are pointing up like they want to fly to the moon. The one problem with that is that nobody can fly to the moon as emotions no longer can travel in the vacuum of space. :)
Emotions are spread through the air with face to face contact or close proximity to other people. You can be at a dead party and all it takes is one joker or clown to walk in the door and his attitude can affect everybody else in the room. In stocks or any trend they travel in herds as the bullish mood feeds of each other through news and talking with friends. All it takes is the smallest of waves over on the corrective side and all these bullish emotions can turn bearish very quickly.
All the fundamentals like an expanding economy, job growth, rising dollar and record stock prices are all lagging indicators which after 5 years the majority of experts are starting to notice now.
When the majority repeat this fundamental good news it becomes irrelevant very quickly as prices get adjusted even quicker. Any fundamental news you may read about or you may have heard mention more than three times, then this news is irrelevant already. We are in an electronic age where news travels around the world by the time the crowd does the "wave" in a colosseum.
It is always the herd of investors that move the slowest, except when fear strikes.
It was the price rise that changed fundamentals not the fundamentals changing the price. We could be at a "D" wave top or just another big correction is going to happen as even this impending correction could be just another expanded pattern as well.
It is always a challenge as we can be early but hopefully we can catch any bigger bear trap before we get caught in it.
The SP500 did cross with a 3 wave pattern so far and it would have to drop much further to confirm this 3 wave move. Three wave moves to new record highs or lows are either part of a diagonal or part of a triangle. Any diagonal usually signals an end to a trend and they can get very volatile when they do it. The VIX should reflect this by going up as the SP500 declines.
In November the USD has gone sideways and today it created another bullish phase record high. Right along with stocks! A rising US dollar represents deflation in action but we have to look at it that this has been a bullish phase going on over three years. It's not something new or has it come as a surprise. Deflation/inflation happens all the time but all this money that has been printed also moves.
Besides moving, this invisible money also goes up in electronic smoke when prices crash!
If it doesn't move (no velocity), printed money does nothing. Gold will never move anywhere if dollars don't get moved around as well. Gold is still the best metal bar none, which is extremely sensitive to these deflation/inflation cycles. Gold has been crushed in price as the US dollar soared and only after three years have all the fundamentals come to light where the majority have been able to read about them as well.
Every analysts is now parroting the same fundamentals which nobody saw in 2011! Forecasting future price trends to continue based on lagging indicators will never work, even though the majority of all analysis is done based on fundamental news!
From my perspective price moves create the fundamentals, not fundamentals creating the price move.
Markets move inversely to fundamentals as every major turning in history can confirm.
Everybody on the planet hated the US dollar back in 2008 yet look what happen! It turned and started to act funny (bullish), catching many gold bugs by surprise.
The question is if a bigger impulse is yet to be added on to this phase, or if this diagonal looking move is ending?
The US dollar would only have to make a long spike to the 90 price level and then my 4th wave peak would fit much better. Chances are good that the USD will fool or tease us and fall short of that price level, in which it could get hit at a later date.
Today is the last trading day before the new moon and new moons have been very bullish for the US dollar in the past.
Readers know I had parts of this crude oil decline counted as a diagonal. The problem may be is that we only may have finished wave 4 of this diagonal. The big sideways action back in Oct fits a normal 4th wave very well but the pattern started to fall apart as a prefect impulse very quickly as the waves all started to overlap at critical places. This morning crude oil spiked up and instantly reacted downward again after completing another small run of 5 waves.
If oil was to impulse much higher then only a very short correction should take place just above $75.50. Any price action below $74 would now help confirm a potential diagonal and a new bear market low below $73 would confirm the diagonal. We should also end up with another zigzag when crude oil does this. Technically all it took was oil to enter anywhere in wave 2, and it technically becomes an ending diagonal.
I try to label all diagonals with (ABC1, ABC2, ABC3, ABC4, ABC5) but many times there is not enough room to do this. I am using Micro degree as my non-diagonal 4th wave and the diagonal would contain two degrees lower than that. On my Degree scale I have no lower degrees, but I always know there is another 3 degree levels below the lowest. Of course I would be crazy to count out all these smallest degrees as I do those with "finger" wave counting. Any Forex screen I look at, all my wave counting is done with "finger" wave counting. When I print out a new chart, I also use my finger to count the waves before I put any pen on paper.
Any move to a newer low would certainly bring all the bears out again but a diagonal signals, a very strong trend change when it is completed. Just like trying to hit the tops of the markets is always a problem, with crude oil we are doing the same thing but at the bottom of a bearish phase.
Crude oil can go as high as $75.50 but not any higher as ending diagonals "must" not exceed wave two in height. This crude oil has one of the longest and thinnest declines I have seen in some time, and it can't continue without a violent reaction going the other way or a complete trend reversal.
Thursday, November 20, 2014
The Nasdaq has seen another post crash record high a few days ago. Sooner or later this market will turn as we have not had a substantial correction since the Oct 2014 bottom. This is not natural as good healthy corrections are signs of a good bull market. Since that Oct low the Nasdaq has left as many as 5 open gaps in its wake and all of them will get closed of when the next big correction starts.
Markets do not stay at a permeant highs like they said before the 1929 crash, nor are we in a "New Era" like they said we were in, in 2000. If the US dollar maintains its valuations then this is bad in the long run for exporters and manufacturing. All the rosy fundamentals you may be reading about took well over 5 years before the majority started to notice them and report on them. After a while all the analysts start parroting the same good fundamentals over and over. My basic rule is, if you have heard a fundamental bit of good news repeated more than three times then this news is already irrelevant by the time you heard on the third time.
Its worse if your friends and family repeat the same fundamental good news. The majority of funds are all loaded for "bull" as I am sure they have little to no cash left. So who is left to get in? Who are those bright and smart investors that can see "value" at record peaks in the markets today? What group of people are left to come in to give the majority a profit in a few months? They must still be in a cave or they are going to invade the markets from another undiscovered planet!
When the Nasdaq rolls over then I am sure Apples stock will also roll over. Institutions and funds have a high weighting with Apple so who are all the investors that will give all the funds that hold Apple stock a profit? Insiders in Apple have sold their shares but analysts just say that this does not matter!
What I am looking for is a decline or a correction that will force all the bullish stock holders to take a second look in staying bullish. Any start to a decline I look for clean impulse waves going down and when they do not materialize then I look at choppy and corrective wave counts part of a larger degree correction.
I am showing wave counts Micro degree and lower. At these small levels it we can see some of the differences between the DJIA and the SP500. Starting with a top on the 18th we had a plunge then a rally and another 3 wave plunge. This three wave plunge down to a "B" wave created a new low which I must count as an expanded pattern. These I rarely find in first waves but can be the start of diagonal waves. Many times investors will not be happy holding stocks for the weekend and a huge sell off would occur on Fridays.
The markets have been making some fast crazy moves in both directions so I see that as they are starting to get unstable. Once the markets are over on the corrective side or the bearish side then it takes very little "bad" news to set it off on a strong decline. The speed that stock gains have made recently has also slowed down, as there has been no net gains since the beginning of November.
Two days ago the SP500 made its last record high at about 2056. When the market goes into a correction in general we don't want to see any more new highs being created, but instead lower lows should start to develop. Markets are starting to make wild fast moves in both directions which we can see at the intraday level, but they hardly make a dent in the daily or weekly charts. My smallest "A" wave is in Minuscule degree which is the smallest degree I have and it is at this degree level that can give us a clue that we have crossed back into the bearish side. Of course the markets can't make anymore new record highs.
Many are suspecting a correction already but the majority are oblivious to any potential long term bear market starting. Bears always attack from the top, so it is just a matter of time before the general public figures out what may be happening.
Anytime the markets have dipped over into the corrective side, then a news catalyst can do the most amount of damage. If this market spiked to another new high then so be it but the SP500 and the DJIA has been masking the Russell 2000 bear market since July 2014.
Since the Oct 2014 bottom the SP500 has only made very small corrections containing many gaps, which is not a good sign.
Wednesday, November 19, 2014
I don't especially like to spend time on ETF wave counts as we could have 3 or 4 gold related ETFs and they will all have different wave patterns. They also do not reflect or show a better long term picture. Either way the important thing is the degree or intensity of the bearish mood we have just enjoyed that is important. We have been getting bearish news for over 3 years but the difference now is the majority just started seeing the bearish fundamentals in gold just recently.
When they all see the same fundamentals then these fundamentals are already irrelevant!
Fundamentals that everyone can now see are the results of a price change and they are lagging.
It took the general stock market over 5 years before the majority could see all the improving fundamentals! After a while they all start to sound like parrots squawking about the same good fundamentals!
Who wants to invest in gold when the fundamentals of gold are so bad? The contrarians do as they have seen this several times before since 2000! They also know how to buy low with GTC orders and may have averaged in at $30 for this GDXJ ETF. One more push above $30 and the contrarians will see green showing for this one asset. Once GDXJ hits $36 then they will have a gain of 20% even before the gold bandwagon jumpers get serious. as they are still scratching their heads asking, "Where is the best entry price point?" At the GDXJ $45 price levels that same contrarian will be up 50%! $45 will get GDXJ to another triple top and trend chasers will be waiting for that ever illusive upside breakout!
GDXJ could soar to $55-$60 but if all the gold bulls have come back from hiding ,or are back from their holidays in gold bull heaven, and the majority bullish mood starts to dominate 24/7, then a major correction would be due if not a resumption of the bearish trend. If a resumption of the trend were to happen, it should be a short move and could produce another double bottom or GDXJ could hit $21 again. Of course if that were to happen all the gold bears will get full attention again and I am sure they will be yelling for you to sell that, 'barbarous relic'. If that happens then we know GDXJ can make a complete bear market retracement which started in 2011.
At $140 GDXJ has a big gap so at a minimum this gap will also get filled in the years ahead.
Gold had a very sharp drop today but instantly recovered most all of it. Many of these types of fast moves are the short players getting stopped out as they have sell orders being added at every low. Of course all the upside breakout artists will have buy orders above any last high, as they love to buy high betting that gold is going higher. So far I can still get gold into a bullish wave count and I switched the last correction into a flat. Most wave action ends up failing to follow the trend lines, but it gives us a basic idea when the impulse can fall apart.
If any move starts to get too many overlapping waves or impulse waves that look more like zigzags, then this rally could be just a big bear market rally, with much more to come. If bullish news starts to come back early and starts to dominated the headlines 24/7 then we may be in trouble. So far they are still pumping out the bearish news which gold is ignoring. When bearish news is getting ignore or only a correction happens then this is bullish. It's when the gold market starts to ignore gold bullish fundamental news and struggles up, then gold could be in trouble.
We have seen gold stocks come from a very bearish bottom and now have been in a rally since early November. This bullish phase also looks very impulsive which means it should have going power. I know contrarian players have been waiting since the June bottom in 2013 as some have been averaging in since then. Once GLDX makes a further move past $12 then those ETF holders will see this trade push into the green or at least light up green showing a gain.
I would love to give you a very bullish picture at this time even when I see a potential triangle that may have already completed. Everything is perfect for a rally that will send gold stocks to the moon.
There is one little hitch with this scenario and that is a potential expanded pattern where any corrective wave hits a new bear market low. In a bull market the reverse may be a "B" wave top or a "D" wave top in any degree. At $20-$21 all my triangle peaks will be cleared and this is where the gold stocks will get interesting.
It will all be about how fast all the gold bulls will return and how bullish the experts will be when this happens as GLDX could get pushed further. If in the next few months this happens then what? Is GLDX going to go to zero? GLDX has already seen close to an 80-90% drop and the experts are still bearish on gold stocks. Best case scenario would be if GLDX roared up past $21 and then decline right back down to $8.00 or so. This will shake out all but the die hard contrarians that I know can ride out this move with ease. Contrarians would not sell until they see clear signs of insider gold stock selling. This is not happening but the opposite has been true.
There are many gaps open up very high so in the future I know this entire bearish phase will get retraced. Gold stocks have to shake off any bandwagon jumpers that think they have an easy ride ahead. Very few participants understand the mathematical sequence that happens on every bottom when they jump in late in a bull market.
If by a miracle you managed to average in at $9 with this ETF then at $13.50 you would already have a gain of 50%. The emotional traders that just start buying at $13.50 have left a 50% gain on the table. It gets worse the longer they take as when they jump in at $18 they have left 100% of thier gains on the table. Contrarians aren't crazy, they know exactly what they are doing and they are prepared to wait it all out.
Very few people can or will ever take advantage of any Elliott Wave as any wave count basics is all about buying low and selling high and the majority will never do that. Perish the thought of trying to catch a falling knife, but we also know that this "falling knife" is out killing bears.
Tuesday, November 18, 2014
The normal reaction to this silver decline is that it has much further to go. I can understand that but when everybody on the planet knows about silvers decline, then who is left to sell out all their holdings? It sure is not the smart money as it does not take smart money over three years to decide to sell out now!
Silver stock ETFs like SIL have also crashed to record lows yet the general public wants lower prices as they refuse to but low. The majority think that prices will fall much lower. How much lower and what is the price going to do after SLV hits a new low? If SIL hit $4 then this would be another 50% drop. Another 50% drop in SLV would take us to the $8 price level. Would this be the right price for the majority to get motivated to buy silver? All the bearish news would have to intensify by 50% in order to match another drop in silver prices.
Lets say that a potential big fake bullish phase is going to happen instead of the return of a full bull market, then the silver bulls will eventually dominate the news far too early. If intense bullish news dominates at a silver price of $30 then the monthly,weekly and daily charts must be reviewed in quick succession.
Besides a few small gaps open above present prices, we have two huge gaps open well above any bear market rally. If silver travels to the $24-$25 price level then one of the big gaps will get closed.
The big gap at $38 will still be open but this gap will also get closed buy another bigger bullish phase.
If my wave count is just a diagonal top wave three, or if it is just a "D" wave peak, I can see silver still exceeding it's 2011 peak. All those that did not get the chance to sell high will get another chance, but I am sure they will ignore that chance as well. It would be a safe bet that if silver reaches say $80 and it is ready to crash to $9 that silver investors will believe in the $100-$200 price forecast and keep holding silver bullion.
The US dollar has soared up which just came from an expanded wave bottom. If my assessment is right then any expanded pattern will get completely retraced. This means a potential very close downside breakout should happen, but the USD should head below the 87.200 price level as well.
Apparently there is some turmoil in the Treasury markets as they try to automate everything and switch to electronic trading. Wild moves can cause wild moves in rates as well. Any fast short term rate spike can send panic into the stock market and may even start a selling panic in the US dollar.
When I first read this news I smiled as these two words, 'barbarous relic' get used at most major gold bottoms. I use these words as another set of indicators that only come out at strong bottoms as they would not dare say these two words when gold was at $1900
He is clearly saying to sell your gold low when the majority are bearish on gold. This is the worst time you sell anything when the asset class is pointing down. All the indicators he uses are fundamental lagging indicators that have taken over three years to get to a point when the majority can see them. He also ignored all gold stocks which have seen record lows recently with insider buying. I guess he wants all gold stocks and ETFs to go to zero before they are a good buy, because gold stocks must be a sell as well if dumping gold now is a good idea now.
In 1999 they called gold a 'barbarous relic' as well just before it gained over 600%.
I am confident in saying that even if golds rally turns into a big fake rally and crashes again, then there is an extreme good chance that gold will sail up to the $2000-$2400 price level.
It will not matter how many times we can say to buy low and sell high, we can count on the majority to do the exact opposite. Even if we had the best Elliott Wave count and we were at a wave two crash bottom, investors or day traders will be too scared to take a position.
Monday, November 17, 2014
Today Apple created a spike with a peak of $117 and then backed off immediately. This leaves a small vertical spike which usually indicates one of two things, a correction is coming or the end of a major bullish run. What I don't like about the entire bull move from April 2013 is that my top trend line now has touched in four places. In a great impulse we would only touch 3 points. I think $117 was a forecast by an analysts but again what good is any forecast if they don't know what is going to happen after this price is achieved?
Any bullish correction will find support at the bottom trend line and may even cross it to the $90 price level. This is very speculative and Apple analysts will have to get bearish very quickly if Apple is going to push higher again.
What all the forecasters are missing are the three big open gaps all the way down to the $60 price level with one of the biggest gaps being closed at the $75 price level. If the entire bull market is a big "B" wave expanded flat or if it is a "D" wave top we could see a powerful correction. I think Apple would have to show a big correction as it seems the Nasdaq or the SP500 doesn't want to crash until Apple does.
At $117 who is the last guy that bought the Apple long position that thinks many more greater fools are coming in to buy Apple stock? Talk about being a sucker in buying high as that spike put the gold/Apple ratio at a bit over 10:1 One Troy once of gold will only buy 10 shares? That is pushing the ratio to the extreme!
On the 14th of November crude oil bottom just a few dollars from a long term price forecast that I had, Now that it has turned the focus will be how high it can go. This all depends on if my 4th wave scenario has completed. Crude oil can rally a long way if we are heading up to another part of a triangle. We could see oil travel back up past the 4107 price level and match the $115 price level and then crash right back down to $75 before it heads to $160.
Nobody can believe that crude oil can make such wild swings but we are not in "Kansas" anymore, but we are in commodities where wild swings are very normal. All commodities and currencies are extremely leveraged and you have to know and understand this before starting to play in the commodities sectors.
One single contract contains 1000 barrels of oil and a $10 move means a $10,000 profit or loss. The one move from the bottom and if caught perfectly would have returned $3000 already if the trade was closed off. To match the same thing in a Forex oil unit you would have to have 30 or more units. There are not too many traders around that can handle 30 or even 40 Forex Oil units at a time.
Even with this very bullish wave count oil can crash back down to $74 before it cranks up again. The good thing is that the start of this oil move looks very impulsive which means the impulse waves can compound one leg above the next leg.
If the news starts to turn very bullish again say at the $95 price level then I would get suspicious that a major turn or a major correction is being setup.
All we have to look back in history to see what has happen after major world oil gluts and each time major rallies an even full bull markets have started.
We are rolling around the top and since then it looks like a 3 wave decline has started but looks are misleading if a small wave one started at the top. All my degrees are at the Micro and smaller degree levels as I am paranoid in starting a too big of a degree. Starting with too high of a degree will always get us wave counters into trouble as I see it as the root cause of wave counts out today.
The VIX has started on a bullish move so if that continues then the SP500 will match it as they are inversely related. Since the Oct bottom the SP500 has also created many open gaps and once any correction starts getting serious then all those gaps in the SP500 and the VIX will get closed.
In other words all of the gains since the Oct bottom will get retraced. The only big question is time.
We can be in a big bull trap and the majority have no clue that they are in it, as all it takes is the smallest of waves over on the bearish side and then bad news will start to dominate. This move could fall to 2030 and come to a screeching halt so we have to keep that possibility open.
We have had stocks pointing up and gold was pointing down, with the USD wobbling at a top so this is a perfect snapshot picture of stock mania.
Gold stocks have been crushed recently and stocks have been making record highs and investors still do no see the potential inverse play. Expert analysts are still very bearish on gold stocks and no wave analysts are developing a bullish wave count in gold stocks.
This DJIA pattern is a prime example when a decline ends up being a three wave pattern. Yes, any three wave pattern can also be the start of a bigger "ABC" and in this case I would not want the DJIA to travel to a newer high, this time. Even if the DJIA makes a newer record high then it can be part of a diagonal pattern. Diagonal waves or ending diagonal waves can produce dramatic reversals when they complete. Since the Oct 15 bottom the DJIA is also riddled with gaps but they are small gaps that are easily hidden. They are still open gaps and they will all get closed when the bigger correction gets serious. I would sure hate to see this bull market drag on giving us a year end rally but I am sure a year end profit taking move can always happen.
So many market players are so concerned about price that they are obsessed by it. With any Elliott Wave it has nothing to do with price as it is all about the mood change that makes the waves go up and down.
Most all analysts do not care how prices go up and down but they always like to have a reason in "why" they went up and down. Analysts are just so happy to give you reasons why the stock market has gone down, and if they can't then they borrow another reason and just repeat it or they will just make up a reason. "Taking profit" is always a good reason to use just in case all else fails.
Over and over we have heard how the economy is getting better and there is no reason why stocks should crash. They are painting us a rosy picture which is the same as saying stocks are on a "permanent high". Those were the famous last works they used just before the 1929 stock market crash!
Stocks crash when the majority least expect them to crash. It is mathematically impossible for the majority to win money from the majority. Only a very small percentage of players make any money in the longer run.
Any trend that is your friend or seems to be your friend will eventually turn on you and stab you in the back!
Who is this group of Greatest Fools that will ride to the rescue of the majority invested right now in stocks? The pattern above looks corrective so this stock party may not be over just yet as the Nasdaq may have to clear new highs once again. That Nov 13 peak was followed by a 3 wave pattern which still should get completely retraced.
Until the markets show some very impulsive declines, we are not going to get the great run we are hoping for.
Since the Oct 16 bottom the Nasdaq has developed open gaps that keeps the Nasdaq suspended in mid air. Even Apple has several big open gaps so all this progress for the last month will eventually all get erased. We just don't know when this will happen.
This morning it takes 3.40 ounces of gold to buy one unit of the Nasdaq which I don't know is cheap or expensive when compared to gold. I would have to take many more readings before I see what the extreme parameters have been. I would guess the lower this number the cheaper stocks will be when compared to gold.
At the 2008 bottom of stocks and the 2008 bottom in gold, it took only 1.45 ounces of gold to buy one unit of the Nasdaq.
The US dollar came to an abrupt stop and started back up again. This is always what we have to expect when working a top. Now we have to wait and see how the US dollar will cross to a new high. These patterns that look like an impulse but do not count out perfectly as an impulse should belong to the diagonal family . It should not take too long to see if the dollar crosses to new highs, but in a wild spike anything could happen. The US dollar is still short from crossing 90 which would clear some long standing corrective tops. If the USD cleared these peaks then this would fit a 4th wave very well, but at this time it's still not a perfect fit the way I like them.
Many times in the past we have seen the US dollar implode for the Nov and Dec months as shoppers dump billions of dollars into the street! Selling stocks also dumps billions, and dropping bombs with another WWIII in progress can kill the US dollar bull market as well. All this feel good mood on the US dollar has only arrived after the US dollar has already enjoyed a 3 year bull market. It is the public that is late to this USD bull market because it sure is not the smart money that is making the US dollar go up.
No bull market can sustain itself when the patterns show it had a rocky and choppy beginning.
Sunday, November 16, 2014
I use gold as money when I want to calculate any ratio and when we need smaller increments than a Troy ounce then I use the gold gram with 31.10 grams per Troy ounce. Gold is the most sensitive asset class that reacts to this inflation and deflation action.
At present a gold gram is about $38.23 and way back in 2000 this same gold gram was about $8.19.
This is about a 466% increase in 14 years. Did our wages increase by 466% in 14 years? No, they certainly did not. This clearly shows how much wages have fallen behind or have not kept up in real money terms expressed in gold.
Today if you were working for $38.23 per hour you are working for one gram of gold per hour. At a minimum rate or close to minimum we could be at 1 quarter of that so you would be working for a quarter gram per hour or $9.55 per hour. In BC the minimum wage is about $10.50.
If gold soared to say $2000, the high wage earners wage would have to go to over $64 per hour just to keep up with inflation. Of course no wages will keep up to that inflation rate so in affect even the high wage earner would fall way behind and get poorer as his purchasing power would decrease dramatically.
Down at the lower minimum wage scale still earning a quarter gram per hour, you would have to make $16 per hour just to keep up to inflation. Again wages would not keep up with inflation when using gold as money and the minimum wage earner also becomes poorer.
In late 1973 I was working for about $4.98 per hour when gold bottomed at about $90 and the gold gram was at $2.89. This translated to about 1.723 grams per hour. In those years I had cash to burn and was saving on a regular basis working in the forest industry.
If we move ahead and take the same numbers but adjust it all for todays gold gram the same wage doing the same work would have to be over $65 per hour.
If we take a snapshot of how many grams per hour we are working for today and then take another snapshot when gold reaches $2000 then we get a good idea how much inflation screws the working person every day. Also when the gold price crashes you will see that our purchasing power will increase, when compared to gold. On the extreme side if we were to take Peter Schiffs $5000 gold as real then the high wage earners per hour income would have to soar to $160 per hour and minimum wage would have to soar to $40 per hour.
Gold has extreme value when we use it to calculate real money but nobody uses it this way as they all think the gold price goes up and down because of buying and selling. Buying and selling numbers are all lagging numbers as it is the velocity of money that drives the price of gold. Printed money doing nothing has no affect on the price of gold.
I thought I would add the intraday gold chart because I always can find an alternate wave count that may happen. Gold saw two $40-$50 moves which may contain an expanded "B" wave top from which it could retrace the entire last move and find support at the $1145-$1145 price range. Expanded waves are an indicator that a powerful move can happen and gold would have to dramatically break down much further if a strong bottom has not yet completed. Usually on Sunday nights the gold price can decline just before it soars again. I am very bullish on gold but could be early in the short term.
Gold stocks are at extreme lows much lower than 2008 lows and eventually gold participants will be forced to switch from a very bearish mood back to a bullish mood. This will not happen overnight as it could take many months. At the exact price level that the gold bulls will return at is impossible to forecast even at the best of times, but all my normal indicators would have to show themselves first before gold would be ready to reverse. If the gold bulls are beating the drums again at $1500 and insiders in gold stocks are selling then I can see a potential reversal. The opposite has been true as gold stock insiders have been buying not selling and my favourite contrarian has not dumped any of his gold positions. I also have visited my other contrarian friend and he buys like a good trained contrarian should, and nothing indicates that he should be out of gold stock investments and he is managing close to a million dollar cash account. Most contrarians should be in the green well before the majority start jumping back on the gold bandwagon.
There is a specific phenomenon that takes place at the bottom which I cannot explain very well, but investors leave huge amounts of money on the table when they jump in later in the gold or silver bull market. For a small example, if contarians averaged in at $12 with SIL, and others wait until it reaches $24 then these investors have left 100% gains on the table already! The longer they wait for the gold market to show its new direction the more money in percentage terms is left on the table. The contrarians are very to happy to pick this money up as the trend chasers will pay them to do it sooner or later!
In years past the USA has executed Guns&Butter policy of printing money and it happened on a generational scale. Back in the 70s this money printing forced all the young boomers to demand higher wages and we got it at that time. From the late 1960s to the early 1970s 20% yearly pay raises was pretty normal in the forest industries. Since Greenspan we have had successive feds in power with each one trying to out do each other in how much money they can print.
The problem is this printed money is all electronic money because they would strip the world of all its trees and cotton to turn all the US dollar into something physical that we can touch. (cash in circulation) Besides we are in a fractional money system where 90% or more of the money they think is out there, is not really there.
We hear reports all the time when millionaires and billionaires lose millions in a single day or when market capitalization in the trillions disappears. When you read this news you are witnessing money being burnt in an electronic flash fire as it happens very quickly. Much of this so called printed money moves around constantly by trillions every day, but also much of it does nothing as it is offshore money out side the continental USA. This may amount to about 50% of all money being held offshore.
The money they printed in the 1970s moved into stocks and by 1980 the stock market was already taking off. In 1996 the printed dollars heading into the stock market but demand outstripped supply as the US dollar rallied killing the gold price at the same time. From 1996 to about 2000 deflation set in and gold reflected this perfectly.
The stock market crash from 2007 to 2009 demanded a huge amounts of cash with gold crashing and then roaring as the money printing escalated.
From about 2000 to 2011 this deflation hibernated but it came back with a vengeance in 2011.
It is only recently that many analysts and participants have just figured out that deflation is happening and they have been told to sell gold and buy US dollars as the deflation is going to continue.
The herd of deflationists are three years behind or three years late if they are just starting to take action now! Any fundamental numbers you want to use are lagging numbers at best and therefore are useless numbers to use to forecast if the trend will continue. This would happen in a depression as well but with electronic filling we could technically bypass a depression. In Canada our government wants to stamp out any physical paper checks being sent out.
I could go on but now we are faced with the US dollar pointing straight up again.
Gold, is pointing down, Stocks and the US dollar are pointing up which is a classic indicator of deflation, with all the printed money moving into stocks or sitting there doing nothing. (no velocity) Of course we don't think of stocks going up as inflation but that is exactly what it is. With the US dollar bottom in 2011 gold started its bear market and stocks soared. This trend cannot last and a correction of some degree has to happen. The US could see one more little violent move up but then it can crash forcing all the US dollar bulls to completely change positions.
I am not completely convinced that my 4th wave US dollar peak has arrived as I would like to have seen the US dollar pass the 90 price level. There is a real chance that the US will decline retracing all of 2014 and 2013 gains sending the US dollar right back down below the 79 and 78 price level. The 75 price level would be my lowest price level as below that it would kill any diagonal 4th wave decline.
Just below 83.800 I have a gap in the USD chart so this could be one support/resistance price level.
When the majority of US dollar bulls turn back into US dollar bears, and gold bulls come back from obscurity then it may be time for another reversal.
I have not calculated a Gold/USD ratio using the US dollar cash futures numbers but I bet we could get some interesting numbers once we calculate from 4-6 extreme points. How many USD contract units could we have bought last week with one ounce of gold? I calculated a bit less than 13 units which would be very expensive. I would have to do many calculations to see if a Gold/USD ratio is useful.
Friday, November 14, 2014
Crude oil bottomed very close to $73.22 before it turned and blasted upward. When it looks very impulsive then there is usually more power behind any move. We are in a world glut and once oil rallies much further than anyone was expecting, then the glut will go away or it will only be mentioned very rarely. We are heading into the winter where heating fuels or distribution channels like Warren Buffets oil trains, can get easily disrupted. Besides, drilling rigs are being shut down which is actually very bullish for oil in the longer run.
For now I have switched back to my potential 4th wave bottom and I will run it until such a time that the wave counts start to fall apart. The bearish mood in oil coincided well with gold and if there is a divergence between oil and gold then the gold/oil ratio will give us a clue. If the ratio starts to shift down dramatically then this would set off warnings.
The initial move from the 2008 bottom to the 2011 peak was about $80 for wave three, then I would add that to my 73.22 and we would get a $153 oil price. I have mentioned $160 several times but only time will tell if this will happen. Using a 14:1 ratio $153 oil would equate to a $2100 gold price.
The $73 price level could also be the low for 2014, with $107 being the high to beat for 2014.
My Intermediate degree for gold is still at the 2011 peak with an extreme bearish mood low about a week ago. I would love to put a wave 4 bottom On Nov 7th but at this time I have not done so. From any very bearish bottom when all the players are selling gold short, it is next to impossible for these traders to keep making money as they will not be able to handle a large degree counter rally.
Imagine if you were short and a crazy spike hits you like what just happened, you would be stopped out so fast it would make your head spin. Of course when your stops get hit you actually turned into an instant gold bull. The previous bearish sideways correction is where many buy orders were hiding at, and those who were bearish at $1175 are now gold bulls.
Price is irrelevant all the time but the mood be it bullish or bearish is the main driver of markets or should I say the opposite drivers. Markets will always act inversely when the majority reach a consensus opinion. Keep in mind that gold is pointing down and stocks are pointing up, and most gold investors are sitting out as they have the same fears that the mass media is hyping in gold.
Since gold traveled much higher than my earlier wave count, I switched to a very bullish wave count where wave three is the longest wave. I count with a 1-2,1-2, 1-2 (three degree levels)wave count anytime I think I will have 5 waves, but these wave counts will fall apart very quickly if a real impulse wave is still not going to happen.
I started my wave counts in a very small degree and I would have to adjust very little once we get closer to a potential wave 1 in Minor degree. I think gold has to leave the $1260 price level in the dust but I will be watching for any of my other indicators to start showing up early.
Crude oil has also made a good bottom and has started to spike with gold.These are all very bullish indicators as an inflationary attack is in progress. All you will read right now are mild inflation numbers as these are lagging indicators to the price of gold. The reverse will happen at the top when inflation numbers start becoming obvious again. Once the experts get back on the gold bandwagon and start parroting these inflation numbers, then the gold bullish cycle will be coming to an end. This could happen at any price level be it $1400 or $1500 or higher.
The gold/oil ratio is about 15.68:1 which makes oil a little cheap but nowhere near any extreme.
The Russell 2000 refuses to play the same game, as the other two indices have been breaking new record highs. I know some smart contrarians have been using the Russell 2000 as a leading indicator as it has refused to keep up with the others. Until my wave count gets trashed I am going to run this index like it is a potential "D" wave top. It would be the same as if we were at a wave three Cycle degree top as the decline would be about the same.
To help confirm this then the Russell 2000 has to break below its Oct 2014 lows of about 1040. From the Oct 2014 lows the Russell 2000 bullish phase has left open gaps in its wake which will all get closed in due time. In other words the bulls have sealed their own fate , but they just don't know it yet.
Even if the Russell 2000 runs higher again, then it will run into the top trend line giving it another reason to halts its progress. I think the Russell 2000 will also be a good indicator for any next major bear market low as it clearly did not sink as low as the SP500 or the DJIA. In the worst case scenario in the future we can see that the Russell 350-300 price level is going to be a major base.
Many will be betting that the markets are going back to the 1970s or now even mid 1987 but for the Russell 2000 to keep up with the DJIA and SP500, the Russell 2000 would have to go well past zero and that will never happen unless we are frozen in a mini ice age or we are in a nuclear winter.
It has been a full 7 calendar days that gold has last created a newer bear market low. Of course the majority are very bearish on gold and I have posted several of them. As of this morning we already have a higher low which is the conventional sign of a bullish breakout. Given all the bearish mood out in the last week, yet gold has ignored all of it and has rallied. Due to the very steep rally I usually look for a potential "C" wave move. If gold settles down again and even looks like it is resuming it's bearish trend then it could be heading to a wave 2 bottom. Wouldn't that be a shocker, while everybody is still bearish a wave two bottom could be forming next week.
Do you think that Christmas shoppers are going to dump lot's of dollars into the US economy? Sure they can and gold has gone on a massive bull market before, at the end of November.
911 caused billions of dollars to get dumped into the economy just from home based piggy banks alone, after which gold soared.
For gold to be in a new leg down then we would have to be at a new wave 1-2 with the wave 2 rally still to finish and it should take gold to the $1230-$1250 price levels.
I have inserted my triangle wave count back into gold for now and only time will tell if it will hold. When anyone forecasts the price of gold to go up then they are also forecasting an inflationary attack even if they don't know it. These inflation numbers will not show up until well after gold has all ready soared. Only after gold has soared will the fundamental numbers change, but by the time we read about these numbers, they already become irrelevant.
Gold will always fool the greatest amount of participates and it will always do it when they least expect it.
From my perspective gold is the most reliable asset class that will always forecast inflation or deflation to come, and it will always act the opposite way if the majority are using gold for either direction. If they are selling gold like crazy because of fear of deflation, then it will eventually rally.
Also if the majority of gold investors are buying because of fear of inflation, then gold will also go the opposite way and head down! If you don't think that is how it works then all you have to do is go back in history, like 1980, 1996, 2000 and then 2011.
Every year gold will make its high for the year and then a low for the year. Gold had a high of about $1390 in March 2014, so hopefully it will have seen its low in Nov 2014 at $1132.
The US dollar finally broke out to a new bull market high at about 88.260 this morning. The majority of analysts that are getting top billing are those that are bullish on the US dollar which is consensus forecasting. Consensus forecasting never works and most of the time the markets will act the exact opposite way as the trend reverses. Yes, many times it can just be a big correction, but usually it forces all the participants to reverse course anyway.
We can see the reaction that gold had by spiking about $35 this morning as well. If the US dollar maintains a steep decline then we could be just looking for a correction but I think we have more than just a correction. Any US dollar decline can stop at any previous bull market support, but these support levels will not hold depending on the power of the reversal. Up until now we have had perfect deflation (stronger US dollar) since 2011. Gold is the most sensitive to this deflation/inflationary moves.
All this printed money we keep hearing about which hasn't gone up in smoke, has just moved, just like it did in the 1970s or in 1996 and many times a mad stock mania starts. When the stock mania arrives you can bet that gold and gold stocks get punished without showing any mercy as general stocks will always compete with gold.
If we take a snapshot view, we have gold and gold stocks pointing down and at record lows, with the stock indices and the US dollar pointing up and at record highs. If that does not get your mind thinking then I don't know what will.
As usual the herd is always late and it may take them months to figure out that the USD may be on more than just a small correction.