Latest from Martin Armstrong - The Goldman Sachs Conspiracy

For those that do not know Martin Armstrong, he is the former chairman of Princeton Economics whose work revolves around cyclical patterns in the financial world. He is well known in certain circles for picking major market events years--even decades--in advance. Among these are the 1987 stock market crash, the Japanese market crash of 1989, the Asian currency crisis in 1997, the dot com crash of 2000, and the recent crash in 2007. Many of these predictions were made, to the day, in the 1970s and 1980s. Amazing.

Armstrong was indicted on charges of defrauding Japanese investors in the yen carry trade in 1999, a charge which he denies. In fact, closer inspection of the case makes one wonder how the U.S. government could really put on such a trumped up case and hold Mr. Armstrong in contempt for 8 years--that's right, 8 years, before he pleaded guilty to conspiracy to commit fraud in 2007 so that he wouldn't stay in jail forever. He is due to be released in 2012.

That doesn't begin to sum up the possible corruption in the case on behalf of the government, including possible collusion between the government, the military, and major banks like Goldman Sachs, but we'll let Mr. Armstrong tell his own story. It is quite intriguing and thought provoking. Occasionally he is allowed to publish copies of works he writes from prison that are compiled on an IBM typewriter and are scanned into pdf form after they are released. Here is his July 10 piece on Goldman Sachs. We will likely start compiling an archive of his papers chronologically for easy reference here on the blog.

*The Goldman Sachs Conspiracy-- The Real Dark Pool

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Trapping Bulls and Bears

What a day, and what a thesis we have for you. We're going to give you the analysis, but then go out on a limb for a bit of a unusual conclusion.

Unless you're dead, you probably know the stock market shot up today like a rocket. It's right on schedule for what we've been predicting for a couple of weeks--the dollar would fall and stocks would rally. After punishing the bears that jumped the gun on shorting the market last Monday, the market has been nothing but bullish. We're going back to 2007 in short order, right? Flipping condos, buying stuff from China, making nothing productive in the US, and living off of credit, right?

Obviously, we've become a bit jaded. Let's take a look at the charts. Today's darling was the stock market, so we'll start there.

We're using the weekly chart just for clarity, but the same actions apply to the daily chart.

The bulls jumped on a very overbought stock market today and took it higher. In fact, they took it into their own inverse head and shoulders pattern, that we pointed out earlier this week on the DJIA. For the S&P, that should run it up to 1350 or so, which in our opinion, was the primary reason that stocks rose so fast. That must mean everything is getting better, huh? Condo flipping time, right?

Maybe not. As we've shown above in red, we are approaching the top of the megaphone pattern, somewhere around 1000 on the S&P. The bulls may think we're in a bullish pattern, but there's something that they should remember. A pattern must meet all of the requirements of being a pattern, or it isn't a pattern. A week ago Monday, the bears that shorted the head and shoulders before the final neckline was severed got killed. It was a bear trap. This time, the bulls would be wise to remember the same lesson.

We are primarily in a bear market, with a bear market rally that began in March, until proven otherwise. That means that all patterns that are bullish must bear the burden of proof. Volume should rise when the price is rising, if we are really entering a new bull market. It is, instead, falling in aggregate, even though there is a minor increase in volume on the daily chart below. It is, *ahem*, unconvincing.


The daily chart shows the volume increase, though it is marginal at best. The market is extremely overbought, so it absolutely has to take some resting time.

Expect a pull back tomorrow, and possibly for the next few days. A retest of the 956 level is probably in order. The bulls will argue that this is a simple retest of the neckline break before moving on higher. I'm not so sure that will hold water. A close below 956 should send up some caution flags.

The bears don't have much of a case except on a pull back below 956. In fact, we wouldn't be surprised to see such a pull back where the bears go short around 950 and they get whipsawed one more time on a false breakdown.

The megaphone is still very much in play and is the pattern that we are most focused on for now. A run up to 1000 on euphoria is possible after, perhaps, a brief rest that bounces off of 956. If the market turns on 1000, be very, very cautious of the possible bearish broadening top. Though this pattern is not common, it was a very frequent turn pattern for stocks in October of 1929. Be forewarned that if this market now turns and closes at all below 890 before it breaches and holds 1000 to the upside, we think that implies that the overall market is headed down in one more, brutal leg down. This is a very, very dangerous position, and we would not add any new long stock positions until 1000 is successfully passed and the market shows buying strength going up.

Let's look at the dollar.

We're keeping the symmetrical triangle on there for reference. Now that it's broken down, just like clockwork, the dollar has bounced off of support around the 78.40 level. Just as predicted.

If we break down below the support region in the next few days, we'd say the bulls have a case and inflation is on the way. If it bounces hard and starts another run up, we're likely in for another serious case of deleveraging.

Assuming we have a reasonable bounce, how far would it go?



You can see the slow stochastic has been fantastic at showing the bottoms (and tops) in the dollar. Since the dollar is now oversold, as show by the slow stochastic, expect a bounce. We would first be wary of a strong dollar if the RSI at the top broke above the downtrend line. Second, we would be wary if the dollar broke above the 50 day moving average, which it has not done since most of the panic subsided late last year. Note the support levels in horizontal blue lines. We suspect that we'll rally close to the 50 day moving average at around 80, and barring a panic condition in the markets, the dollar will resume a downtrend there.

So now that we've seen the data, here's a hypothetical.

Since we are of some opinion that, while the markets have low volume, they are being supported behind the scenes. The real economy remains in trouble. There are no green shoots, but there are traps where the professional traders from the major investment banks may be ready to take your money. And here at Dredd, dear reader, that is an unacceptable end to this development.

We expect a pull back over time to 956, or just below intraday, as the dollar rallies toward its 50 dma. The bear will get excited and prepare to short the market. Much like we got a couple of weeks ago, the market will reverse. The bulls, confident that 1350 is in their sites, will pile in, but around 1000 or 1015 (the 38% retracement), they will run out of buyers and the rally will fade. This time, it will go down, and whatever is left of the bears will short the market at around 890, when the broadening top is obvious to everyone.

So the bulls and bears both get trapped. That's a nice way to run the table during the summer, eh? Of course, there's no guarantee that this is going to occur. However, it is a very plausible scenario if you believe that the markets are being played and the majority of trades are being executed by black boxes.

At some point these markets must decouple and move on their fundamentals. We would like to see that happen sooner rather than later. Right now, no one is investing. We're all gambling.

POSTSCRIPT: We forgot to mention that, in the longer view dollar chart, that it appears that the dollar may have made a double top. While double tops are often called, it's rare that they are actually double tops--one typically does not know until in hindsight. On confirmation is volume, which of course, is practically impossible to determine in the USDX. However, if it is a double top, one could expect the entirety of the rally from March of 2008 to be taken back, leading to a value of 72 on the USDX. Something to keep in mind.

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Smells Like Market Euphoria

Huge move up today, but don't trust it. The market is bullish and must be given the benefit of the doubt. You'd be wise to trim some market positions and take a bit of profit. It's very likely we'll sell most of this run up off in the next few days.

Don't forget the broadening top/megaphone out there. We're close to it and in a euphoric state. That's dangerous.

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Interesting Interview with Marc Faber

As you listen to this interview, think of it in the context of all of the technical discussions we've been outlining for the S&P, the dollar, and gold.

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Walking the Razor's Edge in the Markets

This has been a very interesting period for the markets. Let's take a look at where we've been, where we are, and a few possible options on where we're going.

A couple of weeks back we started talking about the potential for the dollar to enter a short term inverse head and shoulders pattern, which would have negatively impacted stocks (Note that all non-dollar assets are tightly correlated, meaning they've been trading together. This market has been trading on whether the dollar continues to decline or not. That's very important...) Instead, the dollar failed to enter the pattern and instead entered a pennant pattern, which broke down last week:

At roughly the same time, the S&P was nearing a head and shoulders pattern, which would have taken it down considerably. Many of the bears jumped the gun and shorted the pattern before the neckline was obvious, and the market rallied:

Gold also broke through:

Assets have generally been moving up since, and commodity based currencies (like the Canadian dollar, the Australian dollar, and the Norwegian Krone) have been on a tear.

A week or so has gone by. We noted the important levels that the markets needed to break through and warned of some potential obstacles for the stock markets, including a double top, and a megaphone top. Now, we're going to expand this viewpoint and look at these markets again. Let's start with the dollar.


The dollar continues its downtrend, but in the short term is now showing oversold. It is also nearing support at 78.40. We may see a bounce at this level, if not before. If it occurred before the resistance level and then continued its decent through support, that would be very bearish and good for the asset markets.


If we zoom out a bit and visit it again, we can see the downtrend line just below the 50 day moving average acting like a "ceiling." A break through that line to the upside on any bounce would be be bullish for the dollar, at least short term.


If we look at the dollar on a weekly chart to get a sense of the intermediate term, the dollar is oversold on that scale as well, but has downward momentum. You can see the various lines of support and the sloping downward channel. If it breaks down strongly from the 77.80 level or so, it's along fall to minor support at 74, then down to 72, which was the low in March of 2008.

The big question is whether or not this is going to be a small bounce and a run up like we saw last year that ultimately crashed the markets, or is it going to be a small bounce that allows the asset markets to consolidate before continuing the trend.

Let's look at the equity markets for clues.


Momentum is still on the side of the asset markets, though they are overbought in the short term. There's a lot of tight bands of resistance just ahead of the market, and volume is declining. However, as we've stated before, the summer is a perfect time to prop up the market values while the volume is weak, so let's see how it pans out.

As we're compiling this data today, the markets have weakened. The S&P needs to hold out over 946 to keep the "double top" talk at bay. If it closes at that level or higher and consolidates while the dollar moves up a bit, it's likely to be ready to challenge the 956 level and remove the double top talk. At the same time, a close below 946 sends a negative signal that's going to make some people pay attention.

Given the momentum of the markets, but by no means a presumption, let's look at some scenarios where the dollar weakens and assets move up--just to see what obstacles and opportunities lie ahead.


Assuming we get past the "double top," there's that megaphone pattern that no so many folks seem to be paying attention to. This is an important level because it seems that the S&P may be around 1000 at the top of that pattern. If you recall, the 1015 level is the 38% Fibonacci retracement level. 1000 is also a round number, and markets tend to find resistance at that level. It would be tough to break that point, and it may be that this is the point of market failure.


If we look at the S&P on a weekly chart, we see that it's nearing overbought levels. If it can hang in there and get the short term overbought stochastic down, it may just run up like mad and hit that 1000 mark.

Today's closing is very important above 946 to see if it has the will to continue. If it does, then there's something that traders are watching. It's most evident on the DJIA:

It's an inverse head and shoulder with an apparent neckline somewhere around here. A break to the upside would take the DJIA to somewhere around 12,000. On a similar S&P chart, that level is close to 1300. Is it going to happen? Seems as if the bulls are eyeing this pattern and will try to activate it. They may not be watching the megaphone, though, so it's going to get interesting.

NOTE that for this pattern to be real, a bottom reversal head and shoulders needs to have an increase in volume on the break out. It may be the mother of all head fakes if it doesn't. Watch it closely.

Gold and oil will be important to watch as they are sensitive to the economic climate.


Oil is not yet overbought. If the market continues higher, it may need leadership to change from the stock market to the crude market. There's a clear channel of possible resistance just ahead, so crude may be the key area to focus on in the next few days. Positive moves there and a hold in the S&P above 946 will be good today.


Gold has broken its downtrend and is approaching overbought. It needs to hold 940. A break above 960 will make the longer term chart really interesting:
The inverse head and shoulders is still a possibility. If oil breaks 960, it needs to run at 1000 this time. It would probably happen in conjunction with a stock market run up.

To summarize, the next few weeks are going to make or break this bull market run. We suspect a fake out that will fail in the next month or so after it sucks more money in from the sidelines. Then one more big leg down in the stock markets. That, we believe, will likely mark the bottom of the paper markets with a long grind in store for the real economy.

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