Politicians are ridiculous. Enough said. The nerve of Pete Stark...
California or Massachusetts? Which one has the dumbest politicians? We should post a poll....
Of course, in this "Great Race to the Bottom," the competition amongst almost all politicians is quite fierce.
Schiff on the gold movement. We are mostly in agreement. The correlation is still there, but as we've noted many times, we are seeing bearish divergences. At some point we expect a general stock market sell-off, rising gold, rising gold and commodity stocks, soaring oil, and a stagnant economy.
We're not there yet, but when gold breaks and holds 1000 in a few days to a couple of weeks (after a throwback, then we may well see this decoupling event occur.
While a declining dollar index is not the same thing as inflation, it is a reasonable measure of dollar devaluation relative to other currencies. This is a subtle, but important discrepancy from which we have some problem with some of Schiff's remarks. We believe he's just simplifying the discussion for most people.
Gold continued its move up today while natural gas touched a 7 1/2 year low. The dollar remained relatively flat after considerable intraday movement and stock market internals improved. Oil looks poised to make a vicious turn to the upside. What a day.
Let's start, as usual, with the dollar.
After bouncing around a lot, the dollar ended the day marginally up. Expect a touch on the upper side of the triangle tomorrow around 78.75 intraday. It's going to have to break one direction or the other fairly soon. Odds favor a break to the downside soon, putting the 78.43 support level at risk. A break there should send the dollar to 76 quickly, followed by another short term bounce, and then a fall to 72. That will be a big decision period that should occur over the next few months.
If the dollar breaks down below key support at any point, gold will move up regardless of its technical condition.
Of course, the really interesting move today was again, gold.
Per the update yesterday, all of the triangle patterns are active. Gold was a bit surprising in that it sliced through the 985 mark like it wasn't there, caught additional buying, and made a run for 1000. 1000 has been an intermediate target that we have not discussed much because we felt it would take a little longer to make a move there. Today's action confirms that to be true. We are overbought and failed to take and hold a major level (this was the level that gold surpassed with the Bear Stearns panic and again with the Lehman panic). Ideally, we will assault that level without any panic, but simply through orderly buying. Today's spike will be perceived by traders as a failed attempt at 1000 and gold will be heavily shorted. From a technical perspective, we can view this simply as the beginning of the throwback that we discussed yesterday where gold will pull back to some level, likely the outside upper boundary of the larger triangle below (around 958) and then, with a full head of steam, make a run at 1000. It is possible gold will not pull that far back, but will instead move back to 985 or 970. If you are interested in gold, we believe those levels mark good entry points with a final, possible low of 958-960. This is all in keeping with the triangle formation breakout and is not a violation of that pattern.
It is easier to see the upper bands of resistance on this daily chart. Once the 1000 level is breached and held, 1033 will need to be overcome, then the neckline at around 1050. Very little will stop gold from moving directly to 1300 at that point, aside from occasionally being overbought wherein it will tread water and then move up again.
The long term chart is even more clear. You can see the breakout easily above the triangle. We believe we will retest the triangle upper boundary.
Stock internals have improved markedly. We anticipate a decent day in stocks tomorrow. Crude oil is poised for another move up over the next few days. There may be a few dollars of downside to the 65 range, but no guarantees.
Natural gas continues to disappoint. We are wondering if natural gas producers may have to pay consumers to take the stuff soon. It may not start recovering until later this year or early next, if the winter is cold.
Key credit market stress indicators continue to look solid. In fact, they continue to improve--at least for now.
We haven't done much posting this week due to other tasks and heavy market activity. As we're looking over the key charts for the evening, here's an "oldie, but a goodie" for your entertainment...
The long anticipated move in gold is here even before we were expecting it. While most everything was flat to moderately down today, gold has decided that it is time to do something.
As we stated before, gold will start moving before the dollar confirms the move.
We can see that gold confirmed the breakout of the triangle we showed yesterday and even the intermediate term triangle we showed yesterday on the weekly chart, and today on a longer term daily chart. (Ignore the comment about the "Hyland" triangle, it's an inside joke).
When a breakout in a triangle takes a long time to come to fruition, the resulting breakout may be weakened. We anticipate a retest of the upper boundary of the intermediate term triangle. If that retest is successful (meaning it touches the boundary and moves back up), we are not in an overbought state, and the dollar has broken down, we will be buyers of gold for the breakout (note that we already own gold, but this would be a trading opportunity vs. an investment opportunity). That will be, what we call a "back up the truck" moment.
The dollar continues to work around the key pivot point of 78.33 in a bearish wedge/triangle.
We estimate that within the next two weeks or so (vs our forecast of 4-6 weeks previously), gold will begin a strong move as the second leg up of the supercycle continues.
"Things are not getting better, they're getting worse."
We believe that this rally is not over yet, but that this is not a real recovery, only a blip before the next phase down.
Interesting action in the last few days.
From a trading perspective, if you're not already on the light side on stocks and other assets, sell into strength.
We don't believe this is the start of anything catastrophic, but is simply an intermediate term correction--the one we've been calling for that has taken this long to materialize.
Certainly we have seen some changes in correlation. However, no real trend has developed. Thus, the "dollar vs. everything" approach to trading still works.
We're bearish in general over the next month or so. Bullish afterward until the end of the year. Bearish again early in 2010.
Let's take a look.
Dollar Update
Long term, the bearish dollar picture remains intact. At some point, we'll have to trade on fundamentals, and paper assets not tied directly to dollars will weaken. However, until that happens, we are tied inversely to the dollar. The dollar continues in its bearish right descending triangle with a target level of 70-ish. A break in the RSI above the red line or in the blue trend line on the chart will be a warning that we may be returning to a credit-crisis-like event. As of now, this is not an issue. The slow stochastic is oversold, so we can expect the dollar to trend up or sideways.
In the shorter term, the dollar continues to range trade within the same tolerances we discussed before. Indeed, we may now have this bearish wedge pattern (in blue) to give us a warning of an impending major move. A break up, especially out of the 79.25 area, is a warning that the mid and longer term picture (above) may be at risk.
Gold
The short term gold picture shows a weak breakout of a symmetrical triangle pattern to the upside. The pattern is weak because it ran the course of the entire triangle (just about). We need a confirmation of gold moving above the 955 level in order to confirm a break out. Why 955?
You can see that level corresponds to the intermediate term symmetrical triangle key support level below. In addition, you can see the inverse head and shoulders that will take gold to 1300 if the neckline is broken on the upside at about the 1050 level.
We believe that the USDX must go down for gold to really rally. Otherwise, gold will generally remain flat. The implication of this chart executing the inverse head and shoulders is that the USDX will fall through support in the upcoming few weeks.
Energy
Frankly, we were wrong about a false breakdown in natural gas. At this rate, natural gas producers are going to have to pay natural gas consumers to take the stuff. It looks very bearish for the next 6-8 weeks at least. We may see a sub-$2.00 cash price on nat gas. Sorry, P.M....
The chart for crude oil is much better. Same targets apply as before. We're buyers at anything sub $65 as long as we don't see a return of credit lock-up that forces deleveraging. Regardless of what happens with the stock market explicitly, crude looks like it will have, at worst, a few dollars more of correction before resuming an up trend.
Commodity Complex
Lots of fractal patterns on this chart. A likely pull back to 405 is in the cards. A break below that is a concern for commodities as a whole. We believe the downside is limited and will be buyers of grains, oil, select base metals, and energy after this correction and resumption of the up trend. 
Copper
Copper continues to look like a strong performer for the long term. A drop back short term to 270 is in order with an intermediate term pull back to 260 or so is likely. As long we we do not break the lower part of the channel, we can expect longer term prices to move up.
China
China looks oversold. Frankly, we're surprised at the continued sell-off. Don't try to catch a falling knife, but look for reversal of trend at the 2570 level. China suffers fundamentally from a weak customer base (North America and Europe), not a debt problem. Recessions come from oversupply of inventory. Depressions come from oversupply of debt that crashes and forces the deleveraging of assets. In the former condition, inventories will be worked off over time. In the latter condition, structural changes must occur to eliminate the debt. Assuming China can replace its large export customers with increased internal consumption, it will recover as there is no structural issue with the economy.
Fundamental Indicators
First and foremost on the list is the action in junk bonds. The HYG ETF is a good proxy to determine the health of the junk bond market. The 80 level needs to hold. If that fails, it will be a sign that we may be re-entering the credit crisis. If that were to occur, dollars and gold, especially gold, are the safe havens. Additional indicators we consider include LIBOR, interest rate swap spreads, LIBOR-OIS spread, and the TED spread. All such indicators are in good health, indicating that there is no credit stress to be concerned with. Thus, we believe we are simply seeing a market correction. Many assets, notably stocks with poor fundamentals, may not resume an up trend. It is important to invest at the right time (using technical analysis) and in harmony with the fundamentals in order to preserve and grow your wealth.
That's all for now!
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