Gold Scents

The rally out of the February intermediate and yearly cycle low has now traveled far enough and long enough that it is due to take a short breather. That breather would be in the form of a short term pullback into the midcycle low.

The initial move out of the July intermediate cycle low lasted 22 days before forming a short term top.

Since March of 2001, the stock market has been and continues to be in a secular bear market. Beginning in March 2009, stocks have been in a cyclical bull market. This means our current stock market is in a relatively short term bull rally within a much longer term secular bear market decline.
The current rally will serve to separate the second phase of the secular bear from the third and potentially most damaging leg down in the ongoing bear market.

Now that doesn’t mean the rally since March 2009 is finished. I doubt it is.
What it does mean is that one can’t make a timing mistake and expect to be rescued by the secular trend.

At some point this bull is going to expire and we are going to head back down and break the SP500 lows at 666, either nominally or on an inflation-adjusted basis. I suspect it will be both.

The reason it’s going to do that is simply because we don’t have a fundamental driver to power a long term bull market in place. For instance, from 1982 to 2000, the stock market was in a secular bull market. The fundamental driver for that bull was the personal computer and the internet. Those were world changing new technologies. Millions and millions of jobs were created during this period.

There were certainly nasty corrections during the secular bull, for which 1987 is an example. But the secular trend was up. So as long as one was willing to hold onto positions, any entry no matter how poorly timed, would eventually end up being a winning trade. (It’s the strategy Buffet used to become a billionaire, by the way).

Simply said, only traders can lose money in a secular bull market. The only way to lose money in this type of market is to buy high and sell low. And, a buy and hold strategy is the only sure fire money maker in a long term bull.

The problem with the stock market since 2000 is that there is no longer a fundamental driver to produce a secular bull. We haven’t discovered the next “big thing” yet. The new technology that will change the world again, drive massive economic growth and create the millions and millions of new jobs the world needs so desperately.

Now all we are getting are phony cyclical bull markets built on money printing. Those are not the kind of fundamentals that can support a sustainable long term bull market.

So what happens? Well, eventually the false fundamentals fail and the market collapses.

The Fed is now at it again trying to build another bull market on a fundamental base of nothing more than trillions of dollars of liquidity (printing money out of thin air). It didn’t succeed when Greenspan tried it earlier in the last decade, and it’s not going to succeed for Bernanke in this decade.

Until we get the next fundamental driver (i.e. personal computers & internet 1982-2000, electronics 1945-66, automobile and mass production 1920-29, trains in the late 1800’s) we are not going to have another secular bull market for stocks.

There is a sector however that does flourish on a fundamental base of money printing. That sector is the commodity sector, in general, and the precious metals, specifically.

Gold is in a secular long term bull market. This means several things. First off, we can expect this bull to continue until the fundamental driver is taken away. That means the money printing presses have to be turned off. Second, any entry will ultimately turn out to be a winning position as long as one is willing to hold on.
Investors would do well to remember that the bull will eventually correct any timing mistakes.

That being said it is possible to maximize gains and minimize draw downs if one can recognize where gold is in its wave cycle at present. As all of the gains occur during a C-wave advance one wants to be fully invested during this period.

Probably more importantly one needs to recognize when the C-wave is coming to an end and exit positions before gold enters the inevitable D-wave correction.

At the moment gold appears to be entering a second leg up in the ongoing C-wave. The trick will be to sell at the top when things look the brightest and then re-invest at the bottom of the D-wave… when things look the bleakest.
I will be monitoring the advance closely over the next couple of months so as to get subscribers out prior to the onset of the next D-wave.

Gary Savage authors the Smart Money Tracker and daily financial newsletter tracking the stock & commodity markets with special emphasis on the precious metals market.

The question now remains whether gold is stuck in a D-wave decline or whether the action since December has just been a very tricky midpoint consolidation before the C-wave finishes its run.

I will say the recent strength despite a strong dollar is very encouraging.

There are four important requirements that have to be met before we can say with a high degree of confidence that the C-wave is still in play.

First, the single most important is the dollar. We simply must see the intermediate dollar cycle top. No C-wave has been able to fight a rising dollar. What I’ll be looking for is a weekly swing high on the dollar chart as a sign the intermediate cycle has topped.
I will note the dollar is getting late enough in the cycle that it could put in a top at any time. Not to mention we are starting to see a large momentum divergence forming.

Second, the next requirement is for gold to put in a right translated daily cycle. If this remains a D-wave decline then all daily cycles should be left translated. If gold can eclipse $1131 this week then we will have a right translated cycle and the second requirement will have been successfully met. With today’s close above $1133, this key requirement is satisfied.

Third, the next hurdle for gold is the $1161 level which has to be surpassed. Gold has to break the pattern of lower highs and lower lows. It will do that if gold can top $1161.
The $1161 price level will also eliminate the December trough as the intermediate cycle low. Instead, the most recent intermediate cycle low would become February.
This is very important as it would mean gold is on week 4 of the intermediate cycle (which typically runs about 20 weeks) instead of week 10. In effect, this puts 6 more weeks on the shot-clock for the second leg of the C-wave to progress.

Fourth and finally, we need the miners to start participating. If the HUI can cut through the 420 resistance level that will be a big step in the right direction. With the HUI close today above 420, this key requirement as also been met.
If miners can break out to new highs later this month all resistance in the gold market will be out of the way and the path will be clear for the second leg of the C-wave to rack up another monster move.

Gary Savage, The Smart Money Tracker

Gary Savage is currently retired and lives in Las Vegas. He is the author of the Smart Money Tracker, a financial blog with special emphasis on the gold secular bull market.

It’s been about eight days since we did a video on gold, and given the market action today I thought I would look at what is causing the downward pressure in this market.

If you did not watch my last video on gold, I strongly recommend you click here to watch the video titled “Five Reasons Why Gold Will Not Make a New High This Time” as it will give you a bigger picture of how we see this market playing out in the next 12 months.

Click The Chart Below to View The Video

Click The Chart To View The Video

Gold has made some exciting moves recently, but what can we expect in the future? In today’s video, Adam points out five reasons that he does not expect gold to make a new high just yet.

These three markets have a lot of volume, government implications, and technicals lining up for potentially great trades. Gold makes a record high, then pulls back. Silver is inching towards an all-time high level and platinum is making people rethink their decision to go with a white gold wedding band.

Where do you stand in these markets and maybe more importantly, where should you stand?

Click Below on the chart to find out what W.T.F. really stands for and what does it have to do with gold, silver, and platinum?

By Jeff Clark, Editor, Casey’s Gold & Resource Report

Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…

First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron’s decision to file bankruptcy would “stabilize the company,” but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

And what had we been told by the media? Fortune magazine dubbed Enron “America’s Most Innovative Company” for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.

Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. “We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,” assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.

Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.

Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.

And during it all, Bear Stearns was recognized as the “Most Admired” securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was “no liquidity crisis for the firm” and insisted he “had the numbers to back it up.” His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high. Perhaps his numbers were prepared by ex-Arthur Andersen employees.

Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in U.S. history. L.B. succumbed to 2007’s Word of the Year, “subprime,” and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.

And what did CEO Dick Fuld tell us in April of that year? “I will hurt the shorts, and that is my goal.” He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.

Moving on to the largest U.S. government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, “Jump!” Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”

He must have substituted his prescription eyewear with those giant New Year’s Eve glasses, because the government sunk $180 billion into the company and it still had to be split up and the assets sold to the highest bidder. I’m sure that his non-flippant comment had nothing to do with him making CNN’s “Ten Most Wanted Culprits” list in 2008.

GM, with $91 billion in assets, filed for bankruptcy in the summer of 2009 and is now largely owned by the U.S. and Canadian governments (i.e., taxpayers). The $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. But don’t despair: the government is pouring another $30 billion into GM to fund “reorganization operations.”

GM shares? Bye-bye. For 83 years GM had been a member of the prestigious 30 Dow Industrial stocks. It managed to survive the Great Depression but not this decade’s Greater Depression. Yet chairman Ed Whitacre had insisted, “I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.” I wonder what he thinks now that the stock is named “Motors Liquidation,” trades only on the pink sheets, and sells for about 50¢?

Topping off our list is the infamous Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors. But don’t be too upset, because the number is probably half that amount. Hey, the alleged size of the losses comes from his own ledger book, and should we really trust his balance sheet? Dubbed the largest Ponzi scheme ever, I beg to disagree, as you’re about to see…

By now you are probably wondering… what’s bigger than all these? He’s covered the major frauds and scams of the past decade – what could possibly be left?

To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”

Here are a few clues…

Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.” Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, “We have no plans to insert money into either of those two institutions.”

►Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.

Ben Bernanke claimed on February 28, 2008, “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks…” Henry Paulson added on July 20, 2008, that “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

►Since the recession started in December, 2008, 144 banks have failed.

Paulson informed us on April 20, 2007, that “All the signs I look at show the housing market is at or near the bottom.”

►The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.

Ben Bernanke announced on June 20, 2007, that “[The sub prime fallout] will not affect the economy overall.”

►Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.

Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:

• Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.
• Bailout funds in 2008 and 2009 total $8.1 trillion. That’s almost 78 WorldComs. It’s over 123 Enrons.
• U.S. debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That’s over $39,000 per citizen.
• David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the U.S. is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.

We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the “blunder that will plunder” the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.

Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.

This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.

Yet, what is the guardian of our economy and money telling us now?

“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.” (Ben Bernanke, December 7, 2009).

This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.

Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.

Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.

The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.

So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?

For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.

Learn the best ways to buy and hold gold and silver, and the stocks that will help you outpace the inflation that’s right around the corner. Give Casey’s Gold and Resource Report a risk-free try and learn how to escape with your assets intact. For $39 a year, it’s a no-brainer. Click here for more.

We are already in the “silly season” and what I mean by that is after December 15 most traders are not serious about the markets and they’re not committed to any large positions for the balance of the year.

I’ve had a number requests to do a video on gold, so here it is. As you will see in the video, gold has fallen back to an area that should provide support, however it will remain choppy and thinly traded for the balance of the year.

I strongly recommend that if you’re not in gold, to wait until we see more interest and activity coming into 2010.

As always our videos are free to watch and there is no need to register. Just Click The Chart Below

Donald W. Pendergast Jr. – Market Analyst – www.ETFTradingPartner.com
Wow – what a week it was in the world of Gold! After charging above $1,200 on the front-month futures contract earlier in the week, Gold finally finished the week on a very weak note, closing below $1,150, which was right above the low established a week earlier in the wake of the Dubai debt debacle. Clearly, Gold is beginning a trend reversal on a daily-based time frame, but the technical picture is less clear over the long-term. Let’s examine a weekly chart for GLD (one of the financial instruments that holds actual Gold) to get a better fix on what might be expected in this volatile market over the next month or so.

Graphic credit: Metastock v.11

Before going any further, I must admit to being a Gold Bug, having been afflicted with this wonderful malady for many years – including the time period prior to the recent bull run in Gold from 2001-present. Long-term, and given the abysmal long-term outlook for the US Dollar (and all fiat currencies for that matter), declining mine production (most of the high-quality, easier to mine deposits are used up already) and greater awareness among investors regarding the inclusion of Gold in their portfolios, I believe that Gold will easily make it to $2,500 to $3,000 at some point in the next five years, despite several massive sell-offs along the way to the eventual summit. However, in the here and now, we need to also rely on our charts, technical indicators and COT futures market data (Commitment of Traders report, published weekly by the CFTC) in order to minimize losses and maximize gains by waiting for more opportune times to add to long-term holdings of Gold and/or to capitalize on high probability, short-term moves (up and down) that will likely commence from solid support/resistance (S/R) levels in the weeks ahead.
OK, now on to what the weekly chart of GLD is telegraphing to astute traders and investors here:

1. $1,200 was a key Fibonacci extension/Keltner Band resistance area on both a weekly and monthly time frame; major turbulence was expected well in advance – thus the recent tumble came as no surprise to experienced technical traders.

2. Note this week’s wide-range weekly reversal candle, one that printed on extremely heavy volume (see circle at bottom of chart); this is a major reversal signal, especially for daily-based traders, coming in the wake of such a high profile resistance barrier($1,200).

3. Look now at the short-term and long-term money flows (lower portion of the chart); both of the Chaikin money flow indicators (CMF)(34) and (CMF)(144) are revealing pronounced negative divergences with the actual price trends of GLD, which means that the raw fuel (money flowing into GLD and Gold) needed to drive Gold higher is beginning to dry up – for the time being.

OK, so what? What’s a trader and/or investor to do now, given this information? Well, if you’re a long-term Gold Bug, simply hold your core investment positions for the long-haul; that $100+ trillion US national debt/unfunded liability problem ain’t paid off just yet (and likely will never be), so the future for Gold has never looked better, especially for those wishing to diversify out of the Greenback. Let this corrective move play out and trhen consider adding more at lower price levels – $1,050 might be one such a price zone, which happens to be the current 21-week exponential moving average (EMA) price for cash Gold. For those investing via shares in GLD, the area near $104 also coincides with its own 21-week EMA. More cautious investors might wait for a move lower toward the 50-week EMA, which comes in at about $96 for GLD and $975 for cash Gold. The 21- and 50-week EMA’s acts as strong S/R barriers in nearly every kind of market, and Gold is no exception, so you may wish to do further analysis to see if adding on at those particular price areas makes sense for your financial situation.

Traders can be a bit more aggressive; expect to see some sort of a reaction move higher once GLD/Gold hit their 21-week EMA (green box on the chart shows the likely time/price zone in which to anticipate a reversal higher)– this will most likely be a high-probability swing trade play, one that also needs to have a logical stop loss and profit target as well. Daily-based traders can do the same thing – plan on on the 21-day EMA offering some sort of a floor from which a short-term tradable bounce will commence. But be very nimble, with firm stop-loss and profit targets in place before you enter the trade.

Yes, this is a real correction in Gold, but no one really knows how far the price might fall. Even the strongest bull markets need to pause and correct before moving higher, and perhaps this is the case with the Gold market right now. We should know more as the weeks ahead play out; as always, use common sense, be patient and learn to focus on what the charts and long-term fundamental factors are saying, rather than giving in to fear, doubt or the opinions of those who may not have your best interests in mind.

Hat tip…Trading Wall Street Investments/ The Big Picture