Roll the Dice

We’re at the point in the equity bull market Cycle that every piece of news is construed as positive for the equity markets. In many cases, the news even appears to accentuate positive possibilities. The speculative nature of the current advance has by now captured the vast majority of market participants; the media and the pundits are no exception.

For example, the markets were pushed higher this week by several news events, even though the headlines hit the same themes that have been recycled for the past 3 years, and that are almost certainly, by now, fully discounted in prices. The news events included Japan calling off next year’s planned sales tax increase, China surprising with an interest rate decrease, and the ECB announcing that they will be buying assets. These are all related to the tired narrative that central banks and related authorities can alter the natural long term pricing/valuation trajectory of the markets. The world’s equity markets soared on the announcements, and in the process completely ignored the weak fundamentals that gave rise to them. The S&P and Dow even reached new all-time highs, in general very bullish developments. But in this case, the gains were built upon the shifting sand of sound bites rather than economic fundamentals.

The economic reality behind the Continue reading

Midweek Market Update – Nov 19th

Well, it’s just amazing to see this sell-off continue. Really, after such a prolonged period of selling, it just goes to show you how markets can remain extended and extreme for such long periods of time. Even though I’ve left it alone, it’s humbling nonetheless and a lesson for any student of the markets that such moves do occur and they need to be respected. Only the market is ever truly right, which is of course represented by price. All else is our own interpretation of what is right or wrong, all too often laced with our trading biases.

From an analyst’s viewpoint, I’m surprised cr Continue reading

Back and Forth

The miners are confirming this gold move and are encouragingly leading the Cycle again. The back and forth volatility this past week was worrying; in the sense they were showing us a potential gold decline was at hand. The mini triangle pattern, resulting from all this volatility did eventually resolve itself, with the miners convincingly breaking higher as confirmation gold was in a new Daily Cycle.

I’m encouraged by the action within the miners because back on Nov 5th they did find a low 2 days before gold did. The sell-off they experienced, leading into that low, was of the extreme capitulation variety seen only during major (Yearly and Cyclical) Cycle turns. And because we’re in the timing band for a gold Investor and Yearly Cycle Low, this early recovery off a 40% “crash” is suggesting that we have found, in the least, an Investor Cycle bottom. Continue reading

Midweek Market Update – Nov 12th

Now, if bonds were to break down from this point, it would potentially become a reason to be concerned about the longer term trend. Otherwise, this is a bull market after all and this longer than expected period of side-ways consolidation is to be viewed as healthy action. Within the context of a greater bull market, it is more likely to act as the fuel that will sustain a more powerful up-wards move once the primary trend resumes. Continue reading

Can It Be Trusted

We can pick the analysis apart, and compare the current setup to past situations where a trend change failed to materialize. Or we can simply point to a 3 year bear market trend as reason to be cautious. These points are valid – given where Gold has been, skepticism is prudent. I see absolutely no reason to rush out and aggressively buy the current setup.

Even so, we need to acknowledge that an upside setup has arrived. The reversal is impressive, and feels like a Cycle Low since it’s coming off deep selling that lasted many punishing weeks. It’s all about timing, and with the turn occurring on Week 23, it’s easy to believe that an ICL might have occurred.

I’m reminded of a point from an early September report when Gold began to look bearish again. In that report, I said that if Gold were to see a fast, brief drop below the 2013 low ($1,179), it could well be a very cleverly disguised “bear trap” which would reverse higher in new Investor and Yearly Cycles. I’m not trying to raise hopes unnecessarily, so I’ve clearly outlined the bear case. But we can’t ignore the upside setup that’s unfolding – it’s something I will be paying very close attention to in the coming days and weeks. Continue reading

Midweek Market Update – Nov 5th

Of course, it should come as no surprise here that we’re seeing further weakness within gold. When the Daily and Investor Cycles failed last week, obviously the logical expectation was that the bottom would soon fall out of this gold market. A failed Cycle on 2 time-frames will always result in a water-fall like decline.

The miners are taking no prisoners here; it really is breathtaking to again witness a decline of such magnitude. I vividly recall the 2008 version, but at least that was part of a system-wide decline that brought down almost every single asset class and sector with it. This decline, oddly enough, is coming in almost complete isolation, even gold itself is showing us an orderly unwinding, so far.

So the question now is simply how Continue reading

You Want War!

As if the Yen needed any help of late, but obviously the immediate impact of the BOJ’s surprise expansion of QE was to send the Yen falling rapidly. Japan is locked in a 30 year deflationary Cycle, no longer enjoying the cushion and benefits of being a net trade exporter. This move is obviously designed to weaken the Yen, to the point where their export industries can again gain the upper hand with regards to pricing power.

In a world economy that continues to show little growth, the world’s central banks are becoming increasingly aggressive in their policy responses. Since the great recession, the FED was clearly way ahead of the curve with regards to QE, and it could be argued that for the time being, their early and aggressive policy responses have kept the US economy afloat. Relatively speaking, the US economy is greatly outperforming all other economies. This policy example, in my opinion, will pave the way for central banks everywhere to begin pursing a similar accommodative path. It’s not a full blown “currency war” today, but with a slowing world economy, the groundwork for one has been laid.
Continue reading

Midweek Market Update – Oct 29th

The bond market has been running the truest to its Cycles, as is often the case with an asset within a bull market. I mapped out a likely scenario for the bond market a couple of weeks back (Oct 15th), just as we had that late Daily Cycle spike as the equity markets were imploding. We outlined a reversal that would give way to a DC decline, culminating in a relatively shallow 1st DCL.

That Daily Cycle retracement should have run its course now; the move down over many days has cleared all short term bullish sentiment and sufficiently reset the Cycle for yet another move higher. This retracement has met my expectations too, right down to the day and price; both levels I had set were based off a typical 1st Daily Cycle Low. Continue reading

It’s a Matter of Trust

There’s no way to explain a market that has rallied 150 points in just 8 sessions. The move last week alone was 7%, the most violent one week surge since the move out of the August 2011 low. These moves are huge outliers, so extreme that we can only speculate what they mean for the future.

The move down to the 1,814 low and the subsequent snap-back rally are both among the largest intra-month moves on record. The same type of behavior was recorded in the bond market. Such massive moves of many standard deviations are typically the sign of a market headed into a period of heightened uncertainty and volatility, They are not at all consistent with a market that is simply consolidating gains or reverting to a mean. In short, I believe the current roll-coaster is a precursor to similar and possibly even more extreme action for the rest of 2014! Continue reading

Midweek Market Update – Oct 22nd

It’s in these types of situations where it becomes difficult for traders and investors alike. And I can guarantee you that the brightest on Wall Street haven’t the slightest idea from this point where the market is headed. Right now, it’s not about what you think the market is going to do, but simply how you choose to trade it.

What I’m referring to of course is that the S&P has just rallied an insane 130 points in a 5 day “blink of the eye”. Nobody knows if it’s the start of yet another massive rally or just a reflex move after a pretty severe decline. The fear and capitulation the proceeding 200 point decline (over just 17 days) created prohibited anyone, like a deer in headlights, from capturing any of this new upside move. Regardless of how obvious it may have appeared, the snap-back was too quick and sudden. Continue reading