GOLD AND MINERS ARE APPROACHING BOTTOM!

Large concentrated amounts of volume will appear during the intial stages of an uptrend, which is a telling sign of forthcoming strength. It is a direct result of INSTITUTIONS that accumulate massive long positions at the start of a major move. But as time 'takes a toll' on the maturation of the bullish advance, its trend grows weaker on diminishing amounts of volume even when the stock is making new price highs. The interpretation is that investors are losing interest, and a top is near.

Likewise, in the case of a downtrend, new price lows on declining volume indicates that buyers are ‘eating up’ the supply, and the trend is ready to reverse. There are even occasions where the reversal transpires as a ‘volume spike’, but you see very little price movement.  The message is that the extremity of selling pressure within the move lower has reached a point of exhaustion.

Based on the corresponding characteristics exhibiting in both Gold and the Miners, there is overwhelming evidence that supports their current down trending structure to be coming to an end. Let me explain.

 

The yellow metal has now entered the accumulation phase, where big firms initiate a ‘scale in’ approach to purchase blocks of millions of shares over a designated time frame. Since legally they cannot buy the entire shares float all at once, this strategy is widely used and seemingly more appropriate. Furthermore, the lack of selling participation associated with Gold’s most recent price decline, on top of the new money inflow, suggests that buying is in effect.

 

If this methodology happens to 'stretch' the actual turning point as sometimes is the case, my guess is that by the next 5- 8 trading days a bottom should present itself. Rarely do you see a correction last more than three, three and half weeks especially in the birth of a major uptrend.

 



 

Particularly when an index is so closely linked to the metal it tracks, yet is sensitive to the price performance of the overall market, its true direction can be skewed by such 'pulling' forces. Despite a 200 point drop in the DOW JONES Average on Friday (a mild re-enactment of the 25th year anniversary of Black Monday), and gold moving lower- the GDX actually closed positive on rather large ‘spike volume.’ This is a clear case of Investors that have seemingly found attractive valuations at current levels for reasons obvious - they are expecting a bottom.  

 

 

The CC Report premium newsletter offers two subscriptions-$10/month or only $100/year. It is well worth the information you receive.

Darah

 

A YEAR-END RALLY IS SOON UNDERWAY!

The integrity of a particular resistance level at which prices breakout from is only called into question if the subsequent retest lacks the ability to ‘hold’ above the breakout point. Failure to do so would be a sign of trouble that requires more effort among buyers to ‘absorb’ the oversupply of shares at hand. However, the fact that market fluctuations can be irrational at times; there are cases when the breakout level is not necessarily the fulcrum point. Instead prices have room to ‘give’ but still remain above the general stopping area. This can be equally as valid so long as there comes a period of consolidation 'above' where buyers can defend the newly established higher level of support .



For this technical reason one might objectively identify as their being a potential bullish case in stocks right now. And should this analysis be applied to the basis that 'the fundamentals always find a way to fulfill the technicals,' then it gives even more reason to ‘dig’ into what might be the primary driver.

For starters, price action during the month of September was largely ignited by investors’ response to the stimulus measures of our Federal Reserve. Not only was there a great deal of ‘front running’ the announcement of QE3, but as it turns out, the actual announcement was a ‘sell on the news’ type of event.

Since the market has not ‘taken off’ as it seemingly should by now, there is somewhat of a dismissive approach among investors- as if money printing this time around may not ‘work’. Historical evidence would prove that monetary stimulus during the latter stages of a bull market cycle has less desirable effects, but for reasons explained in the premium newsletter- I believe there is STILL enough 'kick' in this market to accomodate a year-end/election rally prior to a major TOP.



The premium newsletter offers a variety of information on all asset classes of the stock market, including low risk/high probability strategies. Subscriptions are either $9.95/month or $100/year. It is well worth the information received.

Darah

 

THE FINAL RUN IN GOLD

If ever an up-trending market is without a health restoring correction process, investors seemingly have leaned too far to the side of one bias. Generally the result is an ‘approaching top’. This might be the case now since Gold is contained within a sideways structure; a pattern that represents indecision and lack of direction. But under different circumstances, particular price behavior of this kind can presage a grimmer outcome.

The extended condition of Gold has a trajectory that speaks to more bearish possibilities, and not the bullish ‘hype’ that currently orbits our trading universe. Since these patterns are tricky, one cannot be certain of which direction prices will break-so key will be to follow the dollar.

 

If the dollar breaks its previous swing low, then gold will likely stage a mild advance to the neighborhood of 1815, 1840 max. Anything past that will be given back rather sharply as the metal is ‘overdue’ for a more substantial correction.

Should Gold break down from this ‘up and down’ pattern, then the initiation of a 2 to 3 week corrective phase has begun. I would anticipate the preliminary stage of the move lower to be a quick drop that is followed by a sideways consolidation. Thereafter the metal will stage an upward advance of much greater magnitude than this current one, likely pressing the September of 2011 highs at roughly $2,000 an ounce.

 

 

Traders/investors who ‘missed out’ on the August/September multi-month advance might be looking to reposition for what I believe is going to be an extremely lucrative opportunity. One can subscribe to the premium newletter for a detailed description of the expected sequence of events as well as particular points of entry.

Darah

 

 

YEAR-END RALLY!

Typically at final tops is an oversold rally among the Dow Components and flagship stocks that ‘juice’ the broad averages higher, but few of these individual names actually make new stock highs.  The implication is that investors will hit the ‘EXITS’ just prior to the ‘you know what’ hits the fan, but suckers in the public for what they feel is ‘a runaway move’. This course of action is identically repeated just weeks before the end of every major bull market top - simply because it takes a great deal of time for institutions to unload blocks of millions of shares to those buying in at these euphoric levels.

The illogical nature of the stock market should remind us that there always comes a time when investors will forcibly convince themselves (under some unfounded reason) - to gobble up shares of any company,   not knowing the stock is rising - because it’s being squeezed for its every last penny!  This certainly is the case with Apple, Google, and Amazon. But of course, they will top out just before or with the market as I previously explained.

Fortunately, there is still plenty of time before any of these meaningful signs of trouble - bubble to the surface. And while there are subtle warnings that are current, they do not provide any serious sign to worry, at least not yet.

Simply put, the stock market is set in motion to resume its year-end uptrend before the culmination of this four year Bull market cycle. And soon after this current decline bottoms out, it will be the very last worthwhile position for longs to accumulate shares into the final quarter.

The CC Report premium newsletter offers two subscriptions-$10/month or only $100/year. It’s well worth the information you receive.

Darah

EYE OPENING BULLISH POSSIBILITIES

A market that experiences a climatic selling frenzy can often generate hyper-sold conditions which merit for a rally, but not one that is sustainable to recover from such severe technical damage. Instead what occurs is prices fall back at minimum to retest the prior low, but the decline in motion is not nearly as dramatic. Thereafter becomes a scrimmage between both buyers and sellers until a general support area can be agreed upon, and to where the next bottom can then be established.

Currently, the U.S. Dollar index does not at all reveal any convincing price action that is worthy of a true bottom. This has significance because many asset classes within the stock market respond inversely to the performance of the greenback currency.  Essentially by knowing the dollar’s next move can better prepare your analysis in other markets.

Take for instance the Daily chart I have below.

I expect this current bounce within a panicky decline to fulfill another low here within the next few weeks. Following what should culminate into a basing period, I anticipate a counter trend rally to emerge and set the stage for a corrective move in both stocks and commodities.

Bonds:

I don’t’ think I am stating anymore than the obvious about their being a major top in our U.S. Bond Market. The Federal Reserve clearly surprised many investors with the purchase of mortgage back securities, and not U.S. treasuries as was done with QE1 and QE2. Consequently, this holds very little incentive for bond holders to continue purchasing U.S. Debt and will likely look elsewhere to reposition at least until now through the election.

The technicals imply that prices have materialized into a classic Head and Shoulders formation, but more importantly, generated a decisive downward break of the long term cycle trend-line that for many months held as previous points of major support. The occurrence of these two specific bearish events structurally classifies our U.S. Bond Market as being in a confirmed downtrend.

Above all else, you should know that for any asset class- be it bonds, stocks, or commodities; all are driven by only two specific fundamental principles. How much liquidity is available, and how much of that liquidity is willing to be invested.

Emerging on the scene is a three headed monster that will eliminate all fears of liquidity ever running dry between now and year end. It being- the flight of capital from Europe into the U.S. Markets, the intended inflationary tactics instrumented by the Federal Reserve, and the outflow of money from U.S. Treasuries into undervalued sectors of the stock market.

I think at this point we can safely say that all bearish bets are off the table, for stocks that is. And nearly every broad market average index is on the verge of ascending to new all time highs, re-confirming the very expectation I outlined in post titled, “Are we to Blame Nixon.”

Stocks:

At the moment, however, the Stock market is likely looking at a consolidation period very similar to the month of August before it resumes its advance higher.

Since the Federal Reserve called to a halt a forthcoming grueling market decline by announcing its new supportive stance on aggressive monetary policy, I think it’s time that my longstanding target of 1565, give or take 20 points on the S&P 500 will come into fruition in the months ahead.

But when I say 1565, we will be so close to the previous 2007 bull market highs that the political incentive to send prices to new all time highs is more likely. This would create an even bigger illusion of both “the richer effect” and a true economic recovery.

Flirting with a new Paradigm Shift

It has been my long expectation that the Federal Reserve would uplift a sagging financial system by way of injecting more liquidly into our economic bloodstream.

On Thursday September 13^th, Fed Chairman Ben Bernanke announced Quantitative Easing 3, initiating the purchase of 40 billion dollars in mortgage backed securities per month on an open-ended basis.

A mechanical breakdown of this style of Keynesian economics is quite intricate, so I will explain only one chapter as it relates to our current fiscal model of growth.

Essentially by keeping rates at suppressed levels, homeowners are provided with the incentive to refinance their existing mortgage rate. A lower rate will in turn cause you to pay a lesser amount per month on your mortgage.This money that you save will in theory be used to spend on products and services offered by the very companies that create jobs in this country.

But as you know, any company with the purpose to accumulate generational wealth must be equipped with expanding profit margins and increasing revenue streams over long durations of time. This criterion is only possible when consumer demand is present.

The problem is that our current demographics do not quite support this natural cycle of demand. The baby boom era still remains a large part of our population, and many of them are either living on a fixed income or exiting the work force. Plus you throw in the fact the rate of inflation is not keeping pace with their pay checks and you have a recipe for disaster.

So companies that benefit from the short-term effects of monetary easing are only profiting from an economically self defeating model which artificially compromises the absence of real demand.

Therefore you will always have pockets of society that get left out, causing the poor to get poorer and the rich to become richer. This development creates an even greater separation of socioeconomic classes over time.  

Resting on the Bernanke Decision

 Often is the case that the dollar will reverse just before or within days of a major anticipated news event. If I'm right, today's potential bottoming tail candlestick just shy of the Fed’s announcement tomorrow may be an indication of a Bernanke disappointment. On this basis, the dollar has bottomed and will likely undergo a sharp upward reversal into the remainder of this week.

If however the market likes what it hears since now days language itself is a measure of stimulus, then expect to see a sharp 1 to 2 day downdraft which will finalize this current decline.

Either way, I do not expect this deeply oversold condition to at all  be making any accommodations for QE3 tomorrow, or anytime soon for that matter.

 

IF the dollar does drop another day or two, Gold will likely make an advance to psychological resistance at 1800 before marking a short-term top.  Otherwise, a top is in, and prices should initiate into a corrective phase over the next 3 to 4 weeks stalling at its 50 day moving average.

I also want to emphasize that this upcoming pullback should reside anywhere between 1650 and 1700, but it may be the very LAST time this year we ever see the metal price trading here again. The reason being is a soon glory cross that will confirm the re-emergence of a new bull market.

 

Say what you want about moving averages, but they seemingly have provided as a worthwhile indication of trend changes throughout history. And while no indicator is perfect, judging by price alone, the yellow metal has certainly been acting very strong lately.

I expect by mid October this cyclical turning point will be within a larger framework of drastic inflationary measures pursued by all nations to artificially revive their homeland currencies. Consequently, Gold will materialize into a hyper-inflated market that decouples dramatically from all other asset classes.

Remember, 95% of people are not actually convinced of a GOLD BULL until the trend is in its latter stages. And only then does it become too expensive to buy. The only arguable explanation that would end the bullish case is until real rates surpass one, or at least when the public figures out that those levels can be realized.

I don’t see that happening anytime soon, do you?