Loading ...Trouble Ahead ? Thinking Big Picture
I am trying to read the language of the markets and today’s action seems troubling. First off today was end of quarter window dressing so fund managers and market operators are expected to hold the markets up….didn’t happen and volume exploded at the close. I have been short the S&P near the highs and held through yesterdays ramp job. I think the internals are deteriorating. Not saying the bull is over, but I think we are in the process of a violent correction, maybe 10-15% and it might take another 2 months to accomplish. These one day wonders like yesterday simply can’t stick and things are slowly rolling over it appears. Today the NYA busted the 50 DMA. Let’s take a look at my indicators. The DOW and Trannies continue to openly display their non confirmation in a big way and it could only hold above its 50 DMA for one close. Next the ADV/Decline line has now broadcast 2 lower highs…a red flag. Finally, my risk on/off indicator continues to trend towards risk off.
The Big Picture- As far as my money my #1 goal is to preserve capital for the big opportunity, which I see as the bottom of the resource bear market. Making money on the way down is secondary. In fact since the vehicles available 3X etfs are so inherently flawed I rarely use them any more. I would rather spend my time vetting my buy list through getting to know management and the details of the company. Time better spent in my opinion. We are in Phase III and it is proving to be extraordinarily deceptive. I would rather stay in cash and just watch actually. But here are some things we do know. They bear is still active, take a look at the HUI/Gold ratio, its getting ready to plumb new lows. when it bottoms I will be all eyes. Next is the GDXJ/GDX ratio, maybe it is in a bottoming process. Let’s watch it as this will be a sign that the bottom in the bear is commencing.
Big Picture continued- The big dynamic is the stronger USD and the resulting deflation. Sure I know there is inflation of prices out there in the economy, today my barber just raised his prices from $20 to $25 (I won’t be going back to him, it won’t stick with me), but these are services, commodity prices are contracting. Look at lumber….this is not chopped liver here and we know how the CRB and oil is doing. This view of the USD vs gold and silver really says it all. We are in a post bubble contraction process…think slow motion train wreck. Eventually this will drag gold down further. I believe that within a few years the FED will actually come around to the realization that they want gold to go higher and will actively support its price rise. We will be in a bull market by then. I think eventually we will experience a tsunami of money printing, but only after the contraction hits hard. The best visual picture I have heard is it will be like a tsunami in that at first the water goes out. That’s the deflation and we are in the initial phases of that now, but it gets worse. The FED eventually reacts, but it takes a while for the policy response to hook up. But when it does it will be a wall of money headed towards us creating violent inflation. The time to position into the right vehicle is when the water goes out to sea…that time is now and over the next 18 months I believe. Just like a tsunami when the water goes out the tourists go down to the beach unaware of the danger and collect the exposed sea shells while the informed locals run for the hills knowing what comes next. So I regard these days better spent determining how to prepare rather than trying to pick up dimes in front of the bulldozer that is in front of us.
Bond Update- As it turns out my original pullback target for TLT (TMF 3X), the 30WMA absolutely nailed it! Unfortunately I held out for the lower target and have never gotten back in. Hopefully I will get another entry opportunity… we will see. If my deflationary outlook continues I believe bond yields will continue to fall and TMF could make its price objective of 150+. The original timing for the retracement to complete is near the end of April so maybe it retests its 30 Week MA. We will keep an eye on it.
Finally Gold- These two charts put things into perspective. Its still in a bear market knights. But it could bounce whenever it wants to and put the hurt on any shorts who are using the 3X ETFs. That’s the process I just don’t care to play when the ETF’s get jammed into your face while they are simultaneously decaying so when they cycle back you still lost money.
Keep thinking Big Picture
Great stuff. I really appreciate the updates. That plunge down to <$900 is a little scary. I bought into some mining shares when they were down around 65% from the peak. Since then I've learned that they can drop much further. I'm really hoping they can withstand the storm.