Dow 13,750 still targeted BUT...

Ah, there's always a BUT isn't there? As noted previously, there are many obstacles in the way of the Dow's climb, notably the down trend line from the October high. Today bully is flirting with this line but it is Fed day and well, ya know, things have a way of getting woogly on Fed day. Also, Dow is merely retracing the over done and hype fueled decline of January and March's double bottom until proven otherwise (bear market rally).

What the stock market has going for it in my book is the projection of higher levels off the bottoming pattern nominally as well as the nice inverted H&S in the Dow-Gold ratio with the neckline breaking solidly as I type. Remember, if you're a gold sector investor and you identify the sector as being in a legitimate long term bull market, you do not want to see gold exploding higher along with oil, copper, wheat, what have you. You want the casino patrons bled out with extreme prejudice and that is what the Dow-Gold ratio is currently doing. By my eye it is now approximately 2/3 to 3/4 of the way there. By the way, I am seeing the same inverted H&S in the 2 year yield, the Hong Kong market (which I am long) as well as several other areas. Very interesting and it will be fun trying to correlate and make sense of this activity going forward.

I am seeing a lot of stuff that makes me want to post more, start a newsletter and what have you, but I still do not have enough time. It's coming though. I think. ;-)

Anyway, Dow chart for your review.

Edit (3:12) "Rut Rohhh!!" say the bulls. Head fake back below black line.

Gold in Zürich

Considering that the now blessedly over sold gold miners' are rapidly approaching the first target (370, 350 & 325 - see HUI weekly chart analysis on the COW from this morning) and considering everyone sees the H&S top in gold and considering that no one but NO one has been ordering BullionVault gold through biiwii.com's or the blog's banners, I thought it a good time to cycle my available dollars in the BV account into gold. I hold mine in the Zürich vault. Perhaps early, but I got time. ;-)

The dow-gold ratio implies lower gold and/or higher dow before this is over but I for one am not going to let some ratio indicator stand in the way of adding value for the long term.

HUI Reverse Sym-Tri... Turnabout Fair Play?

Since the reverse symmetrical triangle in March that appeared at all time highs in an uptrend ended up being a correction signal, could the reverse sym-tri taking shape now, in a downtrend, be signaling a short term rally? Considering over sold conditions and the hitting of the 200 day sma, it is very possible if not probable. This is a potential short term signal only. HUI needs to reverse immediately back above the neck line noted yesterday on the COW, or this signal is likely to end up in the scrap heap.

Gold - The Sentiment Shift Continues

First of all, the answer is yes. I continue to hold a core of gold miner stocks. The answer would also be yes to the question "Gary, do you feel pain right now?". Fortunately, the answer to the question "Did you see the potential for this severe correction and 'trade your traders' and manage risk to an acceptable degree?" is also yes although as usual I wish I had done more of it ;-).

I posted an ugly daily chart of HUI on the COW yesterday and want to follow it up with a look at gold. By now manic mainstream market participants are beginning to ask the question "could the worst be over?". It is a good story with would-be contrarians buying the Buffettesque "be brave when everyone else is frightened" theme.

As for gold, it remains in a real secular bull market but there are periods when your very soul will be tested and this may be one of those times. By now we all see the head and shoulders top forming in the metal and the breaking neckline in the HUI Gold Bugs Index. There are a few bullish divergences and deeply over sold conditions on the daily charts that argue for a short term rally, but that is the stuff of hope.

I want you to look at the monthly chart I posted on the Cow back in March. Regardless of whether or not you believe that evil entities are responsible for the price decline of gold (I do not), this market was ready to correct - and hard. The reason I am dredging this chart back up is that in a dispassionate view of the big picture I had to include "700-750 should provide strong support. If you don't think it can happen, think again" (as noted on the chart). Now that is a monthly chart and for more immediate action we look to the daily and weekly charts. The monthly comes into play if we break down here.

The complex is certainly burning off the high level of euphoria that got baked into the gold 1000+ cake in March. Commodity bulls, momos and hedge funds were all celebrating the demise of Bear Sterns, the destruction of the Dollar and the idea that we are all geniuses; smart enough to have sought refuge from the storm in gold. A fine recipe for reversal it was.

So we are now shaking out that element that thinks it is as easy as simply jumping into the hot plays no matter what the financial and economic backdrop. I believe there remain unknowable levels of rot in the global financial foundation so I remain big picture bullish the gold complex. The rest is noise until the monthly chart is broken down. Sober investors, who have been along for the ride since the high 200's or low 300's realize this is all just part of the journey to wherever we are going.

I am by no means declaring that 725 is in the cards and in fact, there is significant support including the 1980 highs around 850 well above there. This simply remains a "if you don't think it can happen, think again" message.

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Counterpoint to the Dow 13,750 target

This post is being done as a sort of a "whoa, not so fast!" counterpoint to the bullish short term projection of 13,750 and other conclusions noted in this month's Biiwii Letter. Some people get aggravated with technical analysts when they play both sides of the fence, but I would rather put my money on probabilities than a crystal ball reader. This is all about probability and ongoing analysis and revision.

In that regard, here is a daily chart showing the bullish Dow and several challenges it faces in attaining the measured target off the inverted H&S-like bottoming pattern. I am using the weekly breakout above resistance from this pattern along with a Dow-Gold ratio that implies more upside as the main bullish components for nominal Dow. But as noted in the letter, I don't see gold and especially gold stocks as being broken, even for the short term. So it is possible although I wouldn't say probable that there is another leg up in gold stocks after filling all those gaps on Friday. Remember, gold stocks have been acting nicely counter-cyclical lately.

As for the Dow chart, note that the 38% Fib retrace level has been taken out with two more that need to be surmounted. Also, the blue downtrend line and the red dotted neckline (of the H&S top that never quite reached the measured target of 11,000) will present challenges. On the plus side, the VIX has broken down at the same time the casual market watcher remains convinced of a bear market and tanking economy. We shall see how much laughing Fast Money does and how much crowing Mr. Kudlow does in the near future. All we are doing is recalibrating emotions and mindsets all around. The question is, for how long?

VIX Signal at Hand & Dow Target

Fast Money Has a Laugh at Gold

Even as the US and global paper economies come apart at the seams, the grizzled, authentic looking traders on CNBC's Fast Money are still serving up the standard and conventional fare that casual market watchers love; stuff like "is it time to buy financials?"... "have the homebuilders bottomed?"... "are commodities a short?" (yes, they talk about shorting on this show because after all, these are grizzled traders and you should be in awe of their well rounded prowess.

Check out the video replay on this page as they talk about gold. Woo hoo! Do these guys and gal give the barbarous relic a righteous spanking?! They articulate well what everybody has been conditioned to know by the secular bear market that ended 7 years ago. The people laughing along with them will be the holdout fuel that propels the most dynamic stage of the bull market. People who cannot think for themselves get what they deserve in the end.

Some good news and some bad news for gold bugs. The good news is that as you can see, gold was literally laughed off the Fast Money set. These pros wouldn't trifle with such a relic. They will leave gold to the gullible likes of you, the tin foil hat wearing segment of the public. The reason this is good news is that the likes of CNBC is nowhere near signaling a peak in the metallic inflation barometer, although Larry Kudlow has been getting more and more hot under the collar about the subject, even publicly fantasizing about a coordinated G7 USD support statement that drives gold "down $200 in a day". No, these people are nowhere near ready to begin asking questions like "just what is money, anyway?" (see previous post about my friend Chris Martenson - he's asking the question and providing some clear answers).

On the negative side, this Fast Money poll asking whether gold has topped indicates that 80% of respondents (so far) see new highs for the metal. That may argue for continued corrective activity for the near term. This is one asset for which it is never that easy and many of you simply must be bled off before the next leg. As I have often written, the play on gold and contraction is that if it does decline at all, it will do so much less than positively correlated commodities. This is where the gold miners come in as would-be leveraged plays. But in a world where gold is outperforming all major currencies on monthly (big picture) charts, one must wonder at some point whether it will indeed decline in any meaningful manner beyond the current correction which, by the way, remains in force by my eye.



The short term correction is a time where the door is open for TV personalities to ridicule this secular bull market, stocks to outperform as they complete their anticipated Fibonacci retrace of the hard down vs. gold and for patient people to keep emotion to a minimum as they position for a future that, as Chris Martenson has observed in his excellent Crash Course, will not be anything like the recent past.

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Edit (4/16 @ 7:00 am) The results of the gold poll are now more bullish for the metal in the short term. Bulls are now down to 66%. Curiously though, at this moment the poll shows 350 respondents whereas yesterday when it was at 80% there were 800+ responses. What gives?

Chris Martenson - Read, Listen, Watch...

The man is a trained scientist. The man has done his homework. The man has come to some sobering and extremely interesting conclusions and best of all he presents them in a way anyone can understand; get their arms around so to speak.

Chris is a virtual friend of mine going back to earlier in this decade when he, I and others spent a lot of time trying to understand "what is money?" and I am in awe to see just how far he has come with this.

This is not an ad, promo or anything else other than an attempt to get an important person a bit more 'out there' into the public consciousness.

Watch his Crash Course here.

Read a bit about him here.

VIX intact but...

This chart is hanging around beneath the all important 200 day ma for longer than is comfortable if you're a bear; at least if you're a bear that likes to remain whole. MACD and Trixy have broken their coiling to the downside and the VIX feels heavy, which means the stock market feels light. I am by no means giving myself the all clear, but I did reestablish a couple bull positions today in productive companies. I love this ongoing drama, don't you? Edit (4/11 @ 9:37) Err, nice whipsaw. Thanks GE.

VIX & Vixen Both Still Intact

As noted in the previous post, the VIX was on the verge of confirming the bulls' hopes for a strong rally with some staying power. But a funny thing happened; it reversed (hammered) after briefly setting a new low from the February low. A chart of the VXN was posted this morning on the COW and here again we see a sentiment indicator that begs caution. The major media have swung so hard from doom & gloom to some sort of 'In Greensp... err, Benny we trust' fantasy that in some corners a strong and enduring rally is all but given. As has been the case, I do not discount that possibility but again repeat that the VIX & Vixen are not broken and so the bulls do not have the go signal yet in my opinion.

VIX - About to Confirm Bully

I wrote that if da boyz breaks da VIX dey may get a nice intermediate rally. Well, dey's just about dere.

SPX Near Term Prospects

Well, it appears the blog is going to get its share of charting as there are just too many interesting things going on out there. There are some really smart biiwii.com guest writers who are getting quite bullish - based in no small part on the bearishness of the public and major media. But I am going to remain guarded on the broad market until SPX confirms by breaking through and holding above 1400 and the VIX breaks down from the ascending triangle.

CBOE Put/Call Ratio

This fear/complacency indicator goes along with the VIX chart posted on the COW this morning. All I am saying is that the bulls' emotions are coming along quite nicely toward a contented state. Did they really find their HOPED FOR bottom with the recent Bear Sterns bailout compliments you and me (if you're from the USA)? We will find out shortly. But I have difficulty believing the story until/unless recent trends in the $VIX & $CPC are busted. As for the PCR, the 20 day ema is approaching the moment of truth. Edit (8:58) I neglected to note on that if the PCR breaks down, the target for the 20 day ema would be around .90, and this would likely entail a significant continued stock rally. Also, the VIX would obviously be broken down out of the ascending tri as well.