us debt situation

i'll keep this posting short and brief. But the United States is going to vote on a measure to raise the debt ceiling, and it will pass one way or another because a default by the US government is inconceivable. Basically the government needs lawful permission to print more money... in the meantime all this squabble between the Democrats and the Republicans is causing stocks to tank, the US dollar to tank, and gold to go up...

and i believe it will continue this trend until the US approves the raising of the debt ceiling, as gold will be sold off on the sell the news event, and stocks will have a relief rally even though the raising of the debt ceiling signals that more money printing is on the way. And gold has been warning us about this. When the debt ceiling is approved, look at the charts to where gold, stocks, and the US dollar can go to.... in the long run I believe the US dollar is going to make new lows, based on cycle analysis, and that will eventually lead to a longer term rally for at least the summer.

The gist of it is that gold is going higher I think over the next few weeks, months, and a small correction would be a good place to initiate positions if one doesn't have one already.

the bear is knocking

I will just keep this post short and sweet. Just click on the charts, and read the comments, it will be painfully obvious what we are going through. Stocks are going through lower highs and lower lows. The USD is going through higher highs and higher lows. Enough said. Time to protect capital, ignore those bobble heads who says the economy is in great shape, cuz they are trying to sell stuff to you at high prices, as they prepare for the move lower.

2011 & 2008, notice the similarities?

I have not updated this blog in almost a year. I didn't have much free time, and I was busy with life. Plus the fact that I only made $10 from advertising revenue in the 6 months I was actively blogging provided me with no incentive to update the blog.

But we are at a very important juncture in the economy, and based on the state of the world, I do not have high hopes for our world economy going forward. I will elaborate on my thinking of the state of our economy.

First of all, I will reference the US market, and economy, as whatever happens to America, will happen to Canada, and the rest of the world. Year 2000 was basically the last year of real economic prosperity. Prior to yr 2000, the last time the world had a very painful recession and declining stock prices was during the 1970s when the world had massive inflation, inflation that was ultimately cured by jacking interest rates to almost 20%. But since the bear of year 2000-2002, we encountered another vicious bear market in year 2008-2009, second in seriousness only to the stock crash of 1929. And if I'm correct about my forecast, we will experience the next vicious bear very shortly in the coming weeks this year.

All this is caused by money printing. In response to the yr 2000 internet bubble, the US cut interest rates to 1%, and printed money, causing a real estate and credit bubble that started in yr 2008, and supposedly ended in 2009 when stocks staged an almost 100% recovery from the lows. But this is a fake recovery that is caused by devaluing the US dollar through printing. What did the devalue of the USD brought us? In 2008, aside from artificially inflating stock prices, they also brought us record oil prices, gasoline prices, food prices. What happened when you have record prices on things you need to live on like oil and food? People are forced to cut back spending, and when spending is cut enough, it killed the economy. What is happening right now in 2011? High oil prices, gasoline prices, food prices? all checked... sounds eerily similar to 2008?

In the last year I took a hiatus from the blog, I learned a technique called cycle analysis. The basics is that a cycle dictates when lows in the market will occur. For long term cycles, the US dollar has a 3 year cycle, from low to low. For stocks, it generally is a 4 year cycle low to low. There are shorter cycles like a yearly cycle, a half year cycle, and a daily cycle, which one can use to pinpoint more accurate timing as to when to enter and exit markets. But to keep it short, I'll explain hypothesis above using the longer term cycle. Lets start with the US dollar.



The US dollar has been in a long term decline since year 2000. This decline has made it possible for the US (and therby the world) to inflate stock prices and give an illusion of prosperity. (See the SPY chart below) From the dollar chart, one can see that lows in the US dollar generally occur every 3 years. What happens at the end of the 3 year cycle? The US dollar stages a vicious rally, even though the longer term trend of the US dollar is down because of US money printing. But when the US dollar rallies viciously, commodities stages a vicious correction. In the chart when the USD rallied in 2008, what happened? Stock prices collapsed, oil prices collapsed from $147 to $30, gold corrected from $1000 to $700, and it was very nasty for the world economy. Well since it's now 2011, 3 years from the low of 2008, and the US dollar has record bearishness and almost a record low, guess what the US dollar is going to do in the near future? I'll give you a hint, look at what happened in 2008, 2005, 2001.

Lets look at the S&P 500. Cycles from low to low generally last 4 years. Because of money printing it is possible to stretch the cycle so the last stock cycle lasted almost 6 years from the lows of 2003, to the lows of 2009. A previous cycle that ran long usually means that the next cycle will run short, and my projection is for the next cycle low to occur in 2012 or 2013.



Companies recently have been announcing record earnings. What has the stock market done? It appears to be just churning around, not really breaking any new ground. Kind of similar to what happened in 2007. The big boys were busy dumping their shares to little fish like you and me while they prepare for the downturn. They rally the market enough to get people excited about the market, break resistance to the upside, and then the market keels over. Although I didn't include the charts of the oil services, semi conductors, financial and housing sectors, they all have very ugly down-trending charts. A healthy economy should and these sectors should be strong, the fact that they are ugly give us clear warning signs about the economy, and the strength in the S&P 500 and broader market is not going to last. Plus the fact that the US dollar is ready to rally viciously adds confirmation to what I think will be a nasty stock correction, and an economy that is ready to experience a scare of deflation just like 2008.

How will the powers that be react this time? What they should do is allow the natural cleaning process to get rid of morally and financially bankrupt companies like Goldman Sachs, Citi, Bank of America, admit that debt has to be defaulted as it has no hope of being paid off, endure a few years of extreme pain, and then rebuild a real economy from scratch. But what is likely going to happen when the correction gets vicious enough, or when cities and state governments run out of money and cannot borrow money, is that the US will launch another round of money printing. But that has to occur after a vicious correction. It is currently politically not feasible for the US to launch another round of money printing when the economy 'seems' to be good. In the long term, it will kick the problem down the road, and make the problem even more vicious when it comes to fruition.

My conclusion, is to prepare yourselves for tough times ahead.

W bottom or bearish continuation flag?

The market is extremely technically damaged. looking at the chart pattern what will happen? Again 2010 is turning out to be a trader's market where one has to be fast and nimble. It won't be a very productive year for buy and hold investors.

Looking at the chart, one can argue that we have a bearish flag continuation pattern. But is the market really ready to roll over and die at this period of time? Probably not, but we have to be flexible to that idea. What might be a more likely scenario is that we have a short term W bottom, and the market will rally a bit from here after of a lot of choppiness to shake out the small people. If the market rallies from here, we'll see heavy resistance on the SPY at 111 (one of the orange lines on the chart). That also happens to be where the 200 DMA lies and the 38.2% fib retrace from the recent highs to the recent lows, so expect that to be a resistance point, but it seems likely we'll at least see 111 in the next few days.

What's next afterwards is anyone's guess. We can roll over and die from 111, or we could continue an advance to 116 on the SPY also where the 50DMA lies and the 61.8 fib retrace from the recent highs to the recent lows. Expect that to be a major resistance point.

What would happen after that? Ultimately I still think the economy and the market is in real big trouble, and I really do expect to see new lows for the year. If you look at the chart of oil (USO), and Goldman Sachs (GS) you'll see what I mean.

May 28, significant technical breakdown on markets

I think I'm going to alter my view as to what I think will happen to the market. While I think the short term lows are likely in, I won't say that we will make new highs for the year in the SPY. It's possible that we could make new highs (ie. we only hit the 200 DMA once during this bull run, and the recent correction could be just to shake out the weak hands). But what is also possible is a very bearish head and shoulders pattern as illustrated in the chart of the SPY above. We could also get the bearish head and shoulders pattern, and then fail the bearish pattern and make new highs for the year. Again anything is possible, and I will be lying if I said I knew what will happen. The point is that we must be flexible to what will possibly happen. I will say that the markets on the SPY could probably rally to 118 in the next couple of weeks, but then we have to re-evaluate what will happen later, but judging by the chart of oil, it's possible that we have already seen the highs for the SPY for the year.

Looking at the chart of oil (USO) it is really ugly. We have significant technical breakdown, and I no longer think that printing money will just inflate oil prices. The market obviously thinks something is really wrong with oil (and the markets), and have sold off oil accordingly. At this point in time, looking at the chart, any rally in oil will probably will probably lead to 38 on the USO and we will have significant resistance there. Again anything is possible, but oil is telling us that we have real troubles in the economy.

Lastly gold, looking at that chart it appears to be the only thing that is healthy these days. The bull for gold seems like it will continue. It will be a safe haven in market uncertainty like what we're experiencing now, and also good when governments around the world print money. Any violent dips in gold can likely be safely bought.

will we roll over and die, or will the markets recover

Well, alot of what will happen in the markets depends on the price action that will happen early next week. Despite what I think will ultimately lead to a 'death spiral' in the markets, I somehow don't believe that the death spiral is upon us yet. I think the powers that be will try their best to delay this death spiral, which should ultimately lead to higher energy prices due to money printing, and that's when a real death spiral will occur as the powers that be cannot print their way to lower energy prices.

Anyways, looking at the SPY chart, the markets ended Friday on a very sour note, however, it is resting on an ascending orange trendline, that dates back to July 2009. It also filled the gap from the previous Friday's gap lower, to Monday's gap higher, making the SPY sitting on some kind of support. If the market has any chance of recovering (in the short term) it must stay above this orange trendline, otherwise this death spiral in the markets will occur much sooner than I anticipated. What happened with the 1000 point plunge in the Dow, and the market selloff last week really caused lots of fear in the market. If you look at the chart of the USD (not posted), it's at new highs for the year and really extended upwards. Considering the huge rally in the USD, I'm surprised the market didn't really tank further. Anyways if the USD pullbacks, expect the rally to rally.

I charted the SPY on the weekly chart, and noticed that there is a descending 200 week moving average at about 123. I will make a revision to my forecast of the SPY. We'll be lucky to hit 125 on the SPY, before the market in all likelihood starts crashing down. (Just look at what happened between July 2007 and October 2007)

what might happen before the death spiral...

In my previous post I noted what I believed was the 'death spiral' in the markets and the economy in the weeks and months to come. Well this post will detail what I think will happen in the next few days to weeks.

Gaps are meant to be filled. They are magnets. From the Friday lows to the Monday gap up is a lot of air, and that gap has to be somehow filled. We are now sitting on resistance 50 day MA on the daily chart @ 117.5. 118.5 will be a very heavy resistance level. In the near term, the market should pull back to gap window (115.2) and possibly gap fill (110-112), and in the extreme case, a retest of the lows last Thursday (105), which also happens to be the February 2010 lows. Then the market should rally higher and make highs for the year (125-140) before the death spiral that I believe will happen.