Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Double Dip used to pertain to ice cream cones, but now to dreaded return to economic recession. Green Shoots used to refer to gardening projects, then to deceptive economic viewpoints. My favorite is the second half recovery mantra, indicative of totally clueless. This year’s promised recovery in the second half of the year will feature a return to recession instead, thus stripping mainstream economists of any remaining credibility. The endless links in the chain are impressive by the clueless cast of economists that disgrace the US landscape. The chain of ignominy includes gaping blind spots, blatantly wrong forecasts, minimized ignitions that spread crisis, misguided focus on goofy indicators, outright removal of important indicators, sloppy deception of monetization efforts (see last week’s article), clumsy justification of Wall Street welfare, backwards perception of Too Big To Fail banks, and lying before the USCongress. The nation is dominated by fools who profess the lasting benefits of ‘Hand to Mouth’ approaches like tax rebates, purchase credits, jobless insurance extensions, and helicopter drops. Their worst investments are their biggest investments, like Fannie Mae and AIG nationalizations travesties. Harken back only to last winter, when economists were talking about a second half recovery, running all the red lights and stop signs. Then they shifted the klapptrapp to claims of a jobless recovery, which should evoke laughter from its impossibility. The economic counsel has forgotten what capital formation means, while they prepare for their next tourniquet to be applied to hemorrhages. The objective of monetary policy and banking policy is not recovery, but instead very clearly to retain power.

DUMBEST GUYS IN THE ROOM

Pay homage to the dumbest guys in the room. Tip the hat to morons at the helm. Genuflect to the high priests of failure. The cast of economists in charge, if truth be known, includes Robert Rubin in the background as Wizard of Oz. He pulls the strings with his puppets Tim Geithner from the Treasury Secy post and Larry Summers from the White House Council of Economic Advisors. Neither puppet has anything remotely resembling a successful banking or economist resumé. Bring in USFed Chairman Ben Bernanke who has no business experience, a few key regional Fed Presidents, and you have the dumbest guys in the room. They might as well read tea leaves, tarot cards, chicken bones, and animal entrails. If they had any skill whatsoever, they would notice the nasty economic signals delivered by basic data. Take some examples. Check federal income tax withholdings from payrolls, state sales tax receipts, trucker miles logged, total volume of electricity usage, and food stamps. They all scream recession for the USEconomy. Merely pointing to stimulus funds, state budget plugs, liquidity programs, mortgage redemptions, and expanded central bank balance sheets totally miss the mark on effective economic craft. Their blindness to the economic distress is only exceeded by their disdain and contempt for the public. Before long it will be illegal to be wealthy unless a card carrying member of the financial syndicate that wields tyranny.

GOLDEN CHAMPAGNE FOR THE QE2 LAUNCH

Before launching into graphic exercises, bear in mind that for 18 months, the United States has operated with a near 0% official interest rate. As forecasted a full year ago, the 0% rate has become a permanent fixture, since this is NOT a normal credit cycle. My open disrespect and criticism has been directed at the short-sighted gnome occupying the USFed Chairman post, who babbled moronically about an Exit Strategy a few months ago. My rebuttal claimed that no such exit from the current 0% strategy is available to the Bernanke, and more grand monetizations were to be come. Now we see no exit strategy door is offered, rather a stuck condition as the USFed has painted itself in the corner. A close inspection of the trap door under which Ben sits has staircase attached to it, the Third World.

Talk has returned of a renewed Quantitative Easing cycle. The monetization engines in full usage would be put on stage in full view. The Bernanke track record is nearly perfect, nothing correct on forecasts, no effective outcomes, steady focus on the silly measures, lies given to the USCongress. The benefit to the financial syndicate on Wall Street is the only priority of monetary policy makers. The USFed and USCongress are are stuck, forced to curtail an explosion of money for political reasons. Unfortunately for the USEconomy, the recession that will turn from the steady decline into a galloping decline at a time when the USFed cannot lower interest rates. The USFed is out of tools except massive monetary inflation. Imagine, 18 months of 0% has done nothing to jumpstart the growth of the nation. The USGovt is saddled with annual $1.5 trillion deficits, that do not cause much alarm anymore. Why should it? Nothing has been done in financial reform, bank asset liquidation, financial audit of the major banks (including the central bank), business regulation streamline, tax relief, end of endless war, reduction of lobby influence, Goldman Sachs stranglehold of the USDept Treasury, or anything else that truly counts. During this next downturn, the policy failure will be more obvious, the failed central bank franchise system will be more obvious, and the ruined currency system will be more obvious. The absence of policy options will be more apparent to all. Only dispensing printed money will be offered in response. The failure of 0% to produce a revival is indirect proof that easy money was the cause of the banking collapse and credit crisis, and therefore cannot serve as the main tool toward remedy.

David Rosenberg is one of several rare economists with adept skill and razor sharp focus who is not fooled by the mainstream drivel. He recently wrote, “You also know it is a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago, and is now instead thinking of restarting Quantitative Easing.” He is too much a gentleman to call Bernanke an idiot or hack or tool or faculty groupie. When QE2 is launched, the confidence in the Bernanke Fed will hit rock bottom. The pain will be delivered to the USDollar and USTreasury Bonds, which by then will only have buyers from the Printing Pre$$ output. Even Bill Gross of PIMCO shows doubt that the current course will avert a Double Dip recession.

Jim Grant joins the chorus of the enlightened within the financial industry, as he expects another powerful round of monetary easing. He is confident of QE2 right around the corner in a second launch. Ambrose Evans-Pritchard seconds the opinion. They see how the temporary lull in extreme monetary inflation tied to the economic stall leave the USFed only one choice, more Quantitative Easing. The first round involved $2.5 trillion. Ambrose Evans-Pritchard expects the next round to be coordinated $5 trillion global initiative. Vast monetization of debt and sustained stimulus & rescue with phony electronic money backed by debt are the only options left to central bankers, fast out of tools, naked on stage. Endless crutch support is their constant refrain, their glory epitaph. When money is again openly printed with utter abandon, under official blessing, that is bad for the monetary system. USEconomic decline will worsen from the assault on legitimate capital. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold. The next QE2 round will send the Gold price to $2000 amidst a totally new darkened atmosphere of broad systemic failure.

FALLING MONEY SUPPLY PARADOX

The money supply continues to careen downhill fast. Its growth has plunged to a pace last seen in the 1930 decade. The broad money supply has remained elevated greatly, as the USFed still holds huge bank reserves used lately to maintain some USTreasury demand. Despite mammoth monetary inflation and outsized banker welfare programs, the money supply decays at the Main Street level. The fiscal and monetary experiments have failed before our eyes. The first Quantitative Easing initiative failed to turn the tide; so they will do another. The Adjusted Monetary Base rose from $880 billion in summer 2008 to a peak $2200 billion at the end of 2009, then down to a little over $2000 billion through June 2nd, according to the St Louis Fed. The aggregate stock of money declined from $14.2 trillion to $13.9 trillion in the three months ending April, making an annual 9.6% rate of contraction. Such a negative signal almost always means economic recession, a signal ignored by economists. The broad measure in the M3 money supply is contracting at an accelerating rate within the USEconomy, despite near 0% interest rates and the biggest monetary profligacy and fiscal extravaganza in modern history.

The Shadow Govt Statistics folks do a sterling job, including upkeep for the M3 statistic that the USGovt discontinued in 2006. Notice the M3 in the chart (in thick blue), an index in a plummet. Money is not moving within the USEconomy with gusto. Businesses are not expanding. Workers are not spending with confidence. Construction is heading toward a standstill. Credit is not being extended, as banks distrust borrowers almost as much as fellow banks who are trying vigorously to dump toxic bonds of all stripes. When the M3 goes down, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

WEEKLY LEADING INDICATORS

The ECRI and the Conference Board (slightly more prestigious) each run their leading economic indicators. Below is the Weekly Leading Indicator by the ECRI, not in decline but something much worse. The plunge of the WLI means that various measures are looking bad that relate to future increased job growth from increased business investment and increased economic activity. The current WLI is in a nosedive since May 2010. It stands at a lower level than the autumn months of 2007, when the USFed and the majority of US-based economists missed the last recession. They were very busy back then denying the powerful impact of the mortgage crisis. It was not limited to subprime mortgages, but rather, as the Jackass warned, it turned global in an absolute bond crisis that affected all types of bonds, from sovereign to commercial to junk to municipal. When the Leading Indicators drop, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

NEXT LEG DOWN IN HOUSING DECLINE

The end to the home buyer tax credit has resulted in a sudden collapse of pending sales. The USCongress threw a hollow bone to the buyers, with minimal and temporary impact. Price always obeys the Supply & Demand dynamics, eventually. Home prices will fall again, despite the propaganda of stability achieved. Stability is not a function of time or money thrown at the wall to see how much sticks. The National Assn of Realtors reported in June that its seasonally adjusted index of sales agreements for existing homes dropped a whopping 30% in May from April, falling to 77.6 from 110.9. The May mark was the lowest dating back to 2001, an indisputable signal of resumption to the housing sector bear market. Home loan refinance demand also fell hard despite near record low mortgage rates under 5%. The USEconomy growth from 2002 to 2006 was built upon the housing bubble and mortgage fraud expansion. My forecast in 2007 and 2008 called for near total destruction of the US banking system, an endless housing bear market, and grotesque homeowner foreclosures amidst rampant insolvency, all of which occurred. Next comes another economic recession downleg. When the home sales crash, that is bad. It results in lower housing prices, like night follows day. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

Bear in mind that in 2001 and 2002, the moronic cast of economists were all abuzz over the benefits of the Low-Cost Solution from dispatching the US industrial base to China. The Jackass was not fooled, but rather regarded the move as a 5-year warning of US systemic collapse. Economists missed that signal completely, a simple signal in my view. My forecast at the time was for economic plague and bank system ruin, as soon as the housing market bubble turned course toward a bust. From 2003 to 2006, the Greenspan Fed along with a parade of deviant economists gave blessing to the USEconomic expansion. However, it was built upon the shifting sands of a housing bubble. Dr Housing Bubble puts it well, claiming a real estate Frankenstein was created with a mind focused on the perverse notion that it actually constitutes the economy. The pending home sales are in a plummet. They foretell of falling home prices. The mountains of unsold bank repossessions from foreclosures, properties held in bank inventory, assure a continued home price decline. Low mortgage rates under 5% are doing nothing to revive the housing market. The entire real estate market is broken, without recognition. The appraisal process has entered the picture, laden with foreclosures and short sales (price below seller home equity). Appraisals are the bridge that acts like a noose around the neck, attached to a two-ton brick. The appraisal process has halted thousands of sales in the pipeline. The housing decline is set for a powerful resumption, rendering additional damage to the USEconomy which depends so tragically upon it, rather than industry. The decline merely took a pause, aided by a tax credit. When the home price decline resumes, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

GLUT IN BANK OWNED PROPERTY INVENTORY

The monitor RealtyTrac reported last month over 300,000 foreclosures for the 15th straight month. The May total foreclosure filings rose to 322,920 which is 1% above May 2009. The bank owned property tally meanwhile is skyrocketing. Banks are reluctant to dump inventory on the already bloated housing market, but they are giving up. The Real Estate Owned (REO) inventory hit a record for May and April, with 93,777 properties repossessed by bank and mortgage firm lenders, an increase of 44% from May 2009. All 50 states posted annual increases in REO activity. In no way whatsoever will housing prices rise in such an environment of overburden in bank owned property held on the balance sheets. The REO bulge is the #1 current factor that eliminates any chance of a housing price recovery. When the bank owned property inventory rises, that is bad. Zombie banks are bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

LOUSY COMMERCIAL FOREFRONT

Commercial property defaults are dreadful and growing exponentially. Witness the crucial sector sheltered from the news for two years. The Hat Trick Letter has consistently warned about the hammer hitting for that entire period of time. Commercial loan portfolios have not been written down for losses yet, even though the property values have plummeted. Rollover refinance loans in the commercial sector are next to impossible anymore. So the banks extend terms and turn into darker zombies that approve fewer loans. Commercial real estate (CRE) is the next tragic chapter in the bursting bubble. Its prices have already fallen by 42%. At peak just three years ago, commercial RE values in the US reached $6.0 to $6.5 trillion. The banks are crippled. Parallel to zombie homeowners with negative equity, are commercial fields creating zombie businesses. The Extend & Pretend actually harms the banks in the future, since the loss would be less if suffered today, bigger tomorrow. Almost no political will exists to bail out the enormous commercial market. Wall Street does not own their debt, PERIOD. Bank failures, mostly small and regional, have increasingly been tied in recent months to commercial portfolio exposure, as much as residential. Politics enter from a negligence standpoint, unwilling to save the consumption craze. When the commercial mortgage delinquencies rise, that is bad. When a bank carries impaired loans and cannot lend, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

JOBLESS CLAIMS, THE FESTERING WOUND

The end to emergency unemployment coverage acts as salt on the wounds, although it seems merciful EUC extensions are to be improved. An uptrend in jobless claims is in the making. Jobless claims stubbornly maintain above the 450k weekly level, showing no improvement, soon to rise. The weekly jobless claims provide ample evidence of economist ignorance of their craft, defiance of reality, and a lame forecast for a second half recovery. Persistent unemployment somehow serves as powerful evidence of no USEconomic recovery. Many conclude that the USEconomy is at risk of a freefall zone with government blessing, if not neglect, except for a politically unpopular extension. In the balance lies the insured basic income at risk of the loss by $5 billion per month. People are declaring bankruptcy at record numbers still, as their situations are aggravated by home foreclosure. The July Hat Trick Letter shows many details on the labor front and household front. When the people remain out of work, that is bad. When they file for bankruptcy, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

THE M.E.R.S. OPEN DOOR TO CIVIL DISOBEDIENCE

The mortgage fraud industry suffered another major legal blow. The Mortgage Electronic Registration Systems (MERS) is an overly clever property title database. MERS was again was permitted zero legal standing, this time by California. Homeowners can often flaunt the banks and not pay, without risk of being expelled from their homes. The public is pulling off strategic defaults more often, and simply defying banks on an increasing basis. The potential for successful civil disobedience, Henry David Thoreau style, has never been more ripe. Already 250 thousand Bank of America mortgage holders are not paying anything in monthly payments. The US Bankruptcy Court for the Eastern District of California has ruled that MERS cannot transfer a note (home loan mortgage) for want of ownership. MERS has proven to be the point of extreme legal vulnerability for corrupt Wall Street fraud kings. It was originally designed to track the property titles, put them in a national database, and facilitate the brisk sales between parties of mortgage bonds tied to those titles that constitute the income stream from monthly loan payments. The courts have ruled consistently that MERS has no legal standing and cannot serve as the lever that removes a person from the home via foreclosure. Again MERS holds the titles, but MERS has no legal standing to transfer the home loans in the foreclosure process. The importance of the string of negative court decisions (State Supreme Courts) is significant in permitting home mortgage owners to defy the banks, not make the monthly payments, and remain in their homes without fear of foreclosure and removal. Details of the case can be found in the July Hat Trick Letter report. When people stop making mortgage payments, that is bad. Banks retaliate, and that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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When too many players are on the same side of a trade they eventually find themselves in a crowded position where most everyone around them has the same motivation – to reverse their position when the tide changes.

Little by little, as participants slip out the back door by changing the bias of their position, the pendulum of price swings more sharply against the remaining herd in the crowded trade. Inevitably, something akin to panic sets into the herd as they begin to aggressively reverse their position for financial survival. The primary ingredient that causes price to catapult, up or down, is sentiment oscillation and capitalization from one sentiment extreme to the other.

An astute market technician, investor or trader will look for those flash points where conditions are ripe for a market reversal. It sounds easy to do, but remember that when the analysis is very convincing, the preponderance of market participants will disagree. It seems that to be effective at market timing one needs to listen not to what others are saying, but to what the sentiment data represents as truth.

With these thoughts as a foreword, let’s see what the current sentiment situation is for the SP-500.

The following chart is from Market-Harmonics and assimilates 4 years of bull/bear percentage data from Investor’s Intelligence. To this chart I have measured and notated in blue the percent change in bearish advisors per the Investor’s Intelligence data, for each downswing of the SP-500. My notation in green is the percentage change in bearish advisors for the related upswing of the SP-500.  The price of the SP-500 is notated in black at each swing peak and trough.

One of the most striking observations I have made of this data is that it appears the maximum pendulum swing in the bearish direction is a 20% change. This occurred in Q1, 2008.  More frequently this percentage change has topped out at 19%, followed by 16%, 11% and smaller percentage changes.

The obvious conclusion I come to is that our current bearish % change situation, at a 19% reading, is about at the maximum. History seems to show that investor’s emotions, like a physical rubber band, can only be stretched so far into pessimism (19-20%) – the bearish direction – before they snap back in the opposite bullish direction.

The pendulum swing in the bullish direction is about to begin at this very time.

I would expect that the stock market could not possibly peak until the % of bears decrease by a minimum of 8%, and more statistically likely 10-15%.  With a current reading of 36%, I am suggesting that we should not even consider a peak in the stock market until the bear percentage reading drops from where it is now at 36% to 28%, and more likely to around 26-21%.

What this means for now is that 1100 is not the top in the SP-500.  Far from it.  The bears have not even begun to turn into bulls. Price will go much higher from here and it will take weeks, if not a couple of months, minimum, to reach a shift where the % of bears are themselves finally out of whack on the teeter-totter.

Gold, while not covered by Investor’s Intelligence to my knowledge, would appear to be in a similar setup as the stock market. For this I turn to data published this past week at Schaeffer’s Investment Research and look at the 2 year history of the GLD put/call option ratio.

When the put/call ratio spikes high, it means that traders/investors are convinced that the price of gold will fall.  I have circled on the chart such instances from the past two years in red.

What we can observe is that when the bearish trade gets excessively crowded, when a preponderance of participants are convinced that gold will fall, that is not the top in gold. Rather, it is the bottom.  I have circled with green the price of gold for each occasion of a put/call ratio spike.

Again, think about what is going on here. When the put/call ratio spikes upward you have an intense perception and emotionally dramatic conviction of traders that substantially puts too many folks on the same side of the trade. When gold starts to move against them, even just a little out of their expectation range, each owner of a put option is no longer a seller of gold, but becomes a motivated buyer of gold!  This is precisely how huge brisk run ups in price are both setup and then executed.

If I were presently short gold and looked at this chart it would send shivers down my spine. No kidding. Nothing like finding out you are in a crowded trade that once it starts to go bad, you KNOW it will go very bad.

Now, I am not saying that the bottom for gold is in just yet.  Gold could still delight the bears and frustrate the bulls with one last brief maneuver lower this week.  But after that, if it happens, I believe gold’s low will most definitely be in and then there will be a lot of folks who will wish they did not hold puts on gold.

While gold has not yet told us if the last shoe has dropped, the GDX miner ETF, however, is suggesting a favorable outcome. The following daily chart is the GDX and below its price movement is the True Strength Index Indicator (TSI) with volume. You can make you own chart and use the TSI indicator by visiting Free Stock Charts.

On the negative side for GDX, the True Strength Index indicator reading is still barely below ZERO in negative territory (-0.06). On the positive side, GDX is sporting a positive divergence between price and the indicator, a recapture of the uptrend line begun last February, a breakout of a 4 week price downtrend line and a breakout of the TSI indicator on increasing positive volume. All in all, I regard this setup as bullish for GDX and most likely for GLD, as well.

If you are interested in reading more about the techniques of using the True Strength Index (TSI) indicator, want to be exposed to discussion and analysis of various mining stocks, as well as the US Dollar and stock markets, or just want to participate in a blog where your thoughts are heard and responded to, I invite you to join me at my website which is: The TSI Trader. Or jot me an email, tsiTrader@gmail.com

I wish you a profitable week!

John Townsend
Website: The TSI Trader
Email: TSItrader@gmail.com

Gold is now reaching long term trend support after falling the last few weeks as investors returned to bid up the Euro and equities.  The bounce in equities, especially financial, retail and real estate may be short lived as volume indicates that there is not much conviction from major investors on the upside.  Gold has recently been the safe haven as investors sought shelter away from the Euro when it was having the sovereign debt issues.  Now that those issues have been quelled, gold has had some selling and it has now reached an oversold  condition and a long term trendline which is acting as major support.

Stock prices move in trends.  In a bull market, it is quite often easy to identify the ascending bottoms.  Being familiar with trendlines allows the investor to enter long term bull markets when they are oversold and at key support.  An investor must always be aware of a stock’s underlying long term trend. This can be counter-intuitive and awkward, as most times when it comes down to support you have to think against the market herd and buy when others are selling.  It’s like buying a winter coat in the heat of summer. Gold is on sale, and presenting a low risk, high reward trade, but it requires non conformity with the crowd which is not an easy task for anyone.  Many of us like to be in what’s hot now situations, rather than seeing the bigger picture and entering into a trade when it is uncomfortable.

Gold is now at my buy point of the rising long term trend support line.  GLD touched that line 6 times, which signifies that this trendline is a reliable point of support.  The significance of this line is that it is not steep, which also brings a higher probability that GLD will find support here.   It is also oversold.  Continued weakness here and a break below this long term trend would be troubling and highly unlikely.  If there is a break most likely it would be exhaustive, meaning that it will shake out a lot of shares before the next move higher.  I do not see $1200 as a top in gold as there are no technical signs of a major top.

On the other hand, financial stocks may be finding key resistance here following a low volume rally.  As investors are digesting earnings reports that claim credit is improving and lending is increasing, consumer confidence is weakening and the unemployment rate is still very high.  A jobless recovery is what many are considering we are experiencing.  It seems that this recovery has been good for wall street while main street has not seen an improvement. The financials have found resistance at the 200 day moving average and have now failed four times, significantly breaking through this point of resistance.  Historically speaking, after a few failed rallies a major drop could occur.

At the writing of this article, housing has also had a significant reversal after recent data showing an increase in pricing in some metropolitan areas.  Investors are selling home building stocks on positive news, which  indicates that there is some caution over what the real estate market will resemble after the home buyer tax credit expires.  The chart shows a clear reversal and I expect that the rally in equities will be coming to an end and that gold’s poor summer performance will be different this fall as many weak hands were shaken out.  An explosive fall rally into new highs is expected as I still have a target of $1400 by year end.

Disclosure: I own shares in gold and silver mining stocks.

I want to discuss something that came up on the blog Friday. An anonymous poster hinted that we were going to see more gold weakness in the days ahead because big money was having to sell  positions. Folks, big smart money traders don’t sell into weakness. These kind of investors don’t think like the typical retail investor who is forever trying to avoid draw downs. Big money investors take positions based on fundamentals and then they continually buy dips until the fundamentals reverse. The fundamentals haven’t reversed for gold so I’m confident in saying that smart money isn’t selling gold, it is using this dip to accumulate.

With that being said there are times when big money will sell into the market and it is why so often technical analysis as it’s used by retail traders doesn’t work. They do so in order to accumulate positions. Let me explain.

When a large fund wants to buy, it can’t just simply start buying stock like you or I would. Doing so would run the market up causing them to fill at higher and higher prices. Unlike the average retail trader, smart money attempts to buy into weakness and sell into strength. (Buy low, sell high). In order to buy in the kind of size they need without moving the market against themselves, a large trader needs very liquid conditions. Ask yourself, when do those kind of conditions exist? They happen when markets break technical levels.

If big money is selling it is because they are trying to push the market below a significant technical level so all the technicians will puke up their shares. By running an important technical level big funds can trigger a ton of sell stops to activate, allowing them to accumulate a large position without moving the market against themselfs in the process. We saw this very thing happen in the oil market recently and also in February as gold bottomed.

The reason of course is that gold is still in a secular bull market. In bull markets you buy dips.

Also the dollar with the break below 82 this morning is starting to show signs that it is now in the clutches of the 3 year cycle decline. Every C-wave so far in this 10 year bull market has corresponded to a major leg down in the dollar. I’m confident this C-wave will inversely track the dollars move into that major cycle low due early next year.

Sentiment wise gold has now reached levels more bearish than at the February bottom. That means gold is at risk of running out of sellers.

And finally, and most importantly it’s just simply too late in the intermediate cycle for gold to have enough time for a significant drop. This is the 25th week of the cycle and the intermediate cycle rarely lasts more than 25 weeks. That puts the odds heavily in favor of a major bottom either sometime this week or next. And don’t forget gold is about to move into the strong demand season. Like clockwork gold invariably puts in a major bottom in July or August before the run up into the strong fall season.

The bears are going to be wrong again.

Source: http://goldscents.blogspot.com/2010/07/hoping-for-break.html

In fact, is that another little Cup (complete with higher right side rim) and handle?

Source: http://biiwii.blogspot.com/

Both Gold and Oil closed lower for the week which is not a good sign considering the US Dollar dropped like a rock along with them.

Below are a few of my charts

GLD – Gold ETF Price Action

Gold continues to pull back from the June highs. It looks as though it could form an ABC retrace pattern if the July 7th low is broken. If $1085 is broken we should see gold drop to $1065-75 level. On the GLD etf that would be around the $112.50 – $113.50 level. That should shake out the majority of weak positions and start to rally towards the $1250/60 level.

Crude Oil – USO Oil Fund

This is a weekly chart of oil which clearly shows how selling volume has risen and the trend since 2009 has gone up, sideways and is now heading back down. The bear flag forming on this weekly chart looks about ready for another leg down. Once that occurs we could see a test of the 2009 lows.

Using some inter-market analysis crude oil tends to move in the opposite direction of the US Dollar. From a quick glance at the dollar chart is looks about ready to bounce which will send oil sharply lower. It will be interesting to see how this unfolds over the next 2-3 weeks.

SP500 – SPY Index Fund

Friday we saw some the SP500 sell off on heavy volume after testing its 50 and 200 day moving averages which are key levels for trading and investors to take profits or add to their short positions in hope for another multi day sell off.

That being said, there is still a good change of higher prices and for all we know this could be the start of another multi month rally. While I am more inclined for us to play the down side this week I will not have a problem taking a long position if we start to see the market internals and breadth improve alone with bullish price action. I monitor the 60, 30 and 10 minute charts which allow me to get a feel for the overall short term trend and strength.

Weekend Trading Conclusion:

Overall it looks like we could have a couple more days of weakness for stocks and commodities. The US Dollar is very much oversold and as of this writing it looks like its starting a small bounce. A rising dollar tends to put downward pressure on gold and oil along with the large multi national companies.

Equities sold off Friday with a slow grind down from 9:30 -4pm never putting in any type of bounce when looking at the 60 minute chart. The SP500 and other indexes are way over sold after Friday and I am expecting some follow through Monday as investors review the charts over the weekend and see what happened on Friday. That should cause another wave of selling in the morning as traders panic out of positions.

It’s going to be an exciting week for sure!

If you would like to receive my trading analysis and trade alerts be sure to checkout my services at: www.TheGoldAndOilGuy.com & www.FuturesTradingSignals.com

Chris Vermeulen

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Gold managed to hold this week with a low higher than last week’s low.  However, GLD did not.  Sooooo…. with that bit of ambiguity, I’ve got to think we likely have not seen the bottom in gold as of today.
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A couple of possibilities for the bottom.  First, let’s look at them with trend lines,  then Fibonacci, and finally the midpoint consolidation pattern.
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This chart attempts to demonstrate that there is a trend line in the current C wave that takes its beginning in February and projects to around $1,165 (aqua).  The other trend line is of the entire C wave that began a year ago in July 2009 (purple).  That projects to around $1,165.
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Click on the chart to ENLARGE

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Here is a look at the Fibonacci dissection of the current C wave to date.  The 23.6% retracement level comes it at right around $1,181 – nearly exactly where the aqua trend projects.  If this price level prevails next week, and it is certainly possible, we could now be only $10-15 above the final low.
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Click on the chart to ENLARGE
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We have looked at this pattern more than once already, but it also projects price to around the $1,164 area as does the purple C wave trend line above.
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Click on the chart to ENLARGE

Source: http://thetsitrader.blogspot.com/2010/07/gold-how-low-1181-or-1165-maybe.html

Here is where I think we are for Gold stock indices and why I am not interested in being long Gold stocks in my trading account right now (1 year chart of the GDX ETF in candlestick format follows):

This fits in with my thesis of where we are in the stock market, as a big move down in the general stock market indices will probably drag the Gold stocks down with it. This isn’t always the case, but given the weak price action in Gold stocks and their recent lack of leverage to the Gold price on the upside, they are vulnerable here. Here’s a 4 year daily candlestick chart of the Wilshire 5000 ($WLSH) thru Friday’s close to show how this fits in with my trading thesis for general equities:

Could I be wrong and miss the train completely on Gold stocks? Of course, which is why it’s called speculating. But I am starting to salivate over the prospect of picking up Gold stocks again at lower prices. The pieces seem to be coming together, although things can (and often do) change on a dime. I think the coming buying opportunity in Gold stocks will be a doozy and will precede a massive leg higher in Gold equities. Once we reach the next low point, I think Gold mining stocks will once again outperform the Gold price to the upside in a major way.

Source: http://goldversuspaper.blogspot.com/2010/07/intermediate-term-thesis-reviewed.html

It’s true that GLD’s (NYSE: GLD) assets just passed the $50 billion mark, and that it’s the second largest U.S. ETF. Yes, mints had difficulty filling orders when the Greek crisis broke. And yes, the gold price is up nine years in a row.

But those who look at statistics like these are missing the other side of the equation. I think it’s less about how much money is already invested in gold and more about what’s available to invest. After all, one could be impressed that China, for example, invested $14.6 billion in gold over the past few years – until you realize they have $2.45 trillion sitting in reserves.

So, how much is invested in gold, and how much is available?

According to hedge fund Paulson & Co, if you added up all the money invested in gold ETFs, it would total $78.3 billion (at $1,200 gold). The amount of money currently sitting in U.S. money market funds, on the other hand, comes to $2.849 trillion.

In other words, all the money invested in gold ETFs represents just 2.7% of what is sitting in cash. Put another way, if just 5% of available money market funds ($142.4 billion) were to move into the gold ETFs, it would almost triple the current value.

But what if it’s 10%? And what if Doug Casey’s call for a modern-day gold rush comes to pass?

Those who claim the gold market is crowded will also point to Paulson’s extraordinary high percentage of funds sitting in yellow metal investments. Yes, he’s got a $3.4 billion stake in GLD – but the critics didn’t look under the hood. Most of those holdings are from the fund’s employees (including John himself), not outside investors. Not exactly an overheated trade.

To some, the amount of money invested in gold may “feel” high, but it’s a relative pittance compared to what’s sitting idly on the sidelines, waiting for a reason to move and a place to go. And when you consider that the vast majority of U.S. citizens don’t own any form of gold, this is a market that is the opposite of crowded. There is a lot of money that could hit our sector.

And it’s not just precious metal funds. I interviewed Andy Schectman of bullion dealer Miles Franklin, and Kevin Brekke, our Switzerland-based editor, told me it was the most informative interview we’ve published this year. Why? Because based on what Andy sees week after week regarding supply, he’s come to the conclusion that we’ll see a serious drought of bullion when the average citizen begins to buy gold. Meaning, if you wait to buy until everyone else does, you may find yourself out of luck. And the data I present this month backs up that claim; in fact, you may be surprised at some of the findings.

Have you been watching Gold’s bull run? Let Chicago Mercantile Exchange commentator Jordan Roy-Byrne CMT guide you to winning investments in the hot Gold and Silver markets. Click here to start your free trial now!

Source: http://www.zerohedge.com/article/guest-post-gold-trade-%E2%80%9Ccrowded%E2%80%9D