Thursday July 26, 2012
I believe we are turning the corner here but I thought that twice before and had to wait a while longer.
This analyst thinks gold is a buy on a break out at any price or a break down to 1450. The break down scenario looks less likely.
The Last Few Days
We made this comment in the weekend update after observing Friday that the market was ahead of itself.
The character of the rally changed after June 4. Now the market has been moving higher with the RSI bouncing off its zero line. Since the top on June 18, the market seems to have averaged 4-6 days in one direction or the other. I labeled the down moves in days. so a test of that 50 day MA now at 1333 seems realistic in the next week.
Here is an update of the same chart showing what actually happened.
And the market hit 1330 for a low, making 1333 a great target. After the predicted four days, the market bounced nicely to say the least.
Biut you say, it has done that in late June and mid July is this any different, Well there is always one in the crowd isn't there?
TLT looks to have completed five waves up. The low was clearly in March. Waves 2 and 4 show alternation. Wave one and five are about the same time length, a month. And the MACD has diverged lower on the fifth wave even though price is higher than at the top of Wave Three.
The big break down in the dollar today makes a persuasive case that indeed this time it is different. This is a less textbook pattern than TLT but still works the same way. I circled today's trading which is much lower.
The Psychological State of the Market
I spent some time today listening to the commentary on Bloomberg. The floor brokers at the Merc thought the fundamentals for the Euro were poor, short the Euro on rallies. Later various blokes with titles like Strategic Visionary Analyst most wore a suit that probably cost as much as all the clothes in my closet, would intone the same thing. Like economists they simply extend recent history into the future.
The graph of the Dollar above these paragraphs argues otherwise. And so the market begins to turn, wth the conventional wisdom not wanting to give way. Cavuto featured a visual of the last few days of trading with triple digit losses for three days (floor brokers grabbing their temples in literal agony) and then two updays (floor brokers delighted, they make money either way what do they care?). The Strategic Visionary Analyst speaking at that moment cited lousy retail sales and therefore the markets hve to go down don't you see. Nuts to that, markets are about where the money is going not where someone imagines the economy to be at the moment.
Anyway, the shift in sentiment has begun. While the media focused on a statement made by the Italian head of the EU Draghi, the truth is that the market finally reached the tipping point, money will begin coming back to risk assets.
One of my accounts, in the red over $9,000 a few days ago, improved about $3400 just today, $1900 yesterday. That is a mood shift. See my previous post about enduring paper losses on the way down.
A reader asks exactly what I am expecting a bit put off by the Dark Knight reference. Good question.
The Summer Rally Begins
Yes I have announced that before but this time we finally have the dollar coming off its highs. I expect stocks gold oil silver to rally probably past Labor Day. I expect stocks to zip past the last high of 1420. Mr. Market must get everyone out of their Bond Safe Harbor and into stocks, before a the real sell off begins.
A Peak Before the Election - A Few Guesses
Stocks Zip Past 1420 on the SPX
Crude Oil equals the previous high of $110 which is why I recommended XES
Other commodity plays do well as emerging markets like Brazil EWZ soar on improved commdity prices.
The Euro stuns everyone soaring over 135, the new French President says see the world endorses my programs
Gold breaks to the upside and takes out $1800.
TLT sinks below 109. The Dollar drops back below 80.
And then the markets begin topping out. The ensuing bear market should wipe out all gains from March 2009 to Labor Day 2012. This will be brutal as it will be evident that the US has become a basket case like Spain or Greece.
At that point we will use the SAR PAR to put trailing stops under our positions, that way we can go higher but will sell as the markets pull back. We begin to put buy bonds and HDGE at that point.
Thanks for reading the Market Perspective, I have tried to add complete coverage during these volatile market days. We hope TMP has improved your investing results.