With gold and silver still consolidating gains, today King World News interviewed James Turk out Spain. When asked about the action in precious metals Turk responded, “If they were going to smash it Eric, they would have done it on Friday, but the fact that gold and silver reversed so sharply just goes to show how much buying power is under this market. Early in the day both gold and silver were on the ropes, but the uptrend reasserted itself.”
Turk continues:
“So looking back on the past few days, we just had a normal sideways correction within what has been a strong uptrend. The important point it that these uptrends remain intact.
We have been waiting for silver to get disorderly and so far that hasn’t happened. Usually you will see multiple upside breakaway gaps as you get frothy, but we haven’t seen that yet. So there are no obvious signs of a top. Given the strength we saw on Friday, it seems the correction is nearing an end and the uptrend is about to resume.
Eric it took from August until March to get from $18 to $36 so there might be a temptation to sell here and take profits. But the biggest move comes at the end of the trend and it comes much more quickly. So to see silver move $14 from $36 to $50 by the end of June is consistent with the way major trends develop and unfold.
Perhaps the final climb to the intermediate top will not be of that magnitutde, but it would not surprise me if the move was that strong. Let the trend speak for itself until it ends and so far the trend shows no signs of being over so we have to give it every benefit of the doubt.”
When asked about gold specifically Turk stated, “You have almost six months of work underneath the market in the $1,300’s. That provides a massive base that has created the launch pad which will send gold higher.
There is a little bit of a battle going on at the previous high of $1,430, but the momentum is clearly starting to shift in favor of the bulls. The gold bulls have been very patient as gold has essentially moved sideways for the past six months, but their patience is about to be rewarded.
For KWN readers globally if we have gold move to $1,800 and silver to $50, the gold/silver ratio would fall slightly to 36 to 1. In that scenario, all precious metals holders will be happy.
In other words Eric, both precious metals will be rising more or lesss at the same rate. This will be in contrast to the last six months where silver was significantly outperforming gold with the ratio falling from 60 to 39.5 during that time.
Although a lot of people have been focused on the move in silver, but the coming rocket launch in gold will shock the markets.”
Turk is right, the coming move in gold will shock the markets. This will be the wake-up call for investors who have ignored the gold market up to this point.
Eric King
KingWorldNews.com
Tuesday, March 15, 2011
10 Reasons to Worry About the Stock Market
The Wall Street Journal
Ouch. It was the biggest drop in the Dow Jones Industrial Average since August. Markets tumbled yesterday, while fears surged—about jobs, Spain and Saudi Arabia.
Ouch. It was the biggest drop in the Dow Jones Industrial Average since August. Markets tumbled yesterday, while fears surged—about jobs, Spain and Saudi Arabia.
But what does this mean for you, the investor?
Was this just a one-day wonder, a buying opportunity, a small but passing cloud on an otherwise sunny horizon? Or was it something more ominous?
The market's next move is always a mystery. It could go up 500 points next week or down 500 points, or stay in range. You shouldn't let one day's price movement govern your financial decisions. It's never sensible to panic. And sure, this could be just a passing storm.
Yet there are reasons to be concerned about what just happened. Maybe I'm being too nervous here. I hope so. When the market sells off, I usually like to find reasons to buy stocks more cheaply. But here are 10 reasons why this 228-point slump in the Dow makes me sit up and take notice.
1. It happened when the price of oil was falling.
For weeks, the market has been worried that the rising price of oil was going to knock the economy back into the hole. But the price of light sweet crude fell $2 a barrel on Thursday to $102. That followed a $1 fall earlier this week. It's still above the critical $100-a-barrel figure that may spell economic trouble. Nonetheless, some relief on oil should have been good news. If the market sells off at the same time it suggests investors may be reevaluating the fundamentals of the recovery.
2. It was across the board.
It wasn't just isolated to a few exchanges here or in Europe or in the Middle East. Exchanges fell around the world. Wall Street was down 1.9%. Shanghai and Tokyo both fell about 1.5%. Brazil's Bovespa was down 1.8%. London fell 1.5%. Even gold fell. The Standard & Poor's 500-stock index is now down about 4% from the peak seen last month. Since then it's tried three times to get its mojo back, and it's failed each time. Not cheerful.
3. The financial cockroaches are back.
The European debt crisis. Our continuing jobs gloom. Oh, and let's not forget the rocketing national debt that is financing the entire stock-market boom. In past months I've been watching with amazement as Wall Street—and a lot of investors—have been trying to sweep these under the carpet. But they won't stay there. On Thursday, markets were spooked when Moody's downgraded Spain's government debt. But why is anyone surprised? The market for default risk was already sending serious signals that Spain and Portugal may default. And it has all but given up on Greece.
4. One of the smartest bulls I know has suddenly turned very edgy.
He's a European hedge fund manager who turned bullish in January 2009—on high-risk financials, no less—and has stayed upbeat for most of the past two years. He was a raging bull last summer. Even a handful of weeks ago, he thought we'd see more momentum. Today? He's singing a slightly different tune. One of his biggest worries now is China—in particular the strength of its economy and its sudden, surprise trade deficit last month. He's still looking for opportunities, as always, but I thought he'd be buying aggressively in this correction. He isn't. (Another manager I know thinks there is some juice left in the rally, as first-quarter earnings roll in. But she expects to turn more cautious after that.)
5. The bull market has just come so far, so fast.
Too far? From the lows of two years ago, the S&P 500 has almost exactly doubled. By any measure, it's been a remarkable boom. The Russell 2000 index of smaller stocks has soared 130%. So has the S&P Mid Cap 400 index of medium-sized companies, taking it to a new record high. But look at the fundamentals. Over that time economic growth has been sluggish. The economy today is no bigger, in real terms, than it was three years ago. The true jobs picture remains a disaster, and far worse than the official data will tell you. Wages have been stagnant. Yes, companies have boosted profits—to near-record levels—by slashing costs. But how far can that take you? (Perhaps in the end there will just be one, very productive guy left with a job. It would be Apple ( AAPL: 353.56, +1.57, +0.44% ) 's Steve Jobs, of course. But then, alas, he'd have to buy all those new iPads himself.)
6. There's no "margin of safety" left in stocks.
While Wall Street was backing off a cliff Thursday morning, I was interviewing one of the brightest and most original thinkers in the market—James Montier, strategist for tony fund shop GMO and author of "Behavioral Finance." Mr. Montier pointed out that stocks are now so expensive, they leave investors with almost no "margin of safety" in case things go wrong. Anyone investing now, he said, is taking a big bet on sunny skies and plain sailing ahead. It can happen, but life is not always so kind. "We're not completely 'priced for perfection,' but we're not far off," Mr. Montier said. And, he added, the risk curve was wrong as well: Based on GMO's calculations, investors in small-cap stocks at these levels actually face worse returns than investors in large-cap stocks. As small caps are more volatile, they should offer better returns to compensate. (My full interview with Mr. Montier will be published on MarketWatch on Monday.)
7. Wall Street looks unappealing by the numbers.
The dividend yield on the S&P 500 is well below 2%. According to data compiled by Yale economics professor Robert Shiller, stocks are a thumping 24 times cyclically-adjusted earnings. That's extremely high. The historical average is about 16. In the past, today's levels have been associated with bubbles and hot markets, and have generally been followed, sooner or later, by a correction. A similar conclusion is reached by comparing equity prices to the cost of replacing company assets, a metric known as "Tobin's q." It also says Wall Street is heavily overvalued. Maybe worst of all: It is just extremely hard to find any cheap stocks out there. If I saw some great bargains, I'd say, "Don't worry about the market, buy this terrific company on six times earnings." But these types of opportunities are so thin on the ground right now. No one measure has all the answers. But plenty of metrics are signaling, at least, caution.
8. The public was just starting to buy stocks again.
Oh, brother. The U.S. private investor, who spent most of the 2009-10 rally getting out of stocks, started piling in again earlier this year. According to the Investment Company Institute, investors cashed out a net $31 billion from equity mutual funds between the start of March 2009 and the end of last year. But since Jan. 1, they have shoveled a net $33 billion back in. History has frequently shown that the public gets in—and out—at the wrong times, buying near peaks and selling near troughs. Is it happening again? I wish I felt better about this.
9. The insiders have been getting out.
Executives and directors across the market have been cashing out stock at a fast clip. "The pace and volume of insider sales hit a four-year high during Q4 '10," reported InsiderScore, a firm that tracks such data. While many of the top brass may have been locking in capital gains before a possible tax hike in 2011, it said, the pace of insider selling actually speeded up after the December tax deal, which gave a last-minute reprieve on taxes. And that suggests "it was valuations and opportunity—not the Taxman—that were the main catalysts for the record surge in insider selling," said InsiderScore. "Each sector and market cap group experienced heavy selling." So far this year insider selling has remained at a strong pace, too.
10. Sentiment had become giddy.
Jim Cramer on his TV show "Mad Money" has on occasion recently decried "all the negativity that's out there." I like Mr. Cramer, with whom I once worked, but he must be hanging out with an unusually gloomy group of people. I can hardly see any bears anywhere. They're in hiding from a two-year-old bull. As reported here not long ago, fund managers had turned downright euphoric about the stock market. Hedge fund managers are now once again betting heavily on rising stocks—and rising oil—with borrowed money. Equity analysts have been hiking their forecasts. Oh, and the hot stocks were back—like Salesforce.com ( CRM: 124.94, -2.93, -2.29% ) , which recently hit 100 times forecast earnings. That's a hefty multiple for an $18 billion company. Whether Salesforce stock turns out well or ill over the longer term, you can hardly deny that its investors are cheerfully—some might say remarkably—optimistic.
None of this is a reason to start panicking. But these are grounds for investors to be cautious.
BNN: Top Picks
Peter Brieger, Chairman and CEO, GlobeInvest Capital Management, shares his top picks.
click here to view video
DJIA PRICE OSCILLATOR
DJIA Price Oscillator
March 11, 2011
The McClellan Price Oscillator is one of the more prominent indicators that factors into our analysis of various markets. It is calculated in the same way as the McClellan A-D Oscillator, except that instead of using the daily Advance-Decline difference as the raw input, we use the closing price or closing market index value.
On that closing price data, we calculate two exponential moving averages that we call the 10% Trend and 5% Trend (AKA 19-day and 39-day EMAs). The difference between those two moving averages is the Price Oscillator. These moving averages are not included in this week’s chart, because too many lines tend to clutter up a chart.
When the two moving averages are getting farther apart, the value of the Price Oscillator gets more positive or negative, depending on the relative value of each moving average. Generally speaking, when the Price Oscillator is rising, the presumed trend direction is upward. The strongest and most reliable uptrends tend to occur when the Price Oscillator is above zero and rising.
If the Price Oscillator is above zero and falling, it may be the start of a new downtrend, or it may just be a sign of a temporary pullback within a continuing uptrend. The most risk occurs when the Price Oscillator is below zero and falling.
Also included in this week’s chart is an indicator we call the Price Oscillator Unchanged line. That line represents the closing value for the DJIA that would be needed in order to make the Price Oscillator go precisely sideways. If the DJIA is above that line, then the Price Oscillator moves upward. A close below that line takes the Price Oscillator lower. It is calculated by adding the value of the 10% Trend (19 EMA) to the value of the Price Oscillator.
As I write this, the DJIA’s Price Oscillator is falling, but it has not yet gone negative. So we can still make the presumption that the price weakness since February is just a pullback and not a new downtrend. That presumption would be harder to support if the Price Oscillator crosses below zero.
It is an interesting point that the DJIA’s Price Oscillator can be doing one thing, but the individual Price Oscillators of the 30 DJIA component stocks can be doing entirely different behaviors. And we have found that there is useful information in those differences.
The chart below shows an indicator we developed years ago that looks at what is happening with all 30 of these stocks’ Price Oscillators, and measures how many of them have a Price Oscillator that is above zero and rising.
The interesting point about this indicator is that by the time we see it move to a very high or very low level, the price trend for the overall market is about done. It takes a lot of energy for either the bulls or the bears to get everybody moving in one direction, and by the time you see all of the stocks’ Price Oscillators behaving the same way, that energy has been expended. The current low reading in this indicator is suggestive of a bottoming condition for the market overall.
$300 Oil is on the Way
When nothing changes, nothing changes!
As global oil prices surge above $100, consumers are once again reminded of the fact that oil prices are subject to the whims of geopolitics, weather, and growing demand. And unfortunately little is still being done to eliminate dependence on fossil fuels.
Pain Is a Good Teacher
The recent run up in crude oil is reminiscent of the surge crude took back in 2008 up to $147 a bbl. Back then as crude broke through the key $100 mark and surged to the record high, consumers and the government went into panic mode.
Suddenly alternative energy stocks were hot again, talk of hybrid cars was all the rage, drilling off shore became a national emergency, and people even talked about car-pooling.
Unfortunately as soon as crude prices dropped, all that went out the window.
Crude prices dropped from $147 and fell to around $38, essentially nailing the coffin shut on many good energy solutions that had been gaining momentum.
As equity got pulled out of alternative energy companies like solar, geo thermal, coal, wind turbines, etc. may of those companies went bankrupt.
Prices for crude didn’t stay low for long and here only a couple of years later we are seeing crude rallying above $100 again.
So is pain at the pump the only solution. My question is, why does it always have to get to that point?
Fear Factors
While the global recession and credit crunch have severely impacted global demand for energy, it's only temporary. The problems that propelled oil prices to $147 haven't gone away, in fact there worse now.
Traders are seasick from the oil markets lately; the volatility has been so extreme. Aside from the obvious macro-factors, the weak dollar is absolutely the biggest culprit in high commodity prices. The Fed’s ongoing decimation of the greenback has undermined any stability in pricing and this in turn has led to unrest all over the Middle East and soaring prices in much of the World.
So what were the major factors that drove oil to record levels the last two years? There are many.
Global demand is among the biggest. Pent-up demand is exploding in growth areas like China and India. Once that global manufacturing engine begins firing again, you can count on energy prices ramping up quickly. If we are seeing over $100 a barrel crude while the global economy is still in crisis, what will prices be like when economies are functioning full speed again? $300 may seem cheap.
There's been almost no progress in alternatives since 2008. The global investment engine has ground to a halt. After all when the markets crashed and oil prices dropped, the last place investors wanted to put their money was in the alternative energy space. Every sector from uranium miners and clean-coal technology to bio-fuels and oil drillers saw investment and share prices dry up. But here we are again, back at $100, so what’s different?
The Middle East Powder Keg
OPEC has been of little help during the unrest in the Middle East. We already are seeing supplies start to taper off. Eventually, demand will catch up with supply and we'll be right back in the same boat of higher prices.
The realities are chilling. The largest oil field in Mexico Cantarell is still in major decline and when it does run out civil unrest in that nation could explode. These types of chokepoints, both political and physical, still exist with several major oil exporting nations.
Another key factor, that will lead to $300 oil is that the building of new refineries and pipelines has all but been non existent.
Buying Alternatives on the Cheap
With oil prices rapidly creeping back up, and consumers feeling the pinch, alternative energy stocks may all get a boost soon. Solar companies, wind technology, natural gas stocks, and even rare earth stocks that have all kinds of “green energy” end users for key rare earth elements. Don’t discount opportunities to buy traditional energy plays at these levels too, fossil fuels are not going anywhere soon.
Look at major oil companies that have pulled back significantly, equipment makers and drillers that will be key in exploring in remote regions and deep water for more supply.
Unfortunately for consumers, when it comes to energy, a lot of pain is on the horizon. However investors can essentially hedge themselves from the coming storm by investing in the incredible opportunities oil is affording us at $100, yet again. After all, this may be the last time we see prices at or below the $100 mark for any sustained amount of time.
It's Time To Get Out Of Stocks
This is for all you folks out there with retirement accounts in the general stock market. I've been warning for many months that the cyclical bull we've been in for almost two years is still just a counter trend rally in an ongoing secular bear market. I made that same warning about the last cyclical bull market from `02 to `07. Many people ignored me in November `07 when I said the second leg down in the secular bear had begun. I suspect many people wish they hadn't.
There are now warning signs that this counter trend rally may have topped, and even if it hasn't the potential upside is so small that it's not worth the risk of getting caught in the next bear leg to catch a few more percentage points.
As of Thursday and Friday the stock market has now broken below the prior daily cycle low. When a daily cycle low gets violated it invariably signals the start of an intermediate degree correction.
The warning bells are going off not so much because an intermediate degree correction has begun, those happen like clock work about every 20-25 weeks, but because of how quickly this daily cycle has topped. In only three days. That means we are now locked in an extremely left translated daily cycle.
It is those extreme left translated cycles that do the most damage. The daily cycle following the flash crash last year was a left translated cycle that topped in only 4 days. We all know what that led to.
The bigger picture is the intermediate cycle. Notice the market is now on week 16 of the current intermediate cycle. I noted earlier that an intermediate cycle low is due about every 20 to 25 weeks. On an intermediate term basis the market is now due to move down into that major cycle low. The next larger cyclical structure is the yearly cycle. That is also due to bottom with this daily and intermediate cycle. The combination of all three cycle durations bottoming at the same time will almost always produce a very severe correction.
Because of how the dollar cycle is unfolding (available to premium subscribers) I expect the stock market cycles to bottom pretty close to the 1 year anniversary of the flash crash.
As a point of reference the last intermediate cycle low occurred in November. The danger is that both the industrials and transports might drop below the November bottom during this correction. If that happens a Dow Theory sell signal will be generated. If a Dow Theory sell signal is generated the odds will be very high that this counter trend rally is over and the next leg down in the secular bear market has begun.
And unfortunately Bernanke is not going to be able to just crank up the printing presses and rescue the markets like he did last summer. The problem isn't that there is a shortage of liquidity. The problem is that there is too much liquidity. It is causing commodity prices to surge out of control.
Oil is back over $100 despite continued high unemployment and impaired demand. Food prices are going through the roof and have already trigger social revolt throughout the mid east and most emerging markets. Once the next leg down in the dollar crisis gets underway it won't be long before we here in the US will be looking at $4.00 or $5.00 for a gallon of gasoline.
As the dollar crisis intensifies Bernanke will be forced to end QE or risk breaking not only the currency but also the bond market. Without an endless supply of fresh money the markets and economy will quickly start to collapse. We saw this last summer when QE1 ended. The same thing will happen this time only Bernanke's hands will be tied by the dollar crisis and surging commodity inflation. He will be powerless to prevent the return of the secular bear forces. Well unless he's prepared to risk hyper inflation that is.
Personally I don't think Ben is willing to completely destroy the dollar and crash the bond market just yet. I suspect when he finally realizes that Keynesian economic principles have led us down a path of no return he will resign and someone else will put the finishing touches on his master piece.
The only question is whether those finishing touches will be to allow the deflationary depression that is required to cleanse 5 decades of debt from the system or whether we will choose the hyper-inflationary path to service the debt spiral we've gotten ourselves into.
In any case it is time to exit all general stock market funds and position oneself in cash to ride out the next leg down in the secular bear market. If one has a gold or precious metal fund available in their IRA we should have about two months left of spectacular gains as the parabolic finale unfolds in the gold and silver markets. But once that has run it's course even those positions will need to be exited as there is no real way to diversify against another severe bear leg down.
The simple fact is that in a severe bear market everything gets taken down to some extent. Gold will hold up much better than practically all other assets but even gold will take a 20-30% hit during a D-wave correction. And all parabolic C-wave finales are invariably followed by an severe regression to the mean profit taking event.
Unless one has the option of a gold fund, it's now time to get out of general stock funds and move IRA's to a money market fund until the next four year cycle low is reached (probably in late 2012).
There are now warning signs that this counter trend rally may have topped, and even if it hasn't the potential upside is so small that it's not worth the risk of getting caught in the next bear leg to catch a few more percentage points.
As of Thursday and Friday the stock market has now broken below the prior daily cycle low. When a daily cycle low gets violated it invariably signals the start of an intermediate degree correction.
The warning bells are going off not so much because an intermediate degree correction has begun, those happen like clock work about every 20-25 weeks, but because of how quickly this daily cycle has topped. In only three days. That means we are now locked in an extremely left translated daily cycle.
It is those extreme left translated cycles that do the most damage. The daily cycle following the flash crash last year was a left translated cycle that topped in only 4 days. We all know what that led to.
The bigger picture is the intermediate cycle. Notice the market is now on week 16 of the current intermediate cycle. I noted earlier that an intermediate cycle low is due about every 20 to 25 weeks. On an intermediate term basis the market is now due to move down into that major cycle low. The next larger cyclical structure is the yearly cycle. That is also due to bottom with this daily and intermediate cycle. The combination of all three cycle durations bottoming at the same time will almost always produce a very severe correction.
Because of how the dollar cycle is unfolding (available to premium subscribers) I expect the stock market cycles to bottom pretty close to the 1 year anniversary of the flash crash.
And unfortunately Bernanke is not going to be able to just crank up the printing presses and rescue the markets like he did last summer. The problem isn't that there is a shortage of liquidity. The problem is that there is too much liquidity. It is causing commodity prices to surge out of control.
Oil is back over $100 despite continued high unemployment and impaired demand. Food prices are going through the roof and have already trigger social revolt throughout the mid east and most emerging markets. Once the next leg down in the dollar crisis gets underway it won't be long before we here in the US will be looking at $4.00 or $5.00 for a gallon of gasoline.
As the dollar crisis intensifies Bernanke will be forced to end QE or risk breaking not only the currency but also the bond market. Without an endless supply of fresh money the markets and economy will quickly start to collapse. We saw this last summer when QE1 ended. The same thing will happen this time only Bernanke's hands will be tied by the dollar crisis and surging commodity inflation. He will be powerless to prevent the return of the secular bear forces. Well unless he's prepared to risk hyper inflation that is.
Personally I don't think Ben is willing to completely destroy the dollar and crash the bond market just yet. I suspect when he finally realizes that Keynesian economic principles have led us down a path of no return he will resign and someone else will put the finishing touches on his master piece.
The only question is whether those finishing touches will be to allow the deflationary depression that is required to cleanse 5 decades of debt from the system or whether we will choose the hyper-inflationary path to service the debt spiral we've gotten ourselves into.
In any case it is time to exit all general stock market funds and position oneself in cash to ride out the next leg down in the secular bear market. If one has a gold or precious metal fund available in their IRA we should have about two months left of spectacular gains as the parabolic finale unfolds in the gold and silver markets. But once that has run it's course even those positions will need to be exited as there is no real way to diversify against another severe bear leg down.
The simple fact is that in a severe bear market everything gets taken down to some extent. Gold will hold up much better than practically all other assets but even gold will take a 20-30% hit during a D-wave correction. And all parabolic C-wave finales are invariably followed by an severe regression to the mean profit taking event.
Unless one has the option of a gold fund, it's now time to get out of general stock funds and move IRA's to a money market fund until the next four year cycle low is reached (probably in late 2012).
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