Stock Markets
We should review the items that kept us positive on the senior indexes. Actually,
they are bull-market-ending events that have a lag. We've called them "Friends
of the bull market", which have had a brief shelf life. Both peaked in April.
One was the long uptrend in the Advance/Decline line and the other was the
peak in NYSE margin debt. The high in the senior indexes would be expected
a few months later. Late August to early September has been our target.
This time window is supported by Shanghai's massive blow-out accomplished
in June. Historically that suggested a NY high in early September.
Considering the mounting financial pressures, will the senior indexes reach
new highs?
Doesn't matter to much as the positive time window will come and fail. Our
advice has been to sell the rallies.
The line about canaries dropping like flies is a good one. At the peak of
previous bull markets we have crafted some lines:
"Every bull market carries its own china shop."
"Every bull market climbs a wall of worry and in a rush of confidence
leaps over, only to find Murphy waiting."
"Like great civilizations, bull markets are born stoic and die epicurean."
Conditions were very stoic in the first part of 2009. Now, a contractor in
LA is building a spec house hoping to sell it for $500 million. The master
bedroom is 5,000 square feet.
Precious Metals
Our July 23rd edition noted that "the plunge in gold and gold stocks was generating
Daily Downside Capitulations". This was updated in the July 27th ChartWorks
and the advice was that a brief trade was possible.
Gold increased from the 1080 level to 1125. HUI has rallied from 104 to 124.
Silver rose from 14.35 to 15.95 today, as SIL (silver miners) rallied from
6.32 to 7.44.
Of interest is that silver has reached its 50-Day ma. If it can't get through
and hold it it would be concerning. The concern is that credit markets have
taken a turn for the worse. Under such conditions silver usually underperforms
gold.
The gold/silver ratio has declined from 77 in early July to 72 and is behind
the actual widening of credit spreads. It should soon turn up.
Our focus is that as general liquidity diminishes, the investment demand for
gold's unique liquidity will increase. The price in US dollars could remain
steady.
In the meantime, gold's price relative to commodities has been rising since
May and as it extends it will eventually be constructive for the sector.
The last slump drove the Weekly RSI on HUI down to 21 a couple of weeks ago,
which was enough to pop the rally.
However, most gold and silver stocks will be vulnerable to extended declines
in the general stock markets.
Global Blow Out Hits NY
- Technical excesses seen with the completion of the Shanghai Bubble have
hit Disney.
- The initial plunge ended just above the 200-Day ma. It took almost 4 weeks.
- It took Disney two days to accomplish a lesser but still dramatic break.
- Whether in Shanghai or in New York intense speculation has similar characteristics.
- Intense speculation and its conclusion is fungible.
