A Five Year Forecast: Is this a Tsunami Warning?

By John Mauldin

It is the time of the year for forecasts; but rather than do an annual forecast, which is as much a guessing game as anything else (and I am bad at guessing games), I’m going to do a five year forecast to take us to the end of the decade, which I think may be useful for longer term investors. We will focus on events and trends that I think have a high probability, and I’ll state what I think the probabilities are for my forecasts to actually happen. While I could provide several dozen items, I think there are seven major trends that are going to sweep over the globe and that as an investor you need to have on your radar screen. You will need to approach these trends with caution, but they will also provide significant opportunities.

There is a book in here somewhere, but I do not intend to write one today. In fact, my New Year’s resolution is to write shorter letters in 2015. Over the last decade and a half, the letter has tended to get longer. A little more here, a little more there, and pretty soon it just gets to be a bit too much to read in one sitting. That means I need to either be more concise, break up my topics into two sessions or, if further writing is necessary, post the additional work on the website for those interested.

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So I’m writing today’s letter in that spirit. Each of the major topics we’ll be covering will show up in other letters over the next few months. I would appreciate your feedback and any links to articles and/or data points that you think I should know about regarding these topics.

But first, this is generally the most downloaded letter of the year. I want to invite new readers to become one of my 1 million closest friends by simply entering your email address here. You can follow my work throughout the year, absolutely free (and see how my prognostications are turning out). And if you’re a regular reader, why not send this to a few of your friends and suggest they join you? At the very least, Thoughts from the Frontline should make for some interesting conversations this year. Thanks. Now let’s get on with the forecasting.

Seven Significant Changes for the Next Five Years

Let’s look at what I think are six inexorable trends or waves that will each have a major impact in its own right but that when taken together will amount to a tsunami of change for the global economy.

1. Japan will continue its experiment with the most radical quantitative easing attempted by a major country in the history of the world… and the experiment is getting dangerous. The Bank of Japan is effectively exporting the island nation’s deflation to its trade competitors like Germany, China, and South Korea and inviting a currency war that could shake the world. I’ve been saying this for years now, but the story took a nasty turn on Halloween Day, when the Bank of Japan announced it was greatly expanding and changing the mix of its asset purchases. The results have been downright scary, and a major slide in the JPY/USD exchange rate is almost certain over the next five years. I give it a 90% probability. All this while the population of Japan shrinks before our very eyes.

2. Europe is headed for a crisis at least as severe as the Grexit scare was in 2012 – and for the resulting run-up in interest rates and a sovereign debt scare in the peripheral countries. After all these years of struggle, the structural flaws in the EMU’s design remain; and now major economies like Italy and France are headed for trouble. In the very near future we will finally know the answer to the question, “Is the euro a currency or an experiment?” The changes required to answer that question will be wrenching and horrifically expensive. There are no good answers, only difficult choices about who pays how much and to whom. Again, I see the deepening of the Eurozone crisis as a 90% probability.

3. China is approaching its day of reckoning as it tries to reduce its dependency on debt in its bid for growth, while creating a consumer society. The world is simply not prepared for China to experience an outright “hard landing” or recession, but I think there is a 70% probability that it will do so within the next five years.

And the probability that China will suffer either a hard landing OR a long period of Japanese style stagnation (in the event that the Chinese government is forced to absorb nonperforming loans to prevent a debt crisis) is over 95%. To be sure, it is still quite possible that the Chinese economy will be significantly larger in 2025 (ten years from now) than it is today, but realizing that potential largely depends on President Xi Jinping’s ability to accomplish an extremely difficult task: deleveraging the debt overhang that threatens the country’s MASSIVE financial system while rebalancing the national economy to a more sustainable growth model (either through either a vast expansion of China’s export market or the rapid development of “new economy” sectors like technology, services, and consumption; or both).

This will not be the end of China, which I’m quite bullish on over the very long term, but such transitions are never easy. Even given this rather stark forecast, it is still likely (in my opinion) that the Chinese economy will be 20 to 25% bigger as 2020 opens than it is today; and every other major economy in the world (including the US) would be thrilled to have such growth. At the very least, though, China’s slowdown and rebalancing is going to put pressure on commodity exporters, which are generally emerging markets plus Australia, Canada, and Norway.

4. All of the above will tend to be bullish for the dollar, which will make dollar-denominated debt in emerging market countries more difficult to pay back. And given the amount of debt that has been created in the last few years, it is likely that we’ll see a series of crises in emerging-market countries, along with an uncomfortably high level of risk of setting off an LTCM-style global financial shock.

My colleague Worth Wray spoke about this new era of volatile FX flows and growing risk of capital flight from emerging markets at my Strategic Investor Conference last May, and he has continued to remind us of those risks in recent months (“A Scary Story for Emerging Markets” and “Why the World Needs the US Economy to Struggle”).

Now that Russia has tumbled into a full-fledged currency crisis with serious signs of contagion, Worth’s prediction is already playing out, and I would assign an 80 to 90% probability that it will continue to do so, as a function of (1) the rising US dollar and a reversal in cross border capital flows, (2) falling commodity prices, or (3) both. This massive wave is going to create a lot of opportunities for courageous investors who are ready to surf when countries are cheap.

5. I do not believe that the secular bear market in the United States that I began to describe in 1999 has ended. Secular bull markets simply do not begin from valuations like those we have today. Either we began a secular bull market in 2009, or we have one more major correction in front of us.

Obviously, I think it is the latter. It has been some time since I’ve discussed the difference between secular bull and bear markets and cyclical bull and bear markets, and I will briefly touch on the topic today and go into much more detail in later letters. For US focused investors, this is of major importance. The secular bear is not something to be scared of but simply something to be played. It also offers a great deal of opportunity.

If I am right, then the next major leg down will bring on the end of the secular bear and the beginning of a very long term secular bull. We will all get to be geniuses in the 2020s and perhaps even before the last half of this decade runs out. Won’t that be fun? Let’s call the end of the secular bear a 90% probability in five years and move on.

6. Finally, the voters of the United States are going to have to make a decision about the direction they want to take the country. We can either opt for growth, which will mean a new tax and regulatory regime, or we can double down on the current direction and become Europe and Japan. I’ve traveled to both Europe and Japan, and they’re both pleasant enough places to live, but I wouldn’t want to be a citizen of either Japan or the Eurozone for the rest of this decade. (I particularly love Italy, but it is beginning to resemble a basket case, with last year’s optimistic drive for reforms seemingly stalled.)

However, I would rather live and work and invest in a high-growth country, with opportunities all around me, a country where we reduce income inequality by increasing wealth and opportunities at the lower end of the income scale instead of trying to legislate parity by increasing taxes and imposing government mandated wealth redistribution, which slows growth and squelches opportunity for everyone.

A restructuring of the US tax and regulatory regime does not mean a capitulation to the wealthy, big banks, or big business. Properly conceived and constructed, it will allow the renewal of the middle class and result in higher income for all. Sadly, it is not clear to me that either the Republican or Democratic parties are up to the task of making the difficult political decisions necessary. They each have constituencies that tend to opt for the status quo. But I see hope on both sides of the political spectrum that change is possible. The course they set will give us an idea where we will want to focus our portfolios in the decade of the ’20s. It is a 100% probability that we will have to make a decision. It is less than 50% that we will make the right one – or at least the one that I think is the right one.

7.  We have entered the Age of Transformation. We’re going to see the development of new technologies that will simply astound us – from increasingly capable robots and other applications of AI to huge breakthroughs in biotechnology.

The winners are going to be those who identified the truly transformational technologies early on in their development and invested wisely. While riskier (potentially far riskier) than most of your investments should be, a basket of new-technology stocks should be considered for the growth part of your portfolio. I see the Age of Transformation as a 100% probability.

Just for the record, I also see a continuation of the global deflationary environment and a slowing of the velocity of money until we have some type of resolution concerning sovereign debt. Central banks will continue to try to solve the “crises” I mentioned above with monetary policy, but monetary policy will simply not be enough to stem the tide. Central banks can paddle as hard as they like into the waves of change, but they cannot reverse their powerful flow.

Now, let’s look further at each of the waves that are forming into a potential tsunami.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

The article Thoughts from the Frontline: A Five-Year Global Financial Forecast: Tsunami Warning was originally published at mauldineconomics.com.

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Connecting the Dots: Not Yet Time to Celebrate a Market Turnaround

By Tony Sagami

The Wall Street crowd liked what they heard last week and pushed the Dow Jones to a new high. In particular, the trio of the Republican landslide victory, an overall positive Q3 earning season, and a good jobs report that showed unemployment dropping to 5.8% was behind the rally.

And what a rally it was. Since the start of earnings season on October 8, the S&P 500 has increased by 3% and has bounced by an eye popping 9.1% from the October 15 low. Many of my peers have already popped the champagne and drunkenly declared a coast-is-clear resumption of the great bull market.

Not so fast. There was a trio of negative news pieces last week that tells me there is more to be worried about than there is to celebrate.

“V” Is for Vulnerable… Not Victory

You shouldn’t trust “V”-shaped bottoms.

Instead of being encouraged by the 9% moonshot since the October 15 low, I am even more skeptical. The S&P 500 shot up by 220 points in just three weeks, which tells me that the rubber band of stock market psychology is overstretched.



The stock market’s massive mood swing from fear to greed can change just as quickly to the other direction. Sharp trend reversals followed by sharp rebounds is not a kind of bottom building behavior.

The rally has been accomplished with low trading volume—a classic definition of an unsustainable bounce because it shows that the rally was more from a lack of sellers rather than an abundance of buyers.

And don’t forget about the drastic underperformance of small stocks. The Russell 2000 is up less than 1% for the year compared to 11% for the Nasdaq and 10% for the S&P 500.

Earnings: Look Ahead, Not Behind

Overall, corporate America had an impressive third quarter. 88% of the companies in the S&P 500 have reported their third-quarter earnings; of those, 66% exceeded Wall Street expectations.

Impressive, right? Not so fast!

When it comes to earnings, you need to be looking through the front-view windshield and not the rear-view mirror.



Even the perpetually bullish analytical community is getting worried. The average estimates for Q4 earnings as well as Q1 2015 are being downwardly adjusted. Since October 1:

• Q4 earnings growth have been lowered from 11.1% to 7.6%;and
• Q1 2015 earnings growth has been chopped from 11.5% to 8.8%.

Don’t give Wall Street too much credit for being rational. Those downward revisions are largely based on the cautious outlook given the corporate America itself. The ratio of negative outlooks to positive outlooks is 3.9 to 1!

Both Wall Street and corporate America are concerned, and so should you be.

Don’t Ignore Central Bankers’ Warnings

Many of the world’s central bankers gathered in Paris last week to figure out how to keep the world’s leaky financial boat from sinking, as well as spending more of their taxpayers’ money on fine wine, cuisine, and luxury hotels.

All those central bankers are eager to keep their economies afloat, but judging from the comments, they’re worried that they are running out of monetary bullets.

“Normalization could lead to some heightened financial volatility,” warned Janet Yellen.



“This shift in policy will undoubtedly be accompanied by some degree of market turbulence,” said William Dudley, president of the Federal Reserve Bank of New York.

“The transition could be bumpy … potential for financial market disruption,” cautioned Bank of England Governor Mark Carney.

“Paramount risk of very low interest rates is to entertain the illusion that governments can continue to borrow rather than make difficult and yet necessary choices and indefinitely put off the implementation of structural reforms,” admitted Bank of France Governor Christian Noyer.

“The bottom line is there is a very good question about whether more stimulus is the answer,” said Reserve Bank of India Governor Raghuram Rajan.

Perhaps the most honest and telling statement from Malaysian central banker Zeti Akhtar Aziz: “In this highly connected world, you would be kindest to your neighbors when your keep your own house in order.”

That’s a whole lot of central banker warnings—and it’s always a mistake to ignore the people who control the world’s printing presses.

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

The article Connecting the Dots: Not Yet Time to Celebrate a Market Turnaround was originally published at mauldin economics

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Gold: Time to Prepare for Big Gains?

By Casey Research

Years of a severe downturn in the gold market have left very few bulls to speak out in favor of the yellow metal. Here are some positive opinions on the future of the precious metal, from the recently concluded Casey Research Fall Summit.

David Tice, founder of the Prudent Bear Fund, believes we are heading for a “global currency reset” that will reduce the role of the dollar in global trade. Central banks, he says, don’t possess all the gold they claim to, and the unwinding of the paper gold market probably isn’t far down the road—it could even ignite the next major crisis.

The paper gold market (for example, exchange-traded funds like GLD) has massive leverage, with a ratio of 90:1 or 100:1 of paper claims on gold bullion. If only a small fraction of owners convert their paper to physical gold, says Tice, it will create a “no bid” price environment and cause the price of gold to explode.
He believes that once the paper gold market collapses, gold will be priced on the basis of supply/demand for the physical metal—which means it could be headed for $3,000 to $8,000 per ounce.

Ed Steer, editor of Casey Research’s popular e-letter Gold and Silver Daily, is equally bullish on gold… in the long term, because right now, he believes the gold market to be rigged: “Central banks intervene; that’s what they do.”

They control not only gold, but also silver, platinum, palladium, copper, and oil. He says there are two possible reasons that Germany hasn’t gotten its gold back that it had stored in the U.S. — either the gold doesn’t exist or there’s so much paper written against it that it can’t be moved for collateral reasons.

While there’s not much an investor can do about gold manipulation, Steer believes that the manipulators’ schemes will blow up in their faces sooner than later.

Summit regular Rick Rule, chairman of Sprott US Holdings, isn’t worried about the bear market in gold.
“What matters is your response to the bear market,” he says. “If you have the wits, courage, knowledge, and cash to take advantage of them, bear markets are great.”

He’s keeping his eyes peeled on junior gold mining stocks, which, he says, are hugely attractive right now.
“Our market has fallen by 75% in three years. That means it’s 75% more attractive than in 2010, when we were all in love with it. Within a few years, we’ll look back on today’s low prices as the good old days.”
Louis James, chief investment strategist of Casey’s Metals & Mining division, also welcomes the opportunities to buy low that the current slump in gold prices provides.

He personally owns stock of three of the junior miners present in the Map Room at the Casey Fall Summit. All three of them have exceptionally high-grade projects that are delivering what they promised.

To get all of Louis James’ stock picks (and those of the other speakers), as well as every single presentation of the Summit, order your 26+-hour Summit Audio Collection now. It’s available in CD and/or MP3 format. Learn more here.

The article Gold: Time to Prepare for Big Gains? was originally published at casey research

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Gold Prediction using Statistics & Technical Analysis

Here is my gold prediction (silver and gold mining stocks, should be the same) looking forward 24 months.
Since the top in gold in 2011 gold has been selling off. Depending on how you analyze the market, this 3 year sell off could be seen as consolidation within a major cyclical bull market or that it’s in a bear market. But know this, either way, the outlook is bullish, and all gold has to do is find a bottom here and rally above the $1400 per ounce level. This would kick start a major feeding frenzy of gold buying.

Gold bear market in the past have on average corrected 33% and lasted a total of 550 days. So if we look at the stats of the current pullback in gold it has dropped 38% and about 700 days long. Time for a bottom and bull market? It sure seems like it.

You can see my recent report on the U.S. Dollar and Gold Forecast.
 

Gold Prediction Technical Outlook:

Gold remains in a down trend, but looks to be starting a possible stage 1 basing pattern. Technical analysis is pointing to strength as the MACD moving higher, relative strength, and the down trendline show price and momentum being bullish.

A few weeks ago the chart completed a Golden Cross. This is not shown on the chart, but it is when the 50 SMA crosses above the 200 SMA. Investors tend to look at this as a major long term buy signal, although I do not use it for any of my analysis or timing of the market.

If historical data, statistics, and technical analysis prove to be correct we can expect gold to rise. My gold prediction is for price to reach $2300 - $2500 per ounce within 24 months.

Gold Prediction Conclusion:

The average gold bull market last roughly 450 days and posts a gain of 95%. So with the current correction which is beyond these levels already, expect price to firm up this year and complete the stage 1 base. Note that until gold breaks out of its Stage 1 Basing pattern, I will remain bearish/neutral on the metal. There is a huge opportunities else where unfolding.

Chris Vermeulen

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TV Pundits are Talking Coffee...Is that the Top? JO JVA

One of the oldest trading cliches in the book. "When the TV pundits are talking about it, and the barbers and taxi cab drivers are talking about it...the top is in". But not in coffee this year. We think we are just getting started. And when we talk coffee we always check in with our favorite coffee trader Mike Seery. Here's what Mike is saying....

Coffee futures have been the big story in recent weeks due to the fact of a huge rally in the last 2 weeks caused by hot & dry conditions in central Brazil which is causing prices to move much higher as we have not seen a drought since 1989 and there are no rains forecast in the next 7 days which could push prices up even higher.

Coffee is trading above its 20 and 100 day moving average settling at 137.85 a pound in the May contract up about 1000 points this week with extreme volatility as Brazil's crop is estimated between 54 – 55 million bags and that could be lowered if this drought continues in the month of February and as I talked about in previous blogs the volatility is extremely high.

So I would look at bull call option spreads for the month of July limiting your risk to what the premium costs also allowing you to stay in the market without getting stopped out because there are days like Thursday when prices were down 700 points which is around $3,000 a futures contract as the volatility is here to stay and I do think higher prices are coming.

The 50% retracement from the recent high to the low is right around 130 so if you’re looking to get into a futures contract I would look to buy that level placing my stop at the 10 day low which currently is at 115 risking around $5,500 per contract.

Coffee is a very large contract and if you're right it will pay you off tremendously as I've gone through similar events in this market especially in 1994 when prices went from $.75 to 2.70 in a matter of months due to a frost and if this drought does continue expect coffee possibly getting up to the $2 a pound level as prices could really explode just like what happened in the grain market in 2012.

Current coffee trend: HIGHER
Current chart structure: TERRIBLE

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SP 500 Elliott Wave Forecast Unfolding As We Projected, What Is Next?

Back on January 15^th we wrote an article and also a elliott wave forecast for both the public and our subscribers showing a likely top at a maximum of 1868 on the SP 500.  We said that Elliott Wave Major 3 of Primary Wave 3 would top no higher than that level.  In fact, we can go back to September 4^th 2013 and we projected a Major 3 high as 1822-1829.  Turns out we were only about 1% off 4 months in advance of projecting that high, and once again we are on track here with Major 4 commencing from Major 3 highs.

Below is the Major 3 chart we sent out on September 12^th in public articles and private reports



We simply use Fibonacci analysis of wave patterns which are based on human behavioural tendencies that go back centuries. Elliott Wave Theory is often hard to put into practice, so sometimes it gets a bad name.  However, a bad steak at a restaurant doesn’t mean you never have steak again right? The practitioner must hone his or her skills over time and work to improve accuracy.

Our view is pretty simple in that the Major wave 3 was 583 points going from 1267 to 1850, the double top.
Below is the chart we did on January 15^th in advance of this top:



We now know in hindsight that we topped out at 1850.  So what we want to do is simply take the 583 point rally of 1267 to 1850 (major 2 lows to Major 3 highs) and compute a retracement.  We use 23.6%, 31.2%, and 38% Fibonacci figures to come up with estimates. Those come in at 1713 on the shallow end of a correction (wave 4) and 1628 on the lower end.  (See chart below)



Now, assuming we are on track… once this Major 3 completes we will see a Major wave 5 of Primary wave 3 taking us to all-time highs. This will then complete Primary wave 3 of this 5 primary wave bull cycle and then larger Primary wave 4 corrections will ensue from those highs.  We will know we are wrong in our degrees of wave counts if we pierce the 1628 level on the downside. That would indicate Primary 3 topped out 1850 and we are in Primary 4, which is not our current view.

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Gold and Silver Ready To Rumble Higher?

Let's check in with our trading partner David A Banister, does he think gold and silver is ready to rumble higher?

We have been writing about the bottoming process of the Gold Bear Cycle (Elliott Wave Theory) since December 4th 2013, and our most recent article on December 26th reiterated that the best time to accumulate the Gold/Silver stocks was in the December and January window. Specifically this is what we wrote:

“These types of indicators are coming to a pivot point where Gold is testing the summer 1181 lows…at the same time, we see bottoming 5th wave patterns combining with public sentiment, bullish percent indexes, and 5 year lows in Gold stocks. This is how bottom in Bear cycles form and you are witnessing the makings of a huge bottom between now and early February 2014 if we are right.

The time to buy Gold and Gold stocks is now during the next 4-5 weeks just as we were recommending stocks in late February 2009 with public articles that nobody paid attention to. This is the time to start accumulating quality gold miner and also the precious metals themselves as the bear cycle winds down and the spring comes back to Gold and Silver in 2014.”

Since that article a few of our favorite stocks rallied 40-50% in just 3 weeks or so from the December timeframe of our article. A recent pullback is pretty normal as we set up for Gold to take out the 1271 spot pricing area and run to the mid 1300’s over the next several weeks. By that time, you will be kicking yourself for not being long either the metals themselves or the higher beta stock plays.

A few suggestions that we have already written about we will reiterate here again. Aggressive investors can look at UGLD ETF, which is a 3x long Gold product that will give you upside leverage as Gold moves into elliott wave 3 up. Other more aggressive plays we already recommend a lot lower include GLDX, JNUG, NUGT and others. Picking individual stocks can be even better and we have recommended a few to our subscribers that are already doing very well.

What will trigger this next rally up is sentiment shifts to favor Gold and Silver over currency alternatives. The precious metals move on sentiment, much more so than interest rates or GDP reports or anything else in our opinion. Sentiment remains neutral to bearish as evidenced by the larger brokerage houses running around in January telling everyone to sell Gold, so we see that as a buy signal on top of our other indicators.

We expect the mid 1500’s by sometime this summer, but by then your opportunity will be long in the rear view mirror. Just click here to join us for frequent updates at from David Banister.

GOLD’s Elliott Wave Analysis Bear Cycle Coming to a Close in December

When it comes to the actual trading aspect in gold our trading partner David A. Banister Market Trend Forecast has been our go to guy. Very interesting what he is bringing us this morning.....Is GOLD’s Elliott Wave Analysis Bear Cycle Coming to a Close in December?


Our Last major Elliott Wave Analysis of Gold came in early September when Gold had touched the 1434 area, and in that analysis we called for a re-test of 1271-1285 levels. This was based on our Elliott Wave Analysis of the patterns involved since the 1923 spot highs in the fall of 2011. Our clients of course were updated on a regular basis since that public analysis and we have been looking for clues to a bottom in this Gold bear cycle from the 2011 highs.

Most recently, we noted that we are seeing patterns commiserate with what Elliott wave theory calls a “truncated 5th wave” pattern. All Bear cycles have 5 full waves to the downside from the highs, and we have been in wave 5 since the 1434 highs. The key then is determining how low that wave 5 will take you in Gold, and planning your investments and timing around that forecast.

To qualify for a truncated 5th wave, you have to have a very strong preceding 3rd wave to the downside. In this case, we had that as Gold dropped from just over 1800 per ounce to 1181 into late June 2013. As we approached the 1181 areas, we also put out a public forecast saying that Gold has indeed bottomed and should rally strong to the upside. Recently, Gold hit a bottom at 1211 spot pricing last week and that is when we began to consider a truncated 5th wave pattern.

We sent our clients about a week ago regarding this possible Elliott wave theory bottom:

If we fast forward a week later, we had Gold running up to 1261 which was the pivot resistance line we told our subscribers to watch for. We hit it on the nose and backed off to 1224 yesterday. We now expect that if GOLD holds the 1211 area, that we will again rally back up and over 1261 and then head to the 1313 resistance zone. We would like to see Gold get over 1313 and if so our targets are in the 1560 ranges for Gold in the first half of 2014.

Aggressive investors should be accumulating quality small cap gold producing and exploration, or Gold itself depending on your preference during these last few weeks of December as our Elliott Wave Analysis is signaling a bottom is near. We would again watch 1211 as a key level to hold for this possible truncated wave 5 to work out.

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They Just Rang A Bell On Gold and Gold Stocks

Our trading partner David A. Banister of Market Trend Forecast has been the go to guy on gold and precious metals. Let's check in with Banister and see if he thinks the bottom is in for gold.

As they say on Wall Street, “They don’t ring bells at the top” and for sure they usually don’t give you a phone call at the bottom either. Many heads have rolled trying to call this recent near 2 year downdraft in Gold in terms of bottom callers, me included. I thought we would never get much below 1440 or so from the 1923 highs, but alas we all know we did.

What makes me think that last week put in the final Gold low for the bear cycle? Too many things to mention, but based on the work I do enough to give me some chutzpah to make this call now. The 1180’s are very close to a classic ABC 61.8% Fibonacci retracement of the prior 34 month bull cycle. That cycle ran from October 2008 to August 2011 with a rally from $681 to $1900’s area. The most recent 21 plus month decline dropped right into the 61% pivot retracement of that entire move, and over a Fibonacci 21 month period as well! Human behavior does repeat over and over again, and as we all know in hindsight at the tops everyone is bullish and at the bottoms everyone is bearish.

I think it’s pretty much as simple as that. Investors get overly optimistic and exuberant in all kinds of asset classes and finally at the highs everyone believes the rally can only go on and on forever. At the opposite near the bottoms nearly everyone is calling for lower prices and further catastrophe ahead. Stocks in the sector are priced for near bankruptcy. Newsletter writers are universally bearish, and the small trader has a big short position. Only a few weeks ago the Bullish Percentile index measurement on the Gold Stock Index was at 0! That means nobody was bullish on the Gold stocks by the measure that is used. We quickly had an 8% rally in the index after that reading, then in the last few weeks we came all the way back down again to even lower levels!

If you watched the action last Thursday as Gold was melting down below $1200 a curious thing happened. The gold miners were ignoring the move and going green! On Friday, as Gold reversed to 1234 they went ballistic with one of my favorite miners going up 16% on Friday alone on the highest volume in 5 years! Those are the signals I’ve been waiting for to call the capitulation lows. My guess is some money managers are front running the coming 3rd quarter rotation they see in Gold and Gold Miners, Copper, Coal, and other commodity stocks.

So below is my basic GLD ETF multiyear chart using very simple monthly views to see the big picture. You can see a classic ABC pattern of bear market correction and now a near 61.8% perfect Fibonacci retracement of the prior leg up. I’d say enough is enough, pick your spots and start buying.




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Precious Metals & Miners Start Bottoming Process

Precious metals and their related mining stocks continue to under perform the broad market. This year’s heavy volume breakdown below key support has many investors and trader’s spooked creating to a steady stream of selling pressure for gold and silver bullion and mining stocks.

While the technical charts are telling me prices are trying to bottom we must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment in respect to trading and investing in them. There are times when you should be long, times to be in cash and times to be short (benefit from falling prices). Right now and for the last twelve months when looking at precious metals cash has been king.

Since 2011 when gold and silver started to correct the best position has been to move to cash or to sell/write options until the next trend resumes. This is something I have been doing with my trading partner who focuses solely on Options Trading who closed three winning positions last week for big gains.

In 2008 we had a similar breakdown in price washing the market clean of investors who were long precious metals. If you compare the last two breakdowns they look very similar. If price holds true then we will see higher prices unfold at the end of 2013.

The key here is for the price to move and hold above the major resistance line. A breakout would trigger a rally in gold to $2600 – $3500 per ounce. With that being said gold and silver may be starting a bear market. Depending what the price does when the major resistance zone is touched, my outlook may change from bullish to bearish. Remember, no one can predict the market with 100% accuracy and each day, week and month that passes changes the outlook going forward.

The chart below is on I drew up on May 3rd. I was going to get a fresh chart and put my analysis on it but to be honest my price forecast/analysis has been spot on thus far and there is no need to update.

Gold Daily Technical Chart Showing Bottoming Process:

Major technical damage has been done to the chart of gold. Gold is trying to put in a bottom but still needs more time. I feel gold will make a new low in the coming month then bottom as drawn on the chart below.

Silver Daily Technical Chart Showing Bottoming Process:

Silver is in a similar as gold. The major difference between gold and silver is that silver dropped 10% early one morning this month which had very light volume. The fact that silver hit my $20 per ounce level and it was on light volume has me thinking silver has now bottomed.

But, silver may flounder at these prices or near the recent lows until its big sister (gold) puts in a bottom.



Gold Mining Stocks Monthly Investing Zone Chart:

Gold mining stocks broke down a couple months ago and continue to sell off on strong volume. If precious metals continue to move lower then mining stocks will continue their journey lower.

This updated chart which I originally drew in February warning of a breakdown below the green support trend lines would signal a collapse in stock prices, which is exactly what has/is taking place. While I do not try to pick bottoms (catch falling knives) I do like to watch for them so I am prepared for new positions when the time and chart turn bullish or provide a low risk probing entry point.

While we focus more on analysis, forecasts and ETF trading another one of my trading partners who focuses on Trading Stocks and 3x Leveraged ETF’s has been cleaning up with gold miners.

Gold, Silver and Mining Stocks Conclusion:

Precious metals continue to be trending down and while they look to be trying to bottom it is important to remember that some of the biggest percent moves take place in the last 10% of a trend. So we may be close to a bottom on the time scale but there could be sharply lower prices yet.

The time will come when another major signal forms and when it does we will be getting involved. The exciting this is that it could be just around the corner. So if you want to keep current and take advantage of the next major moves in the market be sure to join our newsletters.

From COT trading partner Chris Vermeulen


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Correction near but Bull Market has LONG waves to Go!

Are you using Elliot Wave theory in your trading? Today David Banister of Market Trend Forecast is laying out the Elliot formations in detail. Do yourself a favor and take a few minutes to make sure you are looking at this market through his eyes. Can any of us call the pull back exactly and reliably? No, of course not. But we should all be taking this into consideration.

The SP 500 has been on a tear as we all know especially since the SP 500 bottomed at 1343 several months ago. My work centers around forecasting using Elliott Wave Theory along with other technical indicators. This helps with projecting the short, intermediate, and longer term paths in the stock market and also precious metals. This larger picture Bull Cycle started in March of 2009 interestingly after an exact 61.8% Fibonacci retracement of the entire move from 1974 to 2000 lows to highs. At 666, we had completed a major cycle bottom with about 9 years of movement to retrace 26 years of overall bull cycle. That was a major set of 3 waves (Corrective patterns in Elliott Wave Theory) from the 2000 highs to 2002-3 lows, then 2007 highs to 2009 lows. Once that completed its work, we were free to have a huge new bull market cycle off extreme sentiment and generational lows.

It’s important to understand where we were at in March of 2009 just as much as it is today with the market at all time highs. Is this the time to bail out of stocks or do we have a lot more upside yet to go? Our short answer is there is quite a bit more upside left in the indexes, but there are multiple patterns that must take place along the way. We will try to lay those out for you here as best we can.

Elliott Wave theory in general calls for 5 full wave cycles in a Bull pattern, with 1, 3, and 5 bullish and 2 and 4 corrective. We are currently in what is often the most bullish of all the patterns, a 3rd of a 3rd of a 3rd. In English, we are in Primary wave 3 of this bull cycle which will be 5 total primary waves. We are in Major wave 3 of that Primary 3, and in the Intermediate wave 3 of Major wave 3. That is why the market continues its relentless climb. This primary wave 3 still has lots of work to do because Major wave 3 still has a 4th wave down and a 5th wave up to finish, then we need a major 4, then a major 5.

That will complete primary wave 3. This will then be followed by a Primary wave 4 cycle correction that probably lasts several months, and then a Primary wave 5 cycle to finish this part of the bull market from March 2009 generational lows… and all of that work is going to take time. Once that entire process from March 2009 has completed, then we should see a much deeper and uglier correction pattern, but we think that is at least 12 months or more away.

What everyone wants to know then is where are we at right now and what are some likely areas for pivot highs and lows ahead? We should complete this 3rd of a 3rd of a 3rd here shortly and have a wave 4 correction working off what will likely be almost 300 points of upside from SP 500 1343. We could see as much as 90-120 points of correction in the major index once this wave completes. Loosely we see 1528-1534 as a possible top and if not then maybe another 30 or so points above that maximum into early June. This should then trigger that 90-120 point correction, and then be followed by yet another run to highs.

We could go on but then we will lose our readers here for sure, and as it is… this is all projections and postulations, so it’s best to keep the forecast to the next many weeks or few months. Below is a chart we have put together showing the structure of Major wave 3 of Primary 3 since the 1343 lows. Once that Major wave 3 tops out (see the blue 3) then we will have Major 4, then Major 5 to complete Primary wave 3 since the 1074 SP 500 lows. Whew!



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The Gold Meltdown – What Happened?

In today’s Trade School video, we’re going to be looking into what caused the recent meltdown in gold prices. How could gold drop so precipitously in such a short time, given what’s going on in the world? Did it have anything to do with the ETF GLD or was a country forced to sell its precious metals to satisfy creditors?

We will share with you how you could have systematically made money in gold using our Trade Triangle technology, which has produced some very positive results over the years.

Since 1975, there have been 13 bear markets with an average drop around 14%. This would put gold below the $1,300 level, around $1,280.

In this short 4 minute video on gold, we will illustrate the importance of having a solid game plan and a market proven approach. We will go through each trade in gold and share with you the results of using our Trade Triangle approach from the beginning of the year.

This approach is not for everyone, but we think you will agree that the results certainly speak for themselves.

For more information on the tools we use in this video just click here to >  visit The MarketClub

The Stock Market Trend & Hot Sector ETF’s

Trading with the trend should be your main focus for long term success no matter what type of trader you are (Options Trader, Stock Trader, or ETF Trader) although it’s not as easy as it sounds.

The good news is that there is a simple trading model that removes 95% of trading analysis and greatly reduces trading related emotions because the key technical analysis rules based on one of the world’s best chart technicians (John Murphy) technical analysis methods have been applied to the chart automatically. The key is to identify the trend of the market. Once that is known you can focus on trading strategies that take advantage of the current trend.

Over the past few years I have been creating this indicator/chart layout tool which converts my chart reading experience, tips and tricks into a simple system removing analysis paralysis which cause most individuals to second guess what they see and don’t pull the trigger. Using too many indicators or read/listening several other traders commentaries with different views than you causes this paralysis.

My simple red light, green light model clearly shows a viewer the current trend and expected price range (high and low) looking forward a couple days. I uses a series of data points like volatility, volume, cycles, momentum, chart patterns and logic rules. It even shows extreme pivot points helping you find low risk entry prices for both bull and bear market conditions.

Recent trends and signals for the SP500 Index Daily Chart:



Trading With the Trend – The Sweet Spots

Knowing the direction of the market is simple using the chart system above but trading with the trend is not that simple because of natural human behavior. Instead traders fall victim to trying to pick a top or bottom because they think the price is overbought or oversold and they want to catch the next big trend change.

We all know the saying “the market climbs a wall of worry”. Well, the biggest worry most traders have is buying long in a bull market because stocks and price always look overbought and ready to top each week… This leads to people trying to get fancy picking a top only to get their head handed to them a few days or weeks later depending on how stubborn they are to exit a losing position.

The key to long term success is to buy during broad market (SP500) corrections once sentiment, cycles and momentum are starting to flash extreme oversold conditions. These show up as green arrows on the trend chart. At that point most sectors and high beta stocks like IBM, GOOG etc… should be at a key entry points with most of the downside risk removed already. Remember ¾ stocks follow the broad market so it only makes sense to follow it also.

What about a runaway stock market? This is when the stock market does not pullback but just keep grinding its way higher and higher… The only thing you can do is sit in cash, or look for a stock or sector that is having a small pause or pullback and get long with a small position until you get that broad market pullback and major by signal to add more.

Below are a few sectors showing a minor pause/pullback within this bull market:


 

Mid-Week Trend Conclusion:

Overall, the broad market remains in an uptrend. While I would like to see the SP500 pullback and give us another major buy signal like it did in December and February I do mind that much if prices keep running higher as it just give us more cushion and potential profits for when the trend does eventually roll over and flip signals. I hope you found this report interesting. It’s just scratching the surface of this topic but it’s a start. Know the stock market trends by joining my free newsletter at The Gold & Oil Guy.com

Chris Vermeulen


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It’s Official, We Are In A Bear Market For the S&P 500

How much further do we have to go on the downside? That’s a legitimate question, however, with Bear markets they tend to persist longer and take more pain than most investors are willing to sit through.

As you know from watching our videos, we are projecting lower levels for the S&P 500, as well as the banks and financial institutions. Those moves on not over yet.

In today’s presentation, we will be talking about three markets that are in the news. This will be a regular feature and we will try to bring you information that is timely, informative and educational. We will be talking about stocks, the Forex markets, and the futures markets.

The downward trend in the crude oil market continues with crude oil hitting a low today just below $75 a barrel. Our Trade Triangle technology has been all over this market and is presently short from $96.04 a barrel.

The beauty of following our Trade Triangle technology is that it’s totally non biased and it follows what the markets are doing, instead of what politicians, the news, or pundits are saying about a particular market. Intermediate and Long term traders should continue to be short the crude oil market.

November crude oil closed down $2.19 a barrel at $75.42 today. Prices closed nearer the session low today and hit a fresh 16 month low. A lower U.S. stock market and firmer U.S. dollar index pressured crude oil again today. The crude oil bears are in firm near term technical control.


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Adam Hewison: Welcome to the Bear Market

From Crude Oil Trader contributor Adam Hewison.....

Ladies and gentlemen, the market action yesterday was real. Please be aware that we have started on a bear market. As we have pointed out in our previous updates, we were looking for a move to the downside. That has now happened with all our indicators firmly in negative mode.

Most folks who are not in their 60s do not remember the bear markets of the 70s and 80s which caused a tremendous amount of pain for investors. It seems as though we just kicked the can down the road for the last time. The markets are bringing common sense back and they will find a solution for the economy.

President Obama came on the TV today to reassure everyone that it was not his fault that the stock market was down, it had to do with Europe, the tsunami in Japan. Mr. President we are and have been in a global economy for years. It’s too bad that Ben Bernanke and you don’t understand that.

Folks who saw their 401(k) and IRA retirement accounts decimated in 2008 are having a déjà vu moment. In the last 10 days the S&P 500 has lost over $1 trillion and we expect it will lose more. A simple solution to get America running again is to cut corporate taxes to 25%. Money will pour in, corporations will start hiring again and start building business. Corporations are the ones that create business and pay taxes in this country. It’s not the government that pays taxes.

So, President Obama will you please help give businesses the environment to thrive in, less regulation, less taxation? This is the only way for the country to get out of this recession.
The key element which is overriding everything right now is the current market psyche....Scared.

Last night every TV and cable show’s lead story was the market crash. If the market closes lower today, everybody will be frantic and worried about their investments over the weekend which means we’ll probably see a continuation early next week to the downside.

The equity markets are getting close to a 61.8% Fibonacci retracement level of 1148 for the S&P 500 index. We expect that this level will be reached. We would expect to see some profit taking at that area and a modest retracement back to the upside. That is not to say we are bullish, it just means we going to see some profit taking coming into this market.

I would like to thank everybody for their positive feedback! We are thankful we can help you muddle through this extremely volatile time in the markets.

So let’s go to the 6 major markets we track every day and see how we can create and maintain your wealth in 2011.

S&P 500

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 100
Watch Video for update.

SILVER (SPOT)

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 55
Watch Video for update.

GOLD (SPOT)

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 90
Watch Video for update.

CRUDE OIL (SEPTEMBER)

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 100
Watch Video for update.

DOLLAR INDEX

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 65
Watch Video for update.

REUTERS/JEFFERIES CRB COMMODITY INDEX

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 100

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