Saturday, August 31, 2013

Judge rules against CALPERS and for San Bernardino BK

It is a long standing thesis of mine that the entire world is one big debt Ponzi.  People are told they will be paid something later if they just work for free today.  In other words, people are paid at all levels in debt.  When those wanting to purchase goods and services are allowed to do so using massive debt, of course they will request far more goods and services than they can ever actually pay for.  As long as people are stupid enough to take IOUs for their work, some scam artist in government is going to take advantage of them.

In fact, that is what the entire system of fiat currency and fractional reserve banking is all about: setting up credit to be used in all aspects of the economy instead of real money (which is gold and silver coins).  Why would they do this?  Because it is a basic human desire to get something for nothing.  Everyone wants in on it and the government is run by con men who are taking advantage of the human nature that they so well understand.

Recently, San Bernardino, CA followed suit of Stockton, CA in declaring bankruptcy.  CALPERS (a huge pension fund) promised those who have money tied up in their corrupt retirement fund a far greater return (something for nothing) than was mathematically possible.  In order to try to meet these commitments, CALPERS bought into the bonds of San Berdo (as the locals call it) because the interest rates were higher than some other municipal bonds.  Why were the rates higher??  Because the market sensed risk of repayment.  Of course CALPERS knew this too but they foolishly thought they would get paid regardless. They thought that their position made them senior to everyone else in BK court.  But a judge recently ruled that aren't senior and even more recently ruled that the city had the right to BK.  And so CALPERS is going to take a big, big haircut on its San Berdo munis.

Of course, this is just the start of the flood gates opening.  If Stockton and San Berdo can flush all those obligations, why should anyone else pay up?  Why indeed!  In fact, only a sucker will pay up at this point.  Someone else already took the pain of being #1 and #2 in the Big City BK Marathon that is now taking place and so the stigma about stiffing bond holders is greatly reduced.  As the economy continues to decline (and it will) there is only going to be less and less of a taxable base to steal from to pay other people's pensions.  If cities try to raise taxes, the sheeple will flee and once they are gone, they are gone.  Cities are looking at Detroit.  The only way to avoid becoming Detroit is to NOT scare away all the workers with threats of making them pay for someone else's retirement.

The writing is on the wall, just as I have been penning for years: the first to escape the Ponzi will do JUST FINE.  Anyone slow on the escape uptake will get F---ed big time.  This is not an Elliott wave prediction, it's a mathematical certainty.  It's a done deal.  Why?  Because it's a debt Ponzi, man!!  There is not all this value in the system that everyone thinks there is.  What cannot be repaid will not be repaid.  The system is filled with un-keepable promises for the most part and that's all.  Just ignore the con men when they try to say soothing words to the public about this because a collapse of all retirement funds is already baked into the debt Ponzi cake.

Unfortunately, I'm not just talking about pension funds like CALPERS.  I'm also talking about insurance annuities that promise ridiculous 8% returns in a 2% return environment that is not going to get any better for a long long time.  I'm also talking about the stock market.  And it get's worse.  A lot worse.  Because the money supply itself is entirely debt based (unless you count the US Nickel coin which is in fact the only remaining real commodity US coin since it contains metals that are in fact worth more than 5 Cents per coin).  The debt behind this "money" supply (it's really just fiat currency not money; the con men have gotten everyone to forget what real money is over time but everyone in the world will re-learn this over the next 10 years) can never be repaid.  Thus, the funny money is just endless Wimpy promises.  The government will gladly give you fraudulent green paper today if you will only work for them to keep them in power.

To be honest,  a small part of me is now looking forward to the coming collapse.  Not because it will be any fun but rather because the people who get the most hurt from it will basically have deserved it for laughing at a real hero, Ron Paul (the only politician and in fact the only man I have ever referred to as a hero).  Ron Paul told us all of this was going to happen for 20+ years and most people STILL have no clue what is going on.

I would say that while many people are starting to get concerned, only 10-15% have any clue what is really behind everything bad that is happening all of a sudden in the world these days.  Why don't they know??  Because they were so damned full of themselves laughing at Honest Ron that they failed to hear his words or to heed his advice.  The Global debt Ponzi is collapsing and it will continue to collapse far worse than most people can imagine.  Back in 2007, VERY few were saying this besides myself.  Now, many people who know the score are being very vocal. Each well known person that wakes up from the Grand Illusion is telling a few hundred or a few thousand more people.  Example: Bill O'Rielly.  The word is spreading and within a couple years (probably sooner) I expect a full-on panic.

The government also knows the score and they are "prepping" for it:

Fake live fire military martial law drill Houston.

Oh, sure, the government probably has a good reason for all of this.  It's probably all on the up and up.  Government would never abuse power or do anything wrong or lie to the American people about reasons for going to war or about how much spying they are doing on everyone, everyday.  It's about time to figure out the truth: the US government is completely corrupt.  It is controlled by the military industrial complex that Ike famously warned us about.  It is powered by fiat currency and fractional reserve banking. 

If we get rid of that funny money, the military, corrupt corporations and government all collapse because they can't afford themselves unless they are paid in DEBT.  So they will do whatever it takes, even breaking the constitution into tiny pieces, even killing US citizens in the street if that is what is needed in order to retain power and control.  Everything they complain about being done in Syria will be done in the US, and more.  They will tell us they have to take our freedoms in order to keep us free.  Some sheeple will even believe it because they are unprepared and will be caught up in the shock and awe meant "to keep us all safe" (the government line is such BULLSHIT!!).   It's coming folks.   I'm rapidly losing sympathy for those who still cannot see it or are too afraid to even talk about it.  I'm starting to understand that they will get what they deserve.  It's political Darwinism in action.

Wednesday, August 28, 2013

Intelligeddon update, part deux

Here is the backlink to the recent series of posts I've been making on the Intel chart.  If you go there you will find a backlink to the original post.  If you have not been following these posts I suggest you go to the original post and work your way through.  The chart models that I documented have, so far, have been pretty accurate.  It's time consuming for me to copy charts from prior posts into current ones so it's on you to do the chart to chart comparisons if you want to.

Below is the latest INTC chart along with my updated model.  This shows one small change from before.  Whereas I previously modeled 3 of 1 to go down to about $20.75, I think 3 of 1 was likely the test of the long term support line which could not break down through it.  Thus, the bounce since then and the subsequent retest of support which again seems to have held looks to me to be a failed 5th.  So I think all 5 waves of the 1st wave down have completed.  That means we should get a rally in the shares.  If they only rally to the 38.2% fib retracement it would result in red 2 below.  If that happens, the chart would be perfectly set up for a 3rd wave to smash down through support with gusto that will bring out the sellers en masse. 

Of course, the shares could just break down right here but I don't think they will.  I don't think this late stage of a 1st wave has the herding power to break down the current uptrend.  I think sellers are getting tired.  It will require a 3rd wave to break that trend line IMO.  Time will tell, of course.  The shorter the time frame, the more difficult the herd's movements are to predict.  Said differently, the predictions are just as easy but the accuracy of them goes down in superlinear proportion to the timeframe to which they apply.

I find it interesting to note that back in 2007-early 2009, the head and shoulders breakdown used to be very common.  It was the kiss of death.  Now I am seeing few head and shoulders formations while declining double tops such as shown above for Intel are currently the most common indicator of emminent breakdown.   The herd keeps changing its patterns slightly each time the crocodiles catch on.

Monday, August 26, 2013

Deere John...

Many if not all of the big name stocks in every sector look very weak right now.  Check out John Deere (ticker DE) below.  We see the all too familiar declining double top having formed.  Worse, after 5 successful tests of long term support, DE chart has broken down and is now testing that same support turned resistance line from below.  There is a 85% chance that it will not break back above IMO and soon it will run out of steam and plummet.  This is a short seller's delight because of the volatility. 
IF the chart can break STR again and get back in the channel then I would rethink this view but I don't think it can do so when so many other big name stocks are selling off.   The big boys are heading for the door across the board IMO and we are being set up for a September bear move.  All of the global economic data supports this view, just check out Mish's recent posts to see how many times he has used the word "plunge" in the past 45 days...

Russia warns US that military action in Syria

In this article it was reported that Russia has warned "western powers" (the USA cough cough) that any military action in Syria without a UN mandate would constitute a violation of international law.  Again we have Russia with its decades long record of human rights violations, schooling the US on what is right and what is wrong.  Unfortunately, Russia is completely correct in this matter.

I say unfortunately only because the lawless, above the law leadership of the US has basically taken the Nixonian stance of "when the President does it, that means that it is not illegal" to the next step.  Obama now believes that whatever the president says is lawful and thus the law of the land.  Dictator Obama routinely goes around Congress on a variety of fronts today in a completely unconstitutional, fascist, and tyrannical manner in order to push his radical left wing agenda.

With the collapsing global economy, the risk of another world war is rising rapidly.  Why does this happen??  Simply in order to distract the people from the mess we are in.  If you can fool all the people into fake patriotism (as opposed to the honest, constitutional loving kind) and ridiculous nationalism then you can get them to agree to send their children to die in a foreign land.  It has worked time and again in human history so we are genetically predisposed to falling for that con, it would seem.

In past world wars the US always had the moral high ground.  But if Obama and his warmongers go into Syria without U.N. approval then Russia and its allies will have the moral high ground to oppose US/western intervention.  What if Russia and China both stand up to the US on this matter and challenge our leadership into yet another middle eastern conflict?  Will the US reconsider its warmongering ways or will arrogant Obama say "the US is in charge of the world, whatever we say is global law, we will do what we want when the international laws disallow our agenda".

This is a serious risk IMO.  He who has the gold makes the rules and we will find out soon enough that a lot of gold has been moving eastward.  The real power of gold is not understood by most people and so I will just lay it out bluntly.  The real historical power of gold is that it has the ability to fund wars when the fiat currency of a nation cannot.

Let's say Russia and China tell the US to back down and Obama is too ignorant and arrogant to reconsider Syrian military intervention.  All the eastern powers have to do is to back their currencies with their gold stashes and to challenge the US to do the same.  If the US cannot put up then the US will have to shut up.  The dollar would plummet if the US could not match their move to back dollars in gold.  If the US tries to wage war under these circumstances, it would, like Rome of old, go bankrupt.  It would fail to be able to pay its military, just like Rome.

Obama better think long and hard before getting into an internationally illegal scuffle.  The US is just too weak right now to take that hit.  Of course, if you are Obama and you have everyone calling you a lame duck president, what do you personally have to lose?  His children will never be sent to some foreign killing field to be turned into hamburger for no good reason.  All of you who voted for Obama and who still support him, it is time to wake up.  This guy is a danger to us all.

Looking for a pullback in silver here.

After a very nice run up from $17.50, SLV has reached the top of what I believe to be the channel. While I think SLV is quite probably in a new bull market, nothing goes straight up or straight down.  It would be a rare and bullish thing for SLV to break though the top of the channel and run even harder from here without a breather.  Odds of that happening are low but you never know with silver given its market volatility.  Much more likely IMO is a pull back to the bottom of the channel to make sure that nobody is getting an easy ride of it and to shake off anyone who doesn't really have conviction (day traders).  Should this happen it would be a buying opportunity, not a sell signal.

The last retracement was of the sideways variety so I am looking for a nice vee style pullback this time.  While I am currently modeling a pullback only to the lower channel edge, the chart could also go all the way down to fill the gap at $19.75.  That's not the most likely thing to happen (I'm betting on a move to the bottom of the channel as shown) but again, this is silver which can trade with high volatility.  You have to expect those kinds of moves with this metal.

If that part plays out as modeled, the next big resistance should be the top channel line of the bear market of the past couple years.  I do not think that the 5th wave of the 1st wave of a new bull market will be able to break out of that strong downtrend.  I think we will need to see an a-b-c pullback from there into a wave 2 and then a powerful, likely high volume, wave 3 would smash the trend line with gusto.  If that doesn't happen, the model will have to be revisited.  Elliott wave followers are always looking at ways that the chart can veer off in a legal but unexpected way.  We are always looking at trigger points that tell us we are either on track or that we have missed the intention of the herd (and thus need to re-think in that case).

Sunday, August 25, 2013

Gold volume did spike at the bottom. Capitulation is likely in.

In this post, I lamented the fact that the chart does not show much volume into my modeled chart bottom.  As a result of lack of volume, I started to wonder if I got the wave count wrong.  I explained that after such a big smack down I would expect to see capitation style volume.  High volume into the bottoming process GREATLY increases confidence in the probability of the call.

But look at the gold chart below.  GLD did have a significant volume spike (200million shares traded into the bottom).  That is what I was expecting for silver but since the metals trade similar fashion I think the GLD volume spike greatly increases my confidence that the bottom is in for both gold and silver.

I think anyone buying in this territory with at least a 1 year time frame is going to do very well for themselves.  Having said that I will repeat that gold is for long term savings so anyone who loads up on margin or using other forms of debt is not thinking clearly.  You don't take out debt in order to claim to have savings folks!  You have savings only after paying off your normal debt.

Note: I might wait for the next several percent or even 10% pullback in silver until it hits the bottom of the channel again before pulling the trigger.  Conversely, if Silver breaks out again Monday, I probably will buy another tranche.  Either way I will be buying more silver in the next couple days as a result of finally having noticed the high volume capitulation bottom in gold shown above.  Silver could begin to move quickly IMO if stocks begin to roll over as government starts yet another war. What a pathetic Bush-esque joke: "we have to kill people with drones in order to save people from chemical weapons".  PATHETIC AND EVIL.

Saturday, August 24, 2013

Watch [IBM], it will not be going down alone.

In my last installment on the IBM thread, I indicated that the odds were strong that IBM was probably rolling over.  Today I think that the roll over has already started and now I am looking for technical trigger points that confirm big blue is going to be hazardous to the wealth of investors.  The first thing to note (blue circle) is that the chart has turned red in terms of sellers vs. buyers.  That has not happened since 2009!!  If this is going to turn into a wipe out then the next (and last) support line will be the bottom of the channel.  If the area within the red ellipse cannot buoy the share price then a major pull back will be confirmed. 

Of course it was pretty clear to me that the shares were likely topping back in May of this year when I wrote this negative post on the stock, based on nothing more than the chart pattern.  So while it remains to be seen what happens on the lower support test, I'll tell you here and now that I think the odds are low that it will hold.  I certainly would not own the shares right now.  Not with this kind of technical setup for disaster.

Gold miners ETF at critical technical juncture: breakout likely.

If gold has broken out, the miners should have bottomed as well.  Here is the weekly chart of the gold miners ETF.  This chart has all the signs of eminent breakout after a very clear a-b-c retracement.  It is now sporting a very nice inclining double bottom which is very bullish should it hold.  The chances of a 50% price improvement from here are above 90% IMO and in fact I think a double is in the cards here.  But before that can be confirmed, the chart needs to break out of the resistance that it is currently facing.  I do not think it is very big resistance and I think it will be quickly broken.

Of important note is the capitulation style volume leading into the bottom but even more important IMO is that the volume continued after the stock began to rise again.  It's like the sellers all sold and then immediately after the bottom, the short sellers began covering and then they were joined in buying by actual longs picking up shares.

GDX will likely run up faster than the physical metal if history serves as a guide.  However, there are good reasons for it.  First off, I think that inflation profits on sale of physical metals will probably be difficult to tax.  That means that the herd will probably not pay taxes on it.  I don't encourage tax evasion, I'm just stating my beliefs about what is happening.  Heck, Obama's cabinet showed us that many of the elite simply don't pay taxes at all until they need to in order to receive their next political appointment.  Also, in states like Utah where gold and silver is money, there is no state tax on gold sales.  But for exchange traded funds like GDX, you will certainly be paying taxes.

Secondly, the market rewards people who take risks (and hammers them if they are wrong about it).  Another way of saying this is that without being paid a risk premium, people will not participate in the market.  I think people are afraid of stocks right now.  Not just because of the economy but because the entire system of corporations, government and military is being shown as corrupt.  People have lost a lot of confidence in government after the releases from WikiLeaks courtesy of Manning and Snowden.  Also the recent NASDAQ shutdown was no accident IMO.  It was more likely a stress test to see how nervous the herd is.  With so many things in the air like this people should require more of a reward before they bet their money in the great casino.  Holding physical metals carries only the risk of being robbed, and that is something that can be managed pretty well.  But having your cash tied up in the markets when something bad happens (like a big terror event such as 911) or as a result of other major events like declaration of martial law, etc. can have you watching your investment crash leaving holding an empty bag.

So, yes, GDX should and probably will outpace physical metal in terms of percentage gain in the coming months.  But be careful about thinking it is the better bet.  Physical metals in your hand are a bird in the hand to GDX's birds in the bush.

Friday, August 23, 2013

Watching silver: where's the volume?

I recently put in a bottom call on silver.  While that call has held so far, I'm concerned that there has not been enough volume, no capitulation sell off, no panic.  This is what it usually takes to really put in a strong bottom leading to the next bull market.  While I am not changing my call at present, a good EW practitioner always looks for alternate wave counts that provide new trigger points for decision making.
The lower ellipse on the volume scale in the chart at left shows that volume into the declared bottom was not very good.  Thus, the next decision point for whether a bottom is really in or not still lies before us as circled in red where the chart will have to deal with a very strong downward sloping resistance.  How the chart deals with this will likely determine if there is 1 more wave down (the "e" wave of a descending horizontal triangle) or not.

If the chart breaks this upper resistance line then it should be treated as strong confirmation that the downtrend is broken and that the new uptrend is in place.  This will be especially true if the chart hits the top line in a test of it, pulls back to the 38.2 fib retracement of this 1st wave up off the bottom and then smashes through the top resistance line on high volume.  In that case the smash through would have happened on a 3rd wave up and I do feel that after such a long down trend that it will certainly take the power of a 3rd wave to break out.

If, however the resistance holds then I would expect a retracement down to about mid channel best case or to the bottom of the channel worst case before the final bottom is in.  In the case where the chart can only retrace to mid channel what we would then have would be a double bottom, or more likely, an inclining double bottom which would signal a big turn around.  Given the strong downward slope of this chart, the delta could be as much as $10 here (worst case if there was a throw under at the bottom support) but more likely the chart would simply take the last $5 bounce back giving those who didn't catch it the first time a 2nd chance.  Dollar cost averaging into the bottom is always a good strategy and that is exactly what I am doing for silver.

Tuesday, August 20, 2013

John Embry: we will now see historic and catastrophic wealth destruction.

In today's edition of King World News, John Embry worries about how interest rate based derivatives are going to collapse the US and global economy.  This is not as crazy as it might sound.  Do not forget what Warren Buffet himself said about derivatives: they are weapons of mass financial destruction.  There are 1.14 quadrillion USD worth of these economic time bombs deployed globally right now.  The chance of them going off at some point are 100% even if nobody knows exactly when that will happen.

I see what John Embry sees except I explain it more fully and thus better.  Embry stated "we will now see historic and catastrophic wealth destruction.".  I think that is misleading and therefore wrong.  What we have now is a debt Ponzi where everyone invested in it thinks they are wealthy.  They all look at their account balances, which in many cases represent significantly more wealth than they put into the system, and they actually believe they are ever going to see all that money.  Think about it for a second: everyone has been led to believe they will receive more than they put into the system.  Some of the people might, but certainly most will not.

In truth, those who are wise to the con (bankers) will get out in fine style but most people will get creamed having never seen it coming.  The herd will get taken to the slaughter house.  The herd members will cry and whine about how someone stole their grand retirements but the truth is that these retirement dreams were never anything more than Wimpy promises.  The herd never had grand retirements coming to it.  The herd members were simply foolish enough to believe that they had those pie in the sky retirements waiting for them based on someone's Madoffian promises that they would receive them.  "Trust me", they heard and so the herd trusted.  Herd members are overly impressed with their printed account statements which show categorically how rich they are.  These fools will argue until the end that everything is OK just like Madoff victims did.

In truth, the valuation numbers in all of those accounts are in fact fraudulent.  Not everyone can receive the payouts being promised and in fact precious few will.  JUST LIKE THE MADOFF PONZI, the trap door will fall out suddenly as everyone rushes for the door at once.  When they try to leave the con, they will find that the government is colluding with corporations to keep them in the Ponzi while any remaining value is spirited out the back door via inflation.  The historical tool of choice for this is generally referred to as "capital controls".  Using this concept, the con men will not allow you access to your money and then they will haircut you "for the good of the nation".   It will happen with the stroke of a pen and only then will the sheeple understand why I keep saying that, in a crisis, possession is 9/10ths of the law.   The con men are liars and thieves but today few can suspend disbelief long enough to understand this.  It is like everyone is spell bound and has lost the ability to do simple math or to remember the lessons of history.

When the collapse comes, and it will come, there will be excuses galore but that will just be covering fire so that the criminals running the show can escape without getting lynched in the streets.  Yeah, I know, it all sounds like crazy talk right now.  I've heard that assessment from the herd before.  We live in a society where the opinions of fools and ignorant people are valued more highly than those who have done their homework.  They cram this fake reality down our throats in the name of political correctness and "valuing diversity".  As a result of never considering the negative potential of things, the herd is supremely confident that everything is as it appears.  As for me, I'm supremely confident that these people will be the loudest to squeal when the hammer comes down.  They will probably even be stupid enough to ask the government to "do something" about it when in fact the government is the driving force that is causing it.

It's a Ponzi folks.  A global debt Ponzi.  Period. No Ponzi ever lasted forever and this one is waaaay long in the tooth.  And no it will not be different this time.  It has to collapse before the boomer retirees get any significant value out of the system because the value is not really there and it never was.  It's all just made up numbers on account sheets and in computer hard drives.  The work that is required to actually have earned that level of wealth never actually occurred and so the wealth is just an illusion.  It has all just been a confidence game run on the back of a fraudulent money supply whose main components are fiat currency and much more importantly fractional reserve banking.  Note: A gold standard which still allows fractional reserve banking is still a con job.

Monday, August 19, 2013

Another Techincal Analysis modeling of Silver's target price.

Silver is dirt freaking cheap right now IMO.   It's cheap historically and its cheap on an inflation adjusted basis and it's cheap relative to its historical relationship with gold.  In the low to mid $20 range, silver is just cheap, cheap, cheap right now.  As the global economy unwinds people are going to rediscover the precious metals in a way that few think is possible over the coming years.  I think it is impossible for this metallic ascension not to happen.  It must happen IMO.  It is the only path away from a scam ridden global money supply.

Remember when I wrote that solar companies were in the middle of a Great Depression of their own?  Remember what I wrote would happen when they finally bottomed?  Remember the initial call I made on Sunpower bottoming wherein I called the solar industry a "screaming buy"?  Well, that call was within 7 cents of the bottom for Sunpower and it since went up to nearly $30. 

I want to focus on one post in particular, the one where I suspected that Sunpower (SPWR) was about to form a cup with handle.  You can read it here but in short, the stock was trading at $19.64 and I predicted that it would fall back to as low as $12 or $13 before rising again up to  "$30 or $35".  After I made that call, the stock fell back to $18 and then ran all the way to $28, only $2 from my target price.

The reason I made that call was because I thought that a Cup With Handle formation was in progress.  With that background, James Turk is now on record saying that he sees a cup with handle formation in the long term silver chart.  I cut and pasted his chart (shown at left) for those who don't feel like clicking the links.

This chart is a actually more bullish than the other 2 price targets of $100 that I provided technical analysis models for a couple days ago.  If Turk is right, the price of silver will eventually skyrocket to over $200.   The model says that you add the height of the bowl, which is about $45, to the breakout point.  But that is when it is charted on a linear vertical scale whereas the one provided by Turk is charted on a log vertical scale.  So I think you can draw a line from the lowest point in the cup to the top of the cup and then move the line to the breakout point and then read the price target on the log scale as shown below.

While I am not endorsing this Cup With Handle model as my primary target right now, I will say that it is quite possible to occur because that is how bad of trouble the global fiat currency system is in and there is no cure possible except massive devaluation of paper assets.  When this happens, real, in-hand assets which themselves have no liability will increase in value on a relative basis.  Note that housing has the burden of taxes.  It also has the burden of only being purchased with credit at a time when the global credit markets are teetering on the brink of collapse again.  Thus I do not see real estate as a good shelter from future inflation.

Friday, August 16, 2013

What I see for the S+P

The S+P just hit the top resistance line and bounced down.  At the same time, many companies that are closely tied to the economy (like Wal-Mart) are warning.  What I see is shown in the following model.  First the chart goes back down to test support at lower resistance.  If that support holds then it leads to a nice bounce to somewhere around mid channel before losing steam again. That would be waves 1 down and 2 up of the new downtrend in the S+P 500 (i.e. the bear market has started).

With 1 and 2 out of the way, the next move down would be a 3rd wave and after so many months of Bernanke-Bux driven market gains I'm sure the "panic" out of stocks will be a doozie.  I think it will take the power of a 3rd wave to break the S+P down as shown given so many months of successfully testing that support.

Today is Aug 16, 2013.  The markets will look very different a year from now IMO and American stock market complacency will have turned into despair.  If you are a boomer, you might want to consider an exit stage left before the con men pull the plug on this Ponzi.  Always JMVHO and very speculative at this point.  But I have seen this pattern playing out time and again at smaller scales so I think it is worth watching.

As usual, all calls have to have triggers for rethinking and I think a break out of the top resistance line would be cause for a re-think on this call.  Likewise, confirmation should have triggers and I think a break below the lower channel will be confirmation of the new bear market for equities.

If the bottom is in for silver, let's talk target prices.

At the very real risk of getting ahead of myself, I want to put some more color around potential target prices for silver in the coming years.  In past posts I have mentioned a $75 target price for silver on multiple occasions but of course those were very coarse estimates which were more gut feel and experience than technical analysis.  Gut feelings are how the herd generally goes astray so there should certainly be some sort of technical charting to back up any price target predictions going forward.

But before going there, please, suspend disbelief for a minute regarding about what you are about to read, no matter how outlandish you might think it to be because there are very good fundamental economic reasons why metals will go up drastically from current prices.  Right now the global economy is in completely uncharted territory and the global monetary system itself is like a 747 that has run out of gas at 30000 feet.  The reason it must eventually crash is because we allowed the con men to convince us that an honest monetary system could actually have no capital in it (AKA "fiat currency") and that we could run our affairs completely off of debt forever.  That is no more true for the world than it is for the US or Europe than it is for a private individual who would like to live off his credit card forever.  A debt Ponzi has been in play for decades and all Ponzis eventually collapse.

As soon as the credit runs out, expect the entire monetary system to buckle and then collapse under the strain.  It is certainly buckling right now!  I don't know exactly what "collapse" will turn out to mean but I know it will not be good for anyone who is owed anything.  It will certainly involve lots and lots of defaults of all kinds.  Promises of all kinds will be broken and there will be all manner of excuses and apologies for it but it will not change the outcome.  Default is default.  Screwed blind is screwed blind.  When you hold precious metals, nobody owes you your money because you have it in your own hands.  Therefore they cannot default on you.  These metals are universal money because they can be converted into the paper currency of any country on the planet any day of the week.   I hope that people reading this blog understand that money metals are the only sure thing in a defaulting global monetary system.

OK with that said, let's look at some price targets.  I found one very interesting EW interpretation at this location.  The chart in question is below.  The author of this chart (who is not me) believes that
silver just formed the 4th wave of an expanding triangle.  I do see this as a valid EW model although it is not the one that I had in mind.  Still, it's always good to see what others are thinking in these matters.

If this author is correct (and it appears at this point that he recently predicted the bottom correctly), the typical next move would be to the top of the rising channel.  In this
scenario, the chart would typically either kiss the top of the channel and then head back down or break out of the top of the channel (a Elliott wave "throw over") and then come back down into the channel to begin the next bear market.  Since the author's chart is not large enough to show the top of the channel in the place where the chart is likely to hit, I have taken his chart and made adjustments so that possible next targets can be identified.  The result is what appears above.

That chart predicts a target price for spot silver of about $100.  I could easily see $100 being a big psychological barrier for silver at that point.  If the chart moves up like that you definitely want to sell into the resistance IMO and then put the cash into some income producing real estate that should be nicely beaten down by then if interest rates continue to rise (and I think they will).

If that chart looks too crazy to possibly happen, please note that this pattern plays out all the time in the real world.  Here, for example, is a textbook expanding triangle that happened in real life.  In fact, it has happened so many times throughout history before that they gave it the official Elliott wave name "Expanding Triangle".  This is not some rare, unlikely to happen occurrence.  It is, given the chart to date, one of the more likely scenarios that I have seen so far.

Another possibility is the one I have been pushing for some time: that we just finished very large first wave and then a 2nd wave pull back and are now set to see a massive 3rd wave.  In truth, the target
price for the expanding triangle scenario is not much different from the 3rd wave scenario which I show to the left.  Again, something north of $75 seems easily doable.  The main difference between the two scenarios is what happens after the $100 price level is hit.  In the first case, 5 waves have transpired and so a large a-b-c downward is to be expected.  You will probably not want to sit around while that happens IMO.   In the second case, we just had a vee type pullback so I would then expect a sideways move of some type.  In this scenario you could just sit in silver and wait for the following 5th wave to hit without too much anxiety since the pullback from $100 might only be $20 or so.  With silver you have to expect that kind of volatility.

One scenario that we can likely discount at this point is that we just finished a 4th wave.  The risk of a 4th wave here would be that the next wave up, #5, could be a failed 5th leading to a massive double top (or declining double top).  Not having to worry about this scenario is going to give the Elliott wave trading computers more confidence to press the bid in the $50 region.  Once $50 is broken with gusto, everyone will begin to pile into the metals. So why can't it be a 4th wave that just finished?  Simply because a 4th cannot dip down into the region of a 1st wave per EW rules.  So the following chart would be invalid:

This is a LOT of forward speculation.  I know that.  I also know that whatever happens, silver is cheap, cheap, cheap right now and that it will not stay cheap forever.

Thursday, August 15, 2013

Add Wal-Mart to the list of teetering shares [WMT]


I've been pointing to a lot of bearish corporate charts of late and now I'm adding Wal-Mart's chart to that mix.  But before I discuss that in detail, let me step up to a higher level topic for a minute.  I think we are finally going to see a big correction in the S+P 500 and DJIA.  There are just too many big names that are rolling over IMO.  Plus, the boomers want to pull their retirement money out while at the same time there are no greater fool to come buy the shares they are selling.  Young people have no jobs and the few that do have jobs are either part time or low paying work.  In other words, there is no big money to be funneled into the 401k program like there used to be over the past 30 years.  Cash in hand will turn out to be a LOT more valuable going forward than cash tied up in plummeting shares.

How exactly do all those boomers think they are going to all get out of the stock market over the same 5-7 year peak period without taking major losses from this point?  The math simply doesn't add up and so they just won't be able to do it.  The first ones to bail out will do well.  But once the panic begins (and it will at some point), people are going to get another lesson on how the stock market is really not a generator of wealth but rather a Ponzi scheme which can only redistribute wealth, not create it.  Some of the participants will end up with wealth that should belong to others and some will end up losing wealth that they believed was money in the bank.  If this sounds like a Madoffian Ponzi scheme then you are correct because that is exactly what it is.

All Ponzis seem like a great deal for everyone while the scheme is operating.  Madoff's Ponzi had a long run and the current stock market Ponzi has run long and hard.  The energy source for the government and stock market Ponzi has been DEBT, plain and simple.  Debt upon debt upon debt.  All of this debt inflated the global money supply.  The problem is that the global economy is now deflating.  Banks are worried about their own survival right now (rightfully so) and so they don't want to give out housing loans.  What I think is funny is that in their fear to avoid default, banks are guaranteeing that it will happen and they are speeding up the process.  Why?  Because all housing is ridiculously overpriced right now and the banks carry these overpriced assets on their books at the current fantasy valuations.

The only way anyone can buy a home is by getting a loan.  No loans = no buyers.  No buyers = lots of supply with no demand.  That is the economics 101 formula that ensures there will be massive price reductions in housing in the coming years.  The more insolvent the banks become, the less they will be able to provide loans and the more housing prices will drop due to a dearth of buyers.  And then there is pressure on the other half of the equation as well.  People see mortgage rates rising and it is pricing them out of their housing dreams (at least until the housing prices crash, which they will). 

Well, back to the stock market and Wal-Mart.  I think Wal-Mart shares have topped and are now in the process of breaking down from their long term support line.  The declining double top and the rapid assault on the support line tells me support will not hold.

I think corporate earnings are easy to game over the short term but revenues are not as easy to do creative short term accounting on.  I think that when the big names start telling the truth, the rest of those who have been hiding stuff feel less threatened with factual releases.   In the herd, nobody wants to be the first guy to admit weakness.  As the Wal-Marts and Johnson and Johnsons (JNJ) and IBMs of the stock market break down, the herd will head out of stocks and into metals as a safe haven.

Silver has confirmed gold's breakout.

I posted about the gold breakout yesterday and was looking for silver to bounce down and then back up and out of the channel to confirm gold's breakout.  But buyers could not contain themselves and silver broke the upper channel and so I think we are now seeing 3 of 1 UPWARD play out in silver.   In other words, the downtrend of the past many months in both gold and silver is very, very likely bottomed and now reversed into an uptrend.  Silver is still very cheap at this level IMO.

Confirmation of the silver breakout will probably take form of a back test of the top channel line which likely has now turned from resistance into support.  My current wave count is shown below.  The only feature of it that I do not like is that 2 and 4 do not form a line that is parallel to 1 and 3.  However, 1, 3, and 5 all bounced off the same trend line.

I'll revisit this count if the price falls back into the channel again but after such a mult-month pounding while stock shares were pushed to nosebleed levels I think the market is ready for a shift from shares into money with gold and silver increasingly being treated as cash instead of commodities.

I've been on metals bottom watch for several weeks.  I think we just saw it happen.

[IBM] is probably rolling over.

In this post I predicted that IBM was right at a long term top and that its shares would soon be on the big slide down.  Today I think the trend reversal has been confirmed.  Right now it is a slow trickle and few are concerned since the shares are still fairly near their 52 week high.  But the chart is telling me that confidence in growth has been lost.  The recent revenue miss did nothing to help matters even though profit (a number that can be gamed quite a bit by the company) exceeded expectations.  While most people are looking at these numbers, I think the chart is where all eyes should be and at least my read of the chart says "breakdown in progress".

The top red circle shows a breakdown from the 5th wave that was forming.  This is an important breakdown but not complete confirmation yet.  However, a breakdown below the lower channel, which can probably only happen during a 3rd wave down, should convince the market that shareholders with big money are fleeing the IBM stock Ponzi.

IBM will not be in it alone.  All of the big "can't lose" companies are going to see profits collapse as global deflation plays out.  It will provide cover fire for Bernanke or Yellen or whatever other puppet they install as fed chief to continue with QE to infinity.

I think gold and silver will be the big winners here (and metals miners will probably win even more on a percentage basis given that they have been beaten to a bloody pulp of late).

Wednesday, August 14, 2013

Last chance to load up on gold. Breakout Alert. Silver is probably not far behind.

I think gold has finally broken out of its downtrend.  The 5th of 5 of C is most likely played out.  I have several reasons for believing this.

First, the technical (charting) evidence.
  1. The chart has broken out of the top resistance line of the channel after having hit up against it from below and then "sliding down" it.  It would take the strength of a 3rd wave in order to break that channel like this.  Because of that I think we are looking at the beginning of wave 3 of 1 UP.  In other words, new bull market has started.  Keep in mind that I have been on bottom watch for some time now so this is no surprise to me.
  2. There have been 3 hits to the lower support line.  I now think these should be numbered 1,3, and 5 respectively.  What had been throwing me was the uncommon shape of wave 2.  I now see it to be a horizontal triangle, right out of the Elliott Wave manual (look at the chart of Corrective Wave (Horizontal) Triangles, Bear Market Column, top row (SYMMETRICAL). It is totally textbook.
  3. With this view of the model, 1 and 3 form a line that is almost perfectly parallel to a line between 2 and 4.
  4. This model view puts the big 3rd of C gap down right where it should be.
  5. Wave 2 is sideways, wave 4 is a sharp vee thus respecting EW alternation
  6. Coming up off the 5th wave are 5 waves, not 3.  That tells me it is impulsive, not corrective.
Everything about this model looks kosher IMO.  I'm officially calling a bottom in gold after having initially worried about whether a failed 5th was forming in this Dec 23, 2012 post (i.e. a topping call) and then confirmed the bear market in gold in this post.  Since then I have not called any bottom in gold or silver (although I did start buying silver a couple weeks ago).  But I'm calling a bottom in gold right now and I think silver will confirm it very soon.  I think silver will touch the top of its trend line and then fall back one last time and then break out of its upper channel as well.  But for anyone interested in buying silver, I gotta tell you, now is not the time to split hairs (IMVHO of course!).  My target price for silver is $75 and it could go higher than that.  So trying to eek out the last buckeroo on the bottoming just doesn't make sense.  Dollar cost averaging is always a good strategy as well.  But there will come a point when silver confirms the gold breakout and all Hell is going to break loose with the metals to the upside.  That's just my opinion and it is a humble one but it's also one I am buying into with my own money, not just blogging about.  I have been waiting for this point for a good number of months.

Now, if the gold chart breaks back down below the green resistance turned support line, then a rethink is warranted.  But I think the odds of that happening are low.  Still, the big value of EW charting is to create trigger points where you can invalidate the model without having gone very far underwater. I only give that a 15% chance of happening at this point and the longer GLD stays above the new support line (top of channel), the less likely that 15% comes back to haunt.  This is about as good of odds as you are going to get in the game of betting on herd movements.  And if there is a large gap up in gold of $75-$100 in gold then you can be sure that the 3rd of 3 of 1 is playing out and that the bear market has a 95% chance of being over and done with.

I think the so called fundamental evidence has piled up high as well:
  • People who know nothing about the way markets work and who do not understand what money is or what part gold plays in all this are calling gold "risky".
  • Gold miners are shutting down production in their less productive mines because the cost of mining is higher than the spot price of gold.
  • Gold mine laborers are getting raises in 3rd world $hithole gold mining operations (as opposed to being machine gunned down as before).
  • Gold mining companies reducing corporate staff and are now hedging their gold production (exactly the wrong thing at the wrong time just like before means they capitulated on the price of gold).
  • Goldman "We're Doing God's Work" Sachs said a bottom is near back in June.
  • JP Morgan is getting out of the commodity trading (gold price manipulation) business.  It is well known that JP Morgan has been a major manipulator of both gold and silver.
  • Janet "the hyper dove" Yellen is being groomed for replacing Bernanke.  That means she can come up with a whole new set of ways to debase the dollar.  Yellen if, appointed, will be the equivalent to Japan's puppet central bank chairman who was chosen by Prime Minister Shinzo Abe for the express purpose of debasing the currency and causing inflation.
  • Interest rates are rising and I think that means housing prices and paper asset prices will fall.  People wanting to weather the storm will need a new safe haven (it used to be the US treasury but no longer).
  • India and China are hoarding gold like never before. The COMEX is experiencing record draw downs on their physical supplies.  I think the fractional reserve gold and silver game will collapse which is what will drive massive gaps up during the large 3rd wave up which, as a result of the recent bottoming of gold, is now officially underway.
  • Gold's bottoming is happening at almost exactly the 38.2% fib of the failed 5th as shown in the chart below.

There are other possible scenarios that could be playing out as well including the potential that the recent pullback from 190 in GLD was really a 4th wave in and of itself with the other large peaks in the above chart being 1 and 3.  I do not think the odds favor that outcome because of the shape of the chart.  But I would also not say it was impossible.  As usual, we need to wait until the chart gets near the old highs.  If the chart blasts out to new highs then a real large 3rd wave will be confirmed.  But if we get another double top then I'll have to revisit the model.  For now, however,  I think that the GLD ETF will likely climb to 180 at least (nearly 50% gain from here) before the market needs to rethink anything.  Time will tell.

Obamacare poll shows that the sheeple are waking up

Folks who thought Obamacare was going to be a good thing are now getting the wake up call.  Those who have no health care insurance and saw this as a government-driven something for nothing play in order to get some have figured out that businesses are not powerless in this matter and that they will move swiftly in order to protect their own interests.  The main impact so far has been the curtailment of new hiring of the lower end jobs as well as turning full time positions into part time positions of less than 30 hours per week in order to get around the regulations.  Those who used to be able to make ends meet on their full time job now have to go through the pain and reduction of efficiency of finding a 2nd job to fill the gap.  So much for thinking that government can mandate prosperity or a better lifestyle.

Those who were told they can keep their current plan are figuring out that was a lie as well.  The goal of Obamacare is not to provide health care but rather to control all the money flow of the economy.  This concentrates power in the hands of the few at the cost of the masses.  The few will ensure they get quality services for themselves while forcing everyone else to enroll in a POS government controlled, bureaucracy laden system which is already sending our best, most experienced doctors heading for the door.  To replace them we will get non English speaking folks with questionable medical credentials from 3rd world $hitholes.  A reduction in quality of service is completely guaranteed by Obamacare.
As a result of people waking up to the reality, the current polls are showing people are strongly against this hugely overstepping law.  To the left is a Newsmax poll that I just participated in.  It requires you to input your email address and it sends you an email that you have to respond to in order to have your vote counted or to see the results. 

While it is a small poll, I think that it is probably pretty accurate because the voting system used disallows easy multiple voting by individuals.  Almost 90% of the people want out of the Obamacare law.  As the deadline approaches and as nobody has figured out all the rules (the text of the law is longer than the Bible) and as the IRS begins to tax people who have chosen to not pay for medical coverage I think we will see a large backlash against this unconstitutional consumption mandate. 

Things have been relatively quiet so far only because the implementation of the law has not occurred yet.  Like all herding species, the herd does little until the lives of enough herd members are affected.  The herd is not forward looking at all.  The herd reacts in real time based on proven threats or benefits.  It's not stupidity, it is simply the herding strategy.  It is very effective much of the time.  Unfortunately, some of the time it is wildly unsuccessful as all of the lemmings plunge off the side of the cliff.

Tuesday, August 13, 2013

More evidence that silver has or is very near a long term bottom.

Still watching for a bottom in the metals to occur very soon.  I still think that SLV has one more small wave down but I would not be surprised to find that it has already bottomed.  The multi-year support line was clearly tested and held in what I still think was wave 3 of C down.  If that held then it is unlikely that a small 5th wave will have the power to break down through it either.

What's interesting is that silver is here near the bottom while the Fed is now talking about tapering again.  so those who think tapering is going to be bad for silver might get an interesting surprise if silver does not take another dive based on that news. 

The end game approaches nearer each day.  The economy is not picking up as Bernanke hoped.  And I mean both in the US and Europe.  Since we are mostly one big connected debt Ponzi we need Europe to pick up so it can buy US made goods.  How are IBM and other multinationals going to perform with unemployment in fairly large European economies sitting at over 25%?  But Bernanke has loaded the central bank's balance sheet up with a bunch of worthless US debt and continues to pile it on at the rate of tens of billions of dollars per month.  As interest rates begin to rise, the bonds become worth less.  This can threaten the solvency of an over leveraged central bank like ours.

And the fed hasn't just been buying treasuries.  It has been buying housing debt as well.  When interest rates go up, the home prices will go down just like the treasury bill value will.  In the case of homes, people will stop paying their mortgages at some point, just like many did after the housing bust.  Government can go ahead and make it a terrorist felony not to pay your mortgage (like they seem to do with anything else they don't like these days) but at some point you can't squeeze any more blood from the turnip and the ridiculous level of police state laws that are in place will collapse either of their own corrupt weight or as a result of armed revolution.  I don't hope to see it but history shows that it is not impossible in these cases.

Monday, August 12, 2013

MSFT at critical technical point, potential 3rd wave down on deck.

After a monster gap down into a wave 1, Microsoft shares have had a 38.2% retracement after what could be viewed as an A-B-C movement into a wave 2.  There is no certainty that the shares will stop here but the odds are on the side of a downward move at either the 38.2, the 50 or the 61.8% retracement and they are at 38.2 right now.  So this is an important time to be cautious about owning MFST shares IMO.  I think there is a 60% chance that the 38.2 fib holds but if not then likely a 80% chance that the 61.8 fib holds.  After that, my model of this MSFT chart expects serious cliff diving as shown below as it enters a massive 3rd wave down.  Time will tell.

SLV has hit my modeled wave 4 of C target; GLD breakout?

In this post I provided my updated wave count for SLV.  That model predicted a vee style bounce to touch the top channel line from below.  I expected a slightly sharper bounce that would have hit the top channel at a slightly higher price than today but with Elliott waves the wave count and the wave shape are more important than price targets or timing.

I'm posting again right now because the model is at a major testing point.  If the model breaks out of the upper channel and holds it then my recent model is likely incorrect but if the top resistance line holds then I expect one final wave down that would likely form an inclining double bottom before taking off for good.

A few things should be noted at this point:
  • The standard EW model would have the chart hitting the lower channel line again.  I personally don't think buyers will be able to wait that long but if it happened then it would be perfectly acceptable from a modeling standpoint.
  • One of the big values of modeling is making predictions that include trigger levels.  If a trigger level is hit then the modeler can assume the model is wrong.  Because of this feature, EW modelers never just assume their model will play out fully.  One trigger for the current model is to reasonably hold the upper channel right now in order to form the expected 4th wave.  If this does not hold then the model needs to be reviewed and possibly revised.
  • The risk at the end of the 5th wave down is to the upside.  In other words, I would not short SLV here hoping to catch the final few dollars of potential downside just because the model indicated it was the highest probability thing to happen.  It's just too late for that now.  The chart could break out here.  Right now is the time to be looking for an entry point long, not an entry point short.
  • I expect GLD and SLV to move in somewhat similar ways.  Today GLD might have just broken out of its top channel (see chart below). If this is true then I'll have to adjust its wave count as shown below meaning the 5th of C wave is already played out and we are now working on 3 of 1 of a new bull market.  The breakout on a gap up is some evidence but not yet conclusive.  But taken in conjunction with all of the other news (people bad mouthing gold, calling it "risky", gold mining capacity being shut down all over the world because it is not profitable at this level, etc.) it would not surprise me at all if the bottom is already in for GLD.
  • Hoping to catch the exact bottom is always fun but realistically, GLD has been in buying territory since it broke below $130.  At the end of the day, those who dollar cost average into their position will not be disappointed.

One final note on gold and silver in general.  People are worried that "tapering" of the stimulus will make the dollar worth more and thus cause gold and silver to go down.  This thinking is driven by the foolish belief that gold is a commodity.  But gold is not a commodity.  It is not used to any significant degree by industry.  Gold is money.  In fact, it is the only real money in existence.  Silver is a close second to gold in historical monetary status but silver has a commodity use as well.

It will pay people to consider the implications of this important distinction between being a commodity and being money.  If the fed continues to stimulate (i.e. debase the USD) then all competing currencies (including gold) will go up on a relative basis right along with commodities.  But if the fed does decide to brave the depression that is sure to come if they do cut back on treasury purchases or, God forbid, try to actually sell some of the worthless US bonds on its books, then interest rates will skyrocket, the housing and commercial real estate markets will collapse and banks will default.  This will cause great financial panic (AKA a return to reason).  The panic will tell people that all paper assets are risky.  As a result, people and corporations will be looking for a safe haven for their savings away from the defaulting paper based assets.  That is why I am predicting that corporations will begin to show gold on their books as assets for the first time since gold confiscation occurred in 1933.

In other words, everyone will pile into gold in either the inflationary or deflationary case IMO.  There is no scenario going forward which I can envision in which gold (and silver as well) will be treated as "risky" assets going forward.  Both of these metals will return to their historical place of reverence as the ultimate store of wealth in the financial world.

Sunday, August 11, 2013

Potential fundamental driver of Alcoa's stock bottoming. [AA]


I've been posting quite a bit of info and chart analysis on individual stocks of late.  This is simply because I currently find it entertaining to do so right now as opposed to so many posts being about all the signs of the coming collapse of the debt Ponzi.  I think there is still a lot of risk there but I also think people are no longer completely unaware of the danger and of the massive corruption and constitutional oversteps being made by our government in order to keep the Ponzi plate spinning a bit longer (and make no mistake, that is the one and only reason for all of the security, etc.).  I'll stop well short of saying "my work is done" but in fact a lot of the things I have been writing for the past 6 years (including private emails before the start of this blog) have now shown themselves to be reality.  So at this point I think either people have already "gotten it" or they never will until it slaps them in the face.  In any case, I enjoy charting stocks so I will likely be doing more of it in these pages.

Having said that, it's my view that stocks are highly speculative in general and worthless on an individual basis unless they:
  • pay a dividend which represents a "fair" return on your money (i.e. something more than the real rate of inflation in order to compensate you for the potential of fraud, acts of God, etc. that can happen to any company).
  • are not highly indebted with no path to earning their way out of it.
  • provide some important value to the economy.
  • the companies they represent have some fundamental reason why they will be continuing to provide increased perceived value going forward.
  • are supported by businesses that have fundamental tail winds instead of fundamental headwinds.
Of these, the last one is potentially the most nebulous so I will use the example of Intel Corporation.  Early on, Intel's products were easy enough to manufacture cost effectively that my insider contacts at Intel have commented that Andy Grove used to boast that it was like "printing $20 bills".  While the technology was very complex, once you got it right computer chip manufacturing lent itself very nicely to cost effective mass production.  Part of this was because the technology at the time was so new that advances (mainly the shrinking of die size) were not difficult to envision or impossible to implement.  Also, expectations were low at the time and the demand was high (and growing rapidly).  Chip fabrication plants used to cost $1 billion.  Intel had a huge tailwind such that Intel's Gordon Moore could confidently predict a doubling of transistors per area every 18 months.  It worked out so well for him that it was dubbed "Moore's Law".

Fast forward to today.  Intel is coming up against fundamental physics in terms of gate thickness and feature size that the cost of its next generation fabrication plants are rising exponentially.  At the same time, most customers are already happy with a 2.0-3.0 GHz computer for doing most of thing things that are commonly done with them.  There will come a time when people again start caring (meaning "willing to pay up for") big steps up in processing power but we are now in a consolidation period and perhaps the next big step up uses a completely different computer architecture (like IBM's new AI chip that forms neural networks that mimic human brain structure).  I like to think of it as the "Watsonification" of humanity - a time where computers will be smarter than humans.  In any case, Intel no longer has it easy.  The tail wind has collapsed and could even be turning into a headwind in the form of rising manufacturing costs.

And so now back to Alcoa Aluminum.  Few people ever look at the very long term charts but for me they are very telling.  Observe AA's all time chart below.  What you see is the telltale chart of a monster bubble.  I stop short of calling it a mania because there is a huge difference between a bubble
and a mania IMO.  A bubble is where something of very important value becomes ridiculously overvalued and then comes back down to Earth over time.  With a bubble, the underlying asset always had good value, it was just that the markets were allowed to overvalue it massively (usually as a result of the use of debt).  If the asset underlying a bubble were to completely die off and not be available to the public anymore, it would cause great disruption in the economy.  So the asset would either be bought out or somehow put back into service with a lower cost structure minus the debt.

A mania is similar to a bubble in many ways which is why most people equate them.  But they differ in one very significant way: the asset underlying a mania does not have any real value to society or to the economy.  With a mania, the ending price always falls below the starting price.  Tulips were clearly a mania in the 1600s.  They are so unimportant to society and to the economy today that most people have never held a tulip bulb in their hand and many have never seen one in person.  Pet rocks are the same thing.  Manias are nothing but hype that has been piled onto a vapor and thus once they collapse they cannot be reblown.

Bubbles, however, can be reblown because circumstances change and a new spin of an old story can be made up and sold to people.   Look at the roller coaster ride of Advanced Micro Devices and of Netflix and many others.  The market has great difficulty valuing these assets for whatever reasons but they continue to operate through the low because they do have underlying real value to the people (that is to say, to the market).

In the case of Alcoa Aluminum, the massive stock price value rise from 1980 to 2000 was clearly a bubble.  Look at the exponential climb of the share price during that time!  Everyone got herded into 401ks and 401ks got invested in commodity producers like Alcoa.  Now that the air has been let out of the shares and an ending diagonal is forming (and might well already have bottomed), most of the speculation is out of the shares and profits are starting to grow.  Inflation will be a tail wind to an indebted commodities refiner like Alcoa.  Another big tail wind that I just found out about is Ford's plans to make 2015 F150 truck frames out of aluminum.  This change will result in a 700 lb reduction in vehicle weight. 

Coupled with other improvements in order to meet 2020 government mandated fuel economy requirements and the result will be a 25% increase in MPG.  With high fuel costs this is what is needed in order to drive truck sales going forward.  Ford sells more trucks than anyone and Ford did not BK during the great recession.   Once Ford transitions to aluminum frames, everyone else will have to as well.  That's a huge tailwind for Alcoa.  Keep in mind that 2015 really means "for sale in early 2014" in the truck industry and the stock market is forward looking.  The AA chart seems to be bottoming right now as it factors in big revenue increases and probably big dividend increases going forward for AA.  I think the chart pattern and the fundamental tail winds of the coming inflation and the need for more efficient vehicles make AA worth a very close look for those looking for a longer term buy and hold.

Saturday, August 10, 2013

Netflix at important technical juncture

I won't belabor the point: the Netflix chart looks like a perfect setup for shorts.  A textbook ending diagonal has formed (but not yet been confirmed).  IF it is confirmed (by breaking down below the lower support line, and then rising into a failed test of that support line from below), NFLX shares could be in for a huge pounding.  I think it is going to happen but of course I would wait for confirmation of the breakdown before betting anything on it.

From a fundamentals perspective, Netflix shares are a huge speculative bubble.  Again, I won't spend more time here detailing it but reverse PE is 314, forward PE is 76, price/book is 13 and change and price/sales is 3.75.  These numbers all remind me of dot bomb valuations.

The NFLX chart is very worrisome, or it should be to anyone who spends any time looking at charts.  It doesn't mean it has to collapse but it does mean the odds favor that outcome big time.  But again, this is not confirmed until the lower trend line breaks down (which could be as soon as next week from the look of things).

MSFT declining double top might have just formed....

Not trying to spook anyone but IMO MSFT just finished an ending diagonal which has now resulted in a declining double top.  It then broke back into the channel of the diagonal (confirmation #1).  Confirmation #2 would be to break below the lower channel line.  With Windows 8 such a Vista-like flop it would not surprise me to see investors lose confidence in Microsoft.  I don't hope to see it but I think we will anyway.  And if the chart falls below the lower support line of the diagonal, I will be 90+ percent sure that a big crash is coming to the shares.

Netflix looking very toppy.

Forget all of the hype and metrics for a minute and just look at the chart below.  Netflix is quite possibly (although not confirmed by any means) to have just finished an ending diagonal which sported a failed 5th wave.   If this is the case then the stock will have formed a declining double top of incredible magnitude. 

The confirmation of this will be if the chart now breaks below the lower support line of the diagonal, especially if done on high volume and with gusto.  The denial of this outcome will likely be a break out of the upper channel which does not then quickly break back down into the channel.

All I can say is that anyone long NFLX better buy puts if the lower green channel line is broken and I personally believe that this is what will happen.

Friday, August 9, 2013

Potential technical double whammy forming

I found an interesting chart online that overlays corporate profits and the S+P 500 stock index chart.  The combination of them is a huge potential red flag to equity traders (and the computers that automatically do their bidding).  Check it out below.

Green is the S+P 500.  It is clearly a mania and very likely forming either a head and shoulders topping formation or (just as likely) an expanding triangle (which some refer to as a wizard's sleeve).  In the case of the former, the target price for the index (should a H+S breakdown be confirmed) is so low that I won't even bother writing it down.  In the case of the expanding triangle, 850 is about the right level.

What might drive such a rapid pullback is a drastic reduction in corporate profits (white chart) and the S+P 500 profits chart currently appears to be working on a 5th wave which is about the same size as its first wave.  In other words, corporate profits might be very near a 25 year peak.  If this turns out to be the case, an A-B-C retracement would be expected which would retrace to the level of the prior 4th.  That would imply a profit reduction to the level of 1996.

At some point I have little doubt that the S+P and DOW charts will both expose themselves to be manias just like the Japanese Nikkei 225 chart did over the past 30 years.  You really can't fool all of the people all of the time.

Wednesday, August 7, 2013

GLD likely tracing out 5th of C, bottom in sight

I've posted many times over the past months that gold has been in a normal bull market Elliott wave A-B-C retracement (pull back) for some time now (yes, bull markets do have pull backs!).  As a result of these declining prices, many people have been thinking it is a bear market.  I do not think this has been the case.  In my experience, nothing goes straight up or straight down.  The Elliott wave principle is very clear on the matter: after 5 waves in the primary direction, the market pulls back in a 3 wave retracement.

In any case, many people find it difficult to sit through the ups and downs and so foolish people are again calling gold "risky".  These would be the same people who think the dollar is safe and that stocks and bonds are a good value.  So it will be interesting to see how they react if GLD's price continues following my EW model.

Take a second to review the model prediction in my last post.   Now, compare that with today's chart (below).  To be sure, the model is being followed quite closely by reality.  What's cool (at least to me) is that the prior chart was still in an uptrend when I put out my last post calling for one more down wave and within a couple days of that post the chart indeed broke down.

So, here are the things I am looking at right now on the chart:
  • I think this is the C wave playing out and so the predicted blue wave down is 5th of C.  The model is predicting a bottom for gold sometime within August 2013.
  • The 3rd wave was extended and so the 5th wave will likely not be.  In fact, I expect the 5th wave to be the same approximate size as the 1st wave.  Given this, I expect wave blue 5 to bottom out mid channel thus forming a failed 5th wave and a very bullish inclining double bottom (see red line).
  • The 4th wave was a re-test of the 38.2 fib from below and it was rejected as expected.  The market has to give the price tree one final shake to see if any more sellers can be made to fall out of it at the bottom.
  • If the chart does bottom as modeled, the confirmation of the major trend change will likely come in the form of a break out of the top of the channel (green line).  Once the down trend is broken I believe that buyers will come running back in en masse. 
  • If the chart breaks out as expected, it will likely be forming a 3rd wave up.  3rd waves are never the shortest so it suggests that the 3rd wave will outperform the first wave which ran from $40 to $185.
From a fundamental perspective, gold miners are shutting down capacity all over the world right now because only their best mines have production cost structures that make it economical to mine gold at "only" $1200-$1300/OZT.  Most of their mines are not rich enough in deposits in order to be profitable at today's gold prices.  In addition, gold workers (miners) are demanding (and receiving) more pay for their labor as inflation in their food prices makes it harder to scratch out a living in the labor intensive gold mining regions of Africa.  Rising wages play havoc on production costs.

Right now, the odds strongly favor a bit more to the downside for GLD followed by a really big, eye opening rally which IMVHO will see corporations begin to keep gold on their balance sheets as an asset right along with cash and securities.  Nobody in the financial media is predicting this and I think it is going to catch a lot of people by surprise.  In fact, I think it will be the remonification of gold that is likely to be the central driver of GLD's coming 3rd wave breakout.  I expect that part and parcel of this will be the exposure of government's gold suppression efforts which today are considered as nothing more than conspiracy theories by most people.  3rd waves are often accompanied by big paradigm changes and I expect GLD's 3rd wave to be a doozy.
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