XES Upate

Per the initial post on this ETF, I think XES is likely very near a key reversal from bull to bear market.  Today's chart continues to point to this outcome as you can observe below.  I think that an ending diagonal is almost complete and that the final portion of the last wave of this formation (the E wave) is looking like an expanding triangle (wizard's sleeve).  I suspect it will result in a throw over of the the ending diagonal as shown followed by a breakdown as modeled by the blue line. 

Triggers for this model are as follows:

• Too large a breakout past the e wave of the wizard's sleeve would cause a rethink.  For example $45 or higher.  
• First confirmation of this model would be a breakout to e followed by a collapse back down ito the channel.
• Final confirmation would be a subsequent break down of the lower support line of the ending diagonal.

Again, the implications of this to the man on the street are that gas prices could be headed significantly lower, that the economy/jobs markets remains weak, that credit deflation is overpowering all the new Bernanke Bux being put into the market and that the Federal Reserve will likely have to take a stronger currency debasement stance (a-la-Japan) in order to combat deflation. 

This last point would have serious implications for gold and silver.  Up until now, Bernanke has been telling everyone that he has a master plan for unwinding the now bloated balance sheet of the federal reserve.  It has gotten to the point where the fed is pretty much the only buyer of new US debt issue and as a result the fed's balance sheet is now almost 3.8 trillion dollars.  Go check out the site.  It's the federal reserve's own web site.  Note how the caption is seriously outdated:

"Since the beginning of the financial market turmoil in August 2007, the Federal Reserve's balance sheet has grown in size and has changed in composition. Total assets of the Federal Reserve have increased significantly from $869 billion on August 8, 2007, to well over $2 trillion."

2 trillion is now a distant fly spec in the rear view mirror.  In order to unwind this, the fed has got to dump on some poor sucker a amount of US debt that is more than what we already own to China and Japan combined.  In fact, if you lump China, Japan and Europe together, the amount of US debt held by the federal reserve is only 400-500 billion short of equaling it.

Who is going to buy all of this debt that the fed thinks it can unwind?  China is on record saying it wants to divest.  Japan wants to do the same thing but is stuck holding our debt for fear of revaluing the Yen and killing its exports.  But the exports are falling which means it has less new dollars to store in US treasury debt going forward.

The math of the situation is that nobody can swallow all of the debt that Bernanke has taken on.  The likely course of action is to just take on more and more to kick the can down the road as long as possible.  By that time the federal government will have placed militarized crowd control assets at all the required key locations so that when collapse occurs (as it surely must at some point), the government will be in a position to demand at gun point that those who got us into this mess remain in charge.