TRX action suggests pop, drop, and then skyrocket.

As we approach the end of a major bear market in metals, I expect the action to get nearly chaotic, especially for the smaller miners and explorers.  I recently modeled TRX down to 1.86 which it effectively hit.  But the subsequent action has not been the 3rd wave up that I was expecting.  It looks like a triangle is forming after 5 waves down and that makes me think that this a-b-c retracement will pop in the next few days but then drop to perhaps $1.70 by mid Feb as shown.  I expect the down sloping channel to hold and I expect the chart to then have a setup which says "5 waves up into wave 1, a 5-3-5 a-b-c retracement back into 2 whereby both the a and the c wave touched the support line and held.  When traders see that, the only smart thing to do is to cover shorts and go long.

If the pop in the next few days makes a higher high than mid Jan then this model loses Probability Points.  If the pop turns into a declining double top then it gains points. 

I know these are big swings in terms of percentage.  That is why I am building a position over time with the eye to getting great price on average.  That is why over extending, going "all in" etc. is the wrong strategy.  It leads to panic moves: panic buys and panic sells.  Unless you are a day trader (which few should attempt to be), this is a losing strategy.  

In any case, the recent action in TRX tells me to expect more trickiness and to just be patient.  All bets are off if that top support line cannot hold.

Playing the bottoming of metals.

As early as June 2013 I have been growing increasingly bullish on metals based on my wave chart analysis.  It has been tricky going for sure as the charts work to confuse most of the people most of the time.  At this point, however, there are limited options for the bottoming of gold (not presented in any particular order):

1.  No bottom, ever.  In other words, gold goes bankrupt and loses all of its value. In other words, maybe it's different this time.  Maybe gold really is a "barbarous relic" which has no real value since you can't eat it.  Maybe the central banking Illuminati has finally succeeded in taking over the world with their fake paper currency and leveraged debt.  All I can say to this is "yeah right".  Gold has never gone bankrupt in, well, forever.  That's quite a bit of history to unwind for something like the global debt Ponzi which has only been in play for 100 years.  No, gold is not going away.  It is about to go nuts to the upside as the Grand Illusion of debt based prosperity collapses globally.  Gold was one of the first things used as money since man became able to rise up out of a hand to mouth existence with the need for savings and it will be the last money standing should we ever devolve back down to a subsistence life style.

2.  Gold has already bottomed and has just finished a small wave 1 up  It is now retracing into a small wave down, gathering steam for a 3rd wave that will break it out of its long standing down sloping trend line.  This is what many can be looking at, but is looking increasingly less possible due to EW rule violation shown below.

  3.  Gold is playing out an ending diagonal.  The 4th rail bump has just occurred and now the chart is likely to head back down into the 5th and final wave of the ending diagonal which makes up the C wave.  I think this is the most likely scenario.  There are 3 ways for it to play out as shown below.

a) The chart goes back down to mid channel of the diagonal, finds support and then comes ripping back up to take out resistance.  What is interesting about this scenario is that it has been very common of late.   The market knows it should wait for the chart to hit the lower rail but some players get too excited and cannot wait.  They worry more about gold going up in a hurry than further losses from here.  Also, those who do technical analysis will understand that if they buy too early that they have no plans to sell if a throw under occurs.  In fact, they will leave powder dry to buy more should that occur.  Their 2nd buy tranche will occur either based on throw under or based on breakout.  But at least they have some of the good stuff very near the bottom of the bear market.  These will be very strong hand, not day traders looking to clip a few bucks here and there.

What's also interesting is that it will look a lot like the invalid scenario above.  People will assume it is a 3rd wave break out when in fact the breakout would be happening on 3 of 1.  For the near term it would mean little but some weeks later when the real 3rd plays out many will be caught short and that is what generally powers the gap in a 3rd wave: panic short covering.

b) The shares go to the bottom of the channel and find support, cannot break below.  Then they bounce back up and out.  After a bear market that has been so long and strong as the current metals bear, I would expect something more dramatic than this, but this would be the EW standard ending diagonal finish.

c) The shares dip below the lower rail for a very short time and then come blasting up back through into the channel, take a small breather as a 2nd wave down forms, and then blast out the top in a 3rd wave.  That path would give market participants a very strong confidence that the bottom is in as long as the shares do not break back down into the ending diagonal channel.

Regardless of the path it takes, I think those who are dollar cost averaging into gold will be very happy about it at the end of 2014.  Keep in mind that EW can play out in many different ways so the short term action is not as important as the fact that gold has been beaten into the dirt.  It is a hated asset right now and that is really its biggest strength.  

What is the future of US interest rates?

No scam ever ran forever and that of driving interest rates lower in order to stop people from saving and instead getting them to spend (AKA "gamble", "invest in equities") has reached an end.  As you can see from below, the 1960s saw rising interest rates which indicated decreasing confidence in US debt as the world figured out that we were cheating on the gold standard.  In the early 1970s, the default on gold convertibility put the panic into high gear.  Paul Volcker then calmed the markets by driving the interest rates crazy high.  This meant that the US did not intend to abandon the dollar yet.  It meant that the con men running the show still thought there was still life in it.

As Asia became a productivity powerhouse, the world became calmed by the US leadership of it, especially the new found cooperation between the US and China.  Like it or not, the truth stands that the US made China what it is today just like it made Japan after WW2.  We brought technology and manufacturing discipline to these peoples so that they could be our economic slaves.  But a master with good prosperity lets crumbs fall off the table for the slaves and so it was actually good for both sides. 
 
Because of this, global calm ensued and interest rates came back down A-B-C.  This A-B-C was properly formed by an EW 5-3-5 pattern.  This is classic Elliott.  In addition, the rates actually went below where they started in the 50s and 60s.  This is classic Prechter mania retrace.

Interest rates have now concluded a full on mania retracement and there is no place left to go but up.  As this happens it will suck the life back out of the stock market. So how long until interest rates begin to really climb?  According to my model, not long.  If we zoom in on the 5th of C (left) we can see that 4 rail bumps of the ending diagonal have occurred.  If we zoom all the way into that 5th of 5 of C (right), we could really be forming the 5th of 5 of ending diagonal 5 of C.  In your mind, turn that right hand picture upside down and then mirror it horizontally.   Do you see The Owl?

Whether or not the absolute bottom for interest rates is in or not is not that important.  What is important is that we are likely very, very close to a significant uptick in interest rates.  In other words, the fed runs out of gas in some form or another for keeping low interest rates "indefinitely" like they promised.  My chart models are calling the Federal Reserve out.  They are saying "don't fight the fed" is nearly over.  They are saying "the Fed is nearly checkmated".

If these charts play out as expected, the stock markets will get punched in the gut.  They have been supported by the fed for a long time and without effective fed support, they will wither.  This jibes with another of my long standing economic prognostications which is that the markets do not have enough real value in them for boomers to collect on their expected retirements.  Everyone got herded into the markets via the 401k honey trap.  Now that they are "all in" and cannot just take their money out due to what amounts to capital controls which are built into the system (cannot take funds out without a penalty, cannot even elect to take the penalty unless changing jobs, etc.), those in the stock markets and other financial markets (including annuities, insurance policies, you name it) will get screwed.  Why?  Because all of these Ponzi Promises were made on the back of the assumption of ever expanding debt using "trees will grow to reach the sky" thinking.  But this cannot happen lest hyperinflation ruin the currency and if that happens the bankers will get completely blamed for everything and they will be literally hunted down and killed in the streets.  At least this is the lesson of history.

When this whole economic Ponzi collapses, please don't let the shock and awe of it confuse you.  There will be lots of finger pointing, lots of scapegoating, lots of indirection and other magick (sic).  But the real, underlying cause of all the coming carnage is one thing, and one thing only: a dishonest money supply consisting of fiat currency and fractional reserve lending.  The high priest of this scam is the US federal reserve.  Future talk about going to a "gold standard" in order to try to recover from the collapse is necessary but not sufficient for full, sustainable recovery.

We must also eliminate the complete scam which is known as fractional reserve lending.  It is by this scam that "special people" (not you or I) get access to massive amounts of leverage in order to buy assets at fire sale prices after the collapse.  That makes them masters of the universe and masters over the people during the subsequent recovery.  Gold is money and nothing else is.  Fractional reserve lending was, is, and always will be a massive scam which effectively is a naked short of human labor.  It is thus a theft of human labor and should be viewed as abhorrent by any thinking person who wants to work for what they get in a fair competition economic environment.

After the collapse, don't listen to the main stream media claim "nobody saw it coming".  Austrian school economists saw it coming and Elliott wave practitioners called the timing of it.

A "short" caution to bears not to get too bearish too quickly.

Fear is entering the market for sure.  But major changes in trends never occur simply.   They tend to be tricky in  order to fool the most people for that is the very nature of markets - to fool most of the people most of the time.  I've been on topping watch of the S+P 500 for some time now.  I'm quite sure that 2014 will be very bad for people in the stock market.  But nobody can say with certainty when that happens.  We can only model to make educated guesses.

It's possible that the peak is in but don't expect the bulls to give up without a fight.  We should know pretty soon either way.  If the chart holds the lower grey line and starts back up then we could get a full 5th wave up to higher highs including the chance of a throw over at the top OR we could go up and do a failed 5th leaving us with a large declining double top.  But once the lower support line is breached to the downside and then fails the upward back test then we can be pretty sure that the bull is dead.

So begin prepping for the bear but be wary of bear traps.  The con men can play this game really well, but not forever.  This is the value of dollar cost averaging into a position and adding more as your model proves correct (or "not" if it happens to go against you...).

During the collapse of the con, big names will be brought down.

In these pages I have explained many times that government is organized crime.  Thus, it will be reduced just like organized crime: they will rat each other out from within.  As the patsies have been fleeced, it attracted too many criminals.  Now there are far more criminals in the game than honest people.  There are no longer enough willing patsies to feed all of these criminals.  Now they will begin turning on each other, exposing each others' dirty secrets.  Politicians and bankers will be disgraced, some will even go to jail in very public ways.  It's already begun.

[AA] update.

Backlink.

A reader asked a question in the comments of another post about AA so I'll do an AA update.

First, know this: I model that AA is going to be $18 in 18 months.  The worm has turned on this company because monetary inflation is coming.  AA will do very well in monetary inflationary times.  Things that are bought with cash will go up in price because of monetary inflation (inflation of the fed's monetary base).

At the same time we will experience credit deflation.  Things which are bought with credit will go down in price because interest rates are rising (head wind to demand) and less credit is being made available due to rising defaults on debt (credit deflation = headwind to credit supply).  When both supply and demand of credit go down, where is the money going to come from to purchase new houses, fancy cars, and other things that are normally bought on credit?

The consumer will demand more and more out of the producers of these items before they will decide to purchase.  I myself am driving an old truck waiting for deflation driven "more and better for cheaper" before I upgrade.   This is typical deflation: more features at a lower price.  This is what the federal reserve is trying to "save" us from.  This is the con of inflation!  The natural order of things is deflation and when you don't get it, someone is stealing the delta (using the con of fiat currency an fractional reserve banking).

Because of this, Ford is going to aluminum chassis cars in order to save up to 750 lbs on their vehicles.  They are not doing this because they want to.  They are doing it because they know that credit strapped buyers are demanding more.  Less weight = higher gas mileage.  When Ford has better specs because of the use of Aluminum, everyone will have to do it.  This is why deflation is good: it makes the best and brightest work to their fullest in order to keep their lofty positions.  It does not allow laziness or complacency which are all possible and probable when the credit is flowing and money is easy.

In order to combat its credit deflation problem, Ford is going to demand new products from Alcoa and this is going to pump Alcoa's bottom line.  You see, Alcoa does not sell aluminum on credit!  Ford will have to pay what is essentially cash.  As the fed waters down the monetary base, Alcoa will raise prices.  This will skyrocket AAs earnings, reduce their debt burden and generally result in good things for AA investors who buy in at these levels.

But AA has now had 5 waves up from the bottom (which I called almost to perfection in these pages based on my EW model).  And 5 waves up mean a healthy next move is 3 waves back, A-B-C.  It is very typical that the first retracement following the first wave up out of a long bear market is a very strong "Vee" 2nd wave back down.  Why?  Because people are used to the asset never being able to hold a rally.  They do not understand why things move up or down, they just know fear and greed.  Most people have no system like EW to guide them.  They go by gut feel (huge mistake!).  They even mock those of us that do use charts to better our odds, saying that we are throwing chicken bones and divining the future from them.

I any case, when AA breaks down below the top rail of the ending diagonal, there will be fear that AA is heading to new lows.  Remember, the broader markets are modeled to be plummeting as well at that time so in the minds of the herd members who do not understand wave theory, why should AA be any different?  This is why 2nd waves tend to be very deep vee retracements.  I think that the 61.8 is most  likely but it could go all the way back down to the blue up-sloping line around $8.  The shape of the retracement will help me decide whether I model 61.8 as the bottom or not.

The chart could also go sideways for awhile from here forming a 4th wave with another little spurt to $13 before coming back down.  That would be very bullish in the longer run but I would sell such action instead of buying it.  For those who only move based on confirmations (a very smart strategy for most people), the key is a break below that top green rail.  If that happens, expect pain to ensue.

By the way, I do not post all of my trades in these pages so there should never be any assumption as to whether I am currently in a stock or out.  For example, I bought JCP at the open recently but got stopped out as planned.  I did not post that I got stopped out.  I do not intend to post every single move.  People have no idea how much work all of these posts are to do.  At some point I will probably open a paid trading advice web site but only after I gain more readership in this free, non-ad supported blog.  I am not in a hurry as I have a day job but someday I might decide to do this full time.

I'll be speculatively buying USLV at the open on Monday.

I've not had a lot of time to really dig into the metals charts lately because of out of country travel (and prep work leading up to it).  These metals charts need more than average digging into for several reasons.  First, they are trying to form a bottom after a bubble.  The herd is nervous about them given their large pullbacks over the past couple years.  It is expected.  Today the mantra is "in Bernanke we trust".  The Bernanke Put and low margin interest rates have made stock ownership a no brainer.

But now the fed has to do something about the bubble of its own books which are loaded with crappy assets that nobody else wanted to buy.  The fed has to at least stop digging a deeper hole and that is what tapering is all about.  The fed has to know by now that this will cause market turmoil but it probably doesn't matter too much anymore.  All of the insiders got bailed out and fair warning that they needed to clean up their balance sheets.  So anyone who isn't ready for what is coming is probably not an insider and therefore it is actually a boon to the good old boy system to see them get wiped out.

Another headwind to markets (more like the wall of a hurricane IMO) are the wild instability in emerging markets.  The US does a good job of feeding its citizens useless news while papering over the problem happening all over the world.  The central banks of the world have been losing control of their bond markets and so they have now began to panic by raising interest rates.  What was a race to zero interest rates is reversing.  The governments are faced with hyperinflation (which leads to mass riots and the killing of leaders in the streets because food is unaffordable) or collapsing industry which has become dependent upon low interest rates.  Of the two, deflation is the least damaging but it is still very hard on the people.  It is like making a heroin addict go "gold (sic) turkey".   Withdrawal pains are unavoidable but at least there is light at the end of the tunnel.  Additional money printing, on the other hand, always kills the patient because the doses have to get higher and higher to have the same euphoric effect.  I expect we will be hearing about "contagion" soon.  I expect all the government criminals to start blaming each other and pointing fingers.  This is how criminal enterprises always end (as I have explained in these pages many times).

As stocks begin to collapse, at some point metals will be viewed as a safe haven.  The market is already gearing up for this by buying into the miners even though the metals themselves have not put in any kind of confirmed bottom.  This is very typical bottoming behavior!  It's called nonconfirmation.  Usually the miners and the metals move in locked step but when one moves up (or down) without the other, this nonconfirmation suggests a change in direction coming soon.  Usually, when the miners hit a 3rd wave up, the metals respond with their first wave up.

So now check out USLV.  I don't know if this is the exact bottom but I do believe it is an important one and it could easily mark the end of the current bear market in metals.  After the recent peak to $54, we see an expanding triangle going back down.  The triangle ended in a 5th wave throw under which is typical.  Per EW rules, the individual waves within a triangle are a-b-c.  Check it out below.  3 waves down into black 1 (a-b-c).  3 waves up into black 2 (a-b-c).  3 waves down into black 3 (a-b-c). 

Note that the 3rd wave is the one with the huge gap. This is not a coincidence.  Then 3 waves up into 4.  Now, the final wave down needed to touch the bottom rail of the triangle somehow.  So in order to do it, we see a clear 5-3-5 pattern which is really an a-b-c.  The blue numbers count the sub waves.  The 1st 5 waves down form the larger A wave.  Then 3 waves up.  Then 5 more waves down to form the C wave.  Note that it was the 3rd of C that actually formed the throw under.  The break back into the channel was 4th of C.  Then the back test of the rail was 5th of C.  

There are other considerations to keep in mind here.  If this does not get a lower low than Dec 30th, then the move from Dec 30th to Jan 10th might actually already be wave 1 up.  After all, the miners are already in wave 1.  So this move back down could easily turn out to be a wave 2.  Very easily.   You cannot discount what that could mean for USLV in February!  3rd waves are never the weakest and are usually the strongest.  There is killer pent up demand in metals but nobody wants to be the first wildebeest into the water to cross the river for fear of the crocodiles.  Imagine that the herd just got to the banks of a river that they know they must cross.  They mill about on the banks moving back and forth, nobody wanting to be first in.  But more wildebeests are coming in from behind and the pressure is building to "do something".  I hereby claim rights to be lead wildebeest this time.  I will plunge into the river and hope like Hell that my timing is good and that the crocs have not assembled yet.

For the lucky and the brave there will be great rewards!  In the last move up, the low was ~$42 and the high was ~$52.50.  That was about a 25% move.  If this is wave 3 coming up then expect at least 35% or more. 

But that will just be the start of it if my model is correct.  Near major trend changes the chart can often become very busy and confused.  When I simplified it into the underlying impulse moves, an interesting picture formed as you can see below.  In short, I think that it is very likely that we are seeing the peak of the right shoulder of a head and shoulders.  If this is the case then crossing the blue line will mean a breach of the neckline.  The H+S price target after that occurs is found by subtracting the neckline from the head (about $10.70) to the neckline at the point of breakout (~$53) for a target of about $63.70 which is nearly 50% from today's value.

And finally, mainly for fun, I give you my own indicator of direction change which I call "the owl" because the chart pattern has always reminded me of that bird.  In the case of bear markets turning into bull markets, it is the reverse owl.  On the left below is the un-retouched current USLV chart.  On the right is the inverted mirror of the chart.  Ok, not very scientific I agree.  But I have been using "owl ears" as a double top/double bottom indicator successfully for years so take it for what it is worth.