Turnaround Tuesday and a rough day for gold – what does Gary think?
Gary kicks off today with comments on the comeback in the conventional markets and the fall in gold. He states that the comeback in the markets was expected because of how hard they have fallen. As for gold, he thinks the downside is limited but will be scary for investors.
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That’s an interesting point, Richard! I didn’t think about regulations affecting liquidity.
Glass–Steagall repealed in 1999 separating banks from investment banks and affecting Proprietary trading. (Market Making)
The politicians then claimed the repeal was part of the problem of the financial crisis and Dodd-Frank legislation (Volker Rule) was introduced which bans prop trading by banks.
So the big houses, Morgan Stanley, etc. have many limitations on what they can do with their proprietary accounts, thus liquidity disappears during sell-offs when there is no good bid. This creates a vacuum and it is very difficult to determine when the market will become well bid.
They are attempting to put patches on the markets without realizing the consequences of these patches. Legislation enacted in crisis usually is always faulty and detrimental. It is like an emotional reaction.
Sellers are selling to sellers???
Do all Hedge funds have essentially the same algorithms? Surely not.
The POINT of a market is to determine a price at which the number of buyers equal sellers, unless, of course, it is NOT a free market!
The PPT is not “lucky”, Big Al. They have an almost infinite amount of money.
If I had huge amounts of money, I, a person who is totally inexperienced at market manipulation could guaranty never to allow any market to collapse.
The real question is, “just how high a percentage of the markets are they prepared to buy?”
I understand Japan was prepared to buy and now owns approximately 30% of the Nikkei stocks. (Unverified) Do I expect the Fed/US Treasury to be any different?
As long as the health of the economy is being judged by the height of the stock market, I suspect most politicians will desire it to be propped up.
You ask an interesting question, Professor!
Is it a “free market”?
Free market moves on fundamentals and mass psychology. A controlled market moves at controller’s desire. First one can be modelled and second one cannot.
I do not believe it is a free market at certain times.
I do not believe there is a free market in Precious Metals, FOR SURE.
Time and time again the price is provably not following supply and demand.
We all agree with you CFS
Not all of us.
CFS
I also agree with you. My thinking all along is that in order to CAUSE all people to accept a mark in their right hand or forehead (that without it they cannot buy or sell) they will first have to obliterate and/or nationalize precious metals. I still FEEL something like that will happen. I think the final straw for me was when Alex “New Age shill” Jones had the ULTRA BOGUS Lindsey Williams on his program screaming “BUY GOLD, BUY GOLD” (claiming the whole while that he has close connections to some elitists. I am amazed that people fall for such nonsense … it’s clearly a SET UP of some kind … I just haven’t been able to put my finger on the whole picture yet.
If there was acton from a PPT, the numbers would show up somewhere. There are no numbers anywhere that indicate some mysterious buyer.
Belief in a PPT means never having to admit you were wrong.
Bob, not quite sure what you are saying. PPT was put in by law by President Reagan after 1987 crash. We don’t have to believe it since it is a fact. It is whether PPT acted which is unknown. Yesterday should be a classical example PPT is assigned to prevent a crash like 1987. The fact that we don’t have those big crashes since 1987 hints PPT does act at critical time like last few days. Otherwise the market may go down 2000-3000 yesterday.
I also don’t think admitting there is manipulation is not responsible for your own action. Your account will be punished anyway. We need to make sure we can beat the manipulation. You were insisting there is no manipulation before and now you are saying manipulation does not matter in the long run. I agree with you now but not before.
I like and follow your analysis and persistence but I do disagree on this particular point.
Thanks Lawrence
I think I am going with Lawrence on the issue of the PPT…..(remember BOB I gave you credit on the $49 silver call)………….. 🙂
I give Bob credit on silver call as well. I sold a lot of silver and PM stocks (almost all of PM stocks) partially due to Bob’s call. Good work. But Bob’s assessment of no manipulation before and manipulations don’t matter now is a fundamental shift he should recognize.
Market makers don’t exist like they used to.
The volume increases because sellers enter, sell to another entity that immediately sells again. One reason volume is so high on sell-offs.
A vacuum is created on the downside. Years ago, there were many market makers providing bids and offers. Now on sell-offs, the bids disappear and drop quickly.
Years ago, more firms would absorb supply of shares coming onto the markets. These firms would take the shares in at appropriate levels and hold them. Now, HFT simply takes and sells again. A vacuum is created and forced selling enters.
Look yesterday on how they allowed these markets to open. PEP down to $76, PG down to $65, CELG $92. NO BIDS on the open.
+1 Gary on your “???”
Best to you,
LPG
This is the most difficult market to trade since it is too artificial.
I have to completely agree as i stated in the conversation with Chris and then again in the one with Rick.
A lot of people think this market has been the easiest money they ever made in their lives Lawrence. Just wait until all the volatility dies down in the future and we all go back to old fashioned stock picking again in a slow growth environment. A decades worth of upside has already been priced into stocks so that means it will be years before the easy times return again.
We aren’t out of the woods in equities yet either. This downturn is just getting started.
Agreed Tom: The fat lady is yet to sing and she may not for a long, long, long time on the virtues of the equity market overall……………
The Fat Lady had a heart attack, methinks.
Not so sure, Professor!
I don’t know!
She’s clearly over-weight and that’s not healthy!
No, it is not healthy!
I agree Tom.
Personally Ive stopped bothering Lawrence, not that I did much anyway Im lousey at it.
I have some shares I like that “should” increase if gold ever does go up but that’s it other than a diamond explorer. Otherwise Im in cash.
MSM last night was showing people being wiped out, and of course the one guy saying “ya, but if your smart your ok” thing is people are not smart.
A lot of pensions being hit these last couple of days.
Not sure how much money the goldbugs have left to drive up goldshares after years of “to the moon” talk.
I guess “big/smart money” will get involved eventually.
big smart money are getting in from their holidays bb 🙂
Gold shares might be doomed except some profitable large caps which can withstand constant hammering of gold price. some will survive but I don’t know which one. Conventional market is totally low interest rate driven and they have accumulated debt due to share buy backs. As long as interest rate does not rise, they will do well. I am now trying to get some dividend paying energy stocks.
If there is no interest rate hike in September, I can’t see how they can keep suppressing gold price and how to keep their credibility which should have lost long time ago. They may but it is getting harder.
bb, as you know, I think the smart one are on the sidelines at this point.
Gary, having a tough time adjusting my thought process that there will be a rally in the precious metal market. I can see teasers but with the banksters and paper contracts, they can move the market to where they want to take it. At the end of the day your cycle analysis will be subject to this. Last week you mentioned about taking a position, now you are saying that the “boys” could take the HUI below 100. The positions if taken I would assume are now below water. Any teaser recovery will get people just back to their buy position. Are you still telling your subscribers to take positions, or sell and pick up later?
DGHH
NO ONE HAS ANY CLUE WHAT is happening in these markets
the only thing certain is GOLD AND ESPECIALLY SILVER ARE DONE
Gold and silver have been here for 6000 years and Fiat system is only 40 years. How can they be done? This is quite extreme viewpoint which is highly emotional. I am sure PM will last another 6000 years but any country will not last anywhere near it, let alone fiat currency.
When I said I agreed with James the Lesser above, I was not implying that my agreement included the precious metals. I do need to be clear on that. Regarding the metals Lawrence your philosophy is also my philosophy.
The only thing that is certain is how embarrassingly ridiculous that comment is.
That’s @ James, not Al.
These kinds of volatile markets are exactly why I don’t advise buying and “holding” because you may get you clock cleaned on these pullbacks. I just don’t see the point to holding if you know an asset is going down further.
Example: I bought JNUG around $11.36 on Friday and sold it at $11.61. (Not much of a profit, but I didn’t want to hold it over the weekend). Thank goodness I didn’t hold it into Monday and today’s sell off! I bought some JNUG back this morning at $7.77 (the same basic place it was at on Aug 4-6). This is still a very risky trade here, but not nearly as risky as holding on from $11.61 to $7.77 as that would have been a 33% loss just for “holding tight.”
Another point: If Big Al would have held his short position today, he would have watched his gains erased. Now the trick will be going in and pulling the trigger again before the next leg down. Rinse and repeat. 😉
I am watching volatility very closely shad but it is still early to take any position.The third leg down is the best moment for taking position.Not there yet.Maybe next october/november.
Yeah, I was just taking a JNUG position for a day trade, because it got so knocked down yesterday and again this morning, that there may be a bit of a bounce up today. Then I’m out and waiting for gold to pull back further.
Don Corleone, I appreciate your insights, as we expected Gold to top out this week (just like Doc did), and everyone else said to hold on tight for the big rise up. I knew we’d get a slight pullback soon, and not to hold tight, and that was my point.
Again, I do think we’ll get a very nice surge in gold up to $1180 and then possibly $1224, but I don’t believe July 24th at $1076 or $1071 was the Major bottom. We are going to be up nicely in Wave 4, but we still have that final larger Wave 5 down later this year, which corresponds with the falling wedge pattern that Doc, Jordan Roy-Byrne, and Gary Wagner have all noted the last few months. That will be the major bottom and the time to “hold tight”.
Shad I doubt if gold will exceed 1200 on the next bounce.The leg up from the 1076 has the looks of an impulsive leg which means that currently gold is correcting for another leg up.shad always remember to use logarithmic charts when charting especially on long term charts.Bear that in mind because you will get off target on linear charts.
Hmmm that is a very interesting point. I normally shun the logarithmic charts because I like an even spacing on the chart of the linear, but you really have me thinking here.
Yes, I concur that this is corrective move down before the next leg up. Until gold dips, reverses back up, and takes out $1180 then it’s a moot point, but $1200 will have a lot of congestion around that level. Gold could get deflected from the 1200 resistance and never make it to $1224, so that remains to be tested.
In the mid-term, once this overall leg up (Wave 4) is completed up to one of those resistance levels, then it will start the long (5 Wave leg) Wave 5 back down to put in the Major bottom around $1033-$1000 in my opinion.
Thats right shad.That is the pattern that I am watching in my crystal ball 🙂
Ha! Good luck to you in your trading Don Corleone. I really appreciate your insights and technical feedback. Cheers!
Thanks buddy and the best of luck to you too !
Thanks Don C. Doc commented on this because of your comment.
Thanks Al! I appreciate.
3X is not for holding. I would hold dividend Paying companies which are profitable. If no one is profitable like silver miners I will hold physical and ETF plus a few good speculations.
That is a valid point on no holding the 3x leveraged ETFs, but some people have successfully held into an up trend or an inverse fund into a down trend. Personally I generally like to get in an out in 1-3 days on those, but have held for weeks before to lock in a nice profit.
Regardless, even many of the regular gold and silver miners are down 6-8% today. My point was if people believe gold put in a daily cycle top yesterday, then why would you want to hold the mining stocks if gold may go back down to $1076? Just buy the mining shares you like back if/when Gold gets back down there (just like the institutional investors are going to do).
I am glad that I did not hold my short position. Greed is what greed does!
A-Greed!
321Gold Thomson
Aug 25 Dow Theory & Gold’s Strong Season Stewart Thomson 321gold
market anthropology aug 24
Monday, August 24, 2015
It’s Different This Time… but it’s Happened Before
For someone carrying a dogmatic bent of the bearish persuasion, there’s always conditions somewhere that can fill the narrative. Liquidity provisions, leverage, breadth, global macro developments – the list can go on and on and there’s plenty of sites that cater to these concerns or prey on participants more primal fears. Then again, cognitive biases are routinely applied on both sides of the tape, regardless of team. The truth, however, is in the long shadows cast since the financial crisis, participants are still greatly vulnerable to strong recency biases and likely to assume the worst. This is why today the most frequently cited equity market parallels are made to conditions in 2007 and 2000 – or the catastrophic declines of 1929 and 1937. When it comes to equity market analogs, its easy to invoke the ghosts that have haunted us the most.
The problem, however, is – it’s different this time.
No, not that kind of – different this time. Rather, the disconnect that’s existed for years from ZIRP and QE – between the markets and the underlying economy, lends itself to even rarer historic comparison – and this applies to everything from Fed tightening cycles, to recessions and inverted yield curves, but also to future equity market returns and the data miners that like to dig in between. It’s dangerous to the extent that it could break long standing conventional market wisdom on both sides of the field, which in the end could leave participants and strategists wondering which way is up and how to position a portfolio, with few historic parallels to draw from. The bulls would be hoodwinked by waiting for the typical bear market catalysts (i.e. a downturn in the economy and inverted yield curve) and the bears would eventually bite off more than they can chew by following the aforementioned market cycles with expectations of a 50 percent or more market decline.
Like most things, we believe the truth will eventually be found somewhere in the middle and feel both outcomes are unlikely today because of what ZIRP and QE provided the economy and markets. All things considered, we still find the closest market and policy parallels to the previous trough of the long-term yield cycle of the mid to late 1940’s, where the Fed began normalizing policy after providing extraordinary support through the Treasury markets between 1942 and 1946.
– Click to enlarge images –
In Milton Friedman and Anna Schwartz’s – A Monetary History of the United States, the market climate in the 1940’s was described as being so suspect of the Fed and Treasury’s visible hand, that even after a 150 percent rally in the equity markets that began in 1942 – went through a recession in 1945 and exhausted around Memorial Day in 1946; participants by and large didn’t trust the market or expect inflation to rise as precipitously as it did from the trough going into 1947 and 1948.
* * *
“Despite the extent to which the public and government officials were exercised about inflation, the public acted from 1946 to 1948 as if it expected deflation.”
“An important piece of evidence in support of this view is the harbinger of yields on common stocks by comparison with bond yields. A shift in widely-held expectations toward a belief that prices are destined to rise more rapidly will tend to produce a jail in stock yields relative to bond yields because of the hedge which stocks provide against inflation. That was precisely what happened from 1950 to 1951 and again from 1955 to 1957. A shift in widely-held expectations toward a belief that prices are destined to fall instead of rise or to fall more sharply will tend to have the opposite effect – which is precisely what happened from 1946 to 1948.” – Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1963
Today, as investors grapple with the more esoteric nature of monetary policy enacted in the trough of the long-term yield cycle, we believe a similar fate awaits the equity, commodity and Treasury markets as the Fed looks to further normalize policy. On one hand, the stalwart strength extended to the equity markets on the back of the Fed’s extraordinary policy support – and which to a large degree suppressed equity yields and commodity prices, is likely in the markets rearview mirror. On the other hand, those policies should go a long way towards smoothing the transition in the economy as it works its way across the transitional divide between growth cycles. The net effect, we believe, should allow the US consumer and households greater traction in the economy (i.e inflation), even while US equity prices decline from what we perceive to be a valuation ceiling extended by ZIRP and QE and which ultimately should buttress the Treasury markets – as it did in the 1940’s, as many market participants feared the worst and took shelter in bonds.
A few weeks back at the end of July (see Here), we found the equity markets precariously situated going into the back half of summer and into the much anticipated September Fed meeting.
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A potential equity market set-up from our often cited 1946 cyclical top, may be finally getting ready to “set the hook”, as participants brace for a future rate hike from the Fed this fall. Should the historical guideposts prove prescient, downside support in the equity markets will fail over the coming weeks, opening the door to the first material correction in US equities since the summer of 2011.
Assuming the correction materializes, whether the Fed choses to act in September – subsequent to a market development such as this, obviously remains contingent on the magnitude of a potential dislocation and its broader kinetic impact in the markets. That said, based on our research of the long-term yield cycle (see Here & Figures 4-6), we have always believed that the Fed’s latitude to tighten would ultimately be limited by developments in the market and the economy’s capacity to carry the burden of higher rates (seeHere).
Cyclically speaking, from a top down view of the long-term yield cycle (Figure 1) – as well as the reach of equity market valuations (which we’ve argued are greatly driven by rates disposition within the cycle), we have approached the 1946 cyclical peak in equities as the closest market and policy environment with today. From a historical perspective, the trough of the long-term yield cycle in the mid to late 1940’s, where the Fed began to normalize policy after extraordinary support was extended in the market with significant Treasury purchases by the Fed between 1942 and 1946 – remains this cycle’s mirror equivalent.
As such, since the Fed began to normalize policy through the taper last year, we have panned the longer-term prospects of the US equity markets and largely viewed them pushing up against another valuation ceiling, similar to what transpired in 1946 (Figure 2) as accommodative policy support was removed.
While a potential downside pivot will invariably make its own distinct path (Figure 3), from our perspective, the risks of such a decline have not diminished and now appear to be preemptively butting up against the Fed’s starters gun – that may or may not go off.
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While we would once again emphasize that markets will invariably make their own distinct path – as they have this time around; over the long run we expect market conditions between bond and stock yields to return to where they perennially resided for over a century, until the previous long-term growth cycle kicked into high gear as the 1950’s came to a close.
As the equity markets sold-off at the end of January (see Here), we noted that for just the fourth time in the last fifty years, the S&P 500 yielded more than 10-year Treasuries.
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If one was to mine the data, in the three previous occasions where this had occurred, equities rallied sharply over the short-term and strongly performed over the next year – quickly closing the aberration that represented a particular extreme between these two markets.
June 1962: +14% 06/27/62 – 08/22/62 (1-year performance + 32%)
November 2008: +24% 11/20/08 – 01/06/09 (1-year performance +35%)
August 2011: +9% 08/09/11 – 08/31/11 52 (1-year performance +25%)
That said, we would strongly caution anyone looking for similar returns or bolstering their respective equity biases with this fourth occurrence. From our perspective, the fourth time may be the charm as these two massive trends pass quietly in the night, ending an epoch that first set sail in 1959 as Treasury yields began their long and steep journey to a secular peak in 1981.
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With the hook now set in equities and for just the fifth time in the last fifty years – but second time since January: the S&P 500 once again yields more than the 10-year Treasuries. From our perspective, the brevity between these signals should be a warning shot for those data miners looking for more contemporary context of longer-term bullish significance. While the SPX rallied 6 percent over the following month through March, these markets will continue signaling through this long-term passage, as we suspect any retracements to be even shallower this time around, as these two immense ships pass quietly in the night.
at 5:42 PM
Those of you who are familiar with chess know there is the opening, middle and end game.
The opening is the first 8 or 10 moves when players try to establish position, control the center, and determine long term strategy.
Then the middle game follows, where position is fortified, and a series of battles kill off most of the soldiers.
After the middle game is the end game.
This is the point in the game where most of the soldiers are dead, very few pieces remain and there is ample space on the board.
Many a winning game is lost during this time, especially by inexperienced players who don’t understand the winning strategy for end game chess.
A winning game could very quickly turn to a loss with one bad move.
Those of you who follow markets must know by now we are in the end game.
There are only a very few players standing and the king is getting surrounded.
If this were the Titanic, it would be that time when the passengers find a final place to go down while the band plays Nearer to God.
If you think this is drama and hyperbole I think not.
We are clearly in the end game after years of credit expansion and debt explosion.
Currencies, the pillar of the system, are now losing stability and credibility daily.
Central planners are running out of time, tools, options, and excuses.
We are now in the midst of the seven year cycle, the eye of the storm.
Stocks could melt down or up.
When systems break down chaos is the only thing you can count on.
If stocks crash in September (read the mystery of the Shemitah) it would not surprise me.
If QE4 is announced stocks could melt up or confidence can be lost and stocks could melt down.
One thing is certain – there will be no rate hike. Not that there ever was going to be one.
Gold and Silver are lost in the new abnormal (I guess Rod Sterling was right after all)
In a no growth environment silver is useless.
In a deflationary death spiral gold losses.
In the end game there are no rules, so if anyone says they no where these markets are going, either short, medium or long term they are playing you.
Bottom line
Watch it all fall apart
Good comment, The Greater
Agree with some points. But how can fiat currencies and hard currencies die at same time? They are polar opposite, if one fails, the other succeeds. You are confusing and confused.
Gary….”you cannot short this market”
You are kidding I hope. Al just pulled off a very successful and well timed short that was in the making for years. I am kind of surprised by your comment. Don’t you wonder what prompted him to set that trade up in the first place? Shoot, we had been talking about this for months but almost nobody here pulled the trigger by the sounds of the grumbling and negativity today.
PS: No way in hell is this market bouncing because of Fed interventions or the PPT. It was oversold all the way to Sunday and that bounce back was entirely predictable especially considering the spike tail on all the indices, the dollar and the Euro.
Shorting an index fund is difficult because it can be held up by a handful of market leaders from the current bull market and also masks sector rotation. Your timing has to be perfect if your trying to catch the top, which is a fools game anyways. Shorting an index fund is best suited for hedging your long exposure on the way up or fading countertrend rallies once a downtrend has started. Easiest way to short is to understand where you are in the business cycle and play sectors and individual stocks accordingly.
All late cycle indicators look best at the top while all forward looking data has been rolling over for at least five months on a year-over-year basis. Shorting this slowdown has been no different then any other slowdown in history and supposed Fed involvement has not made the slightest bit of difference. When your late in the business cycle, the first industries to roll over are industrials, materials, energy and some sectors of technology that are advertising related. Prior to todays action these sectors are down 13%, 15%, 24% year to date, with tech returns varying depending on what you use for advertising related tech comps. Just look at names like YELP and YHOO for examples of ones that are tied to the advertising cycle. If you shorted the most highly levered and weakest names in each sector they are down much much more then the sector etfs. The next to go are usually financials, consumer discretionary, and some commoditized consumer staples that have little pricing power and are likely to see margins collapse if commodity inputs ever stabilize.
Learn to play the other half of the market if for no other reason to hedge exposures as well as prevent yourself from jumping all in or all out.
BM:
You know how much I hate agreeing with you but once again I find you understand the issue. There will be a big bounce and it has nothing at all to do with any PPT.
For all those who really want to believe in a PPT, for the government to intervene they want everyone to know it. Look at China and how obvious they made their interventions, if you have a big weapon, it’s only a big weapon if everyone can see it. Forget the PPT and focus and what markets do. They go up and they go down. Buy cheap and sell dear.
Agreed.
I don’t doubt there is some intervention, the marketplace is a dynamic system, made up of millions of traders and financial institutions big and small. The market is going to do what the market is going to do, especially over longer periods of time. Our job is to find good value when it is under-priced, and then sell into the strength when people will pay more for it.
Gary did you change your mind in PM broadcast then AM. It’s two different outcomes from am and pm? i’m confused.
Wti oil 35-40 almost complete
Looks like gold will finally test below 1000.
Everything seems to be in place with a deep market correction and a repeat of the 2008 where commodities also get taken down. Seems to happen when president is nearing end of term.
Hope you all are doing well including my good friend Matthew. I have not added anything as of yet. Stay tuned as I will return shortly.
All the best
Glenfidish ya rascal. Good to hear from ya man!
Yes, I’ve been watching Oil very closely lately. I got into UWTI and then right back out, because I’m looking at that 2009 trough at $33.55 as strong support. Really all year I had been using $38-$40 as the zone I thought Oil would bottom. We did get a nice bounce right around $38, but something tells me it will still fall a wee bit further. Many “energy experts” are targeting the $32-$33 level, so it won’t be ruled out, but that seems really low. I like the $33.55 2009 trough as the point people will be watching, but it if gets down sub $35 then I’m going into UWTI big time.
Cheers mate!
Good to see you here again Glenfidish!
Gary,
The liquidity is lacking causing different bottoms than what we are used to seeing. All of a sudden you have sellers selling to other sellers. Market making is gone with the new regulation for banks and brokerages.