More on the market's direction.

[rickortreat]

Now, it looks like the downturn if fully underway, but this is a chance to explain the uncertain nature of using technical analysis.

TA is not a secret, a lot of people use it as part of their process to determine which side of a trade to be on.  If you know TA and know how people will react to a certain pattern, and if you have enough money behind you to "paint the tape" you can really fleece other people, at least in the short run.

There is a lot of manipulation of the market going on these days, as money has been concentrated into fewer hands.  Hedge funds are big enough to control one sector of the market for a while, and the only thing they have to worry about is some other hedge fund figuring out what they're doing and stealing their lunch.

I don't know if it's the hedge funds or the PPT, the alledged Govt. funded market intervention team that was at work with the indu's but it had to be someone with deep pockets to stop the plunge from taking place and engineering a 100+ up day yesterday and also last week. Once the sell signal was in place, people who jumped in betting on the downside got reamed out of their positons, and their running to cover was what fueled the rally.  The cool hands probably just took their temporary losses and are now sitting pretty as the Indu's slide off.

The big story is the US dollar which is now falling into the abyss.  Things are much worse than they appear, as business is contracting in spite of the huge amounts of money being pumped in to the economy.  The problem is the same as it was, the financial people are ASSHOLES and they are getting all the money and not using it to support businesses but putting it into their pockets.  Until the government starts getting control over these irresponsible greed-headed jerks, the real economy will just get worse and worse. Gaithner is an insider just like Paulson, and they are more concerned with maintaining the staus quo, than in eliminating the financial stranglehold they have put the world's economy into.

Get gold now and hold it, buy mining share with your free cash now, because in my opinion THIS IS IT!

Gold now enters it's 3rd leg up in the prechter method of wave numbering. Implying a huge up phase in gold, corresponding to a serious drop in the value of the US Dollar. You may value your wealth in terms of dollars, but if you want it be worth more, only keep a small portion of your wealth- enough to meet day to day expenses in Dollars and the rest in other vehicles.

$930 was the line in the sand, and the bullion banks cannot afford to cover all their outstanding (and possible illegal short positions. Those shorting junior mining companies are also in a similar bind.  Expect to see a hellacious fight as these shorts try to defend their position by trying to paint the tape only to be freight-trained by sentiment.

See, it's not just about value, but about the players and their strategies that move the market. It also explains why values get out of whack as people jump on to what is hot, and off what is not.  It is this that creates opportunity for those who know how to read a chart and know how to react when things don't go their way.  Gold is up into the $950's now, that's a pretty quick up move through resistance. With the dollar going the way it is, the shorts are going to have a hard time convincing people to sell gold now!  Chances are somewhere down the line we will test $930 again, but if it does it will probably be the last time we see that price again before it blasts off.

[westkoast]

Rick,

I was just reading that a number of economists say that the recession is going to end this year.  Yet I am reading all this information that disagrees with that.  Are they saying it to try to inject some confidence by regular consumers who might be reading it?  Or is there a lot of evidence of this?  I am starting to get really confused because you have a lot of people saying two different things.

[rickortreat]

Confusion does seem to dominating the markets right now.  The only trends that are certain at the moment are that the dollar is going down (rather sharply, I might add) and that Gold is going up (very stongly)  Gold is up to $974 now and was higher than $985 before the US market opened today.

My advice about the general market appears mistaken.  Since I wrote my initial post, warning everyone about the potential slide in the Dow, and even seeing a technical sell signal on my charts, last Friday the Dow had a strong up day and this morning it us up another 200 points.

Considering that GM just declared bankruptsy, it's hard to understand why speculators should feel so positive about conditions, but it is what it is!

The only thing that was positive, apart from the recent consumer poll, is that China is reporting good numbers.  How or why this is positive for US companies isn't apparent, either, but up is up.

When the dollar goes down, foreign investors see US stocks as cheap. That's the only explanation I have for what is happening now.  I have seen this before, but have no figures to back up this at present.

There is one other alternative, which is that the massive printing of US dollars by the government to keep the economy from imploding is finding it's way into the stock market.  Frankly, I thought it was too soon to see this, as this money was printed to prevent people from defaulting on their loans and busting the banks.

One thing about trading, you never argue with the tape, even if it disagrees with technical analysis. Usually insider selling indicates a top, but the market is still up. If your still in, may as well enjoy the ride, but the rise in oil and gold is a defensive move against inflation, not good business demand.

There is an excellent article from Bill Fleckstein on MSN.com's money section talking about this strange phenomenon.

My trick is to combine TA with a lot of reading from others to keep informed. TA will only get you to break even if you rely on it alone. To be on the right side you have to be able to to get an idea of what is driving the market. These days it's the hedge funds and their models. That will work until they go broke.

[rickortreat]

Yet another update.

The intervention in the Gold market is palpable, even blatent.  But make no mistake here, Gold is going to head upwards based on supply/demand fundamentals, in the Dollar.  That is the reality of the situation, nothing can strengthen the dollar when they keep printing it in excess of revenues received by the US Govt. This has been going on for quite some time now, so I am somewhat surprised at the willingness of the bullion banks to sell in size to cap the price here.  It takes real balls to sell when everyone else seems inclined to buy. Of course they have the government on their side: the last thing the fed wants is to see everyone run away from the dollar for fear of loosing value.

Nonetheless, markets can and do move in the opposite direction of fundamentals- which is what creates opportunity.  A reversal in these instances is inevitable, but not immediate. In the end though, it is the actual market that determines price not players on one side or the other.

All the noise in the financial world comes down to whether we are in an inflationary or deflationary environment.  What is happening in the US is that business is in decline and this is considered deflationary, yet the money supply is expanding which is inflationary.  We are in the death throws of the US dollar, which is no longer trusted by our trading partners.  This is not a standard inflationary environment, but rather one in which prices should decline reflecting the slowing of economic activity. But the inflation that is coming is a currency event, not demand-pull.

All of the pieces for a perfect financial storm are in place- it's just that the reality of the situation is poorly understood, a rare occurrence when the world's reserve currency looses it's stature.  In the meantime you will see all sorts of reasoning and explanation about what is happening in the markets but it is all spin, similar to the spin told by Iran's leaders about how their elections were fair and just and the protests were induced by foreign governments.  Just as the Iranian government is responsible for their problems, So the US government is responsible for ours.