Good News to Bring Bad News Bears For Stocks
The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Wednesday, December 2nd, 2009.
The title of this piece actually says it all if you have been following our work for any length of time. The understanding here is because our faulty and fraudulent markets are based more on speculator betting practices rather than fundamentals, regularly assaulting the sensibilities of unwary participants, the majority of time a steady flow of bad news actually supports stocks, not the opposite as most straight forward thinking people would assume. How can this be? As mentioned above, for the majority of time bad news causes most speculators to naturally be bearish, which in turn unfortunately causes them to run out and buy puts or bear funds on stocks, who in turn buy puts on your behalf.
Now here is where the 'faulty and fraudulent' part comes in. Knowing this is what will happen most of the time, and after allowing for the steady flow of bad news to disseminate through the media in order to sponsor the put buying mentioned above, our price managing bureaucracy, which includes a complicit main stream media, also ensures lots of surprisingly good news hits the tape on a regular basis as well, which in turn forces those that are short (and put buyers) to cover their positions as prices move in the opposite direction anticipated by most traders, ratcheting stocks higher through this relentless process. Often the news is fraudulent, as in all government data per say, however because the bureaucracy's agents (banks and brokers) are always supplied with healthy supplies of fiat currency, they are able to push prices higher to make it appear this fraudulent data is positive news even though this might actually not be true. It's a big 'con job' you see, with a vast and complicit bureaucracy endeavoring to ensure the survival of a faulty and fraudulent fiat currency based economy, which is in fact a de facto Ponzi Scheme whose days are number no matter how hard they try, because sooner or later they will run out of rubes, which is happening now, and it's all over.
And in what the bureaucracy undoubtedly hopes is not the future, we are in fact now seeing visible change in spending and saving habits in the public being driven by an aging baby boomer population that will not only make the fraudulent games described above increasingly difficult, it will also make paying off all the debt and deficits our moronic governments are taking on increasing impossible no matter how much inflation is created. The irony here is that our self-serving bureaucracy and Keynesians are wrong about being able to inflate away our debts, especially in a debt based fiat currency economy where all new money is borrowed into existence. No, all they are doing is digging your hole deeper and deeper for you with each additional dollar ($) they borrow into existence, which as alluded to above is also a large part of why the public is changing its ways. Quite simply, they are increasingly becoming fearful with respect to their retirements, along with catching on to the ways of Wall Street, politicos, and the white Anglo-Saxon elitist military / industrial complex that is running the country behind the scenes. They are becoming 'mad as hell', and are not going to take it anymore.
Participation or not, where thus far from the March lows in stocks it's been 'not', don't expect a completely out of control and disingenuous Wall Street to give up such practices without a fight however, where presently much to the surprise of the naïve, they have apparently been able to blow off the Dubai Debacle like it's an isolated incident, with price managers attempting to fill the gap on the CBOE Volatility Index (VIX) by waving the Employment Report carrot (due this Friday) in front of everybody's nose, as suspected at the time. This is of course because traders know they will get the desired numbers out of a complicit bureaucracy on Friday, so both bulls and price managers alike dove back into stocks Monday like nothing happened last week, where if they get their way Dubai will be a distant memory soon. As mentioned Monday US index open interest put / call ratios have remained relatively contained since expiry two weeks ago however, which could cause a problem for the less enlightened this month with expiry fast approaching now, Employment Report, year end bonuses, and positive seasonals or not. In this respect it should be noted that the preferred count lower in the $ discussed recently could temporarily bottom now (see Figure 1), with sub-waves off of (ii) possibly fully traced out this morning. One does need to wonder if this is what underperformance in banks and financials has been signaling for some time now, with the reaction wave off of the initial (a) wave lower set to complete any day now. (i.e. notice also it may be leading the broads in the Three Peaks And A Domed House Pattern discussed the other day as well.) (See Figure 1)
The divergence between the broads and the banks needs to be resolved one way or the other, where one could easily come to the conclusion that like the beginning of the larger degree credit crunch that began with the banks topping out in February 2007, today we have a similar situation that will have the S&P 500 (SPX) topping out soon as well. Now like in 2007, this might only prove to be an interim top, with latent inflationary pressures carrying through into next year, which is being telegraphed in the still burgeoning larger degree count in gold (see Figure 3), however no guarantees can be given in this respect as gold to equity ratios could continue to climb. In this respect both gold and silver ratios to stocks still have a lot of catching up to do before they get back to 1980 extremes, so next year might be a time of catching up with gold set to continue climbing after a correction that is sure to arrive one of these days. In this respect today, December 2, is the anniversary of the important top witnessed in 2003, where this, along with the count in the $ potentially being completed, must be taken seriously by aggressive shorter-term traders. This risk is also still present in the chart of the DB (Duetsche Bank) Double Short Traded ETF (DZZ) / DB Double Long ETF (DGP) Ratio, which as you can see below now has a fully traced out Fibonacci projection signature to the extreme with today's price action, overextended indicators, along with a still unresolved volume divergence that should mark a turn ounce a breakout occurs. (See Figure 2)
Further to this, you will remember it was a Fibonacci Resonance related projection to $1200 plus that we have been working off for some time that was originally our first big target we thought gold would hit before encountering any real trouble, and here we are this morning with the $ potentially counted out in the interim, along with the scary speculator related picture directly above. So again, although this is likely only a temporary pause for gold, the risk of a correction is high with the confluence of factors discussed above, so shorter-term traders should act accordingly. In terms of magnitude, if my larger degree count is correct, any correction here should only take gold back down $100 or so, making accumulation between $1100 and $1125 spot on. From there it should be up to $1300 in tracing out the widely followed inverse head and shoulders pattern so many traders are tracking, and then possibly to $1500 in potentially tracing out the larger degree Fibonacci resonance related projection seen here in Figure 1 before the first wave of Super Cycle Degree C higher is completed.
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Good investing all.