U.S. Economy Breaking Down, Attempts To Prevent Deflation Failing

By: Jeb Handwerger | Tue, Jun 22, 2010
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The United States is facing a crisis of a rising dollar and a recession where basic industries over the past several months have experienced a nasty decline. This condition is a concern for policy makers as the federal stimulus appears to be wearing off. The economy seems to be slowing and cash, treasuries, silver and gold appear to be the area of strength.

One bellweather blue chip Alcoa is down over 25% the past 6 months.

AA Daily

In January after breaking into new 52 week highs Alcoa experienced a nasty reversal and has been in a 6 month downtrend. Meanwhile, the U.S. dollar is rallying as well as gold and silver. This is a major deflationary sign.

Yesterday's move to disconnect the yuan to the dollar was a mutual decision for both governments to stem the global deflationary crisis by devaluing the dollar. The U.S. government has done everything they can to prevent a deflation by keeping interest rates at all time lows, buying back treasuries to keep mortgage rates low and a massive federal stimulus. Now this latest move is another attempt to use China to decouple its currency, devaluing the dollar.

Although yesterday's attempt appeared to be bullish as every media outlet believed that this would help global economic growth and the U.S. Economy, the market showed that government intervention can not subdue nature's law of supply and demand.

The reality is years of bad debt and easy money need to work its way through the system. Eventually the markets and forces of supply and demand will reach equilibrium. Now investors are protecting their wealth by moving into gold and silver and I have done the same.

Economically sensitive equities and basic materials need to be avoided. It is an important time to preserve wealth by being in gold and silver during this next downturn.

Gold appears to be making a very bullish crossover pattern on its relative strength chart compared to the S&P 500 index. Each time it has made this pattern over the past 3 years with both moving averages pointing upwards has been very lucrative to gold investors.

GOLD/SPX Daily

The transportation averages had a nasty reversal today to further prove that movement of goods is under pressure. Transportation is the clue to see if economic recovery is continuing. Today's reversal is evidence of weakness and further proof that businesses and individuals are holding onto their cash.

DJTA daily

Today showed strong resistance and failure at the 50 day. This is an extremely bearish pattern. We must be defensive.

 


 

Jeb Handwerger

Author: Jeb Handwerger

Jeb Handwerger
http://goldstocktrades.com

Jeb Handwerger

I started reading charts at eleven years old. One day my father, a market trader and technician found his library of books on technical analysis mysteriously disappearing. He later found the textbooks under my bed. For many years day and night I studied technical analysis and charting, working and learning from my father who has over 50 years of trading experience. Technical analysis is my passion and love.

In 2001, I started noticing the junior mining stocks and gold as having a tremendous upside. For the past 9 years I have researched many juniors and have identified the major winners using technical analysis and finding top management.

I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned most of my technical analysis from the school of hard knocks, managing real money for myself and for my family.

Constantly perfecting my craft, I have traded for two decades of success in many different markets. I have been asked to post ideas to some of my students who have taken my course in charting and technical analysis. I have made an excellent living trading stocks for myself.

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