Market Comments

The Dow gained 1.8% for the week and closed over the 11,000.00 level, making a new high for the move. The broader market rose as well with the S&P 500 up 1.6%.

So, the $64 dollar question remains: are we headed for a new all-time high in the stock market, which would place our position that we are in a secular bear market into disrepute.

A definitive answer to the above question can only be given if one knows how to predict the future. We do not know how to predict the future. Furthermore, we believe that good investing does not involve predicting the future but knowing and following the primary and secondary trends of any given market.

Presently the primary trend of the stock market is down: a secular bear market is still the dominant long-term chart marker. Accordingly, the present upward rally is a counter-trend secondary correction of the primary trend.

This remains the case until the Dow makes a new all time high. As secondary counter-trend rallies often do, this one is very extended both in time and in price. Until a new high is made – the primary trend is down.

So, we sit and watch and listen to the market. The market will shortly indicate whether a new high is made, or if a lower high is made and a downturn resumes. The risk to reward ratio to investing in such an extended secondary correction in the overall market is not warranted. Earlier (last two years) before the rally became extended there was much less risk to potential reward than now.

In addition, in the last two years certain commodity stocks, energy stocks, and almost all precious metal stocks have been in bull markets. Now both energy and commodities are at important levels where they need to hold for the up trend to remain intact.

The precious metals are presently in a short term or tertiary correction. It could turn into an intermediate term move, so we wait to see. The precious metals still represent the best long-term trend.

Special situations (stocks or sectors) are in bull markets (precious metals, energy, and commodities) but are still subject to overall market risk – if and when the stock market’s secondary trend re-establishes itself with the primary trend.

In addition, energy and commodities are in secondary corrections at critical levels. They will soon bottom or a trend change will occur.

Nevertheless, what of the recent new high for the rally by the Dow, isn't that showing strength? Perhaps, perhaps not. It might indicate that the counter-trend rally is slowly ending, and that is why the large 30 blue chip Dow stocks are rallying compared to the rest of the market.

In other words – the rally is becoming increasingly selective. What momentum it has is becoming increasingly concentrated in fewer and fewer stocks – the large cap stocks.

The Nikkei average, which has been one of the best performing world stock markets of late took a hit of –3.34% for the week. Once again we will sit and watch from the sidelines.

 

Bond Market

Two-year Treasury yields fell 2 bps to 4.66%. Five-year government yields lost 4 bps to 4.55%. 10-year Treasury yields gave up 5 bps to 4.54%. The 30-year Long-bond yields declined 5 bps to 4.51%. The yield curve remains inverted across the board.

M3 money supply increased $9.3 billion to a record $10.280 Trillion. M3 has expanded by 8.2% in the last year. The Fed says one thing but does another.

They can only inflate, as that is what a paper fiat system does. It is either inflate or die. They are slowing notching up short interest rates as a pretense. The yield curve is perversely inverted.

First they end the long bond, now they bring it back. Why? Could the housing market that exists on the back of long-term debt have anything to do with it? All of which has not gone unnoticed by gold and silver – as they remain the ever-watchful sentinels.

 

Precious Metals

Gold was up for the week a little over one dollar per ounce. Silver was up six cents. More and more people are becoming aware of gold and silver. It is beginning to garner attention.

Hence, both metals and the stocks became extended during the recent rally. The expected correction has occurred. Is there more to come or is that it?

We will watch the market and let it tell us. Our feeling, however, is that there is yet more to come.

 

Gold Continuous Daily

 

The 50 dma is at 538.42 and holding so far. The 200 dma is at 470.41. These are two of the markets markers or sign posts. There are others as noted below. Each has a different story to tell.

Once again – we cannot predict the future. We have stated before that gold may have entered stage two of its bull market. Almost all (if not all) gold analysts say it has entered stage two. They well may be correct.

To us the $500 dollar level was a very important level to break. However, we still say that it is more important for the $500 level to become support than it was for it to be broken as resistance. The resistance has now been broken.

Now comes the all important support of a higher low being put in place, providing the next launching pad from which to the gold bull proceeds higher.

If and when gold can hold $500 as support during an INTERMEDIATE TERM COUNTER TREND CORRECTION, then gold will be ready to fly. So far the correction has only been a short term move.

An intermediate term correction still awaits. The present short term correction may be the beginning of such, or it may not. Time will tell.

 

Gold Continuous Weekly

 

For now we our content to sit and watch. We sold into the recent strength and are in a very good position to take advantage of whatever the market offers. Let it make its offering. Let it tell us what to do.

The market may show its hand by the ratio of the price action of the physical metal as compared to the price action of the shares. If the stocks out perform the metal, then a bottom is more likely to have been put in place. If the stocks under perform the metal then more of a correction is likely.

Even if $500 were not to hold during an intermediate term correction, this would not mean the gold bull is over. There are fib supports at 513-515 and again at $490-495. Again further support is at $450. The critical level is at $410-415. We do not think any correction will be of a critical nature, but it could shake the trees pretty good.

What is most important is that a higher low is kept in place, which we believe will occur. As long as higher lows our kept in place, higher highs will follow. Patience is required. No one said it would be easy.

It is just a feeling we have, however, we will share it. Silver seems to be capable of a very quick spurt up from its present level.

Once again – watch the performance of the silver stocks relative to the metal. If they begin to outperform we will start accumulating new positions. They held up very well on last Friday.

 

Silver Continuous Daily

 

As the below chart shows, oil has had quite a correction from the +69 level to the 60 level, presently sitting at 61.29. Oil’s 200 dma is at 60.73. This important level bears watching. For oil to remain in its bullish up trend it most fine support near its 200 dma.

 

Oil Continuous Daily

 

The following weekly chart of oil shows it’s longer-term trend which has been bullish for over 2 years plus. However, it is getting close to breaking its up trend as can be seen. It is time for oil to either bottom or a change in the longer-term trend could develop.

This week’s action may well tell which way the energy sector is going to go. It will should determine the direction of its next major move by the end of this week.

 

Oil Continuous Weekly

 

We choose to sit and wait to see if a bottom is put in place or more weakness is to occur. If a bottom is put in place by the end of this coming week, we will begin to establish new positions.

 

Commodities

The CRB Index is showing very similar price action to oil in both its daily and weekly charts which follow.

As with the above oil charts: the daily shows the recent strong downward correction, and the weekly shows that a bottom must develop soon or a change in the longer-term change could occur.

 

CRB Index Daily

 

CRB Index Weekly

 

Natural Gas

In keeping with the above, natural gas shows the same chart patterns. The daily chart shows a strong downturn and the weekly chart show support must soon take hold for the longer-term pattern to remain positive.

Natural gas is fast approaching determining the direction of its next major move as well. Either support must develop or a trend change will be at hand.

 

Natural Gas Index Daily

 

Natural Gas Index Weekly

 

Conclusion:

Many markets are at various levels approaching prices that need to hold to keep intact the longer term trend. This is occurring in the energy markets and in the commodity markets.

The precious metals are holding up better than the energy and the CRB Index. It remains to be an interesting week – as several of the markets will most likely show the hand they are holding.

We wait for opportunities to present themselves as they always do.