By Thomas Henning
The gold complex has been in a consolidation for the last dozen months digesting the upleg off of the 2000 lows. As this has been evolving, the tea-leaf counters, myself included, have been in a brawl counting out the favored wave shape. As previously suggested, at times like these, it is often wise to walk away, let the waves evolve, go mechanical, and stay with the long-term indicators. In short, don't get cute and get whipped out of a good position.
That being said, the consolidation appears to have terminated at the point marked II on the XAU chart, and the next upleg appears to have started. To confirm the move, the XAU has to score a new high above 172, confirmed by the gold above 725. This breakout would confirm the start of the III wave which is what the tea leaf counters consider heaven on earth.
Near term, there may well be another shot down, but if it evolves, every indicator in the book will move into bullish divergences. At this stage, at the risk of being a party pooper, I can't rule out this possibility.
However, given a confirmed upside breakout, throw away the usual measuring tools. The upside target parameters have been developed in the past cycle, the past inflationary epoch. The validity of the old parameters in the new cycle are questionable to put it mildly. This is what they don't each you in Edwards and McGee.
This gold market has been suppressed by the central banker boys for years, and the smart money has been buying, thus building up a lot of upside pressure. When this boiler blows, watch out. The more that a market is manipulated in one direction, the more extreme the eventual counter move will be.
Instead of measuring target areas, employ the KISS principle, which is "Keep It Simple Stupid," and go on an upside ride using some simple moving averages, such as a 50Day/200Day or say. . .65-Week and hang on until the upside momentum shows signs of waning. When it does, start feeding out the position on a fractional basis of possibly 10% per sell point until the position is liquidated.
This will not get you out at the top. What it will do is probably get you the Solomon Rothschild objective of the two thirds in the middle. If one leaves anything on the table, too bad. If one wants perfect, pick up the golden phone and call God.
Meanwhile, the Dollar's action has been El Stinko. The Yen has turned strong as suggested in my last article. To review, the Yen has had a lovely 5-wave upleg, corrected downward, moved into a bullish divergence as recent lows were scored, flashed MACD buy signals and has moved up nicely as the Dollar has done a swan dive. Remember that all of these currencies are fiat garbage. Gold has broken out against all currencies. It's just that the Dollar stinks more, as the Yen carry trade is reversing as the hedge funds are trying to unwind. They are staring at their 95% debt levels. The 5% equity has been wiped out. Hello margin calls. That's what the hedge fund implosion is all about - margin calls.
Harmonizing with the big picture, the Chinese Shanghai has waved out a lovely 5-wave sequence, which is part of a pattern that goes back about a decade. The Shanghai has moved into bearish divergences and is close to a weekly sell signal after going parabolic.
Barring a little topping action, this market looks like it is at the tail end of a bull cycle and will cave in with the rest of the garbage.
Let's review bonds and stocks.
The bond market has been in an upleg off of a key 105 low. Near term, the recent upleg has waved out and has flashed a Weekly Stochastics sell signal.
While the current uptrend must be respected, a close below the 105 low would be ominous. The first hint that the 105 low will be busted will be a close at 109 or lower. If and when it is busted, I suspect that the Asians, who are up to the butts in bonds, will all try to get through the door at the same time.
Meanwhile, the stock market is at the tail end of a bull cycle that started in August, 1982.
Refer to the Monthly Value Line chart and note the favored count off of the 2002 low.
During the recent decline, the major momentum studies flashed sell signals. However, in my last article, I suggested that the wave tea leaves hinted at the possibility of another upleg to round out a slightly-favored, near-term count.
That upwave did indeed evolve off of the August low and is riddled with internal cancer. The upleg has been driven by an extreme drop in supply with a relatively small increase in demand with the Advance/Decline breadth acting weak. Without reciting a litany, the other indicators are acting very weak. In short, the rally off of the August low has the stench of a classic failure rally before a cave-in.
To signal the start of a probable cyclic bear market that has the life expectancy of about a decade, closes below the August lows of Dow 12, 845.78, Transports 4672.35, are needed. A bust of these lows should be confirmed by the broader indices given their close proximity.
To sum up, the Yen is strong and the Dollar weak as the hedge funds are imploding and are unwinding their carry trade to try to reliquify. Gold appears to have started the next primary upleg within its bull cycle, but has not quite fully confirmed the move, but looks good.
The bonds are starting to cave in and the stock market is in a putrid failure rally and when key lows are busted a bear cycle should be signaled.
Meanwhile, the mortally wounded thieving central banking beast thrashes as the high priest throws money at the Ponzi scheme. The banks, who know that they are in deep doo, doo, have tightened up their lending standards as the in-hock cell-phone babbling fools have slowed down buying Mc Mansions, cars, and plastic junk. I am reminded of Econ 101: "Boys, you can pull on the string, but you can't push on the string." The high priest is pushing on the string as the banks have virtually shut down lending. Money is created by lending. When lending goes down, money supply goes down; inflation goes down; deflation goes up, as debt defaults force junk onto the market to try to reliquify. Stuff goes down in price, profits go down. . . so do tax receipts to pay for the free lunch. (Snicker!) What is going on now is the transition from inflation to deflation as Benny da Book tries to keep inflation alive.
The foundation of control of the one-world order is the banking system that turns the lemmings into debt slaves. As the debt implodes, the banks implode, followed by the one-world order. The New World Order banker boys have gained control, but in the process, they've killed the system that they want to control. This is why the savvy player is long the gold complex as the one-world order implodes into the no world order: the old epoch implodes into a new epoch. The old rules are busted. Fed-babble has become irrelevant. That epoch is over. This is why the savvy player must Kiss Kiss Kiss and hope that the checks don't bounce.
Editor's Note: Thomas Henning's articles appear regularly in The Bull & Bear Financial Report and Bull & Bear's Monetary Digest print editions.
