Monday, August 31, 2015

The Rule of Reactions is always one to three. For a trend to develop, it must exceed the three unit of time limitation.

Dow for the Close

DJIND-D 8-27-2015
The Rule of Reactions is always one to three. For a trend to develop, it must exceed the three unit of time limitation. So we need the market to move higher beyond today. At the time of this posting, the Dow is trading at 16628. We need a closing above 16460 to help stabilize the market. A closing on Monday ABOVE 17069 will suggest that we may have a low in place. A closing BELOW 16899 will warn that we should retest the lows before proceeding any higher. A closing BELOW the Monthly Bearish at 15550 would warn of a potential March 2016 low with still the swing to new highs as early as 2017/2018.
So far so good. As long as this week’s low holds, then this market will stabilize. But breaching that level means we will swing down and the swing back up violently. Thus, nothing has changed as of yet and we are still waiting for confirmation on when the collapse in government will start to send U.S. equities nuts.

Monthly closing below 15550 would tend to warn of a more pronounced decline being prolonged into October

The Fudge Factor – Close vs. Intraday

My question  below  is  for  Mr.  Armstrong.
Hi Mr.  Armstrong,
Thank you in behalf of  all of the investors/ traders who  are  awaiting to join Socrates soon .  my question is  you said in  recent  blog today  ”  If we break and close August at least BELOW 15961, then this will open the door to a 5 month correction into October with a maximum decline of about 5000 points,” also  said
” you can make a new low in September, not so steep, and rush back to close higher for month-end. This would become possible perhaps with at least a monthly closing below 15961. But a August closing BELOW 15550 would point to a correction into October. “
My understanding  is  that  Aug. 31  closing  below 15961  might NOT result in a steep decline into  Oct.  ,  only  closing  below 15500 WILL produce this result .
Am I correct ?    Is this the  ” fudging ”  you mention in the  blog ?
Thank you.
 Split Event

ANSWER: Yes. This is caused by the fact that a cycle can take place on two levels — intraday and closing. For example, gold peaked intraday in 2011, but the highest closing was actually 2012. The two events can be split. This means that a monthly closing below 15550 would tend to warn of a more pronounced decline being prolonged into October. A simple month-end close for August BELOW even 16688 will warn that we could still penetrate the August low, but not necessarily closing lower in September.
This is the questionable “fudge factor” we must take into consideration. But a new low in September and a lower close would point to new lows into October. With this degree of Directional Changes in a row, something extraordinary in itself, this tends to imply a choppy trend that will reduce confidence, but there need not be a collapse. The lack of a bounce could build the bearishness.
So these are the potential patterns. We must allow the market to tell us what it is going to do, as the key is reading the market. Part of that is the quantitative movement relative to key points on our model. This is what makes the 15550 important. Moving below that and we have exceeded the point of support going beyond what existed in 1987 relative to our model.

String of Directional Changes

Dow Today (August 26, 2015) & the Three-Day Bounce

DJIND-D 8-26-2015
The cycles and oscillators still suggest a three-day bounce into Thursday. We would need a daily closing back above 16461 to suggest that the low will hold at least temporarily. Then we should retest the support. This is where it will become critical going into Monday that we hold this week’s low. If we break and close August at least BELOW 15961, then this will open the door to a five-month correction into October with a maximum decline of about 5000 points from the May high, taking us down into the 12000 zone. Key support will also lie at the 13900 area.
DJFOR-W 8-22-2015
The most alarming event on our model is the string of Directional Changes. This warns that we are not looking at a nice V bottom here. This is why we must define where a FALSE MOVE and a CORRECTION are distinguished. The former is a maximum of three units in time, so that means August. Yes, this can be fudged slightly insofar as you can make a new low in September (not so steep) and rush back to close higher for month-end. This would become possible perhaps with at least a monthly closing below 15961. An August closing BELOW 15550 would point to a correction into October.
This string of Directional Changes warns of a choppy period ahead, which should chisel confidence down to a mere pebble in any lasting bull market. The interesting aspect is that we did not have a Panic Cycle the week of October 19th until this move. So obviously, the pattern suggested that there is more volatility ahead.
This is HOW we listen to the market. It is NEVER wrong, only people are wrong because we all have opinions that are subjective and reshaped by emotion. That is the danger here.
In conclusion, watch the Dow, for the Dow led on the way up and had led on the way down. This is the BIG MONEY, not retail investors. So we should expect this to turn and provide a clear reference before the NASDAQ or even S&P 500. August holds and we have a classic FALSE MOVE; August gives way in the Dow (not S&P 500 or NASDAQ), and we will most likely fall into October turning sentiment very bearish. Then the up move thereafter should be at least a doubling from that low. Ironically, a test of the mid-12000 range would project to the next resistance in the 23000 level as we have warned.
If the government figures out that this is a Sovereign Debt Crisis and actually coordinates an effort to deal with it, ending the hunt for taxes, then the final high could extend into 2023. That is a VERY BIG “IF”.

Thursday, August 13, 2015

The Dollar Rally is the Key

QUESTION: It seems as though the rally in gold is short covering? If it is, and all bottoms start that way, why is this not the bottom?
Always read your work with great interest.
Yours truly,
Major lows are always short-cover rallies, but they are much more dramatic. Here we had gold struggling to rally as it made a dead cat bounce when oil was making new lows. That showed the cycle was indeed higher, but gold was flat while oil was crashing. What moves sideways during an up cycle and what will not rally moves lower with more gusto when the cycle turns back down. In this case, gold held and finally began to exceed the reversals only when the other commodities in the sector completed their cycles. Gold had to wait.
PRICE is entirely separate from TIME. We have been warning for years that we should see a dollar rally that may even exceed the 1985 high. The yuan made the 19 year low in 2013 and last year we had an outside reversal to the upside, showing that the dollar was indeed in an uptrend. The crack in the euro, the pound, and the C$ have combined to confirm that forecast of the trend.
So what we need to complete here is the dollar rally. There is about $9 trillion in dollar short positions from emerging markets. Clients around the world have been calling us in for consultations, as usual, since the number one creator of havoc is currency. More than 75% of corporate losses have to do with currency.
We have not yet felt the pain needed to create the major global shifts for the future. The TIME is not right. It appears to be the second benchmark. If you look at these markets from a connected basis, it becomes easier to see the trend. Our forecast for a dollar rally is critical to the outcome as a whole and we are seeing the subtle pressure building, as with China’s devaluation. A dollar rally will create global chaos and that is the key to political change. If you are familiar with charts, our Dollar Index back to 1900 shows that the dollar is still alive and well with a new spike high being within the realm of possibility.

Wednesday, August 12, 2015

China & the Dollar

$CHINA-Y 1-1-2015
The dollar rally and the devaluation of the yuan is not a fluke and it most certainly is not a one-time event. The dollar declined against the yuan for 19 years during the same timing that saw gold decline from 1980 to 1999. The major low on an annual closing basis at 2013 and 2014 was an outside reversal to the upside for the dollar. The Yearly Bullish Reversal stands at 683 and technical resistance stands at 658. The dollar filled the gap that existed prior to 1994 and is yet another confirmation that the dollar rally is underway.
Yes, the world trade is contracting and will get much worse after October. Governments are destroying the world economy on their hunt for taxation. Politicians are hunting money as if it were some sport and are undoing everything that was built postwar. Numerous reports are coming in to us about people traveling on trains and having their bags searched for money in Europe. The hunt for cash is wiping out the world economy. Americans are being thrown out of banks and mutual funds everywhere. FATCA has forced Americans to repatriate dollars. The only real Americans who can operate overseas are now established multinational companies. Small companies cannot expand from the United States nor can individuals send money anywhere.
Add to FATCA the problem in Europe and we see capital still pouring into the USA from both China and Europe. The real estate cycle has/or will peak with this turning point around the world from Switzerland, Britain, Canada, to Asia right down into India and Australia. We are plagued by politicians who have absolutely no clue how to run an economy and it is now all about them retaining power virtually everywhere we look.
The dollar rally is unfolding despite the fact people do not understand why. They look only at the USA debt and assume the dollar must crash, when in fact, the problem we face is on a global scale and $18 trillion in U.S. debt is simply not the large enough for international capital to hide. The future is going to be anything but a textbook move. This is why this year’s World Economic Conference is going to be a real eye opener.

Tuesday, August 11, 2015

India & New Highs

QUESTION: Mr. Armstrong; It is wonderful that you have come to India. I only regret that you are not conducting an open conference here in Mumbai. I appreciate that your trip is only to visit the biggest institutions here in India and that is great that they receive you to help our country. I wanted to let you know that there are many followers here especially after attending your 2012 conference in Bangkok where you forecast that India’s share market would make new highs and separate from China in trend following closer to the US market. That forecast was so bold it has been widely remembered here in India for everyone else assumed we would merely follow China.
You also taught us lesson in our own history. We did not even know that we were once the financial capitol of the world. You know our history better than we do and that is something. Do you still see your forecasts made in Bangkok playing out as you projected in Bangkok? Will you do a conference here in Mumbai? You may be surprised at how many people would attend.
2012 Faorecast in Asian Report for Bangkok
INDIA-Y 1-1-2015
REPLY: We are preparing a special report on India given that the trend is entirely different from what so many had forecast. I am not sure about holding a conference in Mumbai. Perhaps. We are considering opening offices here. Without an office in India, it is very hard to organize such a conference.
Yes, our forecast from 2012 unfolded on target. That is the advantage of having a computer that monitors the entire world. The long-term is still in play. India has a tremendous advantage. Lacking the social programs means your country will not experience the massive debt crisis we see in Europe. The family structure in Asia remains intact, whereas government replaced that structure under socialism in the West, and that is part of the future debt crisis. English is very prominent in India which has enabled the country to facilitate the U.S. market in particular from back office and telephone services to computer IT support and programming. These skills are very interesting for the future of India.
Additionally, TATA is one of the largest companies in India and is now the largest employer in the private sector in Britain, owning Jaguar and Land Rover. India has been overlooked by most in the West who are just unfamiliar with what has been going on in this country. I do look forward to returning more often, to say the least.

Saturday, August 8, 2015

Oil will move back to retest $35

The Age of Deflation & the Fed

It appears that many people are so married to this wrong idea that INFLATION is created by the Fed expanding the money supply. Sorry – it does not work that way. Others are confused that interest rate increases are bearish and declines are bullish. All you need to do is look at Japan to see that did not work out very well.
The pundits are betting on a Fed rate increase of 25 basis points in September. That is most likely correct, but not for the reasons many suspect. The jobs report came out showing a solid trend of really only a couple hundred thousand jobs in an economy of some 300 million people. That is not what you would call a wild-eyed bullish trend.
Inflation is not the main factor for gold or the Fed. The Fed realizes that the economy is not in crisis and maintaining lower interest rates is highly damaging to the economy for it is creating the next crisis – defaults in pensions both government and private. The entire idea of pensions has been set around the average 8% return in interest rates. But it has been pension funds that are primarily the cause of lower interest rates – NOT THE FED.
The amount of pension funds out there created a bid for long-term bonds and they kept bidding higher and higher because it was presumed that Gentlemen Buy Bonds, as Mellon once said. The lack of skills in fund management and regulation requiring bond investment created a lethal mix. This has contributed to the lowering of interest rates and it was this underlying bid which helped in creating the mortgage crisis for 2007 as investment banks used AIG to guarantee their junk calling it AAA so they could sell this type of paper to pensions.


Add to this bull market in bonds the change in technology and you introduce the opposite trend of the 1970s with still the STAGFLATION result thanks to rising taxation. When we put out our forecast back in 1997 that oil would rise from $10 to $100 going into 2007, many people said we were crazy arguing the world could not sustain such high energy prices. We warned that unless oil rose to $100, new technology would not emerge. Oil had to rise in order to create alternatives. Now that we have warned that oil will move back to retest $35, everyone likewise said we were wrong for the world would not be sustainable at such a low level. This is a wave of Creative Destruction that is part of the whole shift into the technology age just as the railroads altered the 19th century and the combustion engine altered the 20th century. Welcome to the next economic phase transition to the technology age.

We now have solar cars in experimental stage that produce more energy than they consume. Goodbye oil. We have batteries that are efficient that have unleashed electric cars. The hybrid BMW I8 can operate on a combustion engine at 28 mpg that recharges the electric when the gas engine is engaged not requiring you to even plug it in.

The Fed decision is NOT based upon inflation, but economic growth. We need higher interest rates to fend off the next crisis and this is serious. Yes, the stronger dollar will reduce profits of companies selling overseas. However, it will further reduce inflation and perpetuate deflation. So imports will remain reasonable but the high dollar along with FATCA will reduce the world economy as a whole insofar as American participation.

The Fed needs to raise interest rates seriously. They have to get the economy back in the direction of a more normal interest rate atmosphere for they are wiping out the elderly as well. So interest rates will rise and it has nothing to do with inflation. This is all about growth at this point and only higher rates will help to revive economic activity. It will be higher interest rates that helps to revive inflation for the future.

Technology advancement is reducing jobs on the low end and the higher minimum wages the greater the trend toward robotics will emerge for it is not just the hourly wage, it becomes the healthcare costs and taxes on top of that that which will continue to change the demographics of employment. Formal education is a disaster and it is not preparing the youth for the new age of technology.

Wednesday, August 5, 2015

It is NEVER fresh buying that makes the low – it is short-covering – END OF STORY.

Hedging v Trading – What Really Makes the Low

GCNYNF-M Hedging
The lack of understanding with respect to market development is astonishing. The gold promoters keep desperately trying to argue that demand is somehow rising for physical coins so somehow the prices are not real. At the bottom of markets it is NEVER fresh buying that makes the low – it is short-covering – END OF STORY.

Gold 1985 Low

As we move into lower prices, mining companies are FORCED to sell gold forward (Paper Gold) to try to make ends meet. Their short positions will increase going into the lows and without real hedging models, many will go bankrupt. They will lose a fortune and contribute to the short-cover rally that even took place back at the 1985 low. Back then, there was one gold promoter who was short at the low and lost everything in a matter of days. The founder of  International Gold Bullion Exchange was sentenced to 10 years in prison for being short.with no sense of how to hedge. That is why we developed both speculative & hedging models with entirely different goals.
As commodities get killed, the smart companies are starting to wake up. I am off to Mumbai for an urgent meeting next week. Many are starting to realize you cannot trade on headlines or advice from banks who profit from the trade with their conflict of interest. Unbiased independence is the only way to survive.

Tuesday, August 4, 2015

In the UAE, local gasoline prices increased almost 25%

Oil & BIG BANG – the Government Funding Crisis on a Global Scale

Saudi Arabia pumped a record 10.564 million barrels per day in June, showing that as prices decline, a record level of production is unfolding. Governments in the Middle East have budgets that are now in serious trouble. As oil prices decline, output is increasing beyond OPEC quotas because they need money to make up for lost revenue at higher prices. In the UAE, local gasoline prices increased almost 25% as well, which is opposite of the trend because it is effectively taxation.
Saudi Arabia is the world’s biggest exporter of oil, but now the desert kingdom is looking to conquer the refining sector as well, and will become the 4th largest refiner in the world. This will put further pricing pressure on oil companies as they are all now posting the sharpest decline in profits in more than 10 years.
Welcome to the age of DEFLATION. Whatever can go wrong, will go wrong for all governments everywhere. This is BIG BANG – the government funding crisis on a global scale.

Monday, August 3, 2015

Gold peak projection - downward thrust and how steep, for the steeper the decline, the greater the projection out of that low

Gold-Silver – The View

QUESTION: Thanks for the latest posts.I have 3 queries if you care to consider them.
Some years ago you used to say $5000 and $12000 when contemplating gold’s upside.Now the latter seems out of reach.Can you indicate what caused you to
change your mind?
Secondly,regarding a possible Republican Presidential victory, does this correlate with a USD high and,if so,why?
Lastly,is a gold:silver ratio of 100 a possibility? (I have mislaid that portion of the 2014 Report which covers this topic).
Many thanks & Best Rgrds
ANSWER: No $5,000 is still the technical max based upon the patterns we have so far. Yes, that could change when the final low is in place. That depends upon the downward thrust and how steep for the steeper the decline, the greater the projection out of that low will materialize. The $2300 target is minimum whereas the $5,000 is technical target – not based upon reversals and it is independent of TIME..
We need the low to see if that projection will change from $5,000. I do not expect this target to rise above $5,000, but that is entirely possible, although certainly not beyond $12,000 which is the most extreme possibility and probably never attainable. Such a level at $12,000 appears very unlikely because the system would problem implode before that would ever develop. If government still was in control, they would be going door to door at that point confiscating everything at gun-point.
The ultimate high all depends upon the patterns creating the low – not fundamentals. Nobody in their right mind will ever step up and buy the low. So it does not matter if demand for physical coins rises or falls. That will never be enough to make the low and is more propaganda disconnected from the events in all other markets. Nobody ever tries to catch a falling knife. We need the final low before the COMPUTER will provide that target rather than my opinion.
We have been the highest paid firm in the world for decades. Clients want to know what the COMPUTER is forecasting, not my personal opinion. So I could be wrong. I find it primitive when people try to criticize me personally for it only shows their own ignorance. My opinion does not matter. I cannot wait for the day to retire and let them all argue against the COMPUTER. It becomes like politicians claiming vote for me because I lie less than my opponent. They remain trapped in a primitive world and cannot see the global connections. NOBODY can forecast the future based upon fundamentals and personal perspectives. That is in the category of a witch-doctor. We need the COMPUTER to remove the bias and prejudice. It is what it is – nothing more. You cannot be an analyst and married to a predetermined view regardless of what the instrument might be. Everything rises, falls and rises again with TIME.
When the low comes into place, then the COMPUTER will provide the projection for the high. We will have to see what comes out. The $5,000 number was exactly what I have been saying all along. That is a projection based upon technical analysis ONLY. It is not the COMPUTER forecast since we first have to achieve the low.
As far as a Republican victory, it is independent of a dollar high. We are looking at a meltdown regardless of who wins. The dollar high is simply as I have been warning that the debt crisis begins in Europe and then manifests in Japan, and finally it hits the USA last. This is even how it unfolded for the 1930s. The USA has the biggest federal debt, but the taxes are lower than Europe. The disposable income in Europe is far less than in the States so there is less room for government to keep up this insane austerity that only support bond-holders,
We will provide the silver/gold ratio update for clients. That ratio has made wild swings from 120:1 intraday to 12:1. Despite what the promoters say, there is no “fair” value to which this ratio will remain constant. It will swing back and forth. Yes, we will pay attention to it for it will also help in looking for the turn.

Gold – What Now?

GCNYNF-M 8-1-2015
While gold elected the Monthly Bearish at 1155, we did so well below that level, yet holding the 1084 number both weekly and monthly. Our energy models are turning positive so it does not appear we will get major follow-through at this time. When you elect a Bearish Reversal that far from the number, you typically bounce back to retest it before proceeding further.
We have a Directional Change back to back for August and September and July was a turning point. So, we may see a reaction to the upside to flush out the shorts at this time since we have excessive bearishness building in the press as the WSJ comment that gold is the “pet rock”.
A reaction rally at this point BEFORE new lows will relieve the short positions but this is not likely to last beyond September. Therefore we are more likely than not going to see the final decline stage into the Benchmarks. Gold is within the channel so the resistance is forming now at the 1155 level followed by 1225-1300. Support will remain at 1084 on a closing basis with key support at 900.