The Dollar, Gold, Oil and Bonds
To
recognize an opportunity and use it is the difference
between success and failure.
Author
Unknown
The
dollar came within striking distance of our first target 90
and it’s still possible it could hit the higher targets
which fall in the 93-96 ranges.
The dollar is now
due for what appears to be a strong correction and if this
correction gathers more steam it could result in a
resumption of the dollars down trend. The Feds have been
creating money at a mind boggling rate and at some point in
time this money is going to filter out from the banks into
Main Street, and then the pains of inflation will be felt.
From a mass psychology perspective too many people are
buying dollars; once again they are doing this by selling
out their positions and holding cash. Individuals think the
safe way to go now is to hold cash; whenever the majority
start to do something, it indicates a long term trend change
is about to occur.
Market
update Nov 25, 2008.
The dollar today
traded below 85.50 another important key price point and as
such it indicates that the correction is gathering steam.
During this corrective phase the Dollar should not trade
below the 83.70-84.00 ranges for more than 6 days, for if it
does, the next target will be 81. After hitting 81, it
should mount a rally and at least test the 83.00 ranges
before pulling back; if it is unable to do this then the
next target becomes 78. The dollar could potentially trade
all the way down to 75 and there would still be a chance for
it put in a new high. If however it trades below 75 for 3
days in row, then one has to seriously start considering the
possibility that the dollar might have topped and is now
about to resume its downward journey.
We were one of
the first to turn bullish on the dollar, but even then we
stated this rally would not last forever and the close below
85.50 is the first signal that a top in the dollar might
have already been set. Ultimately whether it mounts another
rally or not, the dollar will resume it long term down trend
and go on to put in new lows sometime in 2009, before a more
permanent bottom takes hold. If it mounts a secondary
rally, the downward trend will only be delayed but not
altered.
Oil
If
it trades below 63 for more than 3 days in a row, the next
target will be a test of 54.
Market update, Nov 4, 2008
Oil
has now hit almost all its normal targets we are now
entering into the extreme target ranges. Oil traded below
54, tested 51 and it had to trade above 54 within 3 days of
testing 51; instead it traded below 51 and in doing so has
now triggered the possibility of testing the 45 mark.
Market update Nov 25, 2008
Oil traded as
low as 40.50 before mounting a relief rally; as the oil
market is now extremely oversold, it is only natural to
expect some sort of rally. The current rally is going to
run into resistance at 48 and if it can trade above this
zone for 3 days in a row, it will have a very good chance of
trading up to the 56 ranges. Ultimately oil will most likely
test its lows before a long term bottom is in place.
On the other hand
Oil should not trade below 39.00-40.10 ranges for more than
a few days in a row. This zone initially provided years and
year’s worth of resistance and once overcome, this zone of
resistance turned into a fortress of support. Thus a break
below such a strong zone of support would not bode well for
the oil market and could trigger a test of 28.00.
Gold
Very Short term trend= bullish; a strong positive divergence
signal was flashed so gold could trade up all the way to 840
before pulling back.
Nov 4, market update 2008.
Gold
came within striking distance of hitting 840 as it traded as
high as 832 on Thursday before pulling back.
Since issuing the
840 target on the 4th of November, we
subsequently issued higher targets for gold; gold had the
potential of trading as high as 930 but as it has taken so
long to rally strongly, the upside targets have been lowered
a bit.
The picture
weakened after gold broke out towards the end of November,
rallied all the way to 830 and then broke down and traded as
low as 740 before stabilising. The current upside targets
are 870-900; in order to get these ranges, Gold will need to
trade past 810 once again and after doing so it should not
trade below 780 on a closing basis. It should also trade
above 780 for at least 9 days in a row. After the 870-900
ranges are tested, Gold will probably mount one final
correction, which should take it to the 720 ranges; a break
below this for more than 7-9 days will result in a test of
the 650 ranges. The next correction should provide the
basis for a long term bottom and gold will probably rally
all the way to 1200 before correcting again.
Other interesting
points
The Arab world
especially is deploying huge amounts of money into Gold
bullion. If they were worried about deflation should they
not be doing the opposite?
The Feds are so
terrified of deflation that they are willing to do anything
to prevent it, even risk hyper inflation in order to knock
deflation out; they are not just inflating the money supply
now, they are actually hyper inflating it. The reason
inflationary pressures are not hitting the world right now
is because central bankers are holding onto this money
instead of lending it; sooner or later they will go back to
the only thing they know and that’s lending money.
From a long term
perspective holding onto large amounts of cash is going to
be a very dangerous investment. On the same token we are
not advocating that one should run out and dump all their
money into the market or into gold right now. We will be
approaching a point in time where it will make more sense to
invest one’s money ( in select stocks, Silver bullion, Gold
bullion, etc) than hold large amounts of cash, for cash will
one day start loosing its value at an alarming rate. We
will do our best to advise our subscribers of this huge
change that will hit the investment world in the not too
distant future. We still think from a long term perspective
stocks are selling at prices that will most likely never
been seen for decades to come and that commodities bull
still has a long way to go before anyone can start
predicting its demise.
Bonds
We addressed this
issue briefly two weeks ago; the higher bonds trade without
mounting some sort of correction, the more severe the
eventual correction will be. We had the same view on the oil
markets and the correction it mounted indeed is now beyond
words; granted the correction jumped from severe to the
unimaginable due to the current credit crisis that has hit
anything and everything, but even if oil had only corrected
to 75, such a target would have seemed ludicrous 6 months
ago.
The current
action in the bond market is normally one that precedes a
top; in a few weeks bonds have mounted a spectacular rally
and at the very least are due for a rather strong pull
back. Investors are jumping into treasury notes and bond at
such a rate that one would think the Dow was going to drop
to zero; they are willing to earn almost nothing for the
illusion of safety. In under 30 trading days bond have
surged over 22 points, a gain of almost 20%; this massive
surge is unprecedented on two fronts, one in terms of speed
and the second in terms of the actual depth of the move.
To put this move
into perspective consider the following; around April of
2003, the Feds were once again huffing and puffing about
deflation. Bonds suddenly mounted a massive rally (very
similar to the current one) and they tacked on roughly 13
points for a gain of roughly 12% in 3 months.
The
move from April 2003 to June 2003 pales in companion to the
current move; the current move (illustrated below) is almost
vertical and looks monstrous compared to the one above. The
yield on the 10 year note has moved from 4.023 (Oct 14) to a
current low of roughly 2.6% (Dec 4) in roughly 7 weeks and
it has left treasuries at levels not since the 1950’s.
When one looks at
the first chart and then at the second chart, one gets
glimpse of just how dramatic the current move really is.
History clearly indicates that when the masses stampede the
end result is always negative.
In 2003 after
the brief rally that lasted roughly 3 months, bonds mounted
a very strong correction, surrendered all the gains in less
than 2 months and went on to put in new lows. Will the same
thing occur again? We think there is a strong chance that
this pattern will manifest itself again, it might not occur
at the same pace as we are now dealing with levels of mass
hysteria that are almost unprecedented in nature, but once
the masses snap out of their fear induced stupor, expect
bonds to mount a very hard correction. Note that when bonds
rally, interest rates drop and vice versa.
You
need an infinite stretch of time ahead of you to start to
think, infinite energy to make the smallest decision. The
world is getting denser. The immense number of useless
projects is bewildering. Too many things have to be put in
to balance up an uncertain scale. You can't disappear
anymore. You die in a state of total indecision.
Jean
Baudrillard
French Postmodern Philosopher, Writer
Charts provided
courtesy of
www.prophetfinance.com
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