Dredd Market Report

Gold - More Cycles, Fractals, and Updated Targets

noreply@blogger.com (Dredd Evry) — Thu, 09 Dec 2010 01:32:00 +0000

As we wrote about last week, gold appears to have put in place a short-to-intermediate term top. For some detailed references in this post, please make sure you understand how to read the cycle charts.

Though last Friday wasn't THE top in the gold market, it did occur over the late session between Monday and Tuesday. As we mentioned before, the chances of a top were good, as noted by bearish divergences and the beginning of the down cycle period. There was a risk of a breakout when the gold price broke over the old highs, but it was negated as the price quickly came down. We are, once again, at an interesting point.

The chart below is the updated GLD ETF cycle chart, used so we can analyze market volume quickly. Note the circled "H" that occurred last Thursday, which was a warning of an impending top. We noted that the top would likely be within 1-2 days of this marker, and the top did occur between Monday and Tuesday in overnight trading. Today the price bounced off of the instantaneous trendline. We will need to see a solid day or two below today's lows to confirm that the trending state is over, and a reasonable pullback in the gold price is underway. That is, we must see the price fall below the instantaneous trendline until we get an "end of trend" sell signal. Presently, we do not have this, but another day like today will satisfy this condition.

Note that the down cycle, if this is to be a short term cycle, is already roughly 1/4 of the way through.

While the head and shoulders pattern we discussed is technically out of the picture, the chance of a double top (which is essentially the same issue at hand) is present. We're still watching the 1360ish range as a neckline that would indicate a much strong downward move in the mix. Most of the technicals discussed last week still apply. We encourage you to review those two posts.

This week, we add a new element into the mix--the fractal turn signal. Below is the GLD ETF chart with a fractal indicator at the bottom instead of the cycle indicator. We keep the cyclical supportive and resistive lines on the chart as references (remember, they act as "magnets" for the price)

The bottom section of the chart shows color-coded volume data. Whenever a red bar shows up, the implication is that within the next 5 bars, there's a change in price direction. So, if the trend is up and the cycle turns negative, we look for a fractal indicator (and/or a Japanese candle "end pattern") to attempt to locate tops and bottoms. You can see a fairly recent rash of turn indicators showing up that helped forecast the recent top.

By using a combination of cycles data, fractals, and traditional technical analysis--which all use very different techniques--a higher probability of a correct diagnosis of a turn is possible.

One of the more difficult challenges with cycles work is correctly interpreting which cycle is dominant at a given time. Here is a 3 year GLD weekly cycle chart.

Note that the only time that the price has fallen below the instantaneous trendline ("IT") was in 2008. In fact, with the exception of that period which was the strongest pullback in gold price in percentage terms during the entire bull market, the price has simple bounced off of the IT during a correction.

The IT is currently around 1285. The 150 dma is at 1270. The 150 wma is at 1032. Key fibonacci retracements are at 1327, 1295, and 1263, respectively. There is obvious support between 1250 and 1265. The dollar is still in a weekly uptrend and daily downtrend, but not likely to rise much higher. Thus, we believe that the best case for a gold price pullback is in the 1270 - 1285 range. This is a change from our previous forecast of 1250, largely because the price has stayed higher than expected which have forced the trendlines to stay higher.

For the time being, silver is outperforming gold, but as the ratio is now down from 70ish to 50ish, the intermediate term outperformance is likely ending. Our target is the 47ish level. Note that the gold/silver ratio has not dropped below 46.74 since this bull market has begun. Unless we're near the end of the market, gold is likely to begin to outperform. We're taking profits on SLW, which has more than doubled in the last year.

The gold miners have broken out and are outperforming. We expect this trend to continue as long as oil stays below $100--likely for another quarter or two.

Einhorn Makes a Fool of a Former Fed Governor

noreply@blogger.com (Dredd Evry) — Tue, 07 Dec 2010 02:01:00 +0000

After all of the years that we've been talking and reading about these issues, and all of the years while the masses have actually been knee-deep in the economic crisis, you'd think everyone gets it by now. Einhorn schools a former Fed governor.

Maybe, just maybe, you'd best get a plan together for when this all goes wrong. If you plan involves a bunker, food supplies, and ammunition--you've already lost.

On Gold - Tuesday Will Tell the Tale

noreply@blogger.com (Dredd Evry) — Mon, 06 Dec 2010 22:09:00 +0000

Silver smashed through resistance today, and if that's any indication, we may not get that gold pullback. Gold is right at the critical level, and unless it just stands still in the next 24 hours, either the pullback begins or the head and shoulders thesis is out. Again, we're largely overbought again with momentum now in the territory where pullbacks have occurred with consistency. At the same time, the divergences have begun to fade a bit. Let's put it this way, a strong daily close above 1424.40 will attract more momentum buying and carry the price higher. Since we're less than $2USD away, we'll likely see how this is going to play out within 24 hours.

While we are big gold bulls, the current trend makes us a bit nervous. Either we're going to get a strong down move soon, or people are going to be bartering for food in light of the destruction of fiat currencies within the very, very near future. Which direction it's going, we can't say yet. One way or the other, hold on because it's about to get bumpy.

Daily GLD Chart Update - How To Read This Chart

noreply@blogger.com (Dredd Evry) — Fri, 03 Dec 2010 17:31:00 +0000

This post was originally penned yesterday, but given a few conflicting client meetings, we were unable to post it. The markets are acting a bit out of turn today with stocks lower, dollar lower, and gold up. See our post (keep in mind most of it was written yesterday) below to get a better sense of where we believe things are going. We'll update briefly this evening with the latest to see if we're on track.

The original post:

Though the USDX was down today, gold was unable to break above 1400. As we mentioned previously, we believed that the dollar would run out of steam and turn lower, but gold would not react and would move down. To understand that position a bit better, take a look at this chart.

Again, here we use the GLD ETF chart because it's quick to analyze on a day-to-day basis. There's a lot going on in this chart, and we hope to step you though it in a way that makes sense. We recommend opening the chart larger in another tab in your browser for easier viewing.

Note that prices are on the left and dates are along the bottom. The blue candlesticks are up days (traditionally clear or "white" candles) and red candles are down days for GLD, and by proxy, the spot gold price. The upper right hand corner shows some important stats: the day's open, high, low, and close (in parentheses), the low and high values for the time period being measured (108.8208 and 139.15, respectively), the mechanical model for what market phase we're in (in this case, a bullish uptrend with an averaged trendline at 8.5 degrees above the horizontal), and finally the period of time being measured, including the number of candles (bars) on the chart.

The upper left hand corner shows what moving averages are on the chart. First, the very important 150 day simple moving average in red, the 4 day weighted moving average in orange, and the instantaneous trendline in dark green (more about that below)

The bottom section is the Hilbert Transform sine wave. There are two lines, one red (the sine wave) and one black (the lead sine wave). At any give time, the values of these waves oscillates between 1 (at the high end of the indicator) and -1 (at the lower end of the indicator), with the 0 line being shown as the horizontal dotted line in between. Under the title at the top center are the values of the sine and lead sine for the day.

Before we discuss the other indicators on the chart, it's time for a little theory. Mathematically speaking, we can define the price movement over time of any security as a combination of a cycle and a trend. That is, the price moves up and down in a cycle that is reasonably predictable and statistically measurable. However, sometimes prices just take off up or down for long periods in a trend. Traders tend to look for trending movements and indicators that point to a trend likely developing. This is because the big money is made by getting into a trend and riding it out. Markets that "move sideways" are often very choppy. Traders tend to lose money in these markets because it is difficult to call the tops and bottoms of moves. The general momentum trading strategy is to get into a trend early and ride it until it fades, then find another trend and jump on board.

The Hilbert Transform is a way of determining when something is trending or cycling. When cycling, we have found the Hilbert Transform to be very, very good at picking tops and bottoms. When trending, it is best to use other indicators and use the Hilbert Transform as a secondary indicator.

With that said, this chart shows you how to determine what's occurring with the price of a security in terms of cycles or trends (it's something we've developed internally to show this specific format). When trending, ride the trend. When cycling, sell when the cycle turns.

Looking at the sine and lead sine waves at the bottom, the key is to follow the red line (sine wave). When the sine wave peaks, a turn to the downside is likely as long as the security is in a cycling mode. If the security is in a trending mode, then any pullback is likely to be minor and not worth selling. The black line (lead sine) is mathematically computed as a predictor for what's about to occur with the sine wave. As the name implies, the lead sine wave leads the sine wave just slightly, so when it turns back down and crosses the sine wave, you know that a cycle turn is imminent. When this cross occurs, two visual indicators are placed on the chart. The first is a red (resistive) or green (supportive) circled "H" with a white interior and a gray vertical dotted line. This means that a cyclical turn is ABOUT to occur (in 1/16 of a cycle, or typically 1-2 days). Note that we have such a red circled "H" with white interior today. Once the sine has topped (or bottomed), a red (resistive) or green (supportive) horizontal dotted line is drawn at the approximate resistive or supportive level as a reference.

We should take the cycle tops and bottoms as warnings of a possible turn. If the underlying security is behaving cyclically, many times the turn will be exact or off by 1-2 days at most (we look at fractals and other signs for confirmation). Often, however, we will see some "overshoot" of the high (or low) point that lasts for a few days. As long as the security is not trending, the price tends to "hang around" the red or green line. These lines should be viewed as "price magnets." It is common that if the price overshoots, it will not overshoot longer than 1/4 of the cycle. If the price overshoots resistance, at 1/4 of the cycle we will get a green triangle indicator. If the price overshoots support, at 1/4 of the cycle we will get a red diamond indicator. These will also often mark points when we get turns during an overshoot whenever the security is cycling.

For securities like gold, which is in a very strong bull market, the security tends to trend more than cycle. Cycling tends to occur after a major trending move when you get a strong pullback in price--then you get a period of base building, characterized by a range-bound trade of ups and downs. That period is a cycling period. When the price breaks up or down outside of that range, it is more-often-than-not the beginning of a trending move. The instantaneous trendline (dark green) is a mathematically computed line that attempts to remove the cycling component from the trend. Said another way, the instantaneous trendline shows the price trend at any given instant without the cycle tendency being included. When a trend begins, price will often ignore the cycle tops and bottoms and start moving consistently above or below the instantaneous trendline. The beginning of a mathematically computable trend is marked with a red (downward) or green (upward) circled "H" (note that it is a solid color, not "hollow" like the cycle indicator)and a vertical, solid blue line. At the end of a trend, a cycle period is likely to take over.

While that's a lot of data, it is easier to see on the chart. From the 4/1/2010 date, we can see the gold price staying above the instantaneous trendline in a trending pattern (bouncing off of the instantaneous trendline frequently). On 7/1/2010, the price fell and ended the upward trend (shown with a solid red circled "H" and a blue vertical line). On 7/9/2010, the cycle indicator showed a potential turn to the upside (which we held out for waiting for a bottom at the 150 dma). On 8/4/2010 the gold price began to trend upward again after having bottomed for one cycle (frankly, we expected it to cycle longer than that, but...). The price has continued to trend upward to today, with a possible warning that states tomorrow may be a short term gold top.

If you had been following this chart, you would have bought on 2/17/2010 (not shown on the above chart) at the beginning of the trend at roughly $1100 per ounce, sold on 7/1/2010 at $1200 per ounce (9% profit), bought back at $1155 per ounce and you'd still be holding today with a potential signal to sell around $1400 (21% profit or 30% profit total since February). It's not clear whether or not the top will be reached on December 3, but the current situation presents itself as a possible top. If so, selling near Friday's highs (at least lightening up) may be advisable. A price drop below 1360 for a day or two implies the trending move will be over and a period of consolidation will be in order.

You can see that, in bull markets, the trend is to have short positive cycles and long trends during negative cycles. The reverse is true for bear markets.

Note that cycles occur in all timeframes--daily, weekly, monthly, etc. At any given time, one cycle may be the dominant cycle that must be paid attention to. Currently, the weekly and monthly cycles are negative, but trending. The weekly cycle has only stopped trending once in the last 10 years and that was during the credit crisis of 2008.

Note also that we also use fractals to determine the likely day (week and month as well) of the top or bottom. When combined with other indicators, especially the Hilbert Transform, turns become much more predictable than with traditional indicators alone. Gold currently has some signs of a possible downturn on both the daily and weekly charts. Only a sustained move above the former highs will negate that possibility.

At this stage, we believe we're overdue for a gold pullback. Let's see we see a top on Friday.

Gold: From the "It Ain't A Pattern 'Til It's a Pattern, But" File

noreply@blogger.com (Dredd Evry) — Tue, 30 Nov 2010 16:36:00 +0000

The dollar rally is extending a bit further than anticipated in the last report, though we're on target in the original forecast area for an 81-ish handle on the USDX, though there's a case to see it extend to 82-ish. We doubt that this rally has much longer, but time will tell.

The USDX chart below shows the probable targets. It appears that we're in an A-B-C correction (a bull flag) from a larger downtrend with a target in the 150-dma-to-200-dma range at the 81.74 - 82.00 range. This corresponds also to a 50% retracement from the June highs of 88.71 and the target of the A-B-C retracement. RSI is approaching overbought and the stochastics are overbought. Cyclically, the dollar should be in a down daily cycle, but more EU fears continue to make it trend higher. We do not anticipate a break through the 200 dma to be sustained more than intraday. If we're wrong, that means the dollar is going to enter an intermediate term uptrend.

The implications for gold are interesting. Since last year, gold has been moving up whether or not the dollar has moved up. This is because gold is now a safe haven regardless of currency it is being measured against. Since the bull market began in 2001, gold has had only 1 major correction--the 2008 deleveraging episode. Since then, central banks have kept liquidity high (forget austerity--that's for the peasants, not for the banks) which has allowed only modest gold corrections. It is unclear what fundamental event could force the price of gold down in any significant way at this stage. Perhaps another liquidity crunch that forces deleveraging (unlikely as long as any monetary regime has fiat currency and a central bank), or perhaps a sustained period where the illusion that "the major problems are solved" reigns supreme. Regardless of the fundamental event that justifies such a dramatic sell-off, the gold picture may be presenting such a scenario. Below, we use the GLD as a proxy so the volume information can be easily analyzed as a useful indicator:

As the title of this article states, "it ain't a pattern 'til it's a pattern, but" we're setting up for the first opportunity in some time for a meaningful reversal in gold price. Note that we have developed a left shoulder, a head, and what appears to be a right shoulder in development. The shoulder heights are symmetrical, but if they are to remain so, today will likely be the short term peak in price. The neck is modestly upslanted, meaning that the degree of sell-off may not be as strong as the pattern should count downward. The volume pattern supports a developing head-and-shoulders pattern. The initial left should peak climaxes on peak volume, sells off on lower volume, and has a minor rally at the low point. The head is formed at higher highs on higher volume. The right shoulder rises on lower volume. This is a classic sign of a trend running out of steam.

In support of this position are the MACD, ADX, and MFI, which have all been in a downtrend (bearish divergence) since the top of the left shoulder formed in late October:

Short term momentum disagrees and is still rising, but this is a shorter term indicator and will turn over only after the first day sell-off begins. RSI and stochastics are not overbought, however.

It seems gold is at a crossroads. If it continues to move upward with momentum, the h&s pattern will likely not form. If, however, short term momentum weakens, then any reasonable retracement will likely activate the h&s and lead to an intermediate term sell-off. The answer may lie in timing:

The above chart can be complex to explain. It attempts to mathematically measure the cyclical behavior of the underlying security and provide indications on when the security will "obey" the cycles or ignore them and trend in some direction. With gold in a bull market, clearly the bias is to trend up. The above chart shows gold trending up against any cyclical "magnets" that should cause it to sell off. It is currently in a short term up cycle, but that that cycle is halfway through (approximately 5 more days of "up" time) and behaving very cyclically (as opposed to trending). Unlike most indicators, the Hilbert indicator above is predictive and not based on moving averages or other time-delayed data. In short, we believe that there is a good chance of a turn in the next 5 days that may activate the head and shoulders and produce a significant sell-off in gold (and corresponding buying opportunity when the weak hands are shaken out).

Head-and-shoulders patterns are reversal patterns--meaning that if it becomes active (as in, the price breaks below the neckline)--we should see a downtrend occur that has some moxie. The pattern target would take it below the short-term Fibonacci retracements toward the 1225 level as a minimum downside target. If we see a true intermediate term sell-off ala 2008, the target price will be closer to $1000. We know, we know--no one believes that can happen (even us). However, that's exactly why it might. Note that you don't hear anyone out there talking about this pattern, which usually is a sign that it may just happen.

In summary, the preponderance of the evidence suggests a correction is coming. It may be significant.

Here's what you need to watch:

Gold price cannot move much higher than today's high without putting the h&s pattern at risk. If we see a higher price movement, especially higher than the previous high, the trending will continue higher and a major sell-off will have to wait
It is possible that a sell-off will only go to the neckline and not activate the pattern (somewhere near the 1320 level). We need to see a break through this level on volume to get a bigger sell-off. This is the first stop now for a bounce.
If the price breaks through that level on strength, the next level to watch is between the 150 and 200 dma in the 1250 range. A sell off that doesn't stop there will see 1225. It is in this region that we believe is most likely to hold.
A sell-off that breaks through 1225 may well see something around 1000 - 1050. This is an outlier, but a possibility. At some point during this bull market, we expect to see a sell-off that will shake the confidence of the most die-hard bulls before moving to truly unbelievable highs.

We'll know a lot more about the possible outlook within a week.

Americans Are Cattle

noreply@blogger.com (Dredd Evry) — Fri, 19 Nov 2010 16:21:00 +0000

Ron Paul is one of the few people that Americans have on their side in government. It's amazing he's still alive.

Here he comments on TSA's ridiculousness and the passive behavior of the citizenry.

If you're an American, you must know that history does not treat the passive well. The direction things are going is not good. You should fight it, but you should also have a backup plan in likely event that you are not successful in your fight.

American is becoming Land of the Fat, Home of the Cattle.

Oh Sweet Irony of Democracy

noreply@blogger.com (Dredd Evry) — Thu, 18 Nov 2010 15:22:00 +0000

In theory, the United States is a republic. The purpose of a republic is to avoid being a democracy--which has never survived long--by ensuring that people cannot vote themselves entitlements from self-serving politicians. However, once people realized they could vote in politicians that would promise bread and circuses, the game was over and democracy won. Instead of minarchist form of government, the US now has tyranny of democracy. The video below shows some simple, practical implications of this behavior.

In summary, most Americans want government to clean up their fiscal house--as long as it doesn't affect them personally. Anyone capable of 2nd grade math can easily see that Social Security, Medicare, Medicade, and defense spending are the only areas where MAJOR cuts can be implemented to even possibly put the fiscal house in order. However, most of the people polled, notably "conservatives" (if only they actually were), were not interested in actually cutting any of those programs.

Indeed, the lesson is clear. There will be no end to bread and circuses until the system implodes. This is not a uniquely American problem by any stretch of the imagination--the whole of the western world is cratering under a debt load because of the simple fact that people are self-serving first and foremost. There's not much else that you need to know about people--they protect themselves first. Politicians work to get re-elected, voters work to keep bread and circuses. The world is quite simple.

Aside from Joe Kernan's ridiculous attempt to defend Republicans as fiscal conservatives while the data shows that that's more idealistic than realistic, it's quite interesting. Now you know why we take our particular stance in so many matters.

Wednesday Dollar Rally Update and Entertainment

noreply@blogger.com (Dredd Evry) — Thu, 18 Nov 2010 00:58:00 +0000

Based on our best internal measurements, the dollar rally probably has a day or two left in it at most. Though it didn't feel like a rally today, the dollar rose during US market trading hours after pulling back overnight.

From a daily cycle point of view, the euro has completed a 50% retracement from its August 24 lows and the dominant daily cycle has turned positive. The USDX chart shows a similar cyclical downturn. Unless the cycles invert, we're near the end of the up move for the dollar--at this stage, we're simply waiting on a confirmation.

Gold appears to have broken out of its trending move and appears due for further downside and a few weeks of consolidation. We believe that the dollar/gold correlation will break down for 5-7 trading days as gold continues to move down toward 1280 and begins a consolidation process. We may have a day or two of bounce as gold moves off of its 50 dma, but we're still under the belief that the downside move is not yet over.

Tonight's entertainment is not "family friendly," but is entertaining nonetheless. It is a sarcastic, crude parody of Vince (of "SlapChop" and "Sham-WOW" infomercial fame) pimping a scanner for TSA to make people fill better about their naked scans. Very entertaining.

P.S. The newsletter is still coming! We're behind on getting everything done, but it will be out soon! If you haven't signed up for it, you won't want to miss it!

Intermediate Term Dollar Rally / Gold Pullback Possible

noreply@blogger.com (Dredd Evry) — Sun, 14 Nov 2010 17:42:00 +0000

In reviewing charts this weekend,there exists a good possibility that the dollar rally could end up stronger than originally anticipated. On the weekly GLD and UUP ETF charts, used because they show relevant volume information, there are both cyclical and fractal signs of a top in gold and a bottom in the USD. The upcoming week should confirm the move. Assuming it does, we're looking for a multi-week pullback and multi-month consolidation period.

We are particularly interested in the 1280-1300 range for gold at this time and will be looking for signs of a reversal at that stage. If this is an intermediate term correction, it will be marked by a move below 1240 with a possible, worst case low in the 1050-1100 range. We don't anticipate it being that much of a pullback at this stage, but the possibility exists. It is more likely that a move to 1240 would be a best case pullback for bulls looking to add to positions. We probably won't be that lucky...

What You Should Know - The Real Life Social Network

noreply@blogger.com (Dredd Evry) — Fri, 12 Nov 2010 21:57:00 +0000

In an attempt to ever understand mankind's own predictable, herd-like behavior, we frequently spend time looking for information about that behavior. Social networking sites like Facebook, My Space, Twitter, Foursquare, and others are dynamically transforming the internet, and in the wake of this sweeping change people are mindlessly handing over their private information. We believe this information can, and if history is any guide, will eventually be used against the masses--not to mention that every business on the planet will soon be treating you like the mindless animal you actually are.

The presentation below is very informative as it speaks to the social organizational structure inherent in all our brains--the structure that puts us all most at risk to people that want to exploit our unconscious tendencies. We recommend using the information so that you are more informed as you make online social networking decision.

The Real Life Social Network v2

View more documents from Paul Adams.

One More for Friday - Nassim Taleb on the Fed

noreply@blogger.com (Dredd Evry) — Fri, 12 Nov 2010 20:00:00 +0000

This one's self-explanatory. Taleb chastises QE as a high risk move whose risk is being ignored by the Fed.

Jeremy Grantham Interview on CNBC

noreply@blogger.com (Dredd Evry) — Fri, 12 Nov 2010 17:03:00 +0000

We're not particularly big fans of CNBC, but occasionally they produce a gem. The following videos with and about Jeremy Grantham are interesting, given where we are. We're not entirely on the same page with Grantham philosophically, on the Fed controlling money supply, or on timing--we're still of the belief in a fairly shallow pullback here in asset prices, then a further run up to a significant intermediate term top next year. Being Austrians at heart, our take on the situation is quite a bit different, but who are we to question Grantham? :)

Enjoy.

On Politics...Rights, Priviliges and Freedom

noreply@blogger.com (Dredd Evry) — Wed, 10 Nov 2010 16:37:00 +0000

As a general rule, we have little to no faith in politics. After all, the purpose of government is to govern (at least in theory), and governing implies controlling. We don't particularly feel the need to be controlled, nor can we, in good conscience, support a system that seeks to control us or others. We tend to align ourselves philosophically with the Founding Fathers of the United States, which we believe are turning over in their respective graves at the ridiculousness of the conservatives, liberals, Republicans and Democrats--all socialists in our book--and we believe in the book of the Founding Fathers.

You see, the inherent problem in government is that it is supposed to govern. However, the Founders believed in individual sovereignty--that each person governs himself. It is quite clear from the Declaration of Independence and the Articles of Confederation (to a lesser extent, the Constitution) that the design of the law of the land was to limit government, not individuals. Today in American politics, the debate is never about individual sovereignty, it is always about which rights the political system should be allowed to trample upon. America, as a country founded on the key principles of individualism and freedom has been gone a long time now. The countries of the world only exist in various forms of collectivist state control, or statism. Some are more controlled than others, and some are so incompetent that they can't control anything. Most states are at odds with other states--and this is the central key to our current tenet in living free. But we digress....

It appears these days that everyone believes that some person or body of persons must dictate how everyone should live. This is a far cry from the intent of the Founding Fathers, whose philosophy was built on the concept of natural, inalienable rights. The idea of natural rights is rooted in the writings of John Locke, Thomas Hobbes, Jean-Jacques Rosseau, and the ancient Greek and Roman philosophers including Plato and Aristotle. Unlike today's typical politician, much less the typical citizen of most any country, the Founding Fathers were well read and used that knowledge to create a minarchist (meaning "minimal government") system of government that revolved around the concept that the individual had natural rights (call them inalienable, God-given, whatever you wish) that supercedes the laws of man, and the only purpose of government was to protect those natural rights. This is the crux of the problem today. People that believe they defend freedom and the core values that helped make the United States the most prosperous and free country in the history of mankind erroneously believe that governments determine their rights. If this is the case, then rights are just laws with no particular meaning and can be changed on a whim. As the US has become a democracy instead of a republic, then enough people can vote in politicians that change the laws to suite their desires, and the end result is a tyranny of democracy--a dictatorship of the many.

Governments do not bestow your rights. Governments cannot ever take your rights away. Governments can only violate your rights, and when they do, they restrain your freedom. This is in direct violation of the principles of the foundation of the United States.

What exists today is not freedom. It is not the intent of the Founders. It is not what made the United States the beacon of freedom and prosperity that it was for a couple of hundred years.

So what can you do about it? You can become politically active. You can try and educate yourself and others (good luck with that!). But the reality is that it is not likely to be effective until the entire system breaks down and the illusions of freedom that people have disappear. Meanwhile, Americans--as an example--will continue to vote for their favorite red or blue team. The socialists on the coast will complain about the socialists in the interior and vice versa. Both groups will call one another names and point fingers while never realizing they are really not much different at all on the important issues. Eventually the snake eats its tail.

It is our opinion that the best option for people that "get it," regardless of where they are in the world, recognize the reality around them and take action to defend themselves and their families. Let the statists, of whatever color, fight amongst themselves. You can live free in an unfree world if you take the time to learn how. You must learn to protect your privacy and use multinational, legal techniques to protect your economic and social freedoms. You must learn to exist between the bickering states, maximize your options, and be willing to go where you can do what you want to do. This is what freedom is: self-governance. It is possible today. It may not be possible if you wait too long. Sign up to our newsletter to learn more.

Looks Like We're Getting That Dollar Rally

noreply@blogger.com (Dredd Evry) — Wed, 10 Nov 2010 05:49:00 +0000

I can almost guarantee that when my stops get hit, that means that my decision was on the money. An updated view of the GLD ETF shows that today's volume spike was large and was a clear reversal day. It is likely that gold's move down has begun.

Note that our cycle timing model does not support the notion that this move down will likely last very long. We're looking at the 1280-1300 range as a possible floor for this move. Larger downside moves are possible and will definitely come at some stage. We will keep an eye out for signs of an upward turn.

The HUI (GDX) and silver both confirm the turn.

Ron Paul on the Fed, QE2, Inflation, Debt Bubbles, Devaluation and Krugman

noreply@blogger.com (Dredd Evry) — Mon, 08 Nov 2010 16:48:00 +0000

As usual, there are few voices of reason in government aside from Paul and, to a much lesser extent, a few others. Our belief is that, while these people are the only hope for the US, they will always remain the minority. In aggregate, government is a destructive entity that cannot be corralled, controlled, or sustained. You should take steps to protect yourself and your finances. It is unlikely you will convince a few hundred million people to vote the right way and make significant changes. The end of this game will be very, very destructive to individuals. Either you can spend your time preparing yourself and your family (history shows that riding it out doesn't work in the vast majority of cases) or you can fight to change everyone else's mind. The decision is yours. Consider it carefully. History does not look kindly upon those that make the wrong decision. Our mission is to use the lessons of history and the regulations available today to help individuals navigate this storm.

There will be no "do-overs" if you're not prepared. Contact us if you'd like a free consultation. We work with clients from all over the world--not just the US.

November 7: Week in Preview....

noreply@blogger.com (Dredd Evry) — Mon, 08 Nov 2010 04:48:00 +0000

We'll be launching the newsletter later this next week. The first edition will be be more abbreviated than will future editions as it will only be a couple of weeks before the next edition is released.

To summarize, it appears that the US dollar will be rallying starting this week--either that or a crash is brewing. While the latter is possible, we're not convinced we're there yet. We anticipate a short term pullback in asset prices associated with a dollar rally, a continued run up in asset prices shortly thereafter, then an intermediate term rally near the end of this year or early 2011.

First, a look at the USDX.

From the monthly chart we can see that the trend was and is clearly down from the 2000 - 2002 triple top, with the 80 level serving as the critical pivot point. The 2008/2009 and 2010 tops near the 88/89 level appear to support a double top, implying that the lows at 70.70 will be tested at some point in the next year. However, there is an upward trend from the 70.70 level lows of 2008. The larger configuration is a symmetrical triangle. Currently the dollar is right at the lows with any further significant breakdown signifying a run toward 52 on the USDX as the minimum objective of the dollar. There is plenty of room on the RSI and slow stochastic to allow further downward room longer term.

The weekly chart shows a closer look at the upward dollar trend. The upline has been violated, though the weekly close is above the line. We take this as a sign of a possible intermediate term rally (though we don't favor those odds) beginning soon, but the uptrend is not strong enough to support a major bottom. IF we assume that a rally is already in the cards and has started as of Friday, November 5, it's unlikely that the rally would exceed the 80/81 level. The RSI and slow stochastic are oversold. We will look to the daily charts to determine when a countertrend rally may begin.

The dollar has completed a bear flag. A significant move down from here that stays below the 76 level for a day or two implies a large downside move is coming. If a rally is going to start and be sustained, it will have to start soon. Our short term dominant cycle model provides some incite. We use the UUP dollar ETF to provide short term timing using a modified version of a Hilbert transform and a fractal formation. These models show a possible short term low took place on November 4.

Note the cycle model shows that we should see a turn when the black line at the bottom of the graph crosses the red line. That appears to be within a few days if the dollar rallies, so we anticipate the dollar rally will be short term, not intermediate term.

The red volume bars in the lower portion of the chart signify points where a turn is likely to have occurred. The last occurred on November 4. Based on the additional evidence, we believe that a short term turn has begun.

Do asset values concur? The evidence there is not clear yet, though it is not uncommon for a turn to occur in one financial security before a highly correlated security makes a turn.

On the weekly charts, you can see gold's inverse head and shoulders breakout. The intermediate term target of roughly 1400 has been reached. It would take several days of sustained rally above 1400 to play the momentum to the upside. At this stage, short to intermediate term pullback appears to be in the cards. We suspect that the pullback will be short term with an intermediate term pullback coming in spring of 2011.

Note that gold is overbought on the RSI for the daily, weekly, and monthly charts. As we reported last year, whenever gold has shown up as overbought in all three timeframes, whenever the pullback does occur, it is typically very strong. We don't expect this strong pullback to come immediately, though we would not be chasing gold here except as a trade. If the dollar were to continue to fall and gold sustained a run above 1400, it may imply that the dollar move down is becoming disorderly--fundamentals are taking over and hyperinflationary risk is high.

Using GLD as a proxy for the timing model, we see similar timing as we see in the dollar for a turn--implying a short term pullback for gold, not an intermediate term move.

Short term, the S&P is largely overbought.

Much like gold, we anticipate a short term pullback followed by a continued by a continued liquidity-driven run up in asset prices. The S&P has a target of at least 1250 as it executes an inverse head and shoulders pattern.

It is likely that by Wednesday the 10th, we'll either be in a consolidation/pullback mode. More updates mid-week and more detailed information will be in the newsletter.

Working on Gold/Currencies Analysis

noreply@blogger.com (Dredd Evry) — Sat, 06 Nov 2010 00:39:00 +0000

It will likely be this weekend before weekly market analysis is complete. There are several confusing signs out there. Thus far, the preponderance of the evidence suggests we may be at a very short term turn up for the dollar and a sell-off in gold. This is likely not going to be a substantial move, and the dollar is not likely to exceed 80/81 on the USDX. We're currently looking at other markets for confirmation. Once the analysis is done, we will post the results. It will be done before markets open Monday morning in Asia.

From the "Those Who Can, Do, and Those Who Can't, Teach" Files

noreply@blogger.com (Dredd Evry) — Fri, 05 Nov 2010 16:43:00 +0000

We stand in amazement at how many economists seem to not understand economics.

Perhaps, instead of Galbraith's recommendations, we could simply all print however much money we need so no one has to worry about working anymore. It follows the same logical principle..

Galbraith is right from one perspective--no Republican is going to live up to the promise of cutting any significant costs. The "reality" that said politician will never work again if s/he delivers on the promise of cuts will sink in and eliminate any chance of cutting anything substantial. The sheep know no for which they ask.

This insanity knows no bounds. Readers had best take specific actions to protect themselves. No one else is going to, and these decisions will have very real consequences.

Happy Guy Fawkes' Day

noreply@blogger.com (Dredd Evry) — Fri, 05 Nov 2010 14:52:00 +0000

"Remember remember the fifth of November

Gunpowder, treason and plot.

I see no reason why gunpowder, treason

Should ever be forgot..."

On this day in 1605, the Gunpowder Plot was uncovered, ultimately leading to the torture, death and martyrdom of Guy Fawkes. This day is typically celebrated for the survival of the King instead of the the celebration of the plot itself, though given our modern times the purpose of celebration appears to be changing.

There are those that believe that the votes they so recently cast are the modern form of revolt against slavery. We don't share that belief. We tend to believe more in the Aldous Huxley-esque vision where mankind enslaves itself while believing it had free choice. At its core, we believe that to be free--truly free--man must have privacy, economic freedom, and be knowledgeable about history, economics, and human behavior. Our mission is to try and convey that information to help others and allow them to make herd-independent choices. Sign up for our newsletter, the first issue of which will be out soon.

In other news, the USD tripped our stops yesterday and immediately turned to the upside today. That's the kind of market we have, folks. We're preparing the end of the week market view for posting later tonight.

In closing....

"Voila! In view, a humble vaudevillian veteran, cast vicariously as both victim and villain by the vicissitudes of fate. This visage, no mere veneer of vanity, is a vestige of the vox populi, now vacant, vanished. However, this valorous visitation of a bygone vexation stands vivified, and has vowed to vanquish these venal and virulent vermin vanguarding vice and vouchsafing the violently vicious and voracious violation of volition. The only verdict is vengeance; a vendetta held as a votive, not in vain, for the value and veracity of such shall one day vindicate the vigilant and the virtuous. Verily, this vichyssoise of verbiage veers most verbose, so let me simply add that it's my very good honor to meet you and you may call me V."--V for Vendetta

Out of Popcorn: FOMC Announcement

noreply@blogger.com (Dredd Evry) — Wed, 03 Nov 2010 18:30:00 +0000

From the horse's mouth. In short, the move was roughly in line with expectations. Initial "vindication" rally in the euro and stocks. Now we expect a reversal for a few weeks with a dollar rally and stock market pullback (starting to get that now) before the market moves higher and the dollar moves lower.

Dramatic moves in currencies. Amazing. More on this later.

Get your funds ready for precious metals purchases.

Press Release

Release Date: November 3, 2010

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.
Statement from Federal Reserve Bank of New York

With Bated Breath....

noreply@blogger.com (Dredd Evry) — Wed, 03 Nov 2010 17:47:00 +0000

Popcorn ready. Stops in place. Waiting for Helicopter Ben and Turbo Tim to tell us much they're going to print up. We're still anticipating the marketing will be disappointed, though we must add that the dollar is very close to key support. A break here is a virtually guaranteed visit to 74 for a quick coffee and 70/71 for counseling.

Below that rests a lot of space and a lot of guesses.

Let's see if Ben can print money and still force a short term dollar rally.

Best grab a strong drink, too...

More after the announcement and some analysis time.

Paul Brodsky on Gold, Paper Currencies, Inflation and Deflation

noreply@blogger.com (Dredd Evry) — Wed, 03 Nov 2010 14:47:00 +0000

Longer term readers and those that know us personally will find Paul Brodsky's comments from his presentation at the BCA Fall Investment Conference on October 25 very familiar. Read the full text at Ritholtz's Big Bicture blog, but we'll highlight select areas:

From 1994 until 2006, the Fed's overnight credit facility distributed term-funded throughout the global economic system, first flowing into financial markets until 2000, then into housing, and then in 2007 it flowed back to the Fed.
The global boom that resulted was simply based on credit, and was not a real generation of wealth. The end result is that most of the standard of living that people have is not based on wealth generated, and thus will be at risk.
Today we have a major debt bubble that needs to deflate. History shows that governments will not allow them to deflate and will debase the currency instead (inflate).
The Fed would have to created 7x more dollars than exist today for the Treasury to cover its obligations (side note: expect QE3, QE4, QE5....) The US is levered at roughly 35:1 today.
Forget what policy makers say or intend and rely on logic and history as a guide in these times. (side note: Amen!)
Western economies are too big in nominal terms to support real production. Debt must be defaulted upon, or devalued. The latter option is more appealing to indebted voters and governments, so it will be the option chosen. (side note: He correctly defines inflation and deflation. We're dancing for joy!)
Most investors are not prepared for inflation. They weren't prepared in the 1970s either until it was too late.
It's a race to the bottom in currencies. They'll all be devalued. All fiat money is in trouble.
Only scare resources are good investments (side note: How long have we been pounding the commodity table?)
Greatest upside/least risk is in gold. Dividing US monetary base by (supposed) US gold holdings yields upwards of $8,000 per ounce for a target gold price.
The Fed will ultimately devalue the dollar against gold and then policy will focus on the gold/dollar exchange rate. (side note: Jim Sinclair has been calling for this for some time.)
Gold is still underinvested in. All miners together have a lower market cap than Google, and pension funds have 0.56% of their investment in gold.

For Your Evening Entertainment

noreply@blogger.com (Dredd Evry) — Tue, 02 Nov 2010 20:05:00 +0000

This should be just the thing after a long day at the poles, voting for no change...

We've been "on again, off again" with the videos from inflation.us. This one is worth watching. Grab a chair and some Rolaids.

Note that we don't entirely agree with everything in the video, though we do agree with most of it. It is our opinion that the proposed solutions--hiding out on a farm with your precious metals and food stores when the time comes and "banding together" to bring about real change are all in the realm of fantasy (also known as "hope," a four letter word). If and when things get bad enough for a currency collapse--or the "corollary that ends the same", deflationary default and collapse--then what you need are the tools to be far away with as many of your assets untouchable as possible. If the US government ever builds a wall to protect its borders, it will be to keep Americans in, not foreigners out.

Preparing yourself by legally structuring businesses, legally obtaining a second citizenship, legally hold overseas assets, guarding your privacy, and safeguarding your money are not in the realm of fantasy. Forget Mad Max. If the situation ever gets that bad, you want options. You're no Mel Gibson.

What to Expect in the Newsletter

noreply@blogger.com (Dredd Evry) — Tue, 02 Nov 2010 17:05:00 +0000

We had a couple of questions about the newsletter regarding content. Perhaps it involves a bit more explanation, and we'll try to cover what to expect today, with a bit of background to add color.

Those that have followed the blog, and many who have kept up with us directly even when the blog was on hiatus, know that our push has been primarily financial. In fact, the purpose of this blog was originally to attempt to educate people on the upcoming devaluation of currencies in the West, notably the US. In fact, to those that knew us on financial boards, we had been preaching the gold investment game since 2003 (and we were late to the dance on that one by a couple of years!). What is happening now is nothing new--it is the result of mankind's cyclical behavior. There really is nothing new under the sun. The world moves in cycles, and mankind's behavior is the result of predictable human behavior over a long enough timeline. Once you study it, it truly is remarkably predictable, and as a result, manmade structures and events (like financial markets and governments) are very cyclical in nature.

Unfortunately, the truth is that very few people will ever use history as a guide to determine what's likely to come. People are more concerned with leisure and convenience than with work and understanding. The herd is infinitely predictable, which is why they always end up being wrong!

Thus, the original goal of this blog--education--was largely a failed enterprise. People don't want to be educated, they want to fattened up and not know that the fattening is for the slaughterhouse. Thus, this blog has existed in relative obscurity since inception.

Meanwhile, we have been busy both protecting ourselves financially AND from the rest of the largely predictable outcome of current events: at some point, things will become very disorderly. Governments will grasp onto the last vestiges of their power with everything they have left before they die. This is the way of the free markets and the results of government largess and human lethargy. Most fail to see that what we face is the destruction of institutions trying to control the free (natural) markets and course of events. This is, in a perverse way, creative destruction.

Thus, our mission here has changed somewhat. The people that survive this upcoming event, figuratively (and perhaps, literally) speaking, will do so because they have prepared themselves. There's a very real chance than buckling down and hiding out on a remote piece of property with stored food and weapons won't really cut it at all. What is needed for protection is something different--an ability to remove oneself and one's property from the reactionary nature of failed states and institutions. If you and your property are within their grasp, you and it are not safe.

Broken institutions are dying. They will take down many people. To avoid being one of those people, you need options. Having options requires having knowledge, and at this stage, connections. We have the tools that can supply you with those options. That's what the newsletter will cover.

To be free, you need a few things:

an understanding of what freedom is and is not (shattering of your illusions)
financial freedom (a means of independent self-sustainability)
privacy (a means of minimizing your risk to dying institutions struggling to maintain the status quo)

We will be focusing on these items and the step-by-step plans necessary to achieve freedom and independence. It will not be an easy process, and since more people are waking up, the risks and costs are rising.

In addition to education and providing actionable steps and options, we will uncover new opportunities to protect what you have and take advantage of this once-in-a-lifetime-or-two historical event. Dislocations are the source of opportunity if you are prepared for them.

When the Titanic first struck the iceberg, the vast majority of passengers ignored the event while a few headed for the exits. By the time the masses realized the magnitude of what had occurred, the run on lifeboats was tremendous. Which group of people do you want to mimic? Contact us directly or sign up to the newsletter sign up list below if you want to get on a lifeboat before it's too late.

Schneier TED Talk on Reconceptualizing Security

noreply@blogger.com (Dredd Evry) — Tue, 02 Nov 2010 15:53:00 +0000

A brief explanation on the paradigm in which humans live and why they make poor choices about their security. You should watch this 20 minute video.