Treading Water
We see the potential here for a 5 months CONSOLIDATION (treading water) – not a 5 months collapse. That means no sustainable breakout just yet – just base building. The key support begins at the 16300 on the Dow. We need to see the capital concentrate in bonds to create a major bond bubble like in anything be it stocks, gold, or real estate. Key target will be tomorrow thius week. The closing support for today lies at the 17340 level and tomorrow that will drop to 17223.
The “pop” in gold has been more of a base building consolidation. This of course warns that what will not rally strongly when the cycle turns up, goes down harder when the cycle turns back down. We achieved NO Yearly Sell Signals in gold so from a long-term perspective all is still well. Nevertheless, key resistance remains at the 1250 level and only a weekly closing back above that area will relieve the selling pressure. So the uptrend in gold is barely visible, and that is a major concern for the downside.
When BIG BANG starts to unfold, as people begin to become frightened about the future, that is when things begin to pop. It does not matter what YOU think aboutANYTHING. This is what the goldbugs do not comprehend. The ONLY thing that matters is what does the majority BELIEVE. Once the general perception shifts, then and ONLY then will the flight to assets infiltrate the majority and that will create the panic both up in assets and down in debt. This is why I have stated it really does not matter if there is gold in Fort Knox or not. It is always the perception. People who are biased will believe that because that is what they WANT to believe since NOBODYcan prove it either way.
The meltdown in Rome took place when? Not until 260AD. Why? Because for the FIRST time a Roman Emperor Valerian I was captured by the Persians and turned into a public slave. The CONFIDENCE in the government collapsed from that point on. Can you imagine what if Russia invaded Europe and captured Merkel and Obama and turned them into public slaves and the West suddenly discovered it was powerless to invade Russia. Confidence would collapse in Western currencies overnight.
It is always a confidence game. Whatever you BELIEVE is irrelevant. It only matters what the majority believes for that will move the market regardless whether it is true or not.
Bear Market or Treading Water? Getting All the Ducks in a Row
A number of questions have come in since year-end asking what would happen since the Dow did not reach the 18500 level. We also warned that the support was really down at the 16978 level and we need a daily closing beneath this level to signal a sustainable decline for now. The main bank of support begins at the 16300 area. A weekly closing beneath 17722 will shift the market into a basing mode. We are not looking for a 5 month bear market collapse. The market will rise again to new highs. The rally thus far does not include the retail broad market. That will come when people begin to see government as a risk and the flight to quality reverses from Public into Private.
This is why we also need a further decline in gold. The flight to safety is still now into government bonds – not gold. All the ducks have to be in line to cross the pond. Nothing is in isolation. We have to grasp the world economy in its entirety.
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