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Lindsay Wound Be Peaked

The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, December 18th, 2012.


 

As suspected it appears Obama, and the Dems, wish to push the US over the fiscal cliff in order to strengthen their bargaining position, or at least make it appear that way up until the 11th hour of the 11th hour. The Dems are holding all the cards now with Republican's apparently caving in over the weekend. It's getting ridiculous attempting to guess just when the buffoons in Washington will actually strike a deal, but now that the Republican's have blinked it puts pressure on the Dems to do a deal before year-end (hence Obama's offer last night) or it would look bad on them when they are supposed to be looking out for the little guy. And the Republican's are suppose to be conservative, holding out for rich capitalists, but you would never know it these days in the People's Republic Of America.

Of course rising taxes for the rich or poor is not good for a market economy, but the bureaucracy's price managers have the public so corrupted and confused at this point they are believers. They will believe anything or anybody promising more free stuff. That is why any fiscal cliff deal will be celebrated initially, and then sold hard as the smart money continues to distribute stocks to the dummies. Because the fiscal cliff is just a ruse designed to confuse the gullible into thinking America is not getting austerity. Make no mistake about it however; austerity is coming to the States whether it's self-imposed or not, where a falling stock market will accomplish this task handily at some point. (i.e. it's either that or hyperinflation first and then a stock market crash...take your pick.)

And in this regard the current set-up is quite scary for a price managing bureaucracy, with increasing QE perceived as a failure. (i.e. because equities sold off right away on the most recent announcement.) What's more, and on a technical note, it should be pointed out we have a Three Peaks And A Domed House pattern on the DAX, SPX, and most popular high yield bond ETF in the US, symbol HYG, which has been bullet proof up to this point. Like Apple Computers however, where price is now better reflecting fundamentals (but not done on the downside yet with a head and shoulders pattern price target of $375), HYG is likely about to be dishoarded by an idiot hedge fund community that just loves to take things to excess as well, which would add a new dimension of pressure to the equity complex at large.

So without a doubt I'm sure George Lindsay's interest would be peaked in anticipation as to whether his Three Peaks and a Domed House pattern (amongst others) continues to play out in these markets during coming days. Further to this it should be noted that sentiment wise a broad array of conditions support the bearish case ranging from our own work, presented last week, to the observation that other key measures not commonly followed are also flashing the same warnings. Remember, A good speculator must follow indicators not being acted upon by the larger population of dumb gamblers if you want to make any money at this game. And you should remember this rule will never change, where it's a matter of ensuring one is following measures that look at what the gamblers are doing, not the ones they react to.

That being said, it's important to note that with all the money printing going on over at the Fed, along with its counterparts around the world, an inflationary 'time bomb' is set to explode at some point, where once enough shadow banking liabilities fall off the books, a hyperinflationary picture awaits the future. And while such macro-conditions cannot be realistically expected until the larger North American / Western Economy delevergaing cycle has bottomed in 2014, still, we are likely in store for another taste of 'renewed buoyancy' during the first quarter of next year, possibly extending into the second if we can use Figure 1 pictured below as a guide. (See Figure 1)

Figure 1
FNV.TO:$HUI

Before this happens though, and as you can see above, we first have the small matter of completing the count, where it should be noted we have found a better Fibonacci resonance related target for the move which is much higher than the last, seen in Figure 3 here. What does this mean? It means that in spite of the bureaucracy's price managers and hedge fund community attempting to maintain price stability in the stock market through year-end, both internals and technicals are calling for lower prices in the New Year if prices don't crack before hand. This could result due to going over the fiscal cliff obviously, or not, given the kind of nut bars we are dealing with in the New York hedge fund community.

Perhaps, just as obviously, light holiday trading might allow for these characters to pad their books into year-end, especially after options expire this Friday. This would set the stage for a sharp sell-off in early January, where the measured move of the Three Peaks and a Domed House formation in the SPX projects down to the 1100 area. Such a move does not necessarily need occur with all the money printing going on (obviously again), however it's possible going into January, especially if the gamblers maintain their present betting practices into the next options cycle. For this reason we will be sure to let you know the sentiment picture regarding the new options cycle between Christmas and New Years considering just how important such analysis happens to be in this regard. Let's all hope (for the sake of our precious metals holdings) the gamblers don't load up on calls to game a perceived positive January Effect.

One thing I can tell you ahead of time is that although tax-loss selling will obviously be done by January, the wave structures for key ratios in the precious metals complex are counting higher in corrective fashion right now, making it difficult to envision an impulsive move higher just yet. An elevated GDX put / call ratio, with the GDX being the undisputed king of precious metal stock ETF's based on open interest, is the reason one can expect buoyancy in precious metals shares this week until options expire, however after expiry on Friday this may change. This is why I left the annotations regarding possible price targets for the HUI in Figure 1 above undisturbed, because we could still see a breech of 400 early in January, especially if general liquidity conditions are impaired by collapsing broad market measures early next year.

Obviously the other side coin is precious metals play rope a dope until tax loss selling is over at year-end and positive seasonals kick in for the juniors, lifting all boats. The problem I see with this scenario is with the broads already overbought longer-term, and looming negative technicals set to kick in (see above), one would think the reaction higher might be weak. Of course if the pattern in Figure 1 is truncated, which is a possibility given the negative divergences in the indicators, the bulls could prevail. This is the big message in Figure 1, that we should expect an inflation trade in the first half of next year given the rally in this ratio has extended for two years now, calling for at least a six month time element correction. One would think this would allow for a 'big move' in the precious metals complex, potentially a strong move to new highs.

So, it will be both interesting and telling to see where the FNV / HUI Ratio ends up by week's end because if it can rise while the boys in New York can continue to jam stocks higher despite unsupportive sentiment conditions this week we may actually have a rodeo on our hands ladies and gentlemen, something akin to year 2000 conditions where out of Y2K fears Greenspan over compensated monetary conditions ahead of time in 1999 and caused the tech bubble.

Along this line of thinking, one must ask, are the cumulative effects of QE3 and QE4 about to kick in when the consensus is they didn't work because nothing happened right away? It appears that's the way the smart money should bet once the pattern / count Figure 1 is completed. (i.e. it looks like this will take until next year now if stocks get smashed in the first two weeks of January.) Greedy hedge fund managers in New York (at the behest of their bank owners) are making the fiscal cliff thingy into a 'buy the rumor sell the news' trade by using it to game stocks higher into year end (to pad their pay); so again, the first two weeks of the New Year should be interesting. (i.e. think extreme volatility, at a minimum.)

With this sentiment in mind then, let me take this opportunity to wish you all a Happy New Year at this time.

2013 looks to be treacherous market wise, however with the proper guidance, hopefully the patient and wise will prosper.

Good investing all.

 

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