Last week we saw the indicator drop below 3 signaling that the economy is stumbling into Disinflation. Today, the markets and economy have fallen into DEFLATION. Taking a look at the numbers;
CRB/10-Year Price = 293.71/101.625 = 2.89
Over 4 = Inflation
Between 3 and 4 = Neutral; inflationists and deflationists fight it out
Between 2.9 and 3.0 = Disinflation
Under 2.90 = Deflation
Chairman Bernanke will announce QE3 when the CRB prints in the range of 250 to 280-ish. The CRB is now printing 293. The oil price is tumbling lower, copper collapsing, the global recovery is stalling or has stalled. Continue watching this indicator moving forward. The real market turmoil and nervousness now begins with the dreaded 'D' word, Deflation.
KS are you looking for a capitulation day or a steady move lower? These are some healthy steps lower I was looking for but I don't see anything that looks like capitulation in the things I watch, except, possibly, gold.
ReplyDeleteAlso, what do you think of the H&S in the Russell 2000. Downside would be about 720 there.
ReplyDeleteHello Anon, for the broad markets, capitualtion is likely a long way off. Remember, we just had an uber rally to begin the year and only now are finally starting to roll over. The capitulation typically occurs afte ra longer downtrend is established and price keeps leaking lower and lower, the capitulation tells you they all gave up and that is when a rally is signalled, but, it is probably a ways off, lots of fits and starts will occur on the way there, over the coming weeks.
ReplyDeleteOn RUT, head at 850, neck line where price is now is 790-ish so target is 730. Or, if you use the 780 as the neck line that would target 710, so yest 700-730 would be the downside target. That is only in play once the neck line fails, so the days ahead are critical. When/if the neckline fails and price starts to print sub 780, a back kiss should occur at some point back up to the 780-ish, then price should roll over down to the target area below. It is very close to cracking, only a few bucks away.
Agreed something happened today did you see that VIX what was that couldnt break away today
ReplyDeleteHello Keystone, I was reading your posting on CRB, USD, gold and gold-related etf. You mentioned that Bernanke will step in with QE3 when the CRB drops below 280. Given the dissenting voices among few fed members on more easing, how likely is Bernanke to go ahead with QE3?
ReplyDeleteGold seems to be holding on pretty well around 1600. CRB at 250-270 area would implies that the market would fall another 10-15%. Does this also means that gold, GDX & GDXJ have much more downside?
Looking at the CRB chart, support is seen at the 293 area. Perhaps we would bounce from here?
Thanks for reading this and providing valuable input thus far.
Cheers, AJ
Hi AJ, I have similar questions as yours. 2012 is an election year with QE trying to show economic improvement so that President Obama will be re-elected, keeping the market bullish and with Warren Buffett supporting Obama from behind. Maybe 2013 when the Fed stop supplying us cocaine, assuming market will downfall, hopefully investors will move their money to a safe heaven and that is gold, I think this is just a very bad year for the metals.
DeleteHope KS can voice his opinion on gold.
I have to also thank KS for providing all these great insights to all of us. Thanks again KS!
Good luck to all...
Hello A.J. and Anon, the broad markets can easily sell off 10 to 15% or more. If the markets sell off, remember the asset relationship currently in place; dollar up = euro down = oil, gold, silver, copper, commmodities and equitie down. And dollar down = euro up = oil, gold, silver, copper and commodities and equities up.
ReplyDeleteSo with markets selling off gold can easily move much lower, and the gold miner and juniors charts likely need to explore some lower numbers before basing. Separate the time ahead into two steps. Step one is the continued market funk we are in with markets drifting lower. QE3 will not occur unless the markets sell off further with SPX down towards 1300 and CRB printing in the 250-280 range. This is where Step Two comes into play.
Since the markets will be crumbling lower and the Fed will fear that equities are falling over the cliff, like summer 2010, Chairman Bernanke will annnounce QE3, perhaps at the next Fed meeting. Once the crack cocaine is handed out again, markets will leap higher, the dollar will be spanked down (look at the asset relationship above), and gold, oil, copper, commodites and markets will all catapult higher on the easy money band wagon.
So think of it as a Step One and Step Two process. Knowing that QE3 is coming will help in exiting short positions and bringing on more longs in that CRB 250-280 area. But, in the time leading up to QE3, step one, commodiites, markets, oil, gold, silver, copper should all continue lower. CRB charts may be agreeable to some sideways movement from here as the drama unfolds.
Thank you Keystone for the reply. I have a better view now on things moving forward.
DeleteCheers, AJ
You know its just funny only last week we squared off on GDX and Silver and I took a defined risk trade and got long some options in gold and silver fortunately I only bought options it took less than 48 hours to figure out which direction those metals were traveling in.. KS noted the weekly chart in reply to my inquiry and the weekly charts trumps no matter how attractive the daily charts looks gold and silver simply had more room on the down side left to go. But that was then and this is now have look at what looks to be a key reversal in the GDX setting up.
ReplyDeletehttp://scharts.co/KmrMPj