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Fool's Gold?

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Is gold fingering a turning point as well?

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For an old friend:

"Square one my slate is clear, rest your head on me my dear
it took a world of trouble it took a world of tears
it took a long time to get back here"

--Tom Petty (Square One)


"We will not have any more crashes in our time."
--Lord Keynes in 1927


"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that posperity in this country must necessarily diminish and recede in the near future."
--E.H.H. Simmons, President, New York Stock Exchange, January 12, 1928


"....the national median home price is poised for its first anual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported."
--Bloomberg, June 20, 2007



It's a good thing I didn't have tomorrow's newspapers yesterday. If I had known that oil would have been up a buck and bonds down half a point on Friday, I would have bet the market would be down meaningfully.

In fact, on Friday the S&P skidded five points briefly after a solid gain, but recovered to close up slightly on the day.

Friday was the third consecutive session where the S&P closed at virtually the same level – approximately 1525.

On an interesting note, Friday's high tagged 1532, which is important because it is the low of the day of the June 4 closing high for the year. On June 5 the S&P rolled over, making a low of 1525 on that day.

Hence, you can see that the S&P appears to be poised to breakout from this 1525 to 1532 range and score the long-awaited new intraday high over the March 2000 high.

All day Monday, it felt like the index was on hold, simmering for this breakout above 1525/1532 and to give us the anointed new high.

Remember, a picture-perfect symmetrical square out of an incremental new high of approximately 1% would occur at 1576, which is six squares up from the October 2002 low of 768 S&P. 768 resonates off the first week in July so we are in an important time frame based on the bear market low as well.

I say a picture-perfect symmetrical square out on an approximate 1% overthrow as it would be a mirror image fold back of the 1% undercut in October 2002 of the July 2002 low.

Of course, seldom is the market picture-perfect and seldom does it accommodate. Nevertheless, uncanny symmetry does often manifest. For example, the June 4 high stalled the market for over a month and is precisely a double of the 768.65 October 2002 low. A double of the March 2003 low of 789 is 1578, which coincides with the aforementioned 1576 level.

Folks, you can't make this stuff up. These are the two levels I am working with. If the upper level is reached, it will be the behavior– the price action and follow-through, or lack thereof, that will be important to observe in this time frame.

To recap briefly, the market is fifty years or six-hundred months from July 1957, which saw a July peak that year followed by a market collapse and the start of a severe recession.

In 1907, fifty years or 1200 months ago, there was a credit crunch and financial panic called "The Rich Man's Panic". The waterfall part of the decline that year began in July. Coincidence? Until this weekend I wasn't aware of the fact that 1800 months, 150 years ago was the Hamburg Crisis of 1857. To quote from Charles Kindleberger in Mania, Panics, and Crashes:

"The background of the prices of 1857 in Hamburg... trade had expanded, particularly because of the Crimean War and credits much more. Hamburg was the all-English city of Germany, but had close relations with the United States in sugar, tobacco, coffee and cotton, and with Scandinavia. When the deflationary tidal wave swept across the Atlantic, there was no way Hamburg could escape inundation. The panic touched off by an Ohio Life on August 24th arrived in Hamburg three months later (following price declines of thirty percent)".


Kindleberger continues:

"The plight of the Hamburg Bank that opened large credits during the Crimean War in favor of the Sweedish houses engaged in smuggling goods into Russia, but neglected to cancel them when peace came. The Swedes used the credits to speculate in ship building, factories, and mining which helped embroil Hamburg in the world crises of 1857."


Finally:

"November 21st: Some of the leading merchant houses and two banks planned for relief."


Gee, that sounds oddly familiar.

Continuing the cyclicality of this period:

  • 90 months ago, on January 14, 2000, the DJIA peaked.
  • The S&P is ninety weeks from the October 14, 2005 low. That week ended a range bound year and began the first leg of an advance of what now looks like the third leg to be completed on the weekly chart.
  • Interestingly, sixty weeks ago was the May 2006 high.
  • This week the market will be 900 months from the major July 1932 low.

Again, you can't make this stuff up. According to legendary trader W.D. Gann, all harmonics of 90 degree periods of time were important to watch.

Additionally, the S&P is sixty months from the July 2002 waterfall low. All these harmonics in time are relationships of the division of a 360 degree circle as it spirals through the tunnel of time.

So why should seven years from any anniversary such as the 2000 peak be note worthy? Seven years is approximately 360 weeks or one big week in time. Similarly, ninety months is approximately 360 weeks in time (of course there are more than precisely 48 weeks in a year, hence the differential – as a year is 365-plus days while there are 360 degrees in a circle.)

Is this a turning point? Is gold fingering a turning point as well? The greenback's lack of backbone in the face of rallying yields may or may not be the catalyst for the recent shine in gold. Be that as it may, the GLD charts below show an interesting pattern.


The other side of the gold set-up may be a breakdown in the greenback.



The GLD shows a 1-2-3 Swing-to-a-Test of the 1Q low and its 200 dma. Sometimes, these patterns play out in four swings.

The advance in gold could indicate a meaningful pivot after a one-year consolidation, an underscore to the notion of a financial panic ahead and the Jaws Set-up I referred to yesterday.

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No positions in stocks mentioned.

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