Gold bull market

The dow closed up 79 to a new recovery high of 9864. Now we have a major non-confirmation with Transports closing well below their own recent peak of 4015.16.

aAgreat bull market in gold has started , it's a bull market that mirrors the demise of the dollar. Gold is priced in dollars, and as the dollar weakens, it takes an increasing amount of fiat dollars to buy an ounce of gold.
Aside from the Chinese and Indians, the world's population owns no gold. Ask any American whether he owns gold. Ask any fund manager whether he has gold in his fund. As the planet's realizes to its horror that all fiat currency is "worthless" fantasy currency, I believe that there will be a world panic to buy gold. This will set off one of the wildest and most explosive bull markets in history
I didnt have much time to update the blog over past month, moving forward I will try to update atleast once a week.

Is this rally over? I am really cautious now .

I was reading an article from barrons, which I feel is very important to share with my readers.

The U.S. dollar index peaked at the same time the stock market bottomed in March. Since then, the greenback is down 13%, which happens to approximate the year-to-date gain in stocks, though of course the equity market is up 50% since the March low. Nearly every bit of the year's upside has been logged on days when the dollar was weaker. In addition, the Dow Jones Global Ex-U.S. index is up about double the S&P 500's gain, and only five of two dozen national markets, all in Old Europe, have done worse than the U.S. in dollar terms.

These inter-asset relationships probably will change, or at least become less reliable on a daily basis, but it's hard to say when or why. For what it's worth, perhaps the most consensus-bucking opinion on Wall Street is that the dollar could firm or strengthen without obliterating stocks.

Whether this rebound is now fully priced in is the subject of a valid argument, with the equity market no longer appearing cheap. But it's tough to dispute that the profit spring is quite compressed.

The market is at an interesting juncture now -- more so than most times, even.

A year ago, the most resolute bears were calling for the S&P to sink to 1000. Six months ago, the boldest bulls thought we could get up to 1000. We're there.



It shows this rally to have about equaled the duration and magnitude of the doomed rebound off the 1929 lows, and to have outpaced the other post-bear recoveries of the past century.

Another chart worth looking at is how far we are



This chart looks not at the possible amount markets can fall, but rather, how much further the rally can run. It compares 3 prior bottoms with the current one.

Some comments from on above chart :
This rally at this stage is way ahead of all other “real” market recoveries and is most like ‘29-30, thus we can’t plausibly expect it to deliver more upside soon and the market probably needs to correct hard.

I don’t view this as any raging contra signal, just another indication that sentiment remains more cautious than one might expect after a 50% ramp.

Fed rates unchanged

As expected the Federal Reserve left its key fed funds rate unchanged today. More importantly for the stock market they said they will keep this key rate at exceptionally low levels for an extended period of time. This translates into continued low rates on money market funds which average a paltry .25%. With a tremendous amount of cash on the sidelines earning practically nothing we think these investors are going to add some of their money back into stocks fueling the market higher.

Positive comments from the FOMC meeting today sent the averages soaring. The Dow jumped 120 points +1.3%, S&P 500 +1.15% and NASDAQ +1.47%. 72% of the stocks listed on the NYSE traded on the upside and 68% on the NASDAQ.


The recent peak prices for the advance that began at the March lows were Industrials, 9370.07 and Transports, 3749.58 -- both of those highs were recorded on August 7.

Yesterday the Dow closed at 9241.45 while the Transports closed at 3702.98. In other words, the Industrials closed 129 points below their August 7 peak. The Transports closed 47 points below their August 7 peak.

If this advance is to continue, then both Averages will have to rally and close at new highs above their August 7 peaks. If they can't do that or if only one Average betters its August 7 peak, then we are dealing with potential trouble.

Rising stock market will brighten the hearts of Investors

Monetary and fiscal stimulus, along with a rebuilding of inventories will be tailwinds for the U.S. economy for the rest of 2009. These positive effects will begin to fade in 2010 at the same time as consumer spending is constrained by high debt levels. A W-shaped recovery will set in, consistent with the muted growth rates.

In the U.S., inflation risk and currency risk are linked. Should U.S. policymakers lack the commitment or the skill to drain the system of emergency liquidity at the appropriate time, confidence in the U.S. dollar as the world’s reserve currency could erode.

Real estate represents collateral for the entire US economic system. At this point, I'm most interested to see what will happen to real estate (private and commercial) now that the stock market trend has turned bullish. The current conventional wisdom is that real estate will remain "down in the dumps" for years to come. Furthermore, thousands of forthcoming foreclosures will make it that much worse.

My own opinion is that a great deal of real estate (homes, condos) are now underpriced -- they are offered for sale at below replacement cost. Interest rates are low (assuming you can get a mortgage).
At certain times, the stock market and the economy will tend to interact with each other. In other words, a rising stock market will brighten the hearts of investors and the public, and in turn a happy public along with optimistic investors will generate bullish pressure on both the economy and the stock market.

We are in Secular bear market rally

It's clear to me that we are in a rally within a secular bear market (some will call it a cyclical bull market). In other words, it's coming within the confines of a long-term or secular bear market. Old timers saw this same situation during the 1966 to 1974 bear market. At that time we saw a series of cyclical bull markets, all coming within the framework of a long-term or secular bear market.

In the end, that secular bear market ended the way most bear markets end -- amid black pessimism and with blue-chip stocks at great values or "below known values."

What was missing at the March 9 lows? Extreme pessimism was absent as were the great values in blue-chip, dividend-paying stocks sporting yields of 6% to 10%.

Can a 27 year bull market end by 2 year bear market?

Can a 27-year bull market (1980 to 2007) be corrected by a two-year bear market? Most bear markets have tended to last from one-third to one-half as long as the preceding bull market. In other words, the bear market that started in 2007 did not last as long as I would have expected, nor did it produce the great values at the bottom that I would have expected.we take what the market gives us, but we also have free choice. We don't have to swing our bat on every pitch. The market will always be here, and we can chose the pitches we want to swing at.

BOTH the Industrials and Transports are up over 100 points. This is what I call a powerful confirmation, a twin breakout with force. The implications are that the market is heading higher.

We are going to see further selling

Joe Granville states that the bear market ended on October 10, 2008, on a day when 2901 NYSE stocks hit new lows. That ended the bear market, insists Joe, so logically if the bear market actually ended on October 10, then the market has no where to go but up. Well, maybe.

Then there's James B. Stack, who writes and publishes InvestTech Research, which is a very instructive advisory. Jim believes the bear market is over, and he's out to prove it. He displays his Negative Composite Index, which has hit plus 83 (it's been there only a "handful of times in the last 44 years"), and he concludes that "we have very strong confirmation of a new bull market."

Jim then refers to the Coppock Guide which he's followed for years. According to the Coppock Guide, we are now in a "very favorable buying area." James also refers to the advance-decline line, saying that the recent decisive breakout in the advance-decline line ahead of the major indexes is a positive development. "Where breath goes," notes Stack, "the market usually follows. "

Stack adds, "Coming out of the March 9 market bottom, we saw extremely strong momentum in volume and breadth." And this, he concludes, is indicative of a bear market bottom.

Jim then points to the Leading Economic Index, a 12-month rate-of-change. His index has turned up, which, he claims, is a sign that the recession is ending" Well, maybe.

Some comments from one of Investor i follows, who belives we are still in Bear market. The market could just continue to sink with very little in the way of rallying ability, until the March 9 lows are tested and violated. The damn trouble with this market (from the bulls' standpoint) is that it shows no signs of becoming oversold, the Selling Pressure Index just keeps creeping higher, and the Buying Power Index continues to deteriorate. This is one nasty bear market if there ever was one.

Stocks sold off sharply today with all of the major averages falling approximately 2% or more. Over 70% of the stocks on the NYSE and NASDAQ traded on the downside. Leading the averages lower were the industrial and energy stocks. The only industry turning in a positive return was the hospital stocks.


The market averages closed at their lowest levels in two months. The failure of the S&P 500 to move through the 950 area is a near term disappointment for the bullish case. The S&P 500 closed at 881.03 and failure to hold 870 on the downside could lead to further selling.