Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The Next Phase of the Credit Contraction and Stocks Bear Market

Stock-Markets / Stocks Bear Market Aug 11, 2009 - 08:38 AM GMT

By: Adam_Brochert


Best Financial Markets Analysis ArticleAlthough the waiting is the hardest part. The next phase of the credit contraction and next down leg in the bear market is set to begin. Elliott Wave just announced that on a recent day there were only 3% bulls on a daily sentiment index for the US Dollar. Now I don't care what you think about the Dollar or it's ultimate fate, a trader should be interested in taking the other side of that trade!

The Dollar may have already bottomed and simply need a short correction (i.e. less than 2 weeks) before a major thrust higher, which would put a stake in the equity, corporate bond and commodity rallies. I think Gold will initially get hit but will then stabilize in the $880 to $920 range.

Here's a 2 year daily US Dollar chart:

The Volatility Index ($VIX) remains within or has just barely escaped from (depends on how you draw the lines) a terminal corrective wedge and is coiled like a spring ready to begin its next sustained bull move. Here's a 2 year daily chart of the $VIX:

Remember that Gold stocks are countercyclical assets during a deflationary bear market and Gold stocks already made multi-year lows last fall. They will not be making new lows along with the stock market because as deflationary pressures intensify (and they will, believe me), Gold miners will become more profitable. This can be expressed using a "real" price of Gold that ignores the fiat price per ounce and compares the price of Gold to other commodities (i.e. mining costs like energy). The Gold to oil ratio chart is a thing of beauty for Gold stock bulls right now. Here's a 2 year daily chart of the Gold price divided by the oil price ($GOLD:$WTIC):

Though Gold stocks are not immune to major downturns in the stock market, they can weather them well once their uptrend is established and will rise on net balance. Because I am expecting serious nastiness in the general stock markets, I am even more cautious about buying Gold stocks at the right time. The pending buying opportunity that should occur in the next few weeks is a little bit of a mystery right now and its character will be important. A mild, wimpy bottom will likely have to be re-tested later this fall and won't get me very excited (should still be a decent multi-week trade for those so inclined, though). A strong, panicky spike bottom will present the buying opportunity of the year in my opinion.

The bittersweet irony for Gold stock investors is that a turn up in the Gold to commodities ratio or "real" price of Gold typically indicates an intensification of the credit contraction in this environment, which is bearish for all stocks. This is counterbalanced by the immediate increase in profitability that can be achieved by unhedged Gold miners when this ratio turns up. On balance, Gold mining stocks will rise, but the corrections will likely be jagged and scary due to the overall stock market environment.

A bottom in the Dollar and the $VIX and a top in commodities, stocks and corporate bonds as well as a tradeable bottom in senior Gold stocks - it's all finally starting to come together although no one knows the exact day it will occur. It's been very difficult being bearish over the past few months, to be sure, but the light at the end of the tunnel is now clearly visible. Now is not the time for bears to capitulate.

Visit Adam Brochert’s blog:

Adam Brochert

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2009 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules