One of the advantages to living in the southwest is the easy access to Las Vegas. I come twice a year, once for the convention and again in the summer. So I gave myself a little homework assignment and let you know what I did on my summer vacation.
As you know, in February I gave you the man on the street report from New York City which was reeling from the Bernie Madoff scandal. Las Vegas has the dubious distinction for being the foreclosure capital of America. If it’s not actually in the first position, who’s counting?
In Phoenix, where I live, it might be #2. But unlike Avis, my hometown is not trying harder. Case in point, I’m surfing the channels and lock in on a major advertisement for an auction. Wanna buy a house? There are plenty of them here. Unlike Phoenix, which is still going through the charade of attempting to dump overpriced assets on the public, in Las Vegas they are finally playing Let’s Make A Deal. Want a 2900 square foot home that was selling for $339,000 only two years ago? The minimum bid is $1000. Another three bedroom home had a minimum bid of only $500. And they had scores of them. I’m not here to tell you a house that sold for $300K is selling for a grand, but I am telling you market forces have finally loosened up to the point where we may get to the real bottom of the housing market. It’s a necessary step. But it’s only in one place.
Whoever it is that finally has authority over these assets, maybe it’s Tim Geithner, finally is ready to get them off the books. I haven’t seen this level of commitment in Arizona yet and if it’s happening here, chances are its coming to your town. I can’t speak for California as I was there last week and didn’t see such obvious signs.
It was an interesting week with the Dollar and its feast or famine bounce. It has stayed elevated for a week and a half. This week we get the next important technical event. We are now squarely in the 161 day time window off the bottom in the metals market. Depending upon which chart you look at, the cycle is slightly different. In case you don’t know there is a separate electronic and pit count because of holidays where electronic trading covers part of the day. The market will make whatever timing adjustments necessary. But it should not be lost on you that we are hitting 161 in the 6th month of the year approaching the 18th day of the month. In other words, 6.18. My calculations are telling me that as lousy as the Gold chart is as I’m writing this, it may be setting to create a cycle inversion this week. If that is the case, it’s not good for the U.S. dollar. If all we can get is a two-week bounce off a 90 day cycle then we will have the stagflation bug hit sooner as opposed to later.
Two weeks ago, I told subscribers about this impending time window in the metals and of course it had two options. It could have continued on and make some kind of grand spectacle top or it could have inverted and traced out a low. We do know its not peaking into this window. It could accelerate down this week and it may still do that but by this time next week we could be looking at a buy the big dip opportunity in the metals. Perhaps all is not lost with the dollar because if it can somehow manage to get itself back in the middle of the range, say 83-85, it would have hit my targets and stayed in the longer term sideways pattern we need for a healthy recovery. So if Gold is inverting this week, we need to see how hard the cycle hits before we get the event. Finally, if Gold hits the 61% retracement at 914 or no lower than 900, this potential inversion will give the metals another leg up in what may be turning out to also be an intermediate term trading range.
As far as the stock market goes, the BKX and HGX look like they want to continue drifting higher and this may have something to do with at least a short term bounce in the long bond. One would think banking and housing stocks would be in play this week and they might. However, if the Dollar finally kicks into gear to get into the middle of the range and the metals continue and complete what they started, stocks may have to wait until the dollar tops. It doesn’t appear that stocks want to have a serious correction but without the leadership in technology of the semiconductors and biotechs, what exactly is going to lead the market higher?
So the bottom line is a market that is led by commodities is not a real rally in my book. People believed in that illusion in 2007 and look where it got them. I’m not saying the commodity isn’t real, it sure is real. But we need leadership in tech as well as banking and housing to have a broad based rally. Right now we are in a stall pattern and likely will stay there until this metals window plays out.
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The chart below shows you the time window in the XAU. Observe how the market action respected those RAD lines. It’s something we teach subscribers to our newsletters and coaching clients.
