Dow & US Dollar Fire Alarms Ringing

By Stewart Thomson       Aug 25 2009 10:13AM www.gracelandupdates.com

1. One Insider selling index, run by Reuters news, shows insiders are bailing at 53 TIMES the rate they are buying at, on the US stk mkt. 
   
   
2. The volume on the Dow is horrific. I’m starting to wonder if what could be coming is a stk mkt crash. The bigger question is: Would that crash be accompanied by an intermediate rise in the US dollar, or will it be accompanied by a dollar wipeout and gold moonshot? I believe the latter is now a 50% possibility, and growing fast.
   
   
3. We’ve now rallied three thousand points on the Dow. The monthly chart gives the big picture. Right now it is a picture of two faces. The flagship 12,26,9 series of the MACD oscillator shows the red and black lines touching with the histograms at zero. Right on the “launch pad” of a major buy signal.



4. Contrasted against that is the declining volume. The rally is into the 6th month from the lows at Dow 6500. Each monthly bar is smaller than the one before.



5. Bear market rallies occur on declining volume and are typically much sharper and bigger than bull market rallies. I have also drawn in the Fibonacci lines. We have moved above the 38% line. The 50% line sits about 1000 Dow pts higher than the current 9400 area, at around 10,400. A rally to the 11300 area would take the Dow to the 67% retracement line.
   
   
6. Many speculators have been wiped out attempting to make fortunes by picking the top of a bear market rally an shorting it. The current rally seems to be inflicting a large amount of damage on those who are short. It could be argued that a large component of the total buying in this rally is composed of loss booking by shorts covering their positions.
   
   
7. Interestingly, the red dotted supply line (down trendline) and the blue dotted demand line (up trendline) converge in the area of the 50% Fibonacci retracement marker. The Keltner supply band also sits up in that area of convergence. The weekly Dow chart shows relative strength rising to near 68. We are nearing the 70 overbought marker. It is not overbought now, but should the Dow rally to 10,500, it would be. In addition, the measured move of the head and shoulders pattern on the Dow is to around 11000-11500.



8. All in all, the Dow 10,500 to 11,500 area is shaping up a possible reversal area, and maybe even a “perfect storm” could develop there.. If the volume continues to be weak, that reversal could see the Dow challenge or even break the lows at 6500 in a 1932 style erosion of investor wealth. One that could exceed the money lost in the initial fall from 14,000 to 6500.
   
   
9. Most professional investors don’t pick reversal points, they sell into strength. I used technical oscillators, trendlines, and chart patterns the opposite way that most investors use them.  For example, a head and shoulders upside breakout is to me a signal to begin booking profit on my long positions bought on the decline into the building of the pattern. A buy signal generated by the crossing of the MACD lines is a signal to me to begin selling or shorting. A break of a trendline to the downside is a signal for me to begin buying and/or booking profit on what I bought earlier.
   
   
10. I employ dozens or even hundreds of buy/sell orders as I commence a buy or sell program. The beginning orders are tiny.  In the case of the Dow, I told subscribers to begin buying in the 8000 area in larger increments every 100 points down. The Dow stopped falling at the 6500 mark.
    
    
11. As the Dow rallied, I urged readers to book portions of profit every 300 pts higher. At 9000 I began a campaign to short the Dow, based on price strength, the lead MACD series crossovers, the declining volume, ongoing insider selling, and the head and shoulders upside breakout. 
    
    
12. I don’t believe investors should short any major market with more than 30% of your total risk capital you have allocated to trade that market.  If your capital allocation is $100,000 for the Dow, you should not ever be carrying more than $30,000 in short positions. 
    
    
13. It is very important to operate in the market with sound money management technique. Markets can do anything. I believe every day is a journey into uncharted waters. Price may not be in uncharted waters, but market conditions are never exactly the same as each new day unfolds.
    
    
14. My Dow shorting program will be completed in the 11,500 area. Whether we get there or not is unknown. If you maintain long positions built into the decline into Dow 6500 you are not concerned how high the Dow may go. In fact, you would prefer the Dow moves to at least 10,500 from here.
    
    
15. Markets that rise on low volume can be very tricky. Price can reverse suddenly and unexpectedly. Well before hitting the measured move targets of technical formations like the current Dow head & shoulders pattern. For this reason it is critical to get risk capital off the table as price moves. So you are working with the market’s money. Not yours.
    
    
16. I break risk capital down into: Inner Core.  Outer Core. Trading positions.  Most investors, in my professional opinion, take on a minimum of 70% more risk than they should at any particular price point.The average trade is probably 90% bigger than it should be.
    
    
17. If you can’t withstand the Dow moving against you by several thousand points at a minimum, you shouldn’t be placing your capital at risk. To expect to call turns in the Dow to within a few hundred points or less is simply not realistic for most investors.
    
    
18. In regards to gold: All that happens in gold is related to the US dollar. Aprox 65% of all monetary transactions in the world involve US dollars. Think about that very very carefully. If the bankers were to create a “situation of insanity”, where the dollar began to hyperinflate, or even appeared set to hyperinflate, a stampede out of dollars and into gold would take place. Think about the economic ramifications of such an event. It would be a global economic catastrophe of unprecedented size.
    
    
19. It would be the largest wealth transfer in the history of the world, because for every seller there is a buyer, by definition. Somebody has to be a buyer of all the sold dollars…or the price of the dollar would collapse to zero.
    
    
20. I don’t think most investors in the gold community have even a tiny understanding of how much buying support the bankers provide to the gold price in panic sell-offs as the funds and retail investors sell in one panic after another. The size of the comex buys made by the bankers match the fund and retail sells, not the size of some otc or exchange traded gold products they sold clients and are hedging against. Last week’s gold exit involved the bankster-created fear that the gold head and shoulders pattern must fail because so many people know about it.  And the gold writers swallowed that fear hook line and sinker.
    
    
21. She who owns the most gold, makes the rules. Never forget that. Those who control gold control the US dollar. The bankers are perhaps better termed “wealth transfer specialists”. They are financial engineers focused on the greatest wealth transfer in the history of the world right now. They have already taken virtual control of the stock market. Retail investors and funds are at their mercy. Having ordered the central banks to unload gold (or simply not add any in the case of the United States) for decades, most major paper currencies (except Switzerland) are in a very weak situation fundamentally. An extended period of money printing currencies that have little or zero gold backing could cause a final catastrophic selloff in price of global paper currencies. A sell-off against gold. 
    
    
22. Australia and Canada are termed “resource currencies”. Canada has sold virtually all the gold backing its currency. While the Cbone, the Canadian dollar, may rise against the dollar, it could still drastically decline against gold. Particularly if the US economy were to take an extended nosedive. Only the Swiss Franc has a significant gold backing and is in a position to ramp that up quickly.
    
    
23. China’s communist govt is betting that exports will protect its currency against a fall. Each country’s government has its own strategy to boost the value of its currency, but the common denominator of all the plans is that gold plays a zero or token role.
    
    
24. Most in the gold community have a picture of the US dollar falling drastically in price in coming years. So do I. But few are focused on where all those dollars would go. The top in the US dollar in 2001-2002 came because the major European banking families began selling their dollars. The dollar is held now by government and funds. Price chasers. They are badly underwater now on their dollar positions against gold, and the situation could get a lot worse.
    
    
25. At some point the situation will reverse. The bankers will become buyers of the dollar again. When the bankers sell their gold, obviously they want to get the maximum amount of dollars possible for their gold.  Rather than looking at chart levels for the bottom in the dollar alone, I look for a fundamental trigger, which is of the re-backing of the dollar with gold. I will be a buyer of the US dollar into 50-65 area on the USD index, should be get there. 
    
    
26. I believe at that point the emotional situation will be very similar to what happened in the Dow as we came into Dow 6500. Panic will be extreme. The possibility of real hyperinflation will be exist. Just as the possibility of major bank and stk mkt closures was very real at Dow 6500, it will be even more real should the US dollar decline to those levels.
    
    
27. As I bought the Dow from 8000 to 6500, I was prepared to buy all the way to zero. Price stopped at 6500.  While I thought 6500 could be the bottom, I didn’t know for sure.  What I was sure of was that the risks of a system implosion were just as high as a Dow bottom.  So while I was buying the Dow I was also taking delivery of gold stock certificates, removing cash from the banking system on a regular basis, securing bullion outside of the financial system, and purchasing basic dry foods.  All on an ongoing and consistent basis. On the rally to Dow 9000, I have continued these insurance actions consistently.
    
    
28. Here is a point that is absolutely critical:  If the US dollar falls into the 50’s on the index, the risks of a total collapse of the currency, and perhaps all paper currencies, will be just as high as the odds of a major US dollar bottom. The economic wipeout that would follow the destruction of the world’s reserve currency is a nightmare vastly worse than a Papa bear mkt in the Dow.
    
    
29. While I will be a buyer of the US dollar in the 60’s and 50’s, I will be prepared to buy it all the way to zero. Do not sell core gold holdings to buy the dollar if the US dollar is not re-backed by gold in some way, regardless of price levels or chart points, and technical oscillators.  And, every step of the way down on the dollar, increase system insurance levels. That means dry foods, cash, small bits of bullion.
    
    
30. I have substantial relationships with a numbers of major farmers. I have secured ongoing food supplies for all my family should a hyperinflation or food crisis take place. These farmers are immensely concerned about farm yields several years down the road. They believe the government has (deliberately?) neglected farm infrastructure to the point that a natural weather disaster could produce actual starvation in the Western world. These are not drunken hobby farmers reading the rantings of some nutbar doomsday writer on a Saturday night. I’m talking about major commercial farmers of substantial wealth, who are isolated from the gold community and anything but “survivalists”.  Their bottom line:  “You can’t eat your gold.  If food shortages hit in a big way, it may cost you more gold than you think to buy even a modest amount of food.”
    
    
31. While odds are very high that any coming food shortages would be a short term temporary situation, please note that the world’s largest gold trader, Jim Sinclair, lives on his own self-sufficient farm.  He’s got more gold than most of the gold community combined. If “Big Jim” is worried about HIS food, where does that leave you, with no dry food stored?
    
    
32. Don’t waste time slobbering over the stock market rally while the insiders and bankers unload $53 of stock for every one dollar they buy. What you are buying is the eye of a force five hurricane, gleefully to sold to you by the bankers and insiders.
    
    
33. Different fires require different firefighting equipment. The last thing you want to have happen is to find yourself in a position of having to liquidate big portions of your gold to buy a few week’s worth of groceries. Just as it’s possible that the US dollar hyperinflates against gold, it’s possible that gold hyperinflates against food.  Use gold to protect against the bankers’ scheme to devalue the world’s paper currencies. Use food, not gold, to protect against their plan to starve you.
    
    
34. Gold is the safest major currency in the world. The US dollar is the 2nd safest, but it is many light years behind gold in terms of safety. The bankers make the financial rules because they own the most gold. They don’t want the public to buy anything they are not selling. When they are ready to sell their gold, then they will order hundreds of thousands of financial advisors around the world (many of whom will be working from the bread lines) to sell the US dollar and buy gold.  The bankers will sell the gold to the advisors’ clients, and buy their US dollars in the greatest wealth transfer of all time.
    
    
35. If the Dow rally fails and takes out the lows at Dow 6500, I will be a buyer of any and all price weakness as it chews into new low territory. In terms of the public, I believe that will mark “the end” for this generation of retail investors. Their pipedreams of the stock market as their personal “long term wealth builder” will be 100% destroyed. Mentally and emotionally broken, they will begin a complete and total liquidation of their holdings.
    
    
36. Here is another critical point: As the above occurs, the only question is whether the bankers want to see the carcass of money from the stk mkt then flow into the bond market first, and then to gold, or immediately from the stock mkt into the gold market. To move gold to say $1500-$3000, money from the stock market would easily do that. But a US dollar currency wipeout could see money flowing from paper currencies into gold on a mass scale, which would send gold to levels like $10,000, and perhaps much higher. Using the same calculations Jim Sinclair used to put a $900 target on gold in the 1970s now yields a possible target in excess of $30,000 an ounce for gold.
    
    
37. President Obama, Tim Geithner, and Ben Bernanke are all committed to sustained money printing and dilution of the US dollar. The key word there is “sustained”. All the chess pieces are in place for a massive revaluation of gold upwards against not only the US dollar, but against all the world’s paper currencies. Just as the central banks worked together to stick the taxpayer with trillions in worthless otc derivatives, they will the stick the taxpayer with US dollars just in time  for them to watch it decline heavily.
    
    
38. Your friend is your enemy and your enemy is your friend. The gold community outnumbers the bankers. No amount of money satisfies the bankers. They always want more. Because they only buy weakness and only sell strength, and are prepared to buy to zero, they cannot be defeated, except by those who do the same thing, and do it for hundreds of years as a group. In time, the gold community will replace the bankers as the controlling entity in government. That is hundreds of years away. The primary focus in the gold market must always be yourself, but not the sole focus. My pyramid generator is a “machine of discipline” that lets you to replicate the actions of the bankers. Without discipline, most of you in time will revert back to making bets, gambles, guesses in the gold market. In time, your trade size will grow excessively again and eventually the market will move “impossibly” against you repeatedly. Financial destruction will follow at the worst possible time in history. To become a consistent market winner, embrace discipline and moderation, and the buy weakness sell strength tactics of the bankers (without embracing them personally).
    
    
39. There is no other solution.

Cheers,

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Thank-you

Stewart Thomson
Graceland Updates

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Risks, Disclaimers, Legal: Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line: Are You Prepared?