We have been successfully managing an ‘in motion’ market since the August festivities kicked off. It is October and Money Managers (NAAIM), Newsletter Writers (Investors Intelligence) are thoroughly spooked and Small Speculators are thoroughly short the market. It’s a perfect contrarian setup.
Meanwhile, over in Goldbugsville there is a lot going on as well. NFTRH 363 is 30 pages of commentary and in depth analysis on all of this and also gets its geek on (with the aid of FloatingPath.com‘s awesome graphical breakdowns) and gets inside the September Payrolls report in order to flesh out the dynamics in a flagging economy.
NFTRH 363, a very helpful market management report if I do say so myself… out now.
Volatility, volatility, volatility. It’s all the financial world can talk about lately… and, well, for good reason. In the past few months, the world’s stock markets have endured some of the most gut-wrenching price swings since the 2007-2009 financial crisis.
But for many investors, it’s still not clear what this volatility means for the status of the bull market in U.S. stocks.
The reason why said status remains unclear is in large part because the mainstream pundits haven’t exactly been consistent with their punditing. (Note: NOT a real word!)
Take, for example, this summer. Before U.S. stocks fell off the cliff this August, the market was about as volatile as a yoga retreat. The trend was a slow, calm, and steady ascension to a higher self. In fact, the ultimate “fear gauge” known as the CBOE Volatility Index (VIX) had dipped below 12 for the first time since 2014.
Now, according to the usual experts, this extended period of market calm was a bullish sign, as these news items from the time explain:
We have been using the Tinder Box theme in NFTRH lately. As in, stock market sentiment is so bleak, so depressed as to be a Tinder Box with the elements to ignite a flame that bounces the market, to clear the over bearishness at least.
We have successfully followed a plan every step of the way… 1. down from the August breakdown, 2. up on the bounce to SPX 1975 or 2040 (hit 2020) and now 3. down to a test of the October 2014 / August 2015 lows, which is a decision point between a bounce or an entry into a bear market (by making a lower low to October 2014).
We arrive here amid an over bearish sentiment backdrop that is all out of whack with what has actually just been a twitch by the market in the big picture (with bull parameters still intact). So whether this is the bounce, as it seems to be – and we are getting some follow through despite the volatility – or it comes from a lower level, it is going to happen.
There were the small speculators way too short the market and Investors Intelligence data showing newsletter writers having totally abandoned the trend they rode for eons (well, since 2011 anyway). They are now advising extreme bearishness to subscribers. Here’s the latest graphic on that, courtesy of Doctor Ed and the Daily Shot.
No ifs, ands or buts… Junk Bonds (high yield) have entered a bear market as they just broke down below the October 2014 lows, which is the bear parameter for the stock market as well. JNK is similar… worse actually.
Never mind 20% rules about bear markets, this is now a downtrend on an intermediate basis and cyclical bear market (barring some sort of reversal stimulant, like policy making designed to take us further down the Rabbit Hole of debt, leverage and speculation). Even if this bounces, it would have to get all the way above 89 to neutralize the trend.
 +142,000… (BLS release). I’ll not give up my day job as a market manager. They’d laugh me right out of the Sacred Society of Gurus. Hey, at least the Squid was worse; I read a blurb that Goldman predicted +215,000.
I am the last person you will see playing Swami on important matters like when will the stock market’s bull end or when will gold’s bear market end. One remains above the October 2014 lows and is thus in a biggest picture up trend and the other is still in a down trend, current bounce aside.
Those are simple parameters that cannot be argued with. You add in some tools, like gold ratios or bond relationships or sentiment profiles, etc. and you can add in probabilities to help form your narrative.
Elliott Wave International’s European Financial Forecast Editor discusses deflation
In this new interview, Elliott Wave International’s Brian Whitmer explains the indirect connection between Europe’s volatility and deflation. Find out how Brian’s advising his subscribers prepare for deflation.
Not familiar with deflation? Learn more about how you can survive and prosper during deflation from the world’s leading deflationists — FREE.
Learn about the Unexpected But Imminent and Grave Risk to Your Portfolio PLUS 29 Specific Forecasts for Stocks, Real Estate, Gold, New Cultural Trends — and More (excerpted from Prechter’s New York Times bestseller Conquer the Crash — You Can Survive and Prosper in a Deflationary Depression)
This article was syndicated by Elliott Wave International and was originally published under the headline (Interview) Deflation: It’s Been a Stealth Move. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Ref: The ill-conceived post Yields Making a Signal? in which my brain cramped up, conspired with my eyeballs, and failed me.
The answer is no, they are not making a signal because with the 2yr yield declining less than the 10yr, the curve is still under pressure. It still implies a flight to liquidity of bonds, a somewhat risk ‘OFF’ environment and is consistent with a deflationary backdrop, but it is not at all beneficial to gold as was noted in the previous post.
Again, my apologies. I edited the previous post but wanted to put up a new one for certain entities that link or pull content.
Aye aye aye… distracted and hurried I looked at the chart wrong. Everything written below is opposite to reality (except the deflation part, as both yields decline in the short-term). I misread my own chart and thought the 2 was breaking down and not the 10. Unbelievable. I need a vacation, or a break from my in-day schedule, which is hectic lately. Please accept the apologies of an embarrassed blogger. I guess over years and years things like this are going to happen once in a while.
The yield curve is still doing no better than potentially bottoming, but when viewed nominally and side by side, the 10 and 2 interest rates appear to be considering different courses. The 10 is still up trending and the 2 is breaking down.
That would of course be a positive for the yield spread and a negative for most other assets (esp. with the curve rising in a declining short-term yields scenario) and could be a positive for gold. Imagine if long-term yields were to rise (not predicting it, merely riffing) and short-term yields were to decline? Wow. For now, I’d just settle for a curve rising under the pain of short yields dropping faster than long yields (i.e. DEFLATION!!!!). 😉
 By ‘breaking down’ I mean the 2015 up channel on the 2 year. An actual down trend would not be indicated until it makes a lower low to April.
In case you were not suitably moved by the post’s title…
DEFLATION is HERE!!!!
I just wanted you to be sure to know that deflation is here. Just like you used to know that…
INFLATION was HERE!!!!
You see, many of the same people who used to scare the crap out of us to prepare for the coming blow off in inflation (as in El Hyper) are now promoting deflation, just to make sure we are well up to speed with the current thinking.
Got to hand it to Prechter; he of the infinite patience promoted deflation through thick and thin. But it is a sure sign that something is readying for change when those who made their bones schooling us on one thing, go whole hog to its opposite after never seriously entertaining its viability until well after it became obvious fact.
It is just one tool, but I think a lot of answers reside in the Gold-Silver ratio, which continues in its uptrend during this deflationary phase. But remember our big picture chart has its limits. Registering the low-mid 80’s to 90 (which could still be many months out) will likely coincide with the next inflationary episode. Meanwhile, Prechter is getting a lot of weight on his side of the boat.