biiwiiletter

A quick letter this month because we are experiencing a rare thing in New England this year; a totally off the charts awesome April and there is plenty else to do besides mentally masturbate about markets and charts that are acting predictably anyway.

As you know, I often write about the big picture and in the big picture nothing has changed; stocks are in a secular bear market when measured in gold - and they are in a cyclical bear market in nominal USD terms. That does not preclude a previously over sold market from continuing its climb to the astonishment of bears and a well spooked public. First came the VIX signal that we have been watching for and now we have the Dow trigger per this blog post. It was a weekly close above resistance, which is significant. Barring an immediate 'head fake' reversal, the Dow now locks and loads for the 13,750 target noted. By the way, I am seeing inverted head & shoulders bottoms all over the place, none of which signal more than near to intermediate term rebounds.

As for gold, the Fast Money gang and other CNBC personalities have free reign to laugh at the gold bugs and declare the worst over - and I tell you from what I see in the real economy there is a lot to be optimistic about. But we did not just get a Bear Sterns one and done and back to the big happy. No, the gross excesses of the levered debt economy will continue to unravel at some point and in the way markets typically work, that will not be until we get a public with a severe case of the yips at least becoming hopeful again.

As for nominal gold, it is not precluded from testing its highs short term, although it is hard to be bullish based on the state of the Dow-Gold Ratio. Similarly, the gold miners have done nothing but fill a lot of gaps on Friday. That is not bearish in and of itself.

In the biggest picture of the Dow-Gold Ratio, we see the process of recalibration already about 1/3 to 1/2 way done. I expect the Dow relative to gold to begin declining in earnest toward 10 after a retrace to at least the 38% Fib and more likely, the 50%. Meanwhile, try to remember that the markets are a dance and they move to a rhythm all their own. There will be plenty of time to make a killing in the gold miners, but it will take patience. Meanwhile, I for one am going to enjoy the ride to 13,750 and the associated shifts in sentiment that result.

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