Dow Jones Industrial Average: Closed at 10,774.36. This took the price bar below overhead resistance, showing another head and shoulders top being formed for selling. PMO lines, while in mild uptrend, have touched and show weakness. 10,660 is close to the 50-day average but more importantly, it's the lower support channel. When broken, support is 10,600. Volume is weak and price closed near bottom of daily price bar telling us more selling is coming next week. Close is under the 20-day and over the 50- and 200-day averages. Short trend is down; intermediate trend is up; and long trend is down. Stay out or sell your positions.
S&P500 Index: Closed at 1200.08. Price closed right on main support. Volume was good but PMO is turning down like the Dow. Price is almost on the 50-day and under the 20-day, but above the 200-day averages. PMO shows weakness since Christmas. This group usually lasts longer in a bear market as investors go there for safety. When this one sells, that is the end of the group for any rallies. Short trend is down; intermediate trend is up; and long trend is down. Pros call it a stock pickers market but I call it a bear market. Stay out, sell your positions, or buy large oil companies from this group on weakness.
NASDAQ 100 Index: Closed at 1505.64. This index sold out of a triple top has very strong support at 1500 and is now moving sideways in a continuation triangle. There is mild divergence with PMO lines moving up weakly and price bars stuck in a continuation triangle with lower highs and higher lows. Expect a waterfall sell off when it breaks 1500 support. Expect the average to drop 100 to 150 points by May. Short trend is down; intermediate trend is sideways;and long trend is down. Buy oil and gas stocks in the group if any, and sell the others. If you are out, stay out. High-risk traders could sell the QQQQ's index on a sell stop below 1488.
Gold: Closed at $445.50. Price has stopped in a rally almost exactly on $445 main support and resistance in the middle of a wave three up. Gold must quickly go to $455 or the rally could stall. Seasonal cycles give us three full weeks left with a holiday weekend (Easter) taken out of the middle. We were hoping for 476 in this cycle, but with Easter and metals options expiring 3-28-05, many trader and investors will take profits and exit about 3-23 or 3-24. It looks like we get 455 where we were in December 2004, before the selling begins. Expect support after profit taking near 429-423. Should mainstream stocks sell hard, gold and silver could rally out of cycle relating to fear. Short trend is up but could be on resistance. Intermediate trend is up and long trend is up. Watch out for a topping resistance right on today's price. Stay in position but tighten the stops and be ready for a reversal. We should get our last ten points from 445 to455 before selling begins in earnest.
CRB Index: Closed at 318.61. Price continues to moon shot toward the last big high of 330, where I expect it to stop. It is possible it can blast through and keep going but old traders know where that 330 is and will be ready to bail out right on it. When prices go straight up, just like airplanes they stall, pivot reverse, and dive. Be aware. PMO has wide lines and is moving up rapidly and is nearing overbought territory. Price is moving so fast, even the 20-day average is way back at 304. The normal main average is 285. Propellant here is oil, grain, and precious metals. Oil is pausing, but will rally more. Grain is just getting started. I believe we get another huge rally here through June-July followed by some rest and a rally resumption in the fall. At it's extreme, corn could see $4.00+ and beans over $8.00. Wheat, which is normally a slow boat, has a head start and acts like it's going to $5.00. The funds are buying and they have big power and money with not too much moxie in these markets. Be careful. CRB is too near the top to trade the index. Buy the last leg of energy and the coming rallies in grains. Metals are nearly done for the first quarter of 2005. Following action should be choppy. August begins the next metals rally, which should be outstanding.
Crude Oil: Closed at $55.12. Oil sold off earlier this week but came right back in with shortage news. This chart is a classic in that it formed a double bottom last December and formed nice one, two, and three waves of five in an up rally. Resistance stopped it at $55, causing some selling, but it again powered its way back to $55. Expect a pivot reversal in downward selling, wave four OR, a resumption of the rally to $60 before turning down. If wave three continues to $60, wave four should come back to $52-$53 on profit taking and then rally back up in wave five to $60-$65-$72. April unleaded gasoline contract broke 150 and is headed higher. We saw this months ago when price was at $1.22. An extreme price event could take gas to $1.90 wholesale, which would give us $2.50-$3.00 per gallon at the pump with taxes. All trends are up but the wave four selling could kick in next week. If you are in, tighten stops. If you are out, wait for technical direction. Oil has a very long way to go and price should go much higher.
30-Year Treasury Bonds: Closed at 110.62. Price closed down below the 200-day average and near the bottom of the price bar. Next week, short term, expect more selling. PMO is down and looking like a stronger down. MACD Histogram bars are all down with some up relief near the end of trading this week. There is strong support at 110.00, which will be tough to break through. Expect a very small rally followed by more selling to 107.50. With one very heavy day of selling this week, bonds scared some strong players. Nerves are on edge watching this market. Our dollar dropped as well. Short trend is down. Intermediate trend goes back up after touching 110.00. Long trend is down. Do not try to go long on a recovery trade up. Wait and go short below 110.00 when trend is established. This is a very unstable, tricky market. Be wary.
U.S. Dollar: Closed at 81.47. Price went down a little but jumped in a top-bottom daily range, closing almost right in the middle near .8150 support. Dollar could finish its head and shoulders to base right on .8000, forming a large double bottom. Should this occur, I would expect the dollar to rally back to .8400 and possibly .8700 before returning to the bottom and trying to break under .8000. Price is under all moving averages and PMO is down. The dollar is still weak and should touch .8000-.8050 range soon. All trends are down. When near support is reached it should rally. Traders will like the Canadian long and perhaps 2-3 points in a Swiss franc rally. Yen and euro will rise as the dollar drops but both are difficult to trade right now. Currency traders will have a very good year with the promising trends. Grain traders, if they stay out of trouble, should have an exceptional year. Be careful out there. First, don't lose, and the wins will come along in due course. -Trader Rog
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Editor Comments on Trader Rog's Views
Keep in mind that Trader Rog's comments in "The Corner" are from a trader's viewpoint. We value Roger's short-term perspective and quite frankly, we will be using his timing on gold as we seek to unload a few more of our gold shares.
But from our long-term perspective, we don't exactly see things the same way Roger does. Perhaps the biggest area where Roger and I disagree at the present is on the 30-Year Bond. While my timing for recommending the inclusion of the Lehman Long Bond ETF, namely TLT, was rather bad, I am unconvinced that Roger is right in suggesting the long-term rates for the U.S. Treasury are headed much higher.
What will convince me to take this rather offbeat view on bonds that have been influenced by Professor Antal Fekete and by a shorter-term perspective by Bob Hoye and his associates? If the 30-Year U.S. Treasury falls below the long-term trend line shown in the following chart, I will concede this was a wrong position. In other words, if the long bond falls below 100 or about 11% from its current level, I will throw in the towel on the long bond and head for shorter-term liquidity. Frankly, I wish I had a dime for all the times during the past 10 years that I have heard the death of U.S. Treasuries announced. I continue to believe Professor Fekete has drawn a bead on Greenspan's long interest rate conundrum, though not one in a thousand investors understand it.
I do admit to being a little worried about taking the long bond position, especially following this past week when we heard that even the Japanese now are having second thoughts about the huge load of dollars they are holding as a reserve currency. It is indeed possible that we could see a sudden exit from the dollar because once one starts to sell the dollar down, the other big creditors to the U.S. will start to realize that unless they dump the "Asian tea party," they will be left holding a huge amount of worthless paper.
Still I believe the arguments of Fekete have merit, given the enormous deflationary undertow that is keeping Japanese and U.S. interest rates at still very low levels. Can this deflationary undertow be overcome by printing press money? I agree with Robert Prechter, Bob Hoye, Ian Gordon, and Antal Fekete on that, which is why I am hanging in there on the long bond as well as the dollar. If you do not agree with my views on these markets-which is decidedly a minority view-then don't buy the TLT, and do continue holding the Prudent Global Income Fund (PSAFX), which is really a synthetic dollar short position. As you know by now, I subscribe to the idea that the world is in a dollar short position and when the margin clerks begin to "cluck" there will be a mad scramble not only for dollars but also for income. Where else can you find a credit safe place to generate income during the Kondratieff winter than U.S. Treasuries?
Regarding the U.S. economy now, I would like to quote Bob Hoye, who said the following in last week's "Bond Works": "While some indicators-such as housing data and the headline payroll number-tell us that the economy continues to expand at a healthy clip, all is not well in the good old US of A. Auto sales were a disaster for the second month in a row. Sentiment surveys are losing altitude on both the manufacturing and consumer front. The only positive item on the employment data was the payroll figure. The headline rate rose from 5.2% to 5.4% even though the Participation Rate is at rock bottom and still declining. Hourly earnings were flat, and so was the workweek. Meanwhile the inflation data is benign as prices paid are falling, labor costs are not keeping up with inflation, and pricing power is non-existent at the consumer level even with oil trading at $54/barrel."
Regarding bonds, on March 7 Bob said he believes we are heading for lower yields in the long end, but that he needed to see the 10-Year Treasury fall below 4.3%. If rates rose above 4.42% however he said he would turn "neutral." I have not had a chance to ask Bob but presumably, with the 10-year rate closing at 5.54% for the week, he has turned neutral on longer-term U.S. Treasuries.
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The Maestro Changes His Tune
by Rep. Ron Paul, MDby Rep. Ron Paul, MD
Nearly 40 years ago, Federal Reserve chair Alan Greenspan wrote persuasively in favor of a gold monetary standard in an essay entitled Gold and Economic Freedom. In that essay he neatly summarized the fundamental problem with fiat currency in a few short sentences: "The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
Today, however, Mr. Greenspan has become one of those central planners he once denounced, and his views on fiat currency have changed accordingly. As the ultimate insider, he cannot or will not challenge the status quo, no matter what the consequences to the American economy. To renounce the fiat system now would mean renouncing the Fed itself, and his entire public career with it. The only question is whether history will properly reflect the destructive nature of Mr. Greenspan's tenure.
I had an opportunity to ask him about his change of heart when he appeared before the House Financial Services committee last week. Although Mr. Greenspan is a master of evasion, he was surprisingly forthright in his responses to me. In short, he claimed he was wrong about his predictions of calamity for the fiat U.S. dollar, that the Federal Reserve does a good job of essentially mimicking a gold standard, and that inflation is well under control. He even made the preposterous assertion that the Fed does not facilitate government expansion and deficit spending. In other words, he utterly repudiated the arguments he made 40 years ago. Yet this begs the question: If he was so wrong in the past, why should we listen to him now?
First, the Federal Reserve does not mimic a gold standard by any measure. The clearest example of this lies in our current account deficit, which our fiat currency encourages. Under a gold standard we would not have exchange rate distortions between the Chinese renminbi and the U.S. dollar, for example. True currency stability is impossible when fiat dollars can be produced at will and foreign lenders bankroll our deficits.
Second, inflation is a much greater problem than the federal government admits. Health care, housing, and energy are three areas where costs have risen dramatically. The producer price index is rising at the fastest rate in seven years. Bond prices are rising. To suggest that rapid expansion of the money supply and artificially low interest rates do not ultimately cause price inflation is absurd.
Third, Fed policies do indeed have adverse political ramifications. Fiat currency and big government go hand-in-hand. Without a gold standard, Congress is free to spend recklessly and fall back on monetary expansion to pay the bills. Politically, it's easier to print new dollars than raise taxes or borrow overseas. The Fed in essence creates paper reserves that enable Congress to undertake spending measures that far exceed tax revenues. The ill effects of this process are not felt by the politicians, who can always find popular support for new spending. Average Americans suffer, however, when their dollars are "confiscated through inflation," as Mr. Greenspan termed it.
It's not enough to question the wisdom of Mr. Greenspan. Americans should question why we have a central bank at all, and whose interests it serves. The laws of supply and demand work better than any central banker to determine both the correct supply of money in the economy and the interest rate at which capital is available - without the political favoritism and secrecy that characterize central banks. Americans should not tolerate the manipulation of our economy and the inflation of our currency by an unaccountable institution.
February 22, 2005
Dr. Ron Paul is a Republican member of Congress from Texas.
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March 19, 2005
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com