Has the Breakout to A New all Time High Started?

There is no question we have a barrel of troubles from the Devil of Inflation to the Deep Blue Sea of Deflation. To make matters worse, there is a worldwide financial crisis brewing, massive unemployment, political strife, massive strikes and WAR is in the winds. Is this the kind of news that is likely to start a stock market rally that could breakout to a NEW, ALL TIME HIGH?

Well to start off with, you should not be surprised. As you all well know, I am certainly not one of those Pollyanna's that always strokes everything the Government says or does. BUT I have been warning you about this kind of rally into the elections for some time now because of the historic 90% correlation between a rising stock market into the elections and the sitting President getting re-elected. And you know dammed well Obama will stop at nothing to get re-elected, even going as far as to embracing Israel. As for the Government fudging facts and figures, he firmly believes that anything he says or whishes for must automatically be true and he has a flunky Press that parrots anything he says as if it was the gospel and will not challenge him on anything.

But all that is mostly just conjecture. Let's see if we can find some cold hard reasons to back up all that speculation.

SENTIMENT (you all know that I am the personification of a contrarian)

Just this past Friday, the American Association of Individual Investors (AAII) released its latest sentiment readings. Seems the bulls have definitely gone into hibernation. (I thought only Bears hibernate.) Bullish sentiment dropped a full eight percentage points to 22.19%, one of the largest weekly declines ever. That was in the face of a 2% rally, both of which are close to the most BULLISH signs these contra indicators can give. When bullish sentiment drops below 25%, stocks (almost) always rally over the next three to six months. When the reading drops to two standard deviations below the average, stocks rally 100% of the time. Currently, the long-term average is 38.9%, with a standard deviation of 10.6.

So yesterday's reading of 22.19% is more than one standard deviation below the long-term average, which means there's roughly an 80% chance stocks will rally over the next three months. Here's the key, though. If the reading drops another three-and-a-half percentage points, it would be a full two standard deviations below the long-term average. That would mean there's a virtual lock that the markets will rally over the next 3 months.

To make a long story short: Based on the extremely low levels of bullishness in the market, the time to buy stocks is now. But that is not my only reason for calling for this rally. There is also extremely bearish analyst sentiment, negative unemployment trends, a less than stellar earnings reporting season and the fact that it's an election year. Then there is also a bullish scenario that allows for more upside over the next several weeks, due to last week's Hindenburg Omen: The Omen has a shelf life of four months, which takes us to November 24th. It means a stock market crash can occur any time between now and then, including as late as November 24 (after the Elections). It means market conditions are extremely unhealthy at this time. We have seen time and time again where, after a Hindenburg Omen occurs, a stock market rally follows, most likely due to the Government's Plunge ProtectrionTeam pumping up the market. This Omen is saying there is a 28 percent chance that a Black Swan event is out there in the not too distant future and markets will tank off that event. There is no point in speculating at this time as to what that event could be, but this indicator is warning there is a far greater than just a random possibility of a problem event striking global markets before December. We have seen this Omen be right too many times in the past to not take it seriously. I don't believe in coincidence that an Omen occurred just as the multi-decade, multi century, Jaws of Death pattern is nearing completion. (Just another coincidence? I think Not.)

Bottom Line: Should bullishness drops below 19%, stocks rally 100% of the time by double-digit margins. Should Obama be reelected there is a virtual certainty the markets will crash: Shorter-term, there is a an absolute certainty, given the USA and Europe's economic conditions; that a coordinated easing is coming as both the FED and the ECB have meetings scheduled for this coming week.

Then, there is also a Bradley model turn date scheduled for the July 28th week - Are all these OMENS coming together at the same time, Just another coincidence?

If all that has not been enough, My primary personal PM indicators also gave me a buy signal for GOLD and SILVER. Last Friday's powerful rally was a 90 percent panic buying up day generating a new buy signal in my short term Secondary Indicators. And just to make sure everybody is happy, Gold and Mining stocks are also now on a buy signal as of Thursday, July 26th.

THE BEST INDICATOR OF ALL is that I have never been as one SIDEINGLY Bearish as to the fundamental outlook on the World's Economies and stock markets with the possibility of a complete Financial Breakdown staring us all in the face. If that is not the ultimate Contrarian buy signal, I don't know what is.

However I AM ALSO THE MOST BULLISH THAT I HAVE BEEN since December 2000 on GOLD AND SILVER, but unlike the market which has none if any bullish fundamentals: GOLD'S fundamentals could not be any more Bullish. (check out my last few missives (www.gold-eagle.com/research/baltinndx.html).

Believe me when I tell you that this was a very difficult prognosis for me to write. The only question that remains is, Can I pull the trigger on the general stock markets tomorrow. When the safer play is to build cash and continue to buy gold and silver bullion and stocks into my $6,250 by 2017 target date?


Always remember to use your stops


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Aubie Baltin CFA, CTA, CFP, PhD.
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One cubic foot of gold weighs more than half a ton (1,306 pounds).

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