Gold...Silver....Bursting Bubbles......Lead Stock Market Lower....
Commodities / Gold and Silver 2013 Apr 16, 2013 - 07:09 AM GMTBy: Jack_Steiman
Yes, the selling was across the board today, but the most interesting part of today was watching the continued bursting of the commodity bubbles in gold and silver, along with other areas of the commodity worst. Gold and silver and other commodities have never been anything more than pure froth or a bubble, no different than the bubble that existed in 1998-1999 in the world of technology. What you learn through age is that ALL bubbles burst in time and never come back. The only sad part of bubbles that burst for good is the amount of people who sadly get sucked in at the top. They lose lots of money over the first few months, but are told to hang in there as it always comes back in time.
The problem here is they don't always come back. There is that one time when it says goodbye forever. So now folks are deeply under water. They don't know what to do and, ultimately, they'll get out. No one believed gold could fall over 100$ in a given day, let alone $200 over two days. What people don't grasp is once the bottom falls out, panic sets in. People run for the exits. Margin calls come in to play and, well, you know the rest of that very sad story. Big money buys it up early on, and then distributes it out over time. The big money knows foolish retail buyers will chase back up, thus, they can wait again to sell more or distribute out at the next test back up.
If you study the charts of iShares Silver Trust (SLV) and SPDR Gold Shares (GLD), you will see the high volume selling that has been taking place for a couple of years now off tops. Notice the lighter selling as retail bought it back up only to once again have the big money, or the smart money if you will, sell if off all over again. It's not a happy story nor will it ever be again. GLD, SLV, and the rest will enjoy wonderful oversold rallies over time, but it's best to avoid the bubble once it has gone to meet its maker. Make note of what has taken place and try to avoid the falling knife. Avoid that which should be avoided. Don't play the hero because you think enough is enough. Be smart and recognize what's taking place. GLD and SLV, along with other commodities are painting bad news for their bulls.
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What's going on here? What is the message being told in the real world versus Disneyland? Is it the worst possible scenario over time? Is it stagflation? I don't know for sure, but it certainly could be. Let's discuss this. We have seen a very high number of weak reports come in with regards to our economy. Manufacturing ran in to the wall last month with a very rapid decline month over month that surely raises the red flag. We have seen a very poor Jobs Report that caught everyone, every economist, off guard. We are seeing jobless claims trend higher.
No one reading this message will deny that the cost of health care is rising. No one reading this message will spend one second telling me that the cost of food isn't rising very rapidly. No one reading this note will tell me that salaries are rising or that job security is there like they'd like it to be for the majority of people. We may be seeing a decline in wealth but a rise in cost. Not what we need but that may be what's developing here. Stagflation may in our futures. That doesn't mean the market is toast. Not by any means.
The market gapped down in part due to the selling in the commodity world. The market wasn't down very much early on but that selling accelerated as the day went along. It got very nasty after lunch time, but it was no picnic before that. When the day ended the losses were significant but most interesting was the triple digit losses in the Dow and Gold, which had never happened before in history. The Nasdaq, once again, led down by quite the margin. This is normal and typical when things correct. Froth gets smoked first. No exception here to be sure. Apple Inc. (AAPL), Priceline Inc. (PCLN), and a host of other froth stocks were absolutely smoked along with the transports and the commodity stocks. Just about everyone joined in. Even those untouchable biotechnology stocks took it on the chin and they never seem to go down, wildly overbought or not.
Today was a technically damaging day as the S&P 500 lost key support at the 1575 breakout. The market head fakes out through the top and trapped the aggressive bulls. That's why I have been saying to please play lightly. We were going to get hit at some point, thus, to have less exposure makes this far more tolerable. From here you take it easy. With strong technical damage in place it's going to be very hard for sustainable upside for quite some time. The trend is likely down short-term. We need deeper correcting, and I'm hoping we get it to set things up much better for the bulls, but again, time will need to be your friend. Entering aggressively too soon isn't advisable. Up days will take place, but the damage is going to need a decent amount of time.
Patience!!!
Peace,
Jack
Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.
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