Trader’s Narrative

Here is a terrifying interview with Marc Faber, editor of the Gloom Doom & Boom Report. I find it unsettling how calm and polite he is as he lays out the case for an inevitable collapse of the US dollar hegemony and the destruction of our economic system.

And in case you think he is some sort of doomsayer who just now happens to be correct, keep in mind that throughout his lengthy career, he has made some unbelievable calls - both long and short. So he clearly is not a perma-bear of the Howard Ruff variety. The last time Ruff was on CNBC hoarsely growling his ever pessimistic prognosis, I wondered if this was a contrarian signal from the trading gods. With hindsight’s approval we know that it most certainly was.

In contrast, Marc Faber was bullish at almost the exact bottom of the market earlier this year. So while he is a long term bear, he is the rare breed that is actually able to bob and weave, catching shorter term rallies. Listen to the full interview (in three parts) to find out his case for the utter collapse of capitalism as we know it:

Marc Faber Bloomberg Interview: Part 1

Continue reading ‘Marc Faber: Total Collapse Of Our Economic System’

Today’s market strength isn’t surprising as we looked at different breadth measures that suggested that in the short term, the market was approaching oversold.

But today’s strength notwithstanding, looking out further along the time horizon, we are probably going to see lower prices. According to the latest report from Lowry Research, their proprietary Buying Power Index, which measures the demand side of the market, has falling dramatically.

Concomitantly, the Selling Pressure Index - their proprietary measure of supply - is now heading up after meandering for a few months. These two taken together mean that the stock market may even retest or go through the March lows.

The usual script for a new bull market is very shallow retracements and an immediate and aggressive bounce from any oversold condition. We are not really seeing that, at least so far - which leads many to conclude that we are not in a bull market but rather continue to trundle through a brutal bear market.

Although Lowry Research is probably best known for Paul Desmond’s seminal study of the role of 90-90 days in the birth of bull markets, they themselves follow their two proprietary supply and demand indicators for guidance on future market prices. To read more about Lowry’s methodology and charts of Buying Power and Selling Pressure indexes, see this: Lowry Research On Current Market Conditions.

You can also watch Paul Desmond’s recent CNBC interview where he mentions basically the same arguments for a defensive position going forward.

Bob Prechter on Silver & Gold
By Nico Issac
In case you hadn’t noticed: Over the past year of financial turmoil, the “safe haven” premium of precious metals has offered about as much support as a rubber ducky in a tsunami. Despite a string of powerful rallies, silver and gold remain well below their March 2008 peaks.

It goes without saying that the greatest opportunities in precious metals were not had by those who played the “disaster hedge” card; but rather by those who timed the trends as they developed, regardless of the fundamental backdrop.

Bob Prechter is in the latter group. Amidst the buzz and whirl of the most bullish backdrop in precious metals’ recent history, gold and silver prices soared to new, all-time highs and calls for a “New Gold Rush” and “$30 Silver” flooded the mainstream airwaves. Yet Bob alerted subscribers to an approaching top in the March 14, 2008 Elliott Wave Theorist.

“The wave count [in silver] is nearly satisfied, though ideally it should end after one more new high. If this analysis is accurate, and silver does peak and begin a bear market, gold is likely to go down with it.”

In the days that followed, prices in both metals fell off a cliff. In turn, Bob was asked to address his exceptional call for a turn down in a March 19, 2008 Bloomberg interview. Here are of excerpts from that conversation:

Bloomberg: “Why did you put out that call on Friday (March 14) about a peak in precious metals?”

Editor’s Note: You can download Bob Prechter’s 5-page report, Gold & Recessions, free from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Bob Prechter: “One of the reasons is that it seemed like an absolutely sure thing. We track several indicators of sentiment. One of them is the Daily Sentiment Index (DSI). That reached 98% bulls on a one-day basis going into this last high. We were tracking silver as well… as it is clearest in our minds. Now, at the time, we needed one more slightly new high. That happened Monday morning and silver dropped 15% in 48 hours. That’s a heck of a reversal and I think it’s real.”

“Real” indeed: From their March peaks, gold prices plummeted 34%, alongside a 60% sell-off in silver before hitting the breaks in October. Here, the October 2008 Elliott Wave Financial Forecast prepared for a corrective rebound and wrote:

“Silver traced out a five-wave decline from its March peak…Gold should also rally as silver pushes higher. Once silver’s rise is exhausted (initial target: $15.15), the larger downtrend should resume for both metals.”

A powerful, four-month bounce ensued in both metals: Gold prices came within kissing distance of its March peak before turning down on February 20; silver followed suit — a fulfillment of this bearish, near-term insight presented in the February 23 Elliott Wave Theorist:

“Silver has been clear as a bell. Silver is due to turn back down, and gold, which is back at $1000/oz, is likely to follow.”

Since then, it’s been a steady march lower for both metals. Obviously, EWI’s forecasts do not always prove this accurate. Yet in this case the analysis speaks for itself.

For more metals analysis from Bob Prechter, download Gold & Recessions a free 5-page report from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

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I had never heard of the Daily Sentiment Index (DSI). Anyone know anything about it? I do know that market timing newsletters tracked by Mark Hulbert that specialize in gold and gold stocks have turned very bullishness since mid February 2009. They upped their exposure from -16.5% (short) to +30.2% (long) within that short time span.

While Bob Prechter’s Elliott Wave Theorist is most commonly known for its bearish stance towards equities, their equity focused newsletter: the Elliott Wave Financial Forecaster is up 22.8% for the past 12 months, compared to -43.3% for the dividend reinvested Wilshire 5000 Index (according to the Hulbert Financial Digest). They seem to have the hot hand now. Check’em out.

If you would like to receive a free copy of Jason Scharfman’s book, Hedge Fund Operational Due Diligence, enter the draw by leaving a brief comment at the above link (making sure you leave your correct email).

There are a lot of newsletter writers and stock market advisory services but I don’t feel comfortable recommending most of them. One exception is Mike Swanson of WallStreetWindow.com. I’ve known him from way back before he even had a site or was charging for his services.

Although it is now almost forgotten, SiliconInvestor used to be a huge trading and investing forum back in 2000. That’s where Mike started to write about his thoughts on the market and individual stocks and setups. I remember it well because it was rare for someone to be so genuine, knowledgeable and to come across as just a really nice guy. If you know anything about internet forums, you know that those characteristics are in short supply. At a time when it wasn’t popular, he was bearish and made a lot of money shorting deflating tech stocks and then going long gold and precious metal stocks.

Eventually he moved to his own site and started a premium service charging for his services. But Mike does things differently. Since access to his membership site is closed for the majority of the year, he spends his time on giving his clients their money’s worth. He only opens it up two to three times a year to new subscribers.

This is your lucky day because today is one of those rare opportunities. And by tomorrow it will be gone.

What I like about Mike is that he doesn’t just say buy this or sell that. He gives you his reasons and really lets you understand his whole trading plan. Although he largely relies on technical analysis he doesn’t ignore other factors like fundamental value and sentiment. Oh, and did I mention he won a Robbins Trading Championship?

So how much does it cost? An annual subscription is $377.00 (or about a $1 a day) while a quarterly subscription is $150.

If you’re still not sure, then you should know that Mike has an unbelievable guarantee that I haven’t seen anyone else dare to offer: If you aren’t happy with your membership at WallStreetWindow, he will refund you 100% of your money.

And on top of that, he will give you $100 (if you ask for it). Yes, read that again.

Can you see now why I feel comfortable recommending this guy?

Here is our recent chat:

What do you think of this stock market?
I think we are in a vicious bear market that is likely to continue throughout the rest of the year. I saw signs of a top in October 2007 due to the faltering advance/decline line of the market and clear problems that appeared in the credit markets. By December I was telling my people that the signs were more than clear and we had to take the bear market seriously. Tha said though I tried to go long in January 2008 and got stopped out and wasn’t able to position myself on the short side until the market rallied in May.

Did you anticipate that the indices would fall so dramatically?
I thought the market was going to drop, but I was surprised at how this bear market has played out. The most surprising thing to me is how we have not really had many powerful rallies in this bear market. Everyone was looking for a big rally off of the November lows for instance and it didn’t happen. Not even much of a bounce.

What are your thoughts about the ’subdued’ VIX? or the CBOE put call ratios that have not shown any real ‘fear’?
I think it is very bearish for the VIX and put/call ratio not to be showing much fear as the market has been grinding lower the past few weeks. This is textbook action of what happens in a leg down during a bear market.

What do you see going forward and how have you positioned yourself or advised your clients?
I’m position righted not in cash and tell people that is the best place to be for now. I’m hoping for a rally to go short on, but in the end I really think there are going to be great opportunities to go long as a buy and hold investor when the bear market is over. Historically secular bear markets have bottomed out when the cyclical P/E on the S&P 500 falls below 10 and often below 7. We’re at 12 now. But when secular bear markets reach a bottom in terms of valuation you can find good solid companies on sale for ridiculous prices. You can actually buy stocks not just to speculate that the price will go up, but to get a solid dividend. I think these opportunities will actually be widespread next year, which is something I’ve never seen before in the US market and unfortunately most people won’t be able to take advantage of since they’ll be so beaten up by the bear market.

Does anyone still watch CNBC? I mean to actually get information, not for entertainment. If you were watching, CNBC gave us a blast from the past on Wednesday. And if you weren’t, here’s what you missed.

Their guest yesterday morning was none other than Howard Ruff. If you’re unfamiliar with Ruff, he was a huge market ‘expert’ and doom and gloomer way back in the 1970’s. Think of him as the 1970’s version of Nouriel Roubini. Well, that might be a little unkind to Roubini.

Howard Ruff’s major message back then was to buy precious metals and shun equities. And to stock up on canned food to survive a dystopian future. And guess what? he was back on CNBC re-hashing the same 30 year old message:

Had we been in a bull market, you can bet that anyone at CNBC suggesting an interview with Ruff would have been laughed at (or fired). Since CNBC, like all general media outlets, reflects sentiment, take this as a sign of the depth of the doom and gloom out there now. Remember the last bull market? or the bubble years? What kind of guests did CNBC feature then? Was Roubini or Prechter or Taleb anywhere to be found? Now we find Ruff, having dusted off his 1979 book and tacked on “in the 21st century” back in the spotlight.

Just for fun, here’s a graph of the Dow (the same Dow Ruff “wouldn’t touch”) along with the release dates and titles of Ruff’s books (click to make chart larger):

Here’s the transcript of the interview:

CNBC: “Alright, our next guess really needs no intro, Howard Ruff, and we’re glad to have you on, its a… its rare to see you on set. Howe, what do you think investors should do to prepare for the next couple of years?”

Ruff: “Well, that’s my expertise. I’m not interested in telling Congress nor the President, what they should do, they wouldn’t listen to me anyway, so my job is to look into the future and see what’s probably going to happen and tell investors and families what to do to get through this with the minimum amount of damage. And, in fact, to possibly to turn all this stuff into small amounts of money and into real wealth. You can do that.” Continue reading ‘Howard Ruff On CNBC: Contrarian Signal From Trading Gods?’