Game Over

I worked in the fast-paced and dog-eat-dog corporate world for approximately 10 years before my girlfriend and I moved to British Columbia's Sunshine Coast at the beginning of the year. Its beautiful scenery, small communities and rustic feel are among the many reasons we made the move. Above all else, however, was a incessant need to live a more balanced lifestyle away from the hectic hussle and bussle that city life offers.

Here are a few pictures we've taken over the past two weeks (yes, it did rain here a few weeks ago but I SWEAR it's been mostly sunny!)

Sunset in Powell River


A friend and I visiting Savary Island


Me caught off guard with a glass a vino


My dog caught off guard laying down



It's important to live a life away from your vocation so that when you come back to it (say, after a weekend) your brain is reset to an objective state. That being said, onto tonight's post!

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Thursday July 2, 2009 will in retrospect be an important day in the markets for me should we begin to sell off briskly from this point forward. I had mentioned previously on the blog that for me to turn very bearish on the markets would require three things:

1. A sell off from the highs near SPX 955
2. A correction upwards of that sell off (though not exceeding that previous high)
3. A resumption of the trend down

As of Thursday we have all three and in my opinion this is the last nail in the bull's coffin.



Forget for a moment the gargantuan head and shoulders pattern everyone is looking at. The tape most of us (both bulls AND bears) have been frustrated with is simply a huge distribution pattern on low volume. For lack of a better word, the past two months have simply been a feeble attempt to extend the knee-jerk rebound from the 2008 sell off. There is a reason why the markets have not continued their upwards trajectory - there are no more buyers to push it higher. It's that simple - let's not make things more complicated than they already are.

Also, forward looking ratios such as the VIX/VXV and GOLD/SILVER ratios provide excellent evidence we are incredibly close to a significant top in the equity markets (if not already there).

VIX:VXV Ratio


Gold:Silver Ratio (SPX in grey)


Note, in particular, the sharp rise in the GOLD/SILVER ratio and its acceleration from the 65.90 level on 6/15/09 to its current reading 69.42 (+5.34%). What could possibly be causing this ratio to literally sky rocket over such a short period of time? For those of you suggesting a sharp movement in the USD - wrong.

Gold:Silver Ratio (USD index in grey)


Not only has the USD index dropped a measly -1.13% over that same period but there is a striking divergence taking place at the moment. That would leave an extra 4.21% unexplained. My suspicion is the market is foreshadowing very stormy clouds in the immediate future.

The one thing that does worry me is my own forecast. It has been absolutely phenomenal guiding me through the bear market (though has been wrong from time to time - like any other forecast) so I must pay heed to its warnings of an impending rally.



Existing information the market provides, however, takes precedence over any forecast of any kind.

ACTION PLAN

I am short going into Monday morning and expect the market to give those who are not prepared very little chance to enter new positions so my advice to you is follow the trend and forget about this 'oversold' or 'overbought' nonsense. Oscillators, etc will be pushed to limits likely not seen in this bear market and will be of little use to you.

Finally, I've talked about the nonsense that is 'crash calling' but if there ever was a chance for a one-day major sell off it's going to likely occur in August and it could be HUGE!! So please do not be long the market around this time.

P.S. Here is an update from Bob Hoye: HERE