My 1st Million At 33 - yes, you can do it too

Guys & Gals, Folks & Foes, People,

I don’t know whether you noticed, but market is about to make its big moves soon. There can be fakes that look very real along the way, but surely everything will be resolved definitely in less than 6 weeks I believe. Have you positioned your money into the right places already?

Here are the most important charts:

gold equity

gold spot

silver spot

From all the above charts, the most obvious conclusion is that HUI is about to break out in a BIG way, under this ascending triangle technical formation. Now my only problem with this is that it is simply TOO obvious. And when it’s so obvious, it scares me, because the market rarely accomodates the wish of the majority. Gold seems to have built a good base. And silver has gone into strong uptrend. I have missed several opportunities at pullbacks to complete my positions for mining at 60%, and bring up silver positions to be some 33% of the total. I have been too conservative and “chickened”. Too bad that I will most likely take a small hit in my performance if HUI does break out. I kept waiting that it would do a fake down, but it never happened.

crude spot

As I expected in my earlier post, reading from the COT information (just go down to read the crude oil section), Crude is going down towards its 200 days Moving Average line. Why? Not much why. Market just does what it wants. Our job is simply to watch the tape closely to decode its information and message. I believe it’s going down because of market manipulation. According to my sources of information, the inventory increases because of heightened levels of oil imports. Now you can trick the market into going down temporarily by doing that, but you cannot cheat the market permanently. Oil is a global commodity, and the true prices will be reflected through the balances between supply and demand eventually.

The general stock market has taken advantage of a lower oil price and pushed through key levels albeit a lower volume. I believe the markets have reversed to bullish trend now.

Here are the charts for the general stock market:

Nyse Composite

S&P 500

DIA or Dow Jones

QQQQ or Nasdaq 100

SMH or Semiconductor Index

As you can see, a bullish bias seems to have come back in NYSE composite, SPY, DIA. QQQQ and SMH are still a little mired in the big drop. It is definitely hard to believe that markets can put up any bullish showing at the time when housing and mortgage markets obviously have gone into full pullback mode at least in sale volume if not in price (yet). But my personal belief is that these bears are correct but have called the bear too early. Markets will never give you an easy time. Maybe just right when all the bears think that they have the upper hand, bulls will come back with a revenge.

So where is the fuel for the next rally? Look at the following chart in FOREX, and US 10-year treasury bond yield:

$US to $Yen exchange rate

10-year treasury yield

Liquidity for stock market should be returning again from the Yen/Dollar carry-trades. Have you noticed Yen’s weakness, and the strength of US bond market? The bond auction in the last week went REALLY well at a bid/cover ratio of more than 3. It has been in low 2 for a while if my memory serves me correctly. If you put 1 and 1 together, apparently it seems to be that money is flowing away from Yen, into US dollar, and then into US bond market. This is the CARRY-TRADE, borrowing at low interest rate in Yen, and lending at high interest rate in $US. So with more money and more liquidity in the US market, plus helicopter Bernanke is probably printing money at full speed, I believe that it could be enough fuel to propel at least S&P, and Dow Jones to a new high. Certainly the recent fallen yield in bond markets is VERY good for the stock markets, allowing stock markets to react with expansion of P/E ratio.

Now, the only paradox left is how can the markets rationalize among themselves for a higher gold price, higher gold equity, and higher stock markets? Just recently in the last two weeks, the theme in the market seem to be that markets can go higher because of a potential lower inflation from the coming down of oil price. But gold price is the DIRECT inflation warning sign. How will the stock markets supposedly to explain the possible paradox, assuming that both gold and general markets turn higher? PARADOX indeed, and I have no words for the explanation. All I know is that from all the charts, it looks like both of them will keep going higher. Of course, this goes back to my previous claim on the synchronization of different markets. This May (or I should say the entire year of 2006), such close synchrony did occur, and as I believe in the continuum of the oscillations in the markets, the synchrony will not be broken immediately. Different waves of oscillations come IN phase, and then gradually go out of phase. When they are in phase, they all rise and fall together. When they are out of phase, some go up, and some go down. I believe that the waves should not be decoupled that soon, even though it is totally ILLOGICAL for these two markets (gold & general stocks) to behave such.

We will see what markets decide really soon. According to PI-cycle chart illustrated by Sand Spring Advisors, there seems to be a significant fake down right before the market takes off. The timeframe is probably around 1st to 2nd week of October. So hold on tight. Maybe we will just get such fake, in which case, you can use that opportunity to pick up some more, if you believe in PI-cycle and my analysis. Or alternatively if things don’t turn out as I expect them to be, maybe October will be the death spell on this market.

Assuming that I am correct, and such fake does occurs in October, I think it is going to be a hell of a roller-coaster ride. Many people will be SCARED out of their positions, just right before markets take off. Certainly, by that PI-cycle chart, October will be lower than the current prices. But of course, I just don’t know whether I’m really correct about the bullish trend of markets, and if I’m right, such fake will actually occur. It may not, and then you will certainly miss the boat (again, if I’m right in being bullish).

One of the biggest reasons that I did not sell in May in the parabolic move up by the gold market is that I knew all along this PI-cycle, and I have set my mind into a further date than this past May. Let us see whether I’m right against the great technical analyst Martin Pring who has called the return of the bear, and the the #1 investing blogger Bill Cara who has agreed with Pring since May. I believe in PI dates, even though it is most likely senseless without any real physical meaning.

Now to sum everything up, here is the strategy that I would propose:
1. Buy GOLD/SILVER & their stocks RIGHT NOW.
2. Buy Energy stocks when crude oil spot hit 200 days moving average, around $66.
3. Buy 1/3 to 1/2 of your allocation for the general stock market NOW, and buy the rest in the 1st or 2nd week of October.
4. If you are very aggressive and speculative, instead of buying the general market, you can buy SMH for the beaten down semiconductor sector.

Please do your own due diligence. All the above is assuming that I’m correct. If I’m wrong, then my portfolio will probably suffer 15%+ or even 25% drop. That will suck, but as an investor, you need to take a stand/position in what you believe in (by betting actual money of course).

P.S. I apologize that I simply have no time yet to elaborate on PI cycle. It is probably the most voodoo magic cycle theory that I’ve ever read. When I get a good 3 quite hours, I will write about it in a future post.