QUESTION: You’ve just mentioned there remains a chance for gold to perform a slingshot move downward and then up in January. Does it still appear the Dow will slingshot (make a new low) also even though it has recently broken to new highs?

S

ANSWER: We achieved the slingshot in the S&P and the NASDAQ, and I have previously warned that we did not need to do that in the DOW. Still, there are fractal slingshot moves that take place on daily, weekly, and monthly levels. We do not need to accomplish that in the stock market. However, since this is 2016, which is 7 years up from the low, there is a risk of a temporary high and what might appear to be a correction in 2017. However, this need not be a slingshot insofar as penetrating the 2016 low. The majority of people are bearish already. Therefore, we can coil and build a based for a Phase Transition.

However, keep in mind we are running out of time. This in itself is rather serious because we may not have time before the explosion unfolds. These four political elections from hell are illustrating a problem with confidence in government. That collapse in public confidence will send the herd stampeding into private assets.

The difference between a SLINGSHOT and a PHASE TRANSITION is rather significant.

The SLINGSHOT typically fakes everyone out by first moving in a false direction and then swinging back to new record highs or lows. The fuel to create such a move traps people on the wrong side and then they fight it. For example, when everyone just sits with positions and prays for new highs, they lack the buying power to keep the trend moving and everyone wants to sell the new high to make a profit or break even. That typically results in just a water-torture test that slowly eats away at those long positions.

It is a classic pattern for bulls to refuse to admit a mistake, thereby causing a 19-year bear market. This was the primary reason why the NIKKEI could not recover in Japan. Everyone was long and waiting for the rally so could sell just to break even. I know real estate agents in New Jersey who say if the price of the average home ever went close to 2007 levels that half the state would be up for sale. This is simply how ALL markets trade be it gold, stocks, or real estate. This appears on a worldwide basis regardless of culture or the century. This is simply how human nature responds. People will cling to their mistakes for a very long time before they throw in the towel.

So yes. Unless gold can close above 1362 on a monthly basis, the risk of a slingshot move still exists. Of course, the goldbugs will say that could never happen. They are no different from the Japanese who refused to believe the NIKKEI would make lower lows. But this is the actual mechanism that creates the breakout rallies. The greater the slingshot on the downside, the steeper the move on the upside.

This is simple physics. The more you pull back on the projectile, the further it will travel. Why has the US share market continued to rally yet the vast majority keep calling for a crash? This is precisely how a slingshot operates. The fuel to the upside is created by that false move which can last for several years. They are still fighting the market and trying to sell the high, but they are constantly forced to buy it back.

The most bullish position for gold would not be a rally, but a slingshot to the downside first. That will convince everyone it’s a bear market and then they will fight the rally exactly as they have done in the US share market. Then you will have the confirmation that it will move sharply higher. Without a slingshot, gold must coil to create the base for a Phase Transition. We should see what will unfold by January.

A Phase Transition is different. This is an explosive rally that emerges from a base that is akin to a spring. The tighter the spring is compressed, the greater the move to a new level. This is calculated mathematically by using the degree of energy that has been compressed. This is the basis of our Energy Models. When released, it simply explodes. This type of move often sucks everyone in and they expect it to be the norm.

Phase Transitions often alter the thinking of people so dramatically that they lose all reason. The Phase Transition in gold created the 1980 high on January 21, 1980, at $875, which unfolded in just 8.6 weeks. That simple brief period set in motion decades of people calling for the same thing over and over again. That brief Phase Transition convinced scores of people this was permanent and gold would soar to multiples of $1,000.

The collapse of Rome was also just 8.6 years. It is amazing how this frequency appears throughout history and has such a profound change to the upside or downside. We see the complete implosion of the Roman economy where the coinage was mostly silver to less than 2%. People hoarded money, so to pay the bills the only recourse was debasement. Taxes collapsed as did the economy just after the Emperor Valerian I was captured in 260 AD. By 268AD, his son Gallienus was assassinated and the coinage no longer resembled what existed pre-260 AD.

The Phase Transition in the Dow going into 1929 ruined the reputation of the leading economist and market commentator Irving Fisher (1867-1947). Three days before the high he announced, “Stock prices have reached what looks like a permanently high plateau.” The Phase Transition of the US share market into 1929 on a monthly level was 37.3 months (8.615 * 4.3). Likewise, on the weekly level, the overall final Phase Transition was also 13 weeks from 300.10 to 386.10. However, on the daily level, the final rally was a brief slingshot and from that low it was a 17.2-day rally (2 * 8.6) that created the major high at 386.10. Therefore, those final 17.2 days caused Fisher to proclaim a new permanent high level had been reached. This is the classic Phase Transition. Then, even as the market began to crash, precisely on the 34th day of that decline a temporary low formed which was four cycles of 8.6 days. He then announced that the market was “only shaking out of the lunatic fringe.” He coined a saying that has long since remained.

Thereafter, Fisher came to understand the mechanism that a rising currency increased the “real value” of debt and people could not service that debt, which resulted in a cascade of defaults. Nevertheless, the Phase Transition has a historical impact upon the thinking process of people. In Japan, it took 19 years to reverse that decline as it did in gold. In the case of the US stock market, it took 25 years to exceed that 1929 high. It was 19 years until 1948, which was the final fake low before the breakout rally truly began that was also 19 years. In the case of Europe, it appears it may also take until 2027 before any real life comes back into the economy once again.

QUESTION: Hello, Mr. Armstrong.

Some years back, I asked what would happen if everyone knew about the ECM.

You provided an answer on your blog.

Now, that the trader version of Socrates is soon to be made available for the public…:

What happens to the trading community (market makers / service providers / traders) when you (through Socrates, of course) unleash a tsunami of profitable traders into the market?

Best regards

TG

ANSWER: The same thing. That is like saying what if every person became Republican or Democrat or Conservative v Labour. Human nature would never allow that. Besides. The vast majority of people reading this blog are not traders. It would be great to assume you could conquer the world like that as Marx did since we in the West even endorse Marx without saying we do. Government try to manipulate us raising and lower interest rates through their central banks and have NEVER been able to ever succeed even once. Paul Volcker in his Rediscovery of the Business Cycle explained:

“Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.’”

Larry Summers in this Bloomberg interview admitted that economists CANNOT predict anything because the system to them is “too complex” like weather. My hope for Socrates is that it stops this manipulation of society that only causes wars, depressions, financial crisis after financial crisis, all because we have people trying to rule the world who are brain-dead and are only interested in filling their own pockets. Let’s get real here. They impeached Richard Nixon, said he was unfit for office and accused him of erasing 18½-minutes on one tape on June 20, 1972. Hillary would not turn over anything until it became public that she had a private server. She erased 50% of her emails claiming they were personal compared to Nixon’s 18½-minutes on one tape.

Hillary worked on Watergate and tried to deny anyone a lawyer to prevent cross-examination of their witnesses. Here we are precisely 34 years  (4 x 8.6) which should be the peak in Hillary’s career from the time she tried to deny Richard Nixon a lawyer. Hillary’s rise is the example of how bad politics has become. Hopefully, this is the major high in corruption and it will be downhill and exposure from here on out.

Socrates, if followed, would establish how to LIVE with the cycle instead of aggravating it. Socrates cannot alter the cycle even if everyone followed it for then the same cycle would still exist. If society used the Economic Confidence Model, then it would be like the story of Joseph and the Pharaoh and you would plan for the decline that is inevitable and thus you survive the downturns.

Richard E. Nesbett wrote a good book entitled “The Geography of Thought, How Asians and Westerners Think Differently … and Why.” He attributed his work to a Chinese student who said: “You know, the difference between you and me is that I think the world is a circle, and you think it’s a line.” He goes on to quote him:

“The Chinese believe in constant change, but with things always moving back to some prior state. They pay attention to wide range of events; they search for relationships between things; and they think you can’t understand the part without understanding the whole. Westerners live in a simpler, more deterministic world; they focus on salient objects or people instead of the larger picture; and they think they can control events because they know the rules that govern the behavior of objects.”

We are handicapped in the West because we think everything is a straight line. We as a society have never looked at cycles. I became friends with Margaret Thatcher because she instinctively understood cycles. Maggie spoke at our World Economic Conference which in itself was a major endorsement despite the fact the the “free press” try to ignore our work and only support government and the bankers to the destruction of their own posterity. Maggie told our attendees that government thinks in trends, but it should consider looking at it in cycles.

The ECM appears in everything from the 25,800 year cycle (3 x 8.6) of the Precession of the Equinoxes to the birth of a volcano in 8.6 years. It is government’s manipulation that causes the business cycle to expand in amplitude, not time. So the boom and bust is becoming much more pronounced with each cycle. If the world followed the ECM instead of Marx, you just might get your life back and that would be something worthwhile to leave your posterity as a legacy. Government and the press only care about maintaining power today and could care less about the future for they see the future as just a straight line where they alone rule the world. Their personal self-interest causes blood in the streets and creates the cycle of Revolution.

COMMENT: Marty; I watched the monthly numbers you gave for the close of July. The stock market gave a buy signal and gold failed again to close above your buy signal. I have to say, this is really amazing. Your reversals put it very black and white. If you ignore the human second guessing, it is really a learning experience. I get what you mean. You have to eliminate the human judgment to survive.

Thank you for the education

HW

REPLY: Yes. A market rallies, and the gut assumes it will continue. It drops and you panic, selling the lows. This is why I say that your worst enemy is always yourself. You have to conquer your own emotions to survive. Correct, gold has avoided the 1362 number both in June and July. The US Share market closed above its Monthly Bullish Reversal so we got the breakout this week. The numbers are the numbers. People try to second guess them all the time. This is the key. If you buy or sell against the Arrays and/or the Reversals, you usually will end up on the wrong side. ANTICIPATION is the killer.

With the exception of the Hang Seng (+1.4%) it was a relatively quiet day in Asia having digested the BOE move and anticipation of US NFP’s data and ahead of the weekend. Late in US trading futures have responded to the global stock rally (as a result of the US numbers) and are currently trading HSI (+0.75%) and Nikkei futures a 1.2% bounce; JPY down around 0.5% against the USD.

RBS was a hot topic early in the day after they released H1 profits way below expectations. 2016 H1 result was a £2.045bn loss which appears to be a storey that is never ending. Major concerns around PPI (Payment Protection Insurance), RMBS, the 2008 Rights Issue and the fundamental background of the UK economy continue to weigh of this stock, it is no surprize RBS shares declined 7% today with many questioning will it ever recover anywhere close to the £4+ level? Away from the UK, Europe was happy waiting for the lunchtime US numbers but certainly made-up for that this afternoon. With news of the +255k, against a market expectation of +180k and the added benefit that June had an additional 5k revision (from +287k up to +292k), the rate remained unchanged at 4.9% sent US equity markets to new highs. Within European core indices (DAX, CAC and IBEX) all closed around +1.5% higher with only the UK’s FTSE adding just half of that. Problems were seen for the Euro and GBP as expectations return that warrants a possible move back-on for the Federal Reserve.

The DOW, S+P and NASDAQ all saw fresh all time highs today with just the DOW still to make the JULY’16 numbers, interesting that all European markets are way below record levels. Todays performance has dealers both happy yet nervous, with gains of around 1% across the board many must be enjoying the weekend. Gold suffered on the basis the safe-haven excuse appears to be waning with oil confirming consolidating and the USD, once again, the currency of choice.

Bonds did not like the lunchtime data and so yields rise across the curve. The belly (5’s) took the brunt of the hit with yield rising 11bp against the 8bp loss in 2’s and 10’s (10’s closing at 1.59%). Europe is still in an uncertain mood torn between the central bank play and US rising yields. German Bunds closed 10’s at -0.07% (+2bp) closing the US/Bund spread at +166bp. Italy 10’s closed unchanged at 1.13%, Greece 8.12% (-1bp), Turkey 9.66% (+2bp), Portugal unchanged at 2.84% and UK Gilts at 0.67% (+2bp).

The bulk of the people remain bearish yet always call for a major crash. All I can say is that the patterns are not anything like what these people as saying that a 9-day straight decline is always followed by a crash. The market is by no means over bought or in some dangerous extended position. The Weekly Bearish Reversal lies in the Dow well below the market at 17740. We did elect a Monthly Bullish at the end of July so this warns we can still press higher into September. Our critical monthly technical support lies at 18058 during August. Major technical target resistance going into September stands at 21935. The first target for key resistance stands at 19610 and support will rise to 18282 by September. Our monthly turning points are choppy with September then November followed by February.

Just pay attention to the Arrays and the Reversals. They are the indicators that are far better than anyone’s opinion.

The S&P 500 closed at new highs, whereas the Dow is now lagging. Support on the S&P 500 lies at the 216900. We had closing resistance for today at 18557.50. Resistance next week will stand at the 18717-18727 level on the Dow.

Private Blog Update For This Week’s Closing

The refugee crisis in Europe is just exploding from killing priests during a mass to raping girls in swimming pools. In Paris, a bus was stopped by a makeshift barricade and then set on fire by a group of young men shouting, “Allahu Akbar!” The young men constructed a barricade in the middle of the road using rolled out waste containers. They forced the bus to stop and threw Molotov cocktails, which sent the bus into flames before the front exploded. The driver and passengers managed to escape.

These type of incidents seem to be designed to create wholesale hatred of Muslims where Europeans will just look upon them all with the same eye of caution. This will have the tendency to create an internal civil war in France, which could force the non-violent Muslims to defend themselves. Invoking a Holy War inside Europe seems to be the objective for these extreme Muslims.

Awareness of government corruption is rising on a global scale. This is all part of the private wave that peaks in 2032.95. We are experiencing the complete craziness of a collapsing government. Hillary Clinton is the classic example.

Compared to Richard Nixon, who had to deal with 18.5 minutes of recorded conversations that were allegedly erased, Hillary outright erased half of all her emails. She is notorious for being secretive and refused to honor subpoenas from the State Department. Hillary never came forward about her private server until it was exposed that she had one. They would have dragged Nixon from the White House and imprisoned him if he had said screw you and erased half of the tapes. This shows how much has changed between the public wave that peaked in 1981 and the current private wave.

 

QUESTION: Marty; Some people are calling for a 1987 crash now because the Dow has declined for 9 days and that is a prelude to a crash. Is there any validity to this pattern?

ANSWER: No. The technical support clearly lies at the 18110-18120 level. This should be a normal retest of that support. The Global Market Watch pattern recognition system picked the high and warned that there may be a “Possible Change [in] Trend to [the] Downside” (Pattern #15790). We have warned that July was a potential high and the next target will be September. The key is the Weekly Bearish Reversal at 17470. A weekly closing beneath that level will signal a correction. Otherwise, a closing today above 18560 will signal that the market can still press higher. Exceeding the July high in August will warn we could move up into September. Daily closing support lies at 17915 and a closing beneath that is required to signal any kind of sustainable correction near-term.

The last entry in the Global Market Watch is always D Y N A M I C, meaning it will change with the daily movement. The GMW assumes that that the month has already closed each day until it does. So this last entry can still flip. Since we did elect a Monthly Bullish Reversal at the end of July, this warns that we may yet press higher. So be careful. It is not always what it seems.

WARNING:The Global Market Watch is a tool that alerts you to the trend. It is NOT a trading tool by itself. This is PURELY a pattern recognition model. The arrays confirm timing and the reversals confirm specific price objectives. This model has logged nearly 60,000 patterns across all markets.

A bounce late in the US saw overnight gains for the Nikkei (1%+) with the Hang Seng and Shanghai. All pretty much well behaved for thin summer trading and it was we were looking forward to both the Bank of England and tomorrow Non-Farms report. Many dealers pointed to the turnaround for the price of oil but given we have seen a weakening in prices for a while this could also be just a relief rally.

 

We had to wait for confirmation of what everyone was taking as a done deal from the Old Lady but that was soon to materialise at lunchtime. At noon the UK base was cut by 25bp to the record low 0.25% as the market had priced. However, the fun then came as they increased the QE nominal to £60bn pushing that to £465bn (many anticipated £40-50bn) but then added a further £10bn for non-financial corporate bond names. Immediately, Gilts flew the FTSE rallied and cable took a hit. If that were not enough in the press conference the BOE governor Mark Carney also warned of further potential cuts as he reduced growth forecasts from 2.3% down to 0.8%. FTSE closed the day up around 1.5% whilst GBP was last seen down around 2% on the day.

 

US markets were pricing in a positive day initially but then turned south as we await tomorrows numbers. Todays data saw the weekly Jobless Claims a little higher than expected and then later US Factory Orders fall 1.5% which was a less than expected. In short, ahead of NFP’s it really is a waiting game. Consequently, core US indices fluctuated around closing levels with the DOW small down whilst S+P and NASDAQ closed marginally better bid.

 

Having witnessed the BOE forecast earlier most bond markets reacted with a flattening of the curve. In the US market 2/10 flattened 2bp to +84bp closing 10’s back at 1.505 again. In Europe the Bund curve also flattened 4bp (2’s at -0.61% and 10’s at -0.10%) which closed the US/Bund spread at +160bp. Italy closed 1.14% (-7bp), Greece 8.14% (-1bp), Turkey 9.64% (+2bp), Portugal 2.84% (-7bp). The UK market was obviously extremely busy today with the curve equally flattening. 2/10 closed  +54bp (2’s at 0.10% and 10’s at 0.64%) which was an 8bp shift in the longer end.

Most have been waiting for Fridays numbers as many will question having seen two central banks move this week does that remove the pressure from the FED!