The Emperor Has No Clothes

CAPTAINHOOK * Gold Seek

The Fed’s latest antics, that being not tapering its ongoing QE program, has exposed itself to have no clothes, despite they will never admit this and continue the ruse tapering remains a possibility until it becomes embarrassingly obvious such an outcome is an impossibility in their increasingly fragile fiat currency economy. (i.e. they cannot stop printing increasing currency idefinitely.) But the Fed should already be embarrassed not tapering after the build-up since spring, but because so many now depend on the stock market, they need to believe the Fed can continue its magic. And as long as stocks continue going higher they will. So, the mainstream media and majority of traders, even the ones that were fully hedged going into Wednesday’s meeting, have already minimized this embarrassing episode, although one would think they may not repeat such behavior the next time the Fed ‘cries wolf’. (i.e. their bullshit [BS] story.)

But this might not be the outcome, because despite the above, the Fed has also increased the level of anxiety in the market with this move as well, meaning some will view the need to hedge has increased, if not for the right reasons, for the wrong. And sure enough, the next day, key index and ETF open interest put / call ratios were in fact higher, supporting this view; however the ratios have definitely collapsed post expiry on Friday, as can be seen here in updated charts, which I will get into further detail on below. Add to this performance chasing hedge fund managers (because they are under-performing) and the public alike, who have both been holding back on stocks because of a perceived taper risk, might be drawn back into the market as year end approaches, possibly causing a melt-up like it was1999.

Because these scary monsters (and super creeps) are not just greedy – they’re ‘clinical’, and they are making everybody else that way too. (i.e. and this next one looks to be a real doozy.) So, to think the mania of manias can’t happen right here – right now is naïve. The thought police (think 1984) are on the job and moral collapse is accelerating, so all the ingredients are in place. Similar to the year 2000, consumers are collapsing, but Wall Street / the bankers are attempting to keep the party going with it’s ‘comply or die’ mantra, which they have well in hand with the money printing and machines making it appear, like Goldilocks, everything is ‘just right’. And because they are better at it now, the asset bubbles keep getting bigger than ever.

The fact bank stocks, periphery economies, and commodities have been weak divergent to the stock market are early warning signs the party is getting long in the tooth, but if history is a good guide, the final highs in stocks might not be seen for up to six-months. Here, it should be noted the banks topped more than six-months before the broads in 2007. So, to expect a similar outcome here would not be unreasonable given the powers that be appear ‘hell-bent’ on keeping on-going anxiety rising, meaning increasingly speculative stocks will continue climbing a wall of worry in manic fashion. And although this is no guarantee of continued craziness past this point, it should be noted such thinking was confirmed on Friday with the doubling of two tech related IPO’s with questionable business models, just like in the final six-month run-up of NASDAQ at millennium’s turn.

As per our Progressive Interval System (PI), once the Dow makes it past 16,000 it should keep heading towards 17,000 until the Dow / Gold Ratio is vexing the 233-month exponential moving average (EMA), marking the top in stocks and bottom in gold sometime early next year if the price action in the banks is still an accurate forecaster of anticipated trading patterns in the broads. As you know if following my work, it is my belief that the 233-month EMA on the Dow / Gold Ratio must be tested before cyclical corrections in the real / secular bear market for stocks and bull gold will be reverse back into their long-term trends. The more stocks rally the higher gold will be whenever the twains meet. Right now the Dow / Gold Ratio is 12ish, meaning there’s somewhere in the neighborhood of two big figures to rally. (See Figure 1 attached here.)

In terms of the S&P 500 (SPX), what should happen now is a test of 1700, meaning although not carved in stone obviously, don’t be surprised if prices shoot below this level briefly this week, but close back above it by week’s end on it’s way to 1800, and possibly beyond. The scuttlebutt of all this bullish price action in stocks for gold is although the machines maybe able to halve precious metals shares again from present levels (this is a possibility to be discussed in greater detail next week), gold itself should remain relatively strong given growing positive fundamentals in the physical market. Therein, and for example, if the resurgence in the Dow / Gold Ratio tops in the area of 14.5, which is not far from the present level of the 233-month EMA, this would put the Dow somewhere between 16,000 and 17,000 with gold between $1100 and $1200. This is why the CBOE Volatility Index (VIX) should remain in the descending and contracting triangle indicted below until the trade gets closer to the apex, again, sometime early next year in a perfect world. (See Figure 1)

Figure 1

Some maybe wondering how stocks could possibly remain buoyant over the next several months with fundamentals so scary, but again, one must remember this is the biggest and most important top in stocks (and bonds, etc.) in history, quite possibly a Z – wave definer. Therein, because the powers that be have seen fit to hollow out Western economies, they must in turn continue inflating their fiat currency economy(s) until they go bust. So, make no mistake about it – there is no going back as far as they are concerned, which is why their agenda will be shoved down everybody’s collective throat until we all choke. (i.e. on the debt.) But hey, this thing could fail at anytime – it’s true. And after we have a close on the SPX / VIX Ratio equal to that of the top in 2007 (at 140ish) the possibility of a top will increase substantially in this regard, however until then one must entertain the view higher highs remain quite possible. (See Figure 2)

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