Fluke Market Selloff Has Morphed into Reality

Funny how the “accident” that sent the Dow plummeting a thousand points a couple of weeks ago has morphed into the real thing. The blue chip average fell 376 points  yesterday, and we’re predicting it will fall a further 470 points, to exactly 9592, before buyers get decent traction.  Easy come, easy go, as they say. The initial selloff was originally attributed to a clerical error.  If this turns out to be true, Wall Street may yet produce a scapegoat for the bear market disaster that is yet to unfold. Something like this happened when epidemiologists traced AIDS back to patient zero, a French Canadian flight attendant named Gaetan Dugas. He died young, evidently before a torch mob could find him, but you can bet the Wall Street clerk is already living under an alias, assuming he ever existed.  The charts offer an indictment that does not distinguish between a clerical error and a real panic. Let the stock and futures exchanges bust all of the trades they want and say it never happened. The swoon will always be there in graphic form, a synecdoche for these interesting times.  In the meantime, they have provided us with ABC price points that make predicting the future, at least for the moment, a piece of cake.  Be sure to remind us in a week if that 9592 target doesn’t pan out. We’ll be out on the ledge, entertaining a crowd.

We'll heed the warning if June Gold falls below 1156.20 over the next day or two

With the stock market in avalanche mode yesterday, some Rick’s Picks subscribers seemed to despair that Gold might continue to fall in sympathy.  Bullion has been hit pretty hard this week, to be sure, and it was taking yet another pounding Thursday night as we went to press.  But we doubt that sellers can keep it up, lacking as they do a persuasive argument that paper money will stand the test of time (as when has it ever?).  Concerning the U.S. dollar’s recent show of bravado, we agree with Jim Sinclair on this one – that speculators will get around to savaging the buck in good time, but only after they’ve finished pounding the euro into bloody submission.  In the meantime, we should view bullion’s current weakness as a buying opportunity rather than evidence of deleveraging run amok. As one sage gold trader noted in the Rick’s Picks chat room yesterday, “We needed a pullback to let the air out a little.”  You can tell that the selling has been stage-managed by the usual coven of bullion bankers simply because so much of it has occurred on thin volume in the dead of night.

Even so, we’ll keep a close eye on Comex Gold’s daily and hourly charts (see above). Just as the 14-month-old bear rally in stocks has been manipulated on thin trading in the wee hours, so have gold’s periodic selloffs.  A print below 1156.20 (basis the June) by Monday would be warning of more weakness to come and of a possibly prolonged struggle between bulls and bears as summer begins.  Caveat emptor.

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  • krypton May 23, 2010, 10:14 pm

    Ladies & Gentleman,
    If your trading then good luck on a gold move..
    If your in it longer then buy on dips..If you like
    dollars then go for it– if not -long term gold
    will probably work..Iran is heating up as
    well as the European situation..both are unstable
    reasons to get insurance and not be left uncommitted.
    No bomb shelters yet..

  • Oliver May 22, 2010, 5:59 am

    Germany: 11,3 % savings rate….

  • Skip T May 22, 2010, 12:28 am

    Ah yes. Perhaps one of the most frightening of human qualities: the need to blame someone, anyone, except oneself.

    The analogy to Gaetan Dugas is a chillingly apt one. Though you should add that, of course, it only took a short time after the poor man’s untimely death before epidemiologists realized that pinpointing a continent-wide epidemic on one flight attendant was completely unfounded and actually absurd. The virus had been spreading for decades in small pockets around the globe, including in North America, even as far back as the 1950s.

    And so, yes, a scapegoat is a convenient conclusion to satisfy simplistic minds. The truth was, and in the case of markets is, much more insidious: millions of people are “responsible” for both the massive runup of the past 20 years, and its nascent demise.

    I hear the same rallying cries against the evil doings of “our bankers” and “our governments,” as though in a democracy we have had nothing to do with their existence. We GAVE it to them. And we are responsible for change.

    Maybe a better question we should ask ourselves is, if we’re “all part of the problem” does that mean it’s “no one’s fault,” or alternatively does it mean are we all deserving of a few good lashings.

    &&&&&&&

    Let all HELA borrowers who were forced by unscrupulous mortgage brokers to take out liar loans storm the ramparts! RA

  • Martin Snell May 22, 2010, 12:03 am

    Option expiry always seems to bring “pain”. One of these days I am going to start trying to make some money of it – probably far more profitable than being long. I am guessing that the key number is 1200 – and that the “powers that be on the Crimex” will try to keep it below that.

  • TahoeBilly May 22, 2010, 12:02 am

    I think Germany’s people waking up is tying in with middle America’s waking up (see Rand Paul landslide!).

    How long can you fool a hardworking, honest folk that want’s to be productive and saves, but ends up supporting a State and Banking system that has screwed them over one too many times. People will cast this as “oh uh, the German’s are getting restless” and the “working Rednecks in the State’s are getting restless”. Well, what the hell. Wall St. is blatantly f*&^ing with the backbone or America, and so is the EU with the working German’s.

    Why can’t a man work, save and prosper? Why do Banker’s and Politicians try to get in their face and stand them down and tell them “it’s complicated, and you just don’t understand!”

    Revolution is in the air! I hope and pray it is voted in and bloodless, but it is coming, one way or another.

  • gary leibowitz May 21, 2010, 11:41 pm

    I still wonder how Gold could rally against a deflation environment and a relatively strong dollar?

    Your assessment on the Dow falling to 9,600 coincidently falls within my chart view using 1930 as a guide. I hope we are both right. Good thing i took profits from thursday fall. I would have never expected a last half hour surge today. I suspect the PPT is trying to create a follow thru over the weekend. Barring a real rally going forward I will be placing more bets for the market to settle 500 points below where we are.

  • Oliver May 21, 2010, 9:56 pm

    Well, one thing is for sure. I felt like Cassandra, here, locked behind some thick glass, screaming to them to get cover, damned. Really, literally.

    But that has changed today. Germans saw their politicians. And they saw they were afraid.

    Lonely days are over. Everybody knows in G know, we´re in more than big trouble. All. Everywhere.

    Say D-Mark, you´re chancellor! But then the German John Wayne sits down again and sighs.
    Somewhere between a what the heck and holy **** help us god – this can´t be true, cannit?

    That has just changed in Germany.
    They just found out we´re really, really facing a pyramid game. And it´s certain outcome.

    I think this has just changed. Now what?

    Problem for Merckel: Germans know they need a technician now, not a talk-walk.

    I think that has also changed.

    • Gary Paul May 23, 2010, 4:43 pm

      Oliver, spend the extra five bucks and buy the GOOD drugs.

  • Paul D May 21, 2010, 5:05 pm

    Gold option expiry for June is next Tuesday. I expect the bullion banks will try to get the price below $1150 by then. Gold will likely recover the recent high within a couple of weeks and move on up from there. The manipulators will never be made to account for their actions but that’s no reason not to profit from their predictability.

  • Robert May 21, 2010, 4:28 pm

    I’m not waiting for 1155 gold. I’ll be visiting my preferred local coin dealer this afternoon. With the DXY hanging tough above 85, I’m not fretting holding some cash as well. If Gold Spot continues the current trend next week, then I will average down.

    I also filled orders this morning on XRA at 6 bucks, and AAU at 91 cents

    • Rich May 21, 2010, 5:57 pm

      Hope trailing stops in place:
      XRA PnF target 3.5 and AAU PnF target 0…

  • GlennH May 21, 2010, 4:17 pm

    Rick, great article even through it probably does not appeal to the masses. No trade goes straight up, trends change, so….stay awake. We keep a chart of M3 plotted with a smoothed Gold price from 1971 to today. They actually track quite well over the long term. Saving gold and trading gold are two different activities.”They” say trading is hard but I disagree, savings for the future is one of the hardest activities to do on a consistent basis. It requires optimism, discipline and intelligence (in that order). Something all of us forget from time to time.

  • Adolf Kotlik May 21, 2010, 2:10 pm

    Hello Rick,
    as for the reason for the 1000 points plunge, you may want to read this:
    http://ampedstatus.com/high-frequency-terrorism-how-the-big-banks-and-federal-reserve-maintained-their-death-grip-over-the-united-states

    Regards,
    Adolf Kotlik

  • prashant May 21, 2010, 12:40 pm

    i think we could see comex gold futures trading upto 1147 basis june contract . one need not worry until it trade below 1141 for few minutes .