Tuesday, June 13, 2006

 

Going Parabolic II, The Other Side of the Mountain

Back on May 11th, one day before the high in gold and the exact day of the high in silver, I wrote:

Gold and silver have gone parabolic like commodities are wont to do. The chart of both markets looks like the right side of a parabola and that is very interesting because another characteristic of commodity markets is that they tend to put in spike highs and lows. Financial markets like stocks and bonds tend to have rolling tops and bottoms. In a bull market, a financial market will see its momentum slow, the stock market at tops will be lead by fewer and fewer issues, and the initial down phase will be a slow, meandering. Commodities fly into their highs and fall off just as quickly, at least when a major top is being put in place. We are witnessing gold and silver and many other metals flying higher so it is an open question about what's next.

It has long been my belief that easy credit was behind the great bull markets in stocks and bonds and that real estate, commodities, and metals are the new arenas for the perpetuation of the great asset bubble of our time. Today we see oil, gold, silver, real estate, and most stock markets near their highest prices, which is rather remarkable, and I am wondering when the contraction of credit will begin. If I am right, these markets should fall in unison, also.

[Emphasis added]


I am not trying to claim that I was calling a top, of course subconsciously I might have been ;-p, but I am saying that market action since then has added credence to my contention that the credit bubble was the chief catalyst behind stocks and commodities rising. (See Charts Below.) We have yet to see oil or real estate fall by any appreciable amount. More evidence that stocks are in for a difficult second half of 2006 is the fact that world stock indices are falling with the U.S. market.

One more thing, both gold and silver have fallen into areas which should be support so I expect a rally at this point. IOW, this is not a good place to initiate a short position.



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