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At times like these, when emotions are running high in the markets, it pays to take a few steps back … look at the charts … and put the markets into perspective.
This is especially true today, with so much bad news out there … with so many threats to your wealth … and so much confusion, even amongst experts.
Indeed, the onslaught of nightmarish news about the U.S. economy continues to hit financial markets around the world like a Category 5 hurricane.
But through it all, please keep the following in mind: Major fundamental trends do NOT change overnight.
The mortgage, debt, and real estate crises in the U.S. are not over, not by a long shot. Martin and Mike are on top of these markets like sharpshooters. Follow their wisdom on these markets; they, too, agree the crises are far from over.
Which means …
The Federal Reserve will continue to do everything in its power to prevent a financial meltdown, pumping in fiat money like there’s no tomorrow.
The Fed will be forced to accept more and more forms of weak collateral to lend even more money to the system. It will bail out institutions like Fannie Mae, Freddie Mac, and others sure to fail in the months ahead.
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The Fed will be forced to keep interest rates low, below the rate of inflation, to try and pump up the economy, resulting in …
A dollar that will remain in a long-term bear market (despite its recent bounce), and will clearly lose more of its purchasing power in the months and years ahead.
Moreover …
Despite what you hear and read to the contrary, China and India’s economic growth continues to barrel ahead and …
Global demand for natural resources remains at a record high for virtually every commodity.
Indeed, look at the recent happenings in gold: As the precious yellow metal’s price fell back, demand for American Gold Eagle coins surged to such record levels that the U.S. Treasury temporarily suspended sales and is now only able to distribute limited supplies.
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| This weekend, this single Bangkok gold shop had record one-day sales of $5.75 million of gold! |
And in Asia, gold dealers are reporting record sales. One of Bangkok’s largest gold dealers, Jin Hua Heng, reported a single-day, 40-year sales record of nearly 7,000 ounces of gold (worth about $5.75 million). That’s in one shop, in one day!
Meanwhile, supplies of most major natural resources remain tight as a drum. Not just in gold, but in oil, wheat, rice, corn, sugar, cocoa, platinum and more.
All of these major trends remain firmly in place. And they are inflationary, period!
As for today, as I noted above, I think this is a good time to take a step back … and give you another look at the charts and my signals, or what I like to call …
My Roadmap to Profits …
By periodically looking at the charts, you get to see how the short-term price action fits in with the longer-term view or big picture. We’ll look at the most important of them today.
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Let’s start with gold. In my last roadmap issue, I stated “Don’t be surprised if gold retreats before heading higher. If so, it would be a normal, healthy pullback.”
The pullback has lasted longer, and gold went lower than I expected. But nevertheless, the chart action in gold remains firmly bullish.
As you can see, gold is merely pulling back to trend line support at the $750 – $800 level. My short-term indicators suggest one more downdraft is possible, down to a new low around $750 again.
But if that happens, gold will be the best buy it’s been since April of last year, and I will recommend buying the heck out of it — and virtually all gold-related investments, at that price level.
Further, as you can also see from the chart of gold, talk of a bear market would only be warranted if gold closed below the lower trend line at $650 an ounce. I do not believe that’s going to happen. Period.
Let’s now take a look at one of the most economically sensitive metals in the world, copper.
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Question: If the global economy is in such bad shape, don’t you think copper’s price — extremely sensitive to business conditions and real estate — would have tumbled more than it has on this chart?
Heck, yes! This chart of copper is extremely bullish. It shows massive support at the $3 level, and at $2.50.
More importantly, it looks to me as if copper has already bottomed with a test of support at the $3.30 level, hitting the major uptrend line right on the nose. My view on copper: Its one heck of a bull market, and new highs should be seen before year-end!
How about oil, which has so many commodity investors wondering about the bull market in natural resources?
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This chart clearly shows you that oil is merely pulling back to test its uptrend line set in motion at the outset of 2007, and that oil is well above the major long-term uptrend channel, the top of which sits at about $90 a barrel.
Looking at this chart, would you rather be a buyer or seller of oil at current levels? That’s a no-brainer to me: I repeat, oil is merely consolidating, retesting major long-term uptrend support. Once this correction is over, oil should resume its uptrend, and my next target of $175 per barrel should easily be met.
Now, let’s get to another market that’s also in the forefront of every investor’s mind … the Dow Jones Industrials.
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Unlike commodities, the Dow has broken its uptrend lines — both the short-term uptrend lines dating back to 2004 and 2006 — as well as the very important uptrend line from the 2003 low. This puts the Dow clearly in bear territory. (Nevertheless, the next leg down in the Dow will not materialize until we see a close below my critical system support at 11,000, generated by my proprietary cyclical studies).
Question on many readers minds: Will a bear market in the Dow signal collapsing demand for commodities?
My Answer: No. If anything, another major leg down in the Dow will see more investors piling into tangible assets, investments with intrinsic value, natural resources!
Finally, let’s look at the dollar, since it drives so many of the trends we’re seeing in the world. I have to tell you: I feel terrible for all the pundits who believe the dollar has made some sort of long-term bottom. I think they’re going to get crushed in the months and years ahead. Just look at this chart …
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See the break of the downtrend line that has so many traders and investors turning bullish on the dollar? That’s a trap. For the dollar to turn even remotely bullish on an intermediate- or long-term basis, the dollar index would have to climb above the 80 level, remain there on subsequent retests, and then climb above the upper line of the horizontal trend channel I’ve drawn in for you (around the 92 level). Then, and only then, could one claim the dollar’s long-term bear market is over.
My view: We are merely witnessing a short-term rally in the dollar, one that was way overdue and that will NOT see the index rise above 80, at best.
Moreover, the rally is nothing more than a false breakout, a trap that will clobber millions of investors and traders around the world.
This dollar index chart tells me and double confirms my analysis of the natural resource markets: That their bull markets remain very much intact.
So stay tuned!
Best wishes,
Larry
P.S. Be sure and join me for an in-depth look at inflation — and how to profit from it — in the upcoming September issue of my Real Wealth Report! For 12 monthly issues, 24/7 website access, all flash alerts and all recommendations — join now for a mere $99!
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