There I go making bold a statement again. But I can prove it despite the fact not may others seem to be able see such a possibility, let alone such an outcome actually being in the cards. (i.e. the denial.) In this respect there’s no end to those who are hoping for the best, including some very high profile newsletter writers who should know better. And certainly the bureaucracy is convinced that throwing a bunch of money at the problem will fix things, which of course justifies their jobs, allowing them to continue robbing public coffers. What’s worse of course is it’s important to understand the subsidized inefficiency these stimulus packages promote is actually a form of soft protectionism, which invites reprisal. And while such reprisals may also be of the ‘soft’ variety at this point, this too can change, one thing leading to another, and eventually escalation. It’s all about survival in the end you know?

Returning to the task at hand now, it’s time to substantiate the bold claims I have made above, and as promised, I can do it. How you are asking? It’s all in the charts my sons and daughters – it’s all in the charts. And I’m not the only one who thinks so, as there are others with both fundamental and technical takes on the subject that confirm we are in fact, In The Thick Of It. We are at an acceleration point that will be triggered when America’s ‘denial bubble’ is burst, which will be when people realize their life savings are going up in smoke (paper market assets will burn) before their very eyes. Then the anger will set in, and perhaps some of the people who are truly responsible for this mess will be taken to task. And better yet, maybe some constructive policy change will actually take form to buffer the hard lessons we as a society must collectively learn over the next 25-years. (i.e. the anticipated duration of an impending global Depression.)

It’s not going to be easy of course, to say the least, with all the spoiled brats and thieves running around these days, but the system will largely be purged of blatant corruption in the end one way or another. To ensure this is the outcome, the stock market will continue falling until true values are reflected, which will accomplish the task by exposing loose headed thinking and the frauds. And the powers that be suspect this, which is why in spite of the gargantuan proportions; Bernie Madoff is being handled with ‘kit gloves’. The bureaucracy is attempting to condition the public to the notion that once you get into the multi-billions category, fraud is not fraud; and that with improprieties on this scale, perpetrators are above the law. Otherwise, one day all the government fraudsters could be taken to task. Madoff is one of them being a former Nasdaq Chairman you see. In spite of this, or perhaps because of it, one day the tab will still need to be settled in full. At that time they may wish the mob were not well versed in history.

While we are in this frame of mind, and to finally lead us into the charts, it’s important to understand it’s the usury that’s at the root of the problem, where fight as they may, the bureaucracy is attempting to thwart a Jubilee in bailing out the bankers. The bankers and politicians need the debt slaves to stay alive in order for their fraudulent fiat currency based empires to be maintained, so instead of allowing the natural order to take its course, the monyers are being bailed out so that they can continue receiving their tide. This same luxury is not being afforded the serfs (individual debtors) however, as they are the payers of interest, and have been left to their own demise because to do otherwise would trigger hyperinflation, and end the game that much quicker. With money supply growth now rolling over however, along with the public still in denial as per our discussion above, meaning they are generally complacent and hoping for the best, conditions are in place for the bear market in stocks to rear its ugly head again, which will be signaled in earnest once a Dow Theory bear market confirmation is triggered with a close below 7552.25, the November 2008 lows. (See Figure 1)

And again, how can we be sure this will happen? Answer: Because of the complacency in the trade signaled by the denoted ‘crash signature’, which is well presented on the weekly plot above. To explain it again, with this not being new material to long-time subscribers, the crash signature is reflected in the divergence between Accumulation / Distribution (A/D) and On Balance Volume (OBV) trends, which in translation, point to an unrelenting and fearless desire on the part of the public to own stock, measured by A/D, set against marginally declining volumes, measured by falling OBV. What this means is that as stocks continue to decline, those still playing in the stock market do not realize increasing numbers are being forced to withdraw from the market, which leaves a ‘buying pressure void’. So you see, the crash signature comes into play when a noticeable divergence becomes apparent, which is the situation at present, with OBV continuing to erode. In fact, since our last discussion on this subject, which was just last fall, the situation has gotten noticeably worse, meaning the denial is intensifying to the point stocks are now in position to breakdown again. (See Figure 2)

So you see, just with this one observation, albeit a very important one, we have proved using reliable empirical evidence that the US public is in denial about future prospects, and that from a sentiment related perspective, the stock market is set to breakdown further, and in meaningful fashion. In this respect, and as denoted in Figure 1, not only is the 2002 low in close proximity, with a breach equally as important as a Dow Theory confirmation, significant Fibonacci support is also present in the proximity of the large round number at 7,000, which is sure to be vexed if both of these supports give way. Then, we also have the fact last week was the first weekly close below the 233-month exponential moving average for the Dow, as can be seen in Figure 2 above, which points to the possibility a monthly signal might be triggered. This would be an extremely bearish development, and would point to deviation from historical precedent in terms of post-crash stock market patterning. Add in crashing margin debt and short sales, and in appears a case for potentially the worst crash in North American stocks on record could become a reality within the present sequence. (89% in 1929 is the worst so far.) In terms of support, of which there is little at present, the only thing holding prices higher are rising put / call ratios, but after expiry this Friday (or before by the looks of the futures this morning), this could prove insufficient to hold prices up as well. (See Figure 3)

In this regard it should be noted that it’s been rising open interest put / call ratios in the tech indices (specifically), and to a lesser extent the S&P 500 (SPX), that accounts for outperformance of the Nasdaq against the blue chips (Dow), which has been giving off a false bullish signal. As you can see above, the Nasdaq has broken important channel related support, and even with the outperformance it has been enjoying since November, has been unable to test this break past the initial reaction back in November. What’s worse, and what we expect for the Dow now, it has not even been able to recapture the 233-month EMA since it broke through this important Fibonacci support on a lasting basis in December. This is of course an important bearish signal, one that will in fact lead to tech stocks underperforming the blue chips during the next acceleration phase down in stocks. And again, in terms of timing, past the influence of rising put / call ratios that could support stocks this week (being expiry on Friday) irrespective of a bad start in a testing process of a break in the SPX below the large round number at 800 (tech will add to the selling pressure soon one way or the other), it appears the turn lower into a new acceleration phase is now upon us, whether it be this week or next. The denoted test of Nasdaq / Dow Ratio Denoted below is more empirical evidence conditions are now ripe for such a reversal. (See Figure 4)

Digressing back to Figure 3, I would be amiss in not pointing out the dangerous position of the crash signature in the Composite’s monthly chart in that moving average (MA) support on the A/D indicator hasn’t even been breached yet, showing the ‘high degree’ of complacency in the trade. In this respect, and based on what we have learned above about just how pervasive this complacency is within the collective psyche at present, now you may better understand why losses of 90% or greater from all time highs to whatever lows are vexed in coming days are possible, if not probable given proper historical perspective. So you should be very afraid of this potential as it pertains to your portfolios, because stocks don’t bounce back overnight when something like this happens. In fact, it should be pointed out they normally don’t bounce back within the lifetime of market participants, meaning if you are wiped out in coming months and years, you’re done for good. The market will remain flat like a pancake for 25 to 30 years as a lack of interest from a victimized public combined with continued selling for living expenses keeps prices suppressed.

What about commodities? Are they not ‘safe’ because of their ‘commodity value’? Certainly to an extent this is true, assuming you can find a market to participate in that does not have a faulty pricing mechanism, or is not manipulated by self-interested cartels and bureaucracies. North American crude oil pricing, for example, is operating within a faulty mechanism in that sentiment, as expressed through options based betting practices on ETF’s (most noticeably USO [see the low put / call ratio in Figure 10 indicating investor bullishness]), is profoundly bullish, which in the context of the paper pricing market run by NYMEX, is enough to supercede any real world supply constraints at this point. The real danger here of course is that in attempting to preserve their paper empires, the banker’s faulty paper pricing mechanisms create long-term structural supply deficiencies that become permanent. Be that as it may, we are still burning oil faster than we should be, which will cause lasting supply disruption at some point. Or in other words, because of our greed today, people will freeze to death tomorrow. From this perspective it seems only right then that investors should not be allowed to profit from people’s misery. And if the chart below has any predictive value, this should prove to be the case, as the resource stock rich Toronto Stock Exchange (TSE) is set to break lower against the Dow, which as you might know from previous work is a global stock market(s) sell signal. The cyclical nature of resource stocks is a late cycle indictor you see, and based on all indications, they are about to go down very hard. (i.e. 90% retracements are possible here as well.) (See Figure 5)

And again, we know something nasty is about to happen to resource stocks based on the crash signature in the TSE, where like the above, A/D is still holding above MA support, meaning investors have not even begun to reduce exposures here yet. Of course when this support gives way however, and it will, expect base metal and energy shares to get hit very hard, harder than already witnessed, with precious metals shares likely fairing better, but not completely escaping the carnage. No, only gold bullion, and to a lesser extent silver, will continue to appreciate under such circumstances. This is of course why I school buying bullion with profits from paper trading on a systematic basis, at a minimum. By at a minimum I mean even if you already have a large percentage of your wealth secured in bullion, don’t let that prevent you from buying more with ‘found money’. And of course if you don’t already have a significant portion of your wealth secured in bullion, I suggest you do so immediately, because it’s likely to get increasingly scarce in coming days as people panic out of paper. (See Figure 6)

So, there you have it, six important and telling pieces of evidence from the empirical world all pointing to the probability a new panic out of stocks is set to unfold any day now, and quite possibly a ‘profound panic’, in the sense a ‘crisis in confidence’ on the part of a public in denial finally grips the collective consciousness. What’s more, and in terms of gold (and to a lesser extent silver), it will continue to rise not because of fear of inflation, but because of fear itself, inflation, deflation, or otherwise. In this regard the very solvency of the United States of America will come into question in the not too distant future if events keep unfolding at this pace, with all fiat currency regimes, including that of the almighty dollar ($), also coming into question as a result. This is of course when it will pay to remember that for over 5,000 years now, only one commodity has been the money of choice, and that’s gold, the eternal protector of wealth.

In terms of more worldly considerations, it’s important to realize just how much trouble Obama is in right now with respect to this crisis of confidence coming so early in his first term. Moreover, both he and his dream team should be feared due to their ill-fated ineptitude and lack of understanding about what’s really going on out there. Like some of the members of his dream team, I think Obama took the job not understanding the circumstances of what lays before him, dooming his ambitions from the start.

For his sake I hope he learns fast from his mistakes, because it won’t take long for a fickle mob to turn against him, not that anything can help an economy this far gone in the end.

Buy gold and silver bullion folks – as the most profound crisis in confidence in the history of modern man's ability to manage his own fate is now upon us.