Seven Points to Look For in October

Just a quick note I wanted to make about what I am thinking in preparation for October -- a month notorious for volatility and market crashes.

1. Currently, I'm still long gold, silver, and the Australian dollar against the USD (trades documented in my trade journal). These trades have been working out very well for me. Regardless of what happens in October, I'm confident about them.
2. We're coming up on the 50% retracement level from the US equities crash in October 2008 (as noted in this recommended video and dicussion). This will be a key break or bounce level, in my opinion. Look for the 50% level on both the S&P 500 and the DJIA.
3. Non-US equities, in my opinion, remain safer than US equities. Many non-US equities have rallied more so than US equities.
4. If the market crashes, which I think is more likely than a break above the 50% level (of course we would want to look at other technical indicators if/when the market reaches the 50% level), will the dollar rally as well? That is what we saw in 2008. However at some point the market will not be able to buy US dollars, especially with the Fed continuing to print more money. So, if US equities crash, we will see a flight to safety -- though I think it's still unclear whether safety means US dollars (like it did in 2008) or if it means something else, particularly gold and silver.
5. I'm long gold and silver, but I will be looking to exit some of my positions if gold breaks below $980/oz (see previous analysis of gold).
6. MZM, one of my favorite money supply indicators, turned deflationary this past month (meaning it declined). The last time this occurred was right before the crash of '08. MZM tends to be very well-correlated with the US dollar over the long run. The trend on MZM is still upwards, but the recent dip suggests we may get a dollar rally of some kind.
7. Conclusion: $980 is a key level on gold that I'm watching. At this point I think a dollar rally in October is a bit more likely, but of course I will let the charts tell me what is happening. Overall I remain quite confident that the major trends in the marketplace continue to exist and so I will be looking at a potential rally in the US dollar as an opportunity to short it from a higher level.

Disclosure: Long gold, silver, Australian dollar. Short US dollar.

Comments

[conceptwizard:]

Get out of the stock and bond markets except for gold and silver shares. Terminate cash value life insurance policies and annuities; they invest in the stock market. Although mutual life companies have to invest in bonds. If you have to have some of your assets in cash, own treasuries from Canada, Switzerland or Norway. We are embarking on one of the most unusual times in investing history. Only 10 to 15 percent of investors will participate, the rest will lose 60 to 90 percent of their assets, their wealth. Don’t you be one of those losers. Don’t forget the elitists cannot print gold and gold is debt free. For 6,000 years it has been the only real currency. Gold and silver’s fundamentals are overwhelming. The supply is limited and production is falling and will continue to fall for years to come. Governmental and central bank debt is increasing exponentially and that is destroying the value of all currencies versus gold. Major nations are now aggressive major gold buyers. Gold and silver are going higher. Do not miss the opportunity to protect your wealth and perhaps to become very wealthy.

Sep 23 08:31 AM

[doubleguns:]

Concept wizard, why would you terminate life insurance policies. Yes they may not have as much value but they are not an investment. They are a life line for family members left behind. I am not so sure I would give that consideration unless you have an alternative solution I am missing and I would not call a bet on Gold or Silver the alternative I am talking about.

None of us have a crystal ball and KNOW with certainty what is coming. That's what insurance is for and that's why investing has its risks.

I guess I have never heard anyone recommend canx insurance policies as an investment plan. I am curious. Maybe I am going to learn something here about thinking outside the box. Please fill me in.

Sep 23 09:02 AM

[YoYoMama:]

Great advice. However, you left out that we should sell our homes and possessions, give away the cash (because it's worthless anyway), and go live in a cave and wait for the end, because the sky is falling and we're all going to die...

On Sep 23 08:31 AM conceptwizard wrote:

> Get out of the stock and bond markets except for gold and silver
> shares. Terminate cash value life insurance policies and annuities;
> they invest in the stock market. Although mutual life companies have
> to invest in bonds. If you have to have some of your assets in cash,
> own treasuries from Canada, Switzerland or Norway. We are embarking
> on one of the most unusual times in investing history. Only 10 to
> 15 percent of investors will participate, the rest will lose 60 to
> 90 percent of their assets, their wealth. Don’t you be one of those
> losers. Don’t forget the elitists cannot print gold and gold is debt
> free. For 6,000 years it has been the only real currency. Gold and
> silver’s fundamentals are overwhelming. The supply is limited and
> production is falling and will continue to fall for years to come.
> Governmental and central bank debt is increasing exponentially and
> that is destroying the value of all currencies versus gold. Major
> nations are now aggressive major gold buyers. Gold and silver are
> going higher. Do not miss the opportunity to protect your wealth
> and perhaps to become very wealthy.

Sep 23 09:11 AM

[Jimbo:]

I am with Concept Wizard. I will soon be 80 and our children are grown. I cashed out of my few cash value life insurance policies in 2008. The proceeds were placed in the USAA Precious Metals Fund. I may have been premature, but I believe we are going to experience stagflation, rather than the inflation the Fed is trying to ignite. I fear that the end game is some kind of severe inflation with the possible implosion of several currencies. I am not planning to live in a cave, as YoYoMama suggests, but I do believe I have rational plans for the uncertain future.

Sep 23 09:22 AM

[Larry House:]

Part of investing is to allocate so as to prepare, as much as possible, for all events. I certainly agree with the above comment that no one knows what lies ahead. All indications are that this is a time for extreme caution because the risks appear to greatly outweigh the rewards in equities. I cannot endorse any plan to just put all of one's assets in one sector, such as precious metals. That defies all the rationale for diversification, which is one of the ways we cover several bases because we don't know what is coming. This is a time for a large cash position to be ready for opportunities that may come along. Investing should not be an either or allocation; balance is still a good idea.

Sep 23 10:27 AM

[conceptwizard:]

You have the option within those policies to keep the life in force at a lower premium and exit the investment portion of the strategy. Typicaly these policies are not properly allocated unless the advisor is proactive and the allocation tends to be largely in equities. Most policies would still be underwater by a long shot and will not deliver what they were intended. I should have clarified my position on this. Thank You


On Sep 23 09:02 AM doubleguns wrote:

> Concept wizard, why would you terminate life insurance policies.
> Yes they may not have as much value but they are not an investment.
> They are a life line for family members left behind. I am not so
> sure I would give that consideration unless you have an alternative
> solution I am missing and I would not call a bet on Gold or Silver
> the alternative I am talking about.
>
> None of us have a crystal ball and KNOW with certainty what is coming.
> That's what insurance is for and that's why investing has its risks.
>
>
> I guess I have never heard anyone recommend canx insurance policies
> as an investment plan. I am curious. Maybe I am going to learn something
> here about thinking outside the box. Please fill me in.

Sep 23 11:06 AM

[Dean M:]

Congratulations Patel, looking over your past articles I'd say your accuracy rate is about 20%, that probably puts you in the SeekingAlpha elite.

Sep 23 09:18 PM

[David White:]

You said a lot of good things with which I generally agree. However, I would like to clarify item 6 with the following quote from a Marketwatch article:

"Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy -- it now appears to be in the process of making a sizable withdrawal.

For example, the monetary base -- the raw material for the money supply -- has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.

And after ballooning from $100 billion to nearly $1 trillion between September 2008 and mid-May, adjusted reserves have since declined at a 43% clip, to just over $800 billion.

As a result, the Fed's two measures of the money supply, M2 and MZM, have begun to contract. M2 has shrunk at a 3% pace since the middle of June, while MZM, the St. Louis Fed's measure of liquid money, is down by 2% over the same period. "

The above is evidence which points to a likely USD rise and an oil fall. When you add in Prechter's prediction for a rally in the USD based on the only 3% bullish sentiment, you begin to see where the USD might rise. 3% is the same level the equities markets were at in early March. The RBA didn't raise rates at its last meeting. The Japanese Yen has likely had its big run due to its post elections euphoria. This news is getting stale now. Many think the Yen will hit 100/USD by the end of this year.

Technically the USD looked very much like it was capitulating today, when it hit a new bottom quickly after the Fed announcement. The subsequent sharp rally of the USD might lead one to think today may have been the bottom. Plus Oil is looking weak technically. It even seems to be following fundamental news to a large extent. The build in inventories today of 11.2M barrels of total oil, gasoline, and distillates was 3 times a normal "good build". This should keep oil pressured to the down side through the end of this week at least.

Fundamentally equities are over priced. Art Cashin recently estimated fair value to be an S&P500 value of 850 to 880. It has a long way to fall to get to there from approx. 1060. Technically it is due for a retracement. One could effectively argue that the SPY (or S&P500) chart has put in the 3 up phases of the elliot wave theory (5 phases total). If so, it is now time for a major retracement. This would likely cause the USD to go up and a rising USD would cause equities to go down.

It will be interesting to see if the USD bottom really was today. This awaits confirmation.

Sep 23 11:12 PM

[Jake2:]

Mad Hatter, with all of his recommendations, does

Sep 24 01:00 AM

[Jake2:]

Mad Hatter, with all of his recommendations, does NOT sound as if he is about to leap out of a top floor window. What's up with the rest of you? I have never read such gloom and doom.

Sep 24 01:02 AM

[Dean M:]

If you knew what you were talking about you would be keeping it to yourself


On Sep 23 08:31 AM conceptwizard wrote:

> Get out of the stock and bond markets except for gold and silver
> shares. Terminate cash value life insurance policies and annuities;
> they invest in the stock market. Although mutual life companies have
> to invest in bonds. If you have to have some of your assets in cash,
> own treasuries from Canada, Switzerland or Norway. We are embarking
> on one of the most unusual times in investing history. Only 10 to
> 15 percent of investors will participate, the rest will lose 60 to
> 90 percent of their assets, their wealth. Don’t you be one of those
> losers. Don’t forget the elitists cannot print gold and gold is debt
> free. For 6,000 years it has been the only real currency. Gold and
> silver’s fundamentals are overwhelming. The supply is limited and
> production is falling and will continue to fall for years to come.
> Governmental and central bank debt is increasing exponentially and
> that is destroying the value of all currencies versus gold. Major
> nations are now aggressive major gold buyers. Gold and silver are
> going higher. Do not miss the opportunity to protect your wealth
> and perhaps to become very wealthy.

Sep 24 01:37 AM

[Nyetnichevo:]

who are these people anyway?
Think for yourself, these guys never reveal their losses.

Sep 24 08:26 AM

[bbro:]

and the stock market will crash because?????

Sep 24 09:54 AM

[fx_thoughts:]

Watch it:

1/ G20 is underway right now and these parties cannot be ignored for too long though can still disappoint quite often as they did in the past. Look at the present and current situational crisis, and feel their pulses!!

2/ USD will remain to be the international reserve currency though helicopter Ben's Fed has pampered itself for far too deeply to be a real worry soon, if nothing is done to adjust interest rates upward. Common sense prevails, if 1% interest rate had not saved millions from bankruptcies in the USA, how could anything lesser help?

3/ The choice for Fed has to be an upward adjustments of interest rates to attract debt_clientele who are holding USD Trillion up to date without further diversification away from USD. Don't you think these holders are really jittery about USD and US debt assets?

4/ Such a weak USD, US folks shall have to bear the burdens of inflationary issues soon to out pace the false advantages of a low interest rate.

5/ USD will not be the actual funding currency and should not be able to replace the Yen's role in such international forex activities. Though, the two shall realign and lock in steps as the 'safe heaven' keepers when epidemic panics hit the fence again and/or till the world puntering communities return to the sick scenes in force!

Hence, somehow, the US's interest rate scale of 1% to 12% ought to be slid along on a look-alike "12 inch_ruler", sooner better than later to rebalance financial sheets. G20 buddies ought to feel less burdened by a stronger USD vs majors because diversification exercises of national wealth are by no means easy and neither painless nor risk free, let alone political sandstorms !!!

Sep 24 09:54 AM

[axelrod608:]

C'mon, people. Put trailing stops on your longs, buy some puts and stay the course.

Taking the cash value out of life insurance only makes sense if you're holding enough cash to settle your estate. And most annuities have substantial penalties for cashing out. It makes little sense to lose money needlessly.

You can ride the upside as long as you buy protection. I don't, but I had a stroke a while back and complexity is difficult for me.

The sky is not falling.

Sep 24 10:18 AM

[joeevan:]

It could be that extreme measures (e.g., terminating life insurance, selling stocks, buying gold and silver, etc.) taken now may seem prudent for a short term in the close future. However, these measures seem unwise for anyone who is planning and taking steps for the longer haul.

In any case, there is no denying the rhetorical power of extreme measures expressed with a voice of certainty. And this is particularly true during times like this when we all face notable challenges.

Determine N/S/E/W, plot a path, stay the course.

On Sep 24 01:02 AM Jake2 wrote:

> Mad Hatter, with all of his recommendations, does NOT sound as if
> he is about to leap out of a top floor window. What's up with the
> rest of you? I have never read such gloom and doom.

Sep 24 12:26 PM

[Dialectical...:]

Stay in equities if you must, but tighten up your stops. If things keep rising inexplicably higher, then you haven't missed a thing... and if the other shoe does drop, you will have successfully ducked (or whatever it is you do to avoid falling shoes).

Sep 24 03:50 PM

[jack123:]

i think we will have a rally into Oct. 1 before we decline

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