Here is a most important long term sign post, the long bond and its EMA 100.

Against the backdrop of the long bond's uninterrupted rise from the 1980s, Alan Greenspan was able to portray himself as the great Maestro, always at the ready with inflationary policy when the market and economy needed it most. This is what I have viewed as a wellspring, compliments of Paul Volcker's tough inflation-fighting policy of the late 1970s and early 1980s. This policy sprung a new bull market in paper stock and bond certificates as confidence was restored in a secular way.

Here is an updated look at the VIX and its megaphone (a.k.a. reverse symmetrical triangle (reversal)) pattern.

"Now Hear This!" blares the VIX... "Greedy bulls have had their fun, held sway for a good long while, morphed Hope '09 into Full Tout '09, got Wall Street to bonus season and generally reenacted the wonderful 50% rally in hope off of the 1929 crash. You know the one, after which the real depression descended. Happy days are not here again and it is unfortunate that most casino patrons will come to that realization after I begin to rise in earnest. I have not decided yet whether to give the bulls one more run at the highs, but I will decide before too long. This megaphone through which I give you my warning is a reversal pattern after all." (click to enlarge)

Okay, that is what the VIX says. What I say is that it feels so much like a false dawn that it is alarming how people seem to have gone about their business as we head for the tepid recovery that policy makers, the media and Wall Street seem to be touting. At best we will suffer from the law of diminishing returns under a new and intense cycle of inflation. At worst, we go down again and induce yet more panicked inflationary policy.

Excerpted from the October 11th edition of Notes From the Rabbit Hole (NFTRH54)

In late 2008 and early 2009, there were very strong arguments being made by the ‘deflationists’ that, if taken seriously would have sent anyone thinking about a bullish stance on gold, silver and commodities to a therapist to have his or her head examined.

The ‘big picture’ monthly chart of the S&P 500 continues to grapple with the ‘bull trigger’ EMA 20. It could prove a costly mistake to jump the gun on this signal, despite the tune the boom bands will play once they pick up on it. As it stands, the monthly candle has recoiled after probing above. Upon a successful monthly close above the EMA 20, we will keep in mind the constructive work that would need to be done over two or three months, as in 2003 (blue box), to confirm. We will also keep in mind that the Crash of ’29 was followed by a retrace of 50% of the Dow’s decline in 1930, before all hope was eventually lost, again.

A short excerpt from the September 5th edition of Notes From the Rabbit Hole, which included extensive analysis of the precious metals breakout, commodities and their relation to gold, and the broad stock rally from technical and sentiment perspectives.

Make no mistake about it, the great stock rally remains nothing more than a dollar devaluation rally; a would-be dollar devaluation story at that.

Excerpted from the August 22nd edition (#47) of Notes From the Rabbit Hole

My bias is bearish. That is because I do not believe that an economy can be run effectively by using fiat money creation and taxation to produce funds for stimulus, which is then aimed at consumer spending, some very unproductive infrastructure boondoggles and other pet projects. I do not believe that pumping new life into the big banks and big Wall Street houses – the very institutions that led the US to ruin while chasing ever higher morally hazardous short term gains – can do anything other than misallocate capital once again, on a grand scale.

Well, I rest so easily about gold - over the span of years, never mind days, weeks or months - that I do not check on its nominal USD price very often. But I know that many market participants micromanage the hell out of it (really folks, is it worth the energy expenditure?), so this morning I thought I'd give it a review, by weekly chart.

All good... okay, analysis over. Next!

Excerpted from the August 15th edition (#46) of Notes From the Rabbit Hole

Think about it for a minute. A newsletter writer gets bullish in Q4 2008, sees the up move stall as a couple early warning moving averages are violated. The writer pulls back into caution mode. The ensuing global market decline finds new lows into March 2009 in some markets and higher lows in others – with bullish divergence aplenty and terribly morose sentiment supportive of a bullish case. The writer is again bullish.

It is RISING.

Seasoned market players know of the paradox contained within upside market blow offs. The paradox holds that as a given market rises, sucking in the holdouts one by one, ten by ten and 10,000 at a whack, the wall of worry loses supportive bricks, one by one, etc.

In fact he was never even invited to this party, just as his invitation to the last great bull party must have gotten lost in the mail. I mean, back then they at least pretended to want him around, with Mr. Snow trotting out the 'blah blah blah... we believe in a strong dollar... blah blah blah... a strong dollar is in the national interest... blah blah blah...' boiler plate. Whatever China wanted Snow to say, he said. It was simple.

Today there is a bit more of an 'every man (or levered up economy) for himself' feel to events. China attempts a massive inflation to bail out a national Ponzi scheme of its own while the US is left to attempt a devaluation in broad daylight. With the goal of raising asset prices measured in the inflated currency and diminishing balls to the wall levels of debt that were panicked into the system.

You know, I always seek to tune out the noise when 'Mr. Gold' is putting inflammatory battle cries in my inbox: the CoT speculators are rampaging, the irrepressible silver bugs are making their case about silver's value compared to gold, and a spammy email blurb shows up (courtesy of my friend Otto) with a picture of a noted commodity and resource guru sipping a cocktail, smoking a stogie and expounding upon the government's unbridled inflationary policies.

I especially find the need for calm in the face of the Seattle Times indicator while the dollar - being micromanaged lower by the entire world that would seek to feel good about its demise - remains above the support level I have seen as critical.

The home builders have been beaten down like a red headed step child. Everybody knows they are dead in the water. Who would want to invest in US housing after all? This sector helped lead the crash and expose the US financial system for the Ponzi scheme it was/is.

Bonds, tech stocks, credit, housing, commodities... a would-be bubble in everything. Marc Faber, by way of Michael Panzner illustrates just how removed from any kind of sound economic foundation we became (Will They Ever Grasp the Simple Truths?) by the time the rolling bubbles of the 2003-2007 time frame had hit full throttle around mid-decade.

You've seen the movie Groundhog Day, with events repeating over and over in a maddeningly similar pattern? Our policy makers have been schooled in a system that has proved itself to be unsound or worse, disastrous and yet in their densely myopic fashion, these bureaucratic stooges move forward pumping the same old policy as heroin into the [debt] junkie as the first and most privileged abusers, the big banks, laugh all the way to the... bank. That would be our children's piggy banks. We have eaten their future, and it is criminal.

Steve Saville has a very nice piece this morning on the M3 money supply and its 'false signal' juxtaposed against the story being told by the more accurate True Money Supply [TMS].

The chart (courtesy of nowandfutures.com) shows the alarming drop off in year over year M3. Can you say 'deflation scare, here we come'?

You have got to hand it to the masses who collectively make up the vast conventional financial apparatus. After becoming way too hysterical in their negative sentiment into March, they have got a really good story going now. 'Hope 09' in fact, lives on - perhaps to target (SPX 1010) or maybe even beyond target.

"Smaller job losses, rising stock prices and stabilization in homebuilding and manufacturing are evidence that government efforts to stem the financial crisis and lower borrowing costs may pay off," says Bloomberg (full article).

It is imperative that we deal in what is, not what we think or wish would be. Did I have designs on things going differently then they did this week? Well ya, to the tune of about 60% - 40% as follows:

• 60% probability that the market declines short term (to 800 +/-), scaring out a lot of chickens before forming the major right side shoulder of an interted H&S bottom with very bullish intermediate term implications. The plan was to be short selected areas to guard against bullish precious metals (mostly gold) positions, and then cover as SPX neared 800. Sounded like a plan but...

• There was the pesky 40% potential for the bulls to put their greed on full display, blow out the shorts and party on, led by Paulson's Plunderers (NYSE: PP). The inverted H&S scenario is now negated and this market is now in the realm of traders and pros who know what they are doing and can be nimble.

In my view, the odds are now 90% that this is ultimately going to be a tragic suck-in. The last leg that pulls in the remaining stout holdouts who sold in March in order to wait for the worst to be over.