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We see weakness in the American indexes for the first time in many weeks. Buying has held up in the face of the continued breakdown of Europe, the breakdown of Chinese stocks, the breakdown of 'developing' economies. The mantra seems to be that Doctor Ben won't let us down. Even Central Bank shortselling of Gold, which has buoyed the Dollar, has not torpedoed American stocks -- a stronger Dollar is generally negative for assets priced in Dollars (stocks, real estate, commodities).

I have written articles before about the inverse relationship between US DOLLAR STRENGTH and CHINESE STOCK WEAKNESS. The relationship at present seems almost perfect.

Today the Board of Japan met and reinforced its commitment to inflation at all costs, which spurred a rally in the NIKKEI, and sank the Yen again. The Currency War is firing hot and heavy now. It still has a way to go. The attached chart shows how little, relatively, Japan has participated in this currency war, which is being led by the UK, Switzerland, and the US.

Japan, of course, has the largest debt factor in the world, along with the UK. However, Japan exports continue to struggle. So it is clear what direction the Japanese need to go to 'catch up' with the Western geniuses in the art of destroying their own currencies.

But we started talking about Apple Computer. I also want to look at Gold. Many people, including myself, have been watching for a bottoming process in both Apple and Gold (the metal and gold stocks), which have been "oversold" now for many weeks. What does 'oversold' mean in this context? A stock or issue can remain oversold for a very long time. My view is that American stocks have been 'overbought' for many weeks now -- but saying this says nothing about when the coming correction will happen.

We have resisted calls from fundamental analyst that the bottom in Apple was in. Our view is that the bottom is not in. Let's look at our chart to see why. We have clumped seven indicators into our chart, perhaps complicating it visually. The top indicator (blue, pane 1) is a secondary indicator. It went positive more than a week ago. It also went positive in late November 2012, when Apple gave a false bottom reading, when most analysts started to scream that the "BOTTOM IS IN".

In fact almost all of our indicators turned positive on that false bottom. Two indicators did not go positive. The second indicator from the bottom (black, CGTS112 PB 50) has remained resolutely negative all the way. Also the red trend line in the second pane down, T5 Simple, has remained negative all the way down, making lower lows and lower highs.

The bottom pane is also one of our most trustworthy trading indicators. It is also still negative.

Our M5Diff% indicator, the red line in the center pane, has turned positive, climbing during the latest rally, climbing above zero, which is almost always a sign of a turnaround. The orange line simple indicator's when the red line is above (or below) zero.

So, this is a mixed chart. What do we need to see happen to buy Apple? T11D Summary, the bottom pane, needs to go positive; CGTS 112 PR 50, the second pane up from the bottom, needs to go positive; and Apple needs to halt its current decline above support at 420.05; and it then needs to take out resistance at 463.58. If the two indicators in the two bottom panes turn up, and Apple bottoms above 420.05 (the red trendline turns back up, second pane from above), then we might take the plunge.

So, Apple is still is a short-sale position. But we are watching it diligently. IF Apple continues to fall and breaks down through support at 420.05, then the BEAR TREND is confirmed and Apple will go lower.

What about Gold and Gold Stocks? Gold stocks first. The same indicators, and look how T5 Simple (red line, second pane down from top) broke through support and confirmed the BEAR TREND and lower prices for gold stocks. This is a very negative chart.

I have read reports about major gold shortselling by central banks all over the world in an attempt to destroy gold in the minds of investors as an alternative to fiat currencies. What might change this massive manipulation by central banks? Well, I read also that China and Russia are using the lower prices of gold to accumulate the precious metal. Does the West want Russia and China to accumulate the currency-of-the-future from their manipulation of markets at cheaper and cheaper prices? We can't really tell what Washington and Europe are thinking. It seems like they have stopped thinking several years ago and are responding to world-events with fear only, with a fear that the status-quo might be threatened -- the power structure changed. Rigidity is a symptom of death, of a dead system. Nothing seems more rigid today that the Fed spending billions every month to try to keep things from changing. Change is eternal. Resistance to change is a symptom of a dead system unwilling to recognize its own death.

Gold looks little better than Gold Stocks. Note the two most reliable momentum indicators, the two bottom panes of the chart, have remained negative since last October when IAU (Gold ETF) began falling.

We say some selling has come into American stock indexes, but so far it is not significant. We take this opportunity to exhibit a new indicator we have developed that shows quite clearly the struggle between BUYERS AND SELLERS.

In the top pane of this chart of BKX, Banking Index, BUYERS are in green; SELLERS in red. Note, when the BUYERS ARE STRONG the green line is stationary at the top of the range (ZERO); when BUYERS are strong also, the red line moves up toward the green line. When SELLERS are strong, the red line stays at the bottom of the range (at ZERO); and the green line drops from ZERO, moves in the direction of the SELLERS. When there is an equal strength between BUYERS AND SELLERS, the Green line is at Zero at the top of the range, and the Red line is at Zero, at the bottom of the range. When this equilibrium changes, one can tell which direction the market will move. If the red line moves up and the green line remains unchanged, BUYERS are winning. If the green line moves down, and the red line remains unchanged, SELLERS are winning. The current picture tells us that bank stocks in the US are feeling an increase in selling pressure, more sellers than buyers.

But the three bottom panes, our long term momentum indicators remain positive. One can use this new indicator to add to long positions when momentum breaks down but momentum trends remain positive.

When we look at the same indicators in CAT, Caterpillar, we see a breakdown of the BUYER STRENGTH in both the retreating of the red line back to ZERO and the breakdown of the green line away from ZERO.

Caterpillar shows the breakdown in 'industrial global stocks' that are signs of the global economy's current turmoil. The charts above show very clearly the inverse relationship between a strong Dollar and the raw materials economies of China, Australia, and Canada. If the Dollar keeps climbing, and it seems like it will, with weakness in the Euro, in the Yen, and in the Swiss Franc, and in the British Pound -- a weakness that is being institutionalized by the currency wars.

The currency wars are trade wars. Trade wars often lead to shooting wars. Let's hope this is not the case in this Deflation Season, 2001-2019.


Michael J. Clark, CGTS