Clark's Gate Timing System
Wednesday 28 October 2009
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crises should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
- Ludwig von Mises.
Our last post demonstrated a new momentum indicator that seems to work very well at timing market tops. Look again at the first part of this post:
We created a new indicator over the weekend: M5/M5Average Differential Sum Plus which shows up in the top panes of the charts below. This indicator measures the difference between M5 (long-term momentum) and M5's moving average -- both of which are shown in Pane Two of the charts. We then do a bit of mathematical management to get our new indicator. Essentially, when the new indicator breaks below zero, it signals the M5 Average crossing above M5. When the new indicators breaks above zero, it signals the M5 crossing back over the moving average. Note that this indicator moves between +2 and -2 and selling almost always follows the indicator's break below zero. Ideally, we want to buy when M5 Average is beneath M5 and both indicators are climbing. It is a serious warning shot when M5 Average is greater than M5 -- and if both are declining, selling is almost guaranteed.
Teva Labs weekly chart shows a stock that should come under selling pressure in the near-term. Teva's trend (red line, botttom pane) is still positive. But we expect the trend to come under pressure as well.
Now let's look at today's indexes to get a sense if we are at a top in this Fed-manufactured rally. Note that we have two very valuable indicators in the top pane, the orange M5/M5Average Differential Sum Plus (new indicator) and our M5 (brown line). BKX, the Banking Index, has failed to succesfully test overhead resistance and has fallen down to a four-pronged support point. If this support fails, BKX will be bearish. In the third pane, MA 40 Diff Plus (long-term momentum) has gone negative with two successive down days; and the bottom pane indicates intermediate-term momentum (M2F Alt Sum Plus) is also negative.
Are we projecting a long decline? It's very hard to project how far the downturn will run. We need to keep plotting support and resistance lines as the decline proceeds. My gut says the downturn will test March lows...but my gut is often wrong. That's why I've learning to trust my mathematics more than my gut feeling.
DJIA: let's see how suppport levels do. M5 is negative and needs to find a bottom in order for a reversal up to have legs. This is a pretty good-looking chart, in terms of the trend (red line, top pane) -- but M5 has been losing steam since mid-September.
Dow Jones Transports; M5 is in a free-fall. M2F Alt Sum Plus is negative. These two indicators can work together: M2F Alt Sum Plus bottoms earlier than our new indicator. But both indicators are pretty good at picking tops and predicting price declines.
FCHI, CAC French Index: pretty positive chart, except for M5, which is predicting a decline -- and has been predicting this since mid-September.
GDAXI, DAX Germany: Another good-looking charts in terms of the trend. But M5 has tanked. Note how well the orange indicator (top pane) signals selling is approaching. M2F Alt Sum Plus (bottom pane) has also turned negative.
GSPC, S&P 500: Again, disintegrating M5 looks troubling. This one is still in the definition of a bull run, higher highs and higher lows. But momentum of this last rally was VERY weak.
HGX, Housing Index: broke through short-term support and his heading lower. Will take out 95.54 support, and then is heading toward support around 76. Negative chart.
HUI, Gold Stock Index: We like gold stocks, but HUI is touching recent support and could go lower. M5 does not look good at this point. If support holds, everything is fine here.
KS11, Kospi South Korea: Was one of the strongest indexes during the rally -- but M5 has collapsed and this last leg up was dismal. Index failed to test overhead resistance. Now a break below 1590.47 equates to a bear pattern: lower lows and lower highs.
N225, Nikkei Index, Japan: Attempted rally back to a bullish pattern broke down short of overhead resistance. A decline below 9627 will be decidely bearish. Our new indicator (orange, Pane One) has just turned down again.
RUT, Russell Small Cap Index: Couldn't get through overhead resistance. Look how weak the M5 rally was (and the M5/M5Average Sum Plus Differential)...breaking support at 576 will be deadly to the rally.
SMSI, Spain Index: This probably should be one of the weakest indexes we follow: Spain is on the verge of implosion. But this liquidity-rally has lifted all boats pretty equally. I'd be ready for a huge decline in Spain. Look how M5 has weakened over time. Still, if SMSI holds above support, then we'll have to give it credit.
SOXX, Semiconductor Index. M5 has really disintegrated; this one could flop if it breaks through support at 305.67. No momentum strength to the last rally that failed to pop through overhead resistance.
SSEC, Shanghai Index: Still has not broken down. But M5 is suggesting it will break down tomorrow. M5/M5A Diff Sum Plus is still up. If it comes down tomorrow, then we'll see this as a double top; and support levels below will be crucial for this one NOT to go all the way down again.
UTY, Utility Index: Classic consolidation pattern. It can't run in this tight range for ever, of course. Long-term, M5 is negative, trending lower and lower. We expect the break to be on the downside.
VIX, CRB Volatility Index: Had a devastating collapse after the last run-up to resistance failed, support broke. Is trying to gain momentum again for another assault on the mountain of anti-stock performance. Not certain this is the real thing. Won't really know until it takes out resistance, and pulls back and holds above support.
XCI, Computer Index: Looked very good until a few days ago. M5 doesn't look good; and if all the other indexes fall this one will too. We like the way this one looks, however, excluding M5. Is Bernanke going to let the rally run out of fire?
XOI, Oil and Gas Index: New highs; hard to believe this index will disintegrate. M5 rallied LESS than it should have. But price appreciation makes this one look pretty good -- better than most.
OEX, S&P 100 Index: Everything pretty healthy except M5. Look how slender the M5/M5Average rally proved to be this last leg up (orange, top pane).
How are the Ultrashorts looking (ETFs that make money when stocks go down)? RXD, Health-Care is rallying but it needs to take out overhead resistance and then fall back and stop above support. M5 looks positive. M5/M5Average Diff Sum Plus is positive again. SRS, Short Real Estate ETF, is also rallying, attempting to turn a long-term decline but up.
More information on this system can be found at
A draft of the book Turn Out the Lights can be found at the website below. This book is a description of the metaphysical causes of the economic cycles of expansion (Day) and contraction (Night).
Michael J. Clark's Gate Timing System
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