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There has been a multi-year Broadening Top forming in the Dow Industrials, which is nearly identical to the same Broadening Tops that occurred just prior to stock market plunges in 2000, 1987, 1986, 1973, 1966, 1957, and 1929. Same pattern. In each instance, prices took forever to reach point e, then plunged. The 2007 version is now starting its plunge. Last week’s carnage is simply the first small degree wave of what should be a protracted and severe decline throughout most of 2007. Stock market declines often forecast recessions. Once a recession is common knowledge (it already has started), the plunge in Blue Chips will accelerate. Common knowledge will occur once banks are attacked by real estate loan, heat-seeking examiners. Common knowledge will occur once public companies start restating earnings. Common knowledge will occur once bankruptcies hit the news. As it deepens, jobs will be lost, politicians will be thrown out, savings will disintegrate. You know the routine. The only way out of this mess will be a massive and drastic Dollar devaluation, accomplished through the printing and distribution of trillions of dollars to households across America. Fiscal policy is already too much of a mess to be counted on to stop this recession. Another war will just make matters worse. No, this time it will take monetary hyperinflation the likes of which America has never seen before. You see, the Fed has had a lot of practice over the past two decades. They will be ready to serve. This fundamental economic fact will be Bullish for Gold stocks and precious metals. The patterns in Gold stocks and precious metals are very different than that massive Bearish Broadening Top in the Dow Industrials. The pattern in the HUI and Gold is a Symmetrical Triangle, a continuation pattern, a “pause” in an already established long-term rising trend. The way this pattern works is we get five waves oscillating in a narrower range — a sideways move intermediate-term. Once the fifth sub-wave wave completes, the direction of prices before the pattern will be the direction of prices after the pattern. In the case of the HUI and Gold, that means up.
The last sub-wave within the Symmetrical Triangle for the HUI and Gold is scheduled to be down. That is exactly what we are getting now. The final leg down. Once complete, a huge rally will follow. In the case of Silver, it has formed a slightly different continuation pattern, an Ascending Bullish Triangle. It is earmarked by a flat upper boundary, and a rising and converging lower boundary. Once prices breakout above that flat upper boundary line, Silver should rally sharply. In all three cases, these Bullish continuation patterns are nearly complete. So, it is very likely that by summer, the HUI, Gold, and Silver will be rallying hard (fundamentally in response to massive liquidity infusions to bail out the economy), while major equity markets sink.
Our 49 page Weekend Market Newsletter goes into great depth analyzing this week’s plunge, and what is coming next. “These
things Jesus spoke; and lifting up His eyes to heaven, CONTACT
INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
