Bear Market Rally: Rate of Change is Decaying

The rate of change of the rally is decaying. This rally is slowly running out of steam. A bounce early in the morning off support around 815 will alleviate some of the extremely short term oversold indicators. Expect resistance around the 830 area to kill the bounce. Everything changes above 845...

Gold, Silver: Failed at Support

In Gold, One More Push… I wrote: “One more push down, to about $890, should unleash serious selling...

Sensing a vulnerable market, the powers that be have already started moving to push Gold down. Rumors of significant IMF Gold sales have started hitting the wires.”

This prediction actually caused a couple of the uber Gold bugs to have an instant seizure and throw a temper tantrum in the comment section. Both Gold (GLD) and Silver (SLV) then immediately did drop through support…

GLD broke support around $890… and it did unleash serious selling. Support around $850 and the rising 200 day EMA (green line) halted the slide. Yesterday resulted in a gap fill. With that complete and the $890 area now resistance, expect some consolidation before another leg down. The target is about $810.

SLV broke all support, falling below absolutely everything. The 200 (green line), 50 (red line) and 20 (blue line) period EMAs were all smashed. The rising trend from November 2008 was violated and the 38.2 Fib around $12.60 as well. The target is about $11.00.

Evidence of global deflation is starting to mount. Commodities will get it from both sides. First further reduction in demand will result in lower prices. Second, deflation will result in lower prices.

This won’t just affect GLD and SLV, but other commodities such as Oil (Rising Bear Wedge, Break Down).

Swiss slide into deflation signals the next chapter of this global crisis: “Watch Switzerland closely. It is tipping into deflation, the first Western country to succumb to Japan's disease.

Swiss consumer prices fell 0.4pc in March (year-on-year). Swiss CPI will be minus 1pc at least by July, nearing the level where spending psychology changes. By the time you have a self-feeding spiral, it is too late.”

Baltic Dry Fell While Equities Rallied

In Baltic Dry, Global Trade: The Rally in Equities Isn't Real, I wrote: "The Baltic Dry Index (BDI) has been losing steam during this rally in equities. A sustainable trend changing rally in equities would be accompanied by an increase in BDI."

In The Baltic Dry Index Falls, Again… Even as Equities Rally, I wrote: “Well, despite a parabolic move in equities yesterday, the BDI actually DROPPED. AGAIN.”

As equities rallied about 25% off the lows, BDI actually dropped about 35%. Global trade is not improving. The global economy is not still contracting quickly. Earnings season will be a disappointment. This rally in 'risky assets' is set to fizzle...

Depending on Banks to Fuel the Rally...

So, the global economy is facing one gigantic balance sheet recession and the Bulls are pinning their hopes entirely on the sudden, miraculous return to profitability of banks?

Commercial real estate hasn't even collapsed yet. Credit cards pools haven't even imploded yet...

I have only one question. Why won't you learn?

S&P 500 Can’t See Enough Money to Feed Stocks’ Rally (Update2): "Investors are depending on banks more than at any time in at least 60 years to lead the U.S. out of the longest earnings slump since the Great Depression.

American companies will end more than two years of declining income by the fourth quarter, according to analyst forecasts compiled by Bloomberg. Banks will be responsible for all of the 76 percent rebound in the final three months of the year, because without financial companies, the gain turns into a 4.5 percent decline, the data show."

The Age of Balance Sheet Recessions

This is why the recent rally in risk assets (equities) is nothing more than a vicious Bear Market rally. This is why you must expect deflation... and why inflation is impossible.

"Americans Spent $1.5 trillion that should have been saved." Page 11/34, slide 10.

Read the full article The Age of Balance Sheet Recession: What Post 2008 U.S., Europe and China Can Learn from Japan 1990 - 2005.