The latest from New York University professor Nouriel Roubini and Black Swan author Nassim Nicholas Taleb is that the risks of rare, “fat tail” events, with their associated financial costs, job losses, and income losses are, in modern times, getting much larger.  Two highlight quotes below

Roubini: The US today is having a budget deficit of $0.5 trillion this year, that’s 11 percent of US GDP, that’s not very far from the 13 percent of Greece. And the US is much bigger than Greece.

Taleb: The risks of debt are monstrous, and now we’re facing a future with even more debt. The only, you know, the only hope I had was that someone would do to us what the rest of the world, or Europe and the IMF, are doing to Greece. No democratically-elected government would take the right measure, would go through chemotherapy, would put its population through chemotherapy, which we need to do.

You can advance to the explanation of “Fat Tails” at the 2:14 mark.

Dennis Gartman’s view of Yesterday’s Stock Market Action

“we are fearful of what took place yesterday here in the US for although the Dow did not do so, many of the other broad market indices forged “reversals” to the downside and many of the most important individual equities did the same. We note therefore the chart of Apple’s shares yesterday on the NASDAQ at the upper left of p.1 this morning. Apple has been the clear leader to the upside during this last bull run, and yesterday, having opened on a gap to new all time highs, and having traded firmly most of the day, it collapsed in late trading, closing lower upon the day and closing below the previous day’s lows. This was a classic…a  text-book… “reversal” and it should be respected. Further, as we are wont to say, as in battle, so too in investing: when the “Generals” fall, the lesser officers and soldiers are in jeopardy as confusion begins to reign.” For a Trial Subscription go to The Gartman Letter

VS Don Vialoux’s assessment of Yesterday’s Action:

Technical action by S&P 500 stocks was bullish yesterday. Three S&P 500 stocks broke resistance (Amgen, Ball Corp. and MasterCard) and none broke support. The Up/Down ratio improved from 0.95 to (208/214=) 0.97

Technical action by TSX Composite stocks was bullish yesterday. Seven TSX broke resistance ( IESI-BFC, Canadian Pacific, Hudbay Mining, Ivanhoe Mines, Laurentian Bank, Telus and Teck Resources) and none broke support. Break outs were dominated by base metal stocks. The Up/Down ratio increased from 1.02 to (90/83=) 1.08

Interesting Charts
U.S. equity indices tested their 50 day moving average. When they were unable to break above that level, short term selling pressures quickly entered.

…..read more commentary and view 11 more charts HERE

Gold – The Breakout Must Hold

The downside reversal in the U.S. Dollar during the past two weeks has put a bid under the U.S. gold price.  However, the Dollar has become oversold on a daily basis and it is imperative that gold hold $1230 or we will likely see a quick decline to test the May lows of $1166.

The Cup and Handle Pattern is common in gold.  This pattern occurs when you have a correction followed by a test of the high and a smaller correction followed by a breakout.  The initial rally following a successful breakout measures 61.8% of the height of the base.  It currently exists in both the hourly and daily charts with respective measurements of $1300 and $1380.

Since 2007 we have seen numerous Cup and Handle patterns in gold that met their initial .618 goals before pulling back to the breakouts:

• Monthly chart of 1980-2007 
• May 2006 to September 2007 
• March 2008 to September 2009

Previous successful examples in gold

Three important failures

While daily sentiment is at 93% and 95% for gold and silver respectively (www.trade- futures.com ), the weekly sentiment figures are in neutral territory for both.  This leads to a conclusion of a possibility of a short term decline within an ongoing bull market. 

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