Greed Is Now Being Compared To Cancer.

No fewer than three of the season's new films are focused on Wall Street and its players, each with its own moral message about the way markets are run and who's pulling the strings.

Here,the much awaited Wall Street sequel - Money Never Sleeps looks at the lessons about Wall Street, from the classics of years past to this year's latest offerings.

The Lesson: Beware of bubbles, figurative and literal.

At President Obama's recent town hall meeting a broker asked: Isn't it time to stop treating Wall Street like a piñata? Oliver Stone's answer: Not yet, punk. And now the controversial director has a brand new stick. Wall Street: Money Never Sleeps is the 23-years-in-the-making sequel to Wall Street, the movie that introduced us to trader Gordon Gekko (Michael Douglas) and his catchy slogan, “Greed is good.” Hollywood has always agreed with Wall Street on that point -- that's why they make sequels.

While Douglas returns as Gekko, this year's Charlie Sheen is Shia LaBeouf (the hot Transformer kid), playing a young hotshot with designs on the big score, and also on Gekko's daughter Winnie (Carey Mulligan).

Stone is the kind of director who makes Michael Moore look subtle and here he's at his bludgeoning best, aka worst. More than once he includes shots of actual soap bubbles. For those who have come straight from a screening of Resident Evil: Afterlife, that's known as a visual metaphor. It's what some movies have instead of zombies. As befits the sequel to a 1987 movie, there's a retro feel to the whole thing -- a little bit of '80s flash, but now with derivatives.

My favorite part of the film is the lesson that in the darkest days of any financial tragedy what matters most are love and family. Life goes on," says Lawrence McDonald, author of A Colossal Failure of Common Sense -- The Inside Story of the Collapse of Lehman Brothers, former Lehman Brothers VP of Distressed Debt. " My second favorite part was Michael Douglas' vintage speech on his fictional book lecture tour. He emerges from prison, after collecting his brick-size Motorola cell from the warden, writes a best-selling book and is on stage at a university in New York. In about two minutes and 25 seconds he (and Oliver Stone) do a masterful job describing and explaining the financial crisis."

Despite being flattered by how many lines from his book are used in the movie, McDonald ultimately gives it a mixed review. "I noticed early on there was lots of excitement, applause, and laughter dancing around the theater, but at the end of the film everyone got up and left a little confused, with zero emotion," he says.

The movie, which opens last week, also compares greed to a cancer. Stone can't be blamed for the wincing that will accompany that speech in light of Douglas' recent diagnosis. But at least the actor's feisty performance will remind us why we need to pray for his speedy recovery.

This Is Dollar Crisis.

Ben Bernanke's monetary policy has eventually created a currency crisis in the world’s reserve currency.

This crisis has became apparent that the dollar was caught in the grip of the 3-year cycle decline.

There are three conditions that had to be met before I am willing to call the beginning of the end.

-The first condition was for the dollar to move below 82. That was the warning shot that problems were developing.

-The second and third conditions were a move below long-term support (80) and a failed intermediate cycle.

The drop below 80 today has now completed the final two conditions.

I've marked the last three intermediate cycles with the blue arrows (chart above). The move below the last intermediate cycle low today initiates a failed intermediate cycle. This is also an extremely left-translated cycle. Left-translated cycles tend to produce the worst losses as they have a long time to move down. The ongoing cycle shouldn't bottom until it puts in a larger degree yearly cycle low in November or December. I expect that low to test the ‘08 bottom at 71.

Finally we should see a full-on mini crisis by the time the dollar drops into the major 3-year cycle low next spring or early summer.

US deflation just isn't a possibility in a purely fiat monetary system. A determined government can create inflation any time it wants as long as it’s willing to sacrifice the currency. I think it's safe to say the United States has no compunction against destroying the dollar.

The US economy is now heading into an inflationary storm that will expose deflation theory as the pure nonsense that it is.

Japan's YEN Selling Is Boosting Precious Metals.

Gold broke out of a classic cup-and-handle pattern yesterday right before the Bank of Japan announced it was buying dollars in a bid to weaken the yen. The yen has strengthened significantly since June making life extremely difficult for Japanese export companies. The economy in Japan is weakening and they’re also facing their own sovereign debt issues, which haven't yet surfaced. However, more important is how the markets are reacting. This reaction in the yen will likely be short-lived. Although it may be an immediate Band-Aid, the intervention efforts may be too little for the global forces of supply and demand.

This yen selling didn't transfer to purchasing US dollars. Yesterday and the past several weeks there's been a major rush into precious metals. The dollar’s chart is giving warning signs of an imminent collapse. Certainly the dollar hasn't reacted positively to this announcement.(This will translate into renewed weakness in in Crude Palm Oil as the Ringgit pops.)

The dollar is slicing through its 200-day moving average and the 50-day clearly has acted as resistance. I believe a major transfer of dollars into precious metals is occurring. A death cross is imminent on the dollar and this is occurring simultaneously to new high breakouts on silver and gold.

Usually a weak dollar has been bullish for stock markets as it meant investors were less risk-averse. This isn't the case now. Even though the dollar has fallen since June the markets have failed to rally significantly. Instead, precious metals and mining companies have broken out of key resistance.

The S&P 500 has been in a sloppy and volatile base for four and half months and the poor price volume action tells me a breakout above $114 is highly unlikely. A third failure may be imminent as overbought conditions are combining with previous resistance.

This cup-and-handle pattern in gold is extremely bullish and could be the beginning of a next leg higher. It's a sign of a major consolidation and this recent breakout may bring in more investment interest by institutions who are concerned about currency and sovereign debt issues. SPDR Gold Share’s (GLD) pattern is very rare and this setup tends to indicate a major move into hard assets.

If we see a decoupling of the dollar versus gold continuing, expect to see more buyouts of resource companies from Asia. Right now we're witnessing a massive transition of wealth in the form of currencies (in particular the dollar), bonds, and equities into silver and gold.

9,Nine,9....

“God does not care about our mathematical difficulties. He integrates empirically.” -- Albert Einstein

“I figure things by mathematics. There is nothing mysterious about any of my predictions. If I have the data I can use algebra and geometry and tell exactly by the theory of cycles when a certain thing is going to occur again.” -- W.D. Gann

Einstein equated gravity to an accelerating rocket. In such a rocket there will be weight and falling. The rocket floor will move upward to meet something that is “dropped.” That's the equivalence principle. Einstein’s ideas revolved around accelerated motion and its effects. He detailed what's equivalent to gravity, explaining that actual gravity though is curved space. That's Einstein’s understanding of real gravity. Space isn’t curved for the accelerating rocket. They are two different things. Einstein, through curved space-time geometry, explained the curvilinear paths of falling objects; why they follow curves.

There's a difference for an accelerating rocket and one just sitting on the earth’s surface. One's moving and experiences weight and the other isn't but still experiences weight. Weight for the accelerating rocket can be calculated by its rate of change velocity. But there's no rate of change of something that isn't moving. Without motion there can be no rate of change.

If one of the foundations for Einstein’s theories is that time isn't a straight line, but curvilinear, then it begs the question: Do cycles repeat?

If space-time is curved in general relativity in both acceleration and gravity, are space and time the same thing? In other words, in relation to the market, are time and price one in the same and when they "meet" does change or the possibility of change take place?

If space-time is curved in general relativity in both acceleration and gravity, hence, the equivalence principle, both gravity and acceleration are the bending of space-time.

In other words, the larger the acceleration, the momentum, the larger the dislocation in places like the market place?

More recently, Bernanke warned that “the recent pace of growth is less vigorous than we expected” and that the economy “remains vulnerable to unexpected developments.”

The confidence associated with the stimulus and that the government "is in charge here" is in jeopardy of becoming a con.

The burst of stock market strength is in danger of becoming a bust.

And, the timing is fascinating, as the first real week of trading in September comes to a close. Walking through all the major S&P swings from 1941. It's apparent that 540-degree moves in time and in price are countertrend or corrective moves of a major degree.

September 9, 2010, is 540 degrees in time from the March 6, 2009 low. The 1104 close on the S&P is 540 degrees down from the August S&P pivot high of 1313/1314 in August 2008, the pivot high just prior to the Lehman Waterfall.

Moreover, the price of 1110 aligns with September 9 as shown on the Square of 9 Chart below. By definition then, since September 9 is opposite March 6, the date of the low is opposite 1110 as well. More importantly, remember that the March 6 low was 90 degrees of 666/667, the price of the low on March 6. Time and price "squared out" at the low.

By definition then, September 9 must square 666/667 as well since it's opposite March 6.

nterestingly, yesterday the S&P gapped up to 1110, precisely making an opening high. At the same time the SPDR S&P 500 (SPY) tagged its overhead 200-day moving average (the SPX marginally missed kissing its 200-dma), with the SPX "Pinocchioing" a declining trendline from this year’s April high and August high.

The normal expectation would be for the longs to take some profits and the SPY to pause at the 200-dma, especially on a gap open following a seven-day run. You can’t get too bearish on that alone. However, despite an up day in the S&P, many of the usual suspects tailed off from the opening and stayed in the red.

What's also interesting about September 9 is the pattern from 1930. I’ve shown the chart of 1930 (above) a few times this year as April marked the retrace high after the November 1929 crash low. But a friend reminded me last night that the second important pivot high in 1930 occurred on September 10.

So in 1930, there was an April high, the high for the year, like 2010 so far. There was a sharp sell-off into early May, like 2010. There was a sharp decline into late June/early July, like 2010. Then there was a last burst of strength off an August low. Like 2010?

Do cycles repeat? Do patterns repeat?

Time is the most important factor in determining market movements, and by studying the past records of the averages or individual stocks you will be able to prove for yourself that history does repeat and that by knowing the past you can tell the future. There is a definite relation between time and price. Now, by a study of the time periods and time cycles you will learn why tops and bottoms are found at certain times and why Resistance Levels are so strong at certain times and bottoms and tops hold around them. The most money is made when fast moves and extreme fluctuations occur at the end of major cycles.

-- W.D. Gann

After the crash into November 21, 2008, there were many on the Street concerned about a repeat of a 50% retracement rally into April 2009 like April 1930. Remember that Bernanke is the preeminent scholar of The Great Depression. Needless to say this fact was not lost on him. The Fed has the same charts we do. Remember that a new president had just been sworn in during the first quarter of 2009.

What better way to "abort a repeat" of the psychology of the cycle from 1930 than "allowing" the market to flush out into March/April 2009?

There's an often used quote of Mark Twain’s as pertains to the market that history, while it may not repeat exactly, often rhymes. It may have become a Street cliché at this point. Be that as it may, clichés are often so called because they are so true.

I can’t help but wonder if the market "skipped a beat" and the April high in 2010 rhymes with the April high in 1930. As traders like to say, “plus or minus one.” What’s one iteration on a yearly time frame?

The bottom line is that the price action following the test of the declining trendline yesterday must be carefully observed. Either the market is on a precipice or a platform. If 1110 can be captured, especially on the important weekly closing basis today, the implication is an extension higher, as offered in yesterday’s piece.

Do cycles repeat? Yesterday I saw a piece on the news that the first time the US was attacked wasn't 9/11 in 2001 but September 10, 1942, when a Japanese bomber dropped two bombs over Oregon. One bomb started a forest fire. The other -- no one knows. September 10, September 11?

It's remarkable that the attack in 2001 came 60 years after Pearl Harbor -- the Master 60-Year Cycle according to Gann (and the Mayans).

I can’t help but wonder how short the fuse is on the situation regarding the move to burn the Koran on the ninth anniversary of 9/11. Nine years, as in Square of 9 charts? The chart is so called because the first square ends with the number 9.

Conclusion: From March 6, 2009, to the April 26, 2010 top is 416 calendar days. On the Square of 9 Chart, 416 aligns with August 30. The market exploded up from the key 1040 level on August 30. The market is respecting this vibration. It could indicate an important low, but momentum and velocity need to confirm the idea of higher prices. Moreover, the message of the 416/August 30 vibration is also that any break of that day's low should see a powerful decline. In other words, the importance of 1040 is underscored, as if we needed one more piece of evidence to tell us that 1040 was the Maginot Line.

At the same time there are a number of good reasons, as you know, cyclically, and otherwise, enumerated in this space that indicate a top of significance anywhere between here and September 22. Add to these cycles and patterns the VIX Compression Sell Signal shown this week and multiple Hindenburg Omen signals, and caution is warranted.

Double Dip, Anyone?

Federal Reserve Chairman Ben Bernanke said the Fed "will do all it can" to avert a recession and deflation. Bernanke then laid out the four things the Federal Reserve can do to support the economy.

1. First, the Fed can expand quantitative easing (QE). This would most likely come in the form of the Fed expanding its already bloated balance sheet even more.

2. Next, the Fed could extend the zero interest rate policy (ZIRP) even longer. The bond market already expects this to happen which is most likely a reason for the drop in yields this past month as the market is basically signaling there will be no rate cuts until 2014-2015.

3. The Federal Reserve could drop interest rates on reserves (IROR). Lowering this rate would be an attempt to get banks to lend again. I would note, though, that the rate is currently 0.25%. Cutting the IROR down by half or all the way down to zero most likely won't do much.

4. Finally, the Fed chairman notes the Fed could raise the official inflation target. The goal of this final maneuver would be to discourage banks from sitting on their cash.

These options are fine and Mr. Bernanke believes that these tools will help the US keep deflation at rest. In my opinion, the only real option Bernanke has is to keep printing dollars. But as Dr. Ed Yardeni of Yardeni research notes, Bernanke didn't mention this as an option at Jackson Hole.

Nevertheless, here's a quote from Bernanke's 2002 speech on deflation: "By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services."

Even though Bernanke didn't mention his printing press, I still think this is the most likely option and one that the equity markets truly enjoy. Professor Jon Markman did some research and he found that after the Bank of Japan (BOJ) started QE in 2001, the Nikkei went from 8,000 to 18,000. When the BOJ ended QE in 2008, the Nikkei declined all the way back to 8,000. Then here, the Fed started QE in 2009 and the S&P 500 went from 700 to 1,200; since the Fed stopped QE in March of this year, the S&P is down some 12%.

Even though the market has had a rough ride this year, some stocks are performing well, they just aren't conventional ones. A recent Wall Street Journal piece looked at "bunker stocks." The Journal found that companies that supply the essentials for a respectable fallout shelter were trading at or near 52-week highs. Some of the companies the journal featured were Dr. Pepper Snapple (DPS), Cummins (CMI), JM Smucker (SJM), and Hormel (HRL). These companies produce bottled water, canned food, and power generators.

I think more QE is right around the corner; the economy is weak and a double-dip is not a possibility, it's a reality. As Markman said, "I've seen estimates it could amount to as much as $1 trillion this time -- yes, that's with a T -- and do not doubt for a minute that it could happen."