Thought Provoking

"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen."

-- Samuel Adams, speech at the Philadelphia State House, August 1, 1776

We could use a Samuel Adams about now.

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"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasure. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world's great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage."

-- Alexander Tyler, writing about the fall of the Athenian Republic.

I'd say the majority of our countrymen are between selfishness and dependency, as we slowly roll-over into bondage.

$$ Dollar Head & Shoulders

We are at the neckline.  If the pattern is valid and we break below the neckline, the target is 71.  I shouldn't have to mention what a fall from 80 to 71 would mean for gold and silver.

$$ S&P Fib 61.8% Retracement Level 1140-1143

$$ Video on VIX Sell Warning

And how it correlates with the AAII sentiment survey.  Here's the link to the video if you can't get it to play right. 

$$ New Video on How to Interpret S&P% Above 50MA Chart

If you are having trouble, click on the link at the top of the video to watch it on YouTube:

$$ Excellent Article Summarizing the Problems of Japan

Entitled "When Japan Collapses," it's worth your time. 

$$ AAII Sentiment: Wildly Bullish

Bullish sentiment hit 51% this week in the AAII survey. It is the highest bullish sentiment of the year, topping the January 14 (47%) and April 15 (48%) readings.  

What happened earlier this year after bullish sentiment made a yearly high?  The S&P topped on January 19, falling 100 points in the next 13 trading days.  And the S&P topped on April 26, plunging 155 points over the next 7 sessions.

The spread between bullish and bearish sentiment is 27%, the highest reading since May 8, 2008.  What happened after May 8, 2008?  The S&P topped on May 19 at 1440 before losing 240 points in the next 38 trading days.  

Be careful out there.  

$$ Cycle Turn Dates

Using my Advance-Decline oscillator, here are my current projected cycle turn dates for the S&P:

Top

September 22 (based on the accumulation pattern at the July 2 low)

September 29-October 1 (based on the accumulation pattern in late August)

I expect the top to form in this late September range.  I'm watching to see if a distribution pattern develops.  

Bottom

October 11-18 (based on the distribution pattern in early August)

These turn dates are subject to change as information develops.  For more on my Advance-Decline oscillator, see the September 9, 2010 blog entry below.

$$ A Unique Momentum Oscillator

The Advance Decline line has been around forever, as has the CBOE Put-Call ratio.  I divide the AD line by the Put-Call ratio to get a momentum oscillator that provides excellent bullish and bearish divergence signals (for when trends are about the change) as well as positive and negative reversal signals (for when trends are about to continue).

As an example of the latter, compare how the higher momentum peak in the mid-June rally vs. the mid-May rally was unable to produce a higher high in price in June, thus signifying the downtrend was strong and about to continue.

Edit - Terry Laundry published my Advance-Decline momentum oscillator in his September 15, 2010 post at the T Theory Foundation site.  He had some nice things to say about my oscillator in his audio comments as well.