A new Bubble is being created, and the USD is over

From 2003 to April 2009 China quietly increased its gold reserves by 75%. Today China is the 8th largest holder of Gold in the world, holding over 34 million ounces. Hmmm.

The USD has been in decline over 38 years, when Nixon took the dollar off the Gold Standard. Being not so smart, I notice the USD decline even more since 2002. Hmmm again. As the dollar goes down, historically Gold goes up. For example, the USD has declined 35% since 2002; gold has risen 290%.

Right now the U.S. is the largest debtor nation in the world. It's a fact that as a debts and deficits continue to skyrocket, and they will, that downward pressure will continue.

At www.bluechipoptions.com we teach how we invest in Gold and other precious commodities.

The issue with debtor mentality, no matter how it occurs (idiocy like Bush, or "roll the dice on the whole game") like Obama, is that the USD loses value. And this means that we as Americans have to have something that is going up in value. There is always a bubble in some form, even in the worst of times.

Contrarians believe the U.S. Treasury bill is in effect the new greatest bubble we've created, on debt, and over time the populace (Joe the Trader) will begin to understand that a world currency, or that "something is going too right". We're building our next new bubble in U.S. Government bonds.

Remember, stocks do not always outperform bonds.

My point to this is with the vast increase we've seen in the markets recently, we've also seen our credit card companies increasing the cost of borrowing dramatically, and this will longer term cut back the credit card spender. The average American has over $8000 in revolving credit card debt, yet only 56% of Americans even have a credit card. There are many false facts I could find in researching average debt, but it took me to:

1. declining home equity debt availability

2. housing declines, despite all the happy stuff that "it's getting better", continue

3. when Americans want stuff they are going to have to actually pay for it.

Does the market breathe, or is it random?

All of us have heard the "random" market theory, and now any major move in the market is interpreted by the 24 hour electronic news media as "event" driven off news. At both OEX Options and Blue Chip we use the economic calendar to be "aware" of how news will trigger, but also believe the market breathes, and is mathematical.

News will be "seen" well in an upward cycle. The upward cycle is not caused by the news. A "trigger event" may stimulate more market movement, but it is already within the cycle/bias that the market has chosen.

W.D. Gann believed that time and price are equivalent, and we'll have future commentary on how Gann math works; "the collective unconscious remembers price the collective unconscious revisits that price by converting it to time" is Gannian methodology, and is how support and resistance are built.

Being a Richard D. Wyckoff student Floyd takes Gann math to the law of supply and demand, and cause and effect. Both are really saying the same thing.

Here's a Gann math fact: "Historic 10 year cycles in stocks historically peaks at or near the end of years ending in 9. Hmmm. So, using this logic, part of the euphoric upturn we've seen may not be "news", or the economic stimulus, but that the market had hit bottom and would go up 68% from lows (using Fibonnaci math), showing a top near 10, 700.

Floyd believes the economic stimulus package, for example, is working, but that NOT ENOUGH money has been driven into the system, that MORE DEBT will need to be incurred, that there is no natural order to capitalism, that the "market" will not correct itself, without a major shift in America.

I believe Asia wil become the dominant superpower and economy, and with Bill Gates, the bond trader from PIMCO, I see:

"Short Term interest rates will remain low for an extended period of time"

Following government stimulus efforts and guarantees are "keys to future investment returns"

If the theory of 9's is correct our market could be topping soon, or by year end.

2010 could show a market topping at Fib levels (10,700) and hesitancy, and dependent upon whether enough money has been flowed into our bankrupted system, a second deep downturn could occur by Spring of 2010.

Gold and Silver

Gold and Silver both had a big week and we entered a Sept 170 Call on GLD Friday that returned 41.38% within 3 hours, and still has room.

All the gold stocks did well, and Gold approaches it's $1000.00 top, with Silver performing even better. $1000.00 ( or 100.00 for GLD) is a major resistance area, and should be watched. If GLD can hold above $1000, both gold mining and gold bullion could fare well.

We also entered three new stock trades last week as the market hit lows. We're watching SLV, which rose to its highest level on heavy volume last week, and recommend a new buy to SLV or SSRI if you do not own inventory.

We already hold GLD. If SLV or SSRI are able to maintain their bullish stance against the USD, and some loss of confidence that stocks can go any higher, we could have a good trade.

Note in the Pnf Chart that SLV has held well above its 50 day moving average, and hit a double top. We'd buy dips, and continue adding.