for Gold Avalanche
Ok 'predicting' sounds wishy-washy, and it's not really possible to actually predict the specifics of the next sell off - as in the specific date or degree. But, given the information at hand, it is possible to create some scenarios to watch out for in the next couple of weeks.
First off, here's the latest graph showing the relationship between the Dow and the Transportations. Click the image to enlarge it.
The idea here is that we need to watch the short term for whether the transportation average will hit a new high that won't be confirmed by the Dow industrial ... or the reverse - the Dow hitting a new intermediate high that isn't confirmed by the transportation average.
Long term on the weekly charts, we have already seen this divergence - the Dow industrial stocks have broadly moved in an upward direction since last year (from blue peak to blue peak - the Dow hit a 52-week high in April), but the transportation stocks represented in the Dow transportation average have been moving in a broad downward trajectory (from red peak to red peak).
This is a bullish sign, because typically, the transportation stocks will start catching up to the Dow as the stuff being created by the industrials is either sent to market via traditional means (rail, truck, air etc), or simply bought up by consumers (in the case of retail flights and certain digital purchases).
Even with high employment in the US, consumers have not easily been willing to give up their credit cards, which has been one of the primary drivers of consumer spending. This trend, however, is starting to reverse.
http://www.thespec.com/news/business/article/750390--consumer-confidence-falls-to-5-month-low
So the question remains: Will the transportations catch up with the industrials? If they do, will the industrials still remain strong, or will weak consumer confidence moving forward (specifically, today's weak confidence affects production of goods later on ...)? If ... and at this point, it is a BIG IF ... the industrial stocks continue to stay strong as the transportations gain steam, the case for the bulls will be solid.
I suspect, however, that strong Bio Tech stocks will continue to receive inflows, as people pile out of currencies, treasuries and the precious metals.
BUT, if the transportations start steaming ahead (which I expect to happen eventually) as the industrial stocks experience weakening demand and depressed stock prices, you can bet it will be another "sally grab your crap, we're jumping ship!" moment for the stock market.
To read the precursor to this saga, go here: http://goldavalanche.blogspot.ca/2012/05/market-waters-are-swelling-but-its-not.html
