Here is what top Citi analyst Fitzpatrick had to say, along with powerful charts:  “We have constantly articulated the view through our longer term overlays in particular that the US Equity market was establishing a topping phase that could yield a retracement lower in the months ahead of 20%+.

This suggests that price action in the weeks ahead may be quite critical in determining whether this expected turn lower is going to materialize.

We are now back into the “retracement zone” that fits with both this overlay and also the one below.  These have been our favorite “historic overlays” for some time.  The 1970’s overlay is our “Number 1” choice not just due to the price action but also the other building blocks from that period:

– Collapse in housing and economic data (1973-1975)

– Surge in Oil price (1973-1974 and again in 1978-1979 - See commodities where we believe the next move higher is underway like 1978)

– Weak USD into 1978

– Bull market in Gold 1970-1980 as well as bullish soft commodity markets.

– Fed holding rates too low for too long

This overlay relates to the banking crisis of 1906-1907 and subsequent recovery.

Between these 2 charts the DJIA got back to within 2.4-3.5% of the pre-crash highs. This time around that gives a range of about 13,700-13,850. We are right in the heart of that range now.  On average we have turned from this area on these historic overlays and seen a 27% fall over the course of just over a year....

Continue reading the Tom Fitzpatrick piece below...


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“A weekly close above the (Dow) 14,198 (2007 high), if seen, would really question the continuation of this relationship and lead to a reassessment of the continuing validity of these overlays that we have been focused on since 2008.

The transports have made new all-time highs.  This also happened in 1999 and 2008 but was a failed break in both instances.  While the break above 5,628 posted in 2011 has to be respected a weekly close back below that level, if it took place would re-signal a note of caution given the dynamics seen in those prior 2 periods.

IF the DJIA was to stall around present levels or slightly higher and turn lower we would end up with very clear “triple negative divergence.”  This would suggest that at a minimum we could re-test the 12,000-12,500 area.  A weekly close back below the 13,662 October peak would be the first warning sign of this potential.  A weekly close back below the 12,000-12,500 area would open up for more serious losses towards at least 11,350 again.

S&P weekly chart. Impulsive surge follower by 2 subsequent marginally higher highs.  Have we seen this movie before?

Worth noting that the 3rd (and final) peak in 2007 (1,576) was posted a week after the 2nd high (1,556) was broken (An incremental high of 20 points).  The present 3rd peak (as we write) has been posted at 1,498.  This is the week after the 2nd peak from September has been broken and is 23 points over that peak.  In 2000 the 3rd peak was more aggressive. It posted at 74 points above the 2nd peak in the same week that the 2nd peak was broken.  Bottom line is that while the break of 1,475 is intact you need to hold with this move.  A weekly close back below 1,475, however, should “flash” a warning signal.

Brent crude on the cusp of the breakout

The present set up on the Brent chart suggests that we may finally be poised to start the breakout that we anticipate eventually leads to a test of the all-time highs and possibly beyond this year.

We continue to believe that the present price action on Brent closely resembles that seen into the summer of 2007 before it broke out to the upside.  The culmination of that period after Brent started to rise from just over the 200 week moving average in January 2007 was an 18 month move of almost $100 low to high. 

A repetition of that could see us as high as $185 (a staggering 63% surge) by end 2013.  This 18 month rally from the 2012 low fits not only with what happened in 2007-2008 but also the 1973-1974 and 1978-1979 periods that we are so focused on as being similar to today.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with Rick Rule, Jean-Marie Eveillard, Stephen Leeb, Pierre Lassonde, Gerald Celente and James Turk are available now.  Also, be sure to listen to the other recent KWN interviews which include Bill Fleckenstein, John Hathaway, Egon von Greyerz, Ben Davies, Nigel Farage, Eric Sprott and Art Cashin by CLICKING HERE.

Eric King

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