Tuesday, June 28, 2011
The "risk on" trade seems to have returned. It may last 2 weeks or it may last 8, potentially even a few more. It may even be good for a new high in "advanced" Western markets like the United States. Everyone knows Greece is going to blow up, along with lots of other countries. That doesn't mean the market is going to crash tomorrow, since this information is already well known and was likely partly behind the massive spike in the equity put-to-call ratios seen a few weeks back (chart below shows only the exponential 10 day moving average in this ratio over the past 4 years to get rid of the "noisiness" of the daily data):
Now, having shown this chart for the second time and having previously warned against being bearish based on this data, I understand people who are feeling bearish. The whole global economy is being held together only by unprecedented government guarantees/interference and massive currency debasement. It is sad, really. And it isn't right when viewed from the perspective of conservative savers and the future generations that will have to deal with the chaos that is sure to result from the ridiculous decisions being made on "our" behalf by those who clearly either don't have a clue and/or are selling out their countries for their own personal interest.
Speaking of such biased parties, Goldman Sucks (i.e. Goldman Sachs) has certainly become a magnet for the current populist rage, particularly in the United States. I can't say I have any sympathy for this firm. The fact of the matter is that this corporation has been pulling the same scams for decades, but few notice or care when times are good. As the social mood continues to deteriorate with the economy, let's just say the partners at Goldman Sucks would be wise to keep a much lower profile.
But the chart of this firm, which of course only exists due to the generosity of the government, doesn't look healthy. The "smartest guys in the room" apparently didn't see the Great Fall Panic coming at all, since they were thoroughly bankrupted and needed a helping of government teat milk to stay solvent. Those of us out here trading in the real world that made a fortune shorting firms like Goldman Sucks and JP Whore-gan in the teeth of the late 2008 storm despite government bans on shorting these "important" corporations know that the piper still hasn't been paid.
Financials remains the weak link and they have been lagging for a while. The current chart of the poster child of government largesse (i.e. Goldman, ticker: GS) makes me think they are going to need another bailout sooner or later. Apparently, they haven't had enough time to detoxify their balance sheet despite all the money they were given and the time they have had to sell their toxic crap to Uncle Sam and the so-called federal reserve (not federal and they have no reserves, so Orwell would be proud, much like with the so called patriot act - but I digress).
Here's a chart of Goldman Sucks over the past 27 months to show you what I mean:
Living proof that fascism (i.e. corporatism for those that don't like harsh terms to describe our "modern" world) doesn't work. But all needling of Goldman aside, it is not a good sign for common stocks in the U.S. when Goldman can't do well. Our so-called "FIRE" (i.e. finance, insurance, real estate) economy needs the financial sector to do well until we figure out a way to re-tool our economy. And trust me, though the situation may get darkest before the dawn, the U.S. could potentially have a massive economic renaissance after all the bad debt gets liquidated, but only if we can figure out a way to massively slash the size and scope of our government and their corporate parasites/ticks.
In any case, such weakness in the financials is why I am currently bullish on the short to intermediate term in risk assets but am still bearish on the longer term. I think Gold and silver bottomed yesterday for this shorter-term time frame but I don't see a massive rally taking place right now. I still like the idea of a triangle correction in Gold over the summer before a fall rally once governments realize it's fraudulent money printing or Armageddon part 2 in the financial markets. Austerity in Greece will work as well as fur coats in the desert during a heat wave.
Please keep in mind that Goldman is due for a bounce higher from current levels, so I wouldn't be shorting them right now. The character of the bounce in GS may or may not suggest a good opportunity in the future, but I would be careful shorting "important" (i.e. those with lots of government bribe money) financial firms in the U.S. given the previous bans on shorting connected financial corporations in 2008. I think there will be better and safer opportunities out there.
Watch the apparatchiks cave later this summer and watch the currency of kings respond when this happens the way you would expect - with a massive rally in the Gold price in all major currencies despite any and all attempts to stop it. In truth, things are someday soon going to get desperate enough that central bankstaz are going to start praying for and encouraging a higher Gold price. Hold your Gold outside the banking system until the Dow to Gold ratio hits 2 (and we may get below 1 this cycle) and if you're crazy enough to attempt trading in this environment, consider subscribing to my low-cost trading service.
Sunday, June 26, 2011
I enjoy watching the daily gyrations of the markets. As someone who trades in the markets as a means to achieve speculative gains, the daily noise can seem important. But I always try to keep the longer-term perspective in mind, particularly in relation to Gold. Looking upon a monthly chart of Gold, it occurred to me that we may be about to trigger another long-term "buy" signal. The month isn't over yet, but if we close down for the month, this signal would trigger. Not saying we will, as a lot can happen in a week, but here's an 11 year and 6 month log scale price chart of Gold ($GOLD) to show you what I mean:
There hasn't been a period of more than 2 months in a row of Gold prices going down since the secular bull market started. This is an amazing statistic and there is absolutely no guarantee that this fact will remain true in the future. However, in such a strong bull market the point is that you should just keep accumulating physical Gold on price dips. Gold is no longer cheap in nominal or even relative terms, but it is going to get a lot more expensive before it is re-introduced into the international monetary system down the road.
My favorite chart, the Dow to Gold ratio, is also biding its time before the next gnarly plunge in this ratio, which should be a doozy. Here's a 15 year log scale chart of this ratio ($INDU:$GOLD) to show you what I mean:
Since I am looking for a relief rally in risk assets over the next month or two, it may take this long before the Dow to Gold ratio turns down in earnest. But the swinging pendulum of history is not done with common equities or the Gold sector yet, as each will continue in it's current path: down to flat for common equities and up for the Gold sector.
I like Gold and Gold stocks at current levels, but particularly the beat-down Gold stock sector. Specific trading recommendations and more in-depth analysis reserved for subscribers. Don't lose the forest through the trees - Gold is good, common stocks are bad.
Thursday, June 23, 2011
The recent strength in Gold has been incredible. Today's drop is nothing when looking even at a 6 month chart. Gold has held up phenomenally as non-monetary commodities drop down near their 50 week moving averages as anticipated.
This is the cycle where Gold separates from the herd. Gold is the anchor of the international monetary system, not the U.S. Dollar. The clash of the titans is alive and well. Those looking for a replay of 2008 in Gold (which would be fine, since Gold was back at $1000/oz before the March, 2009 panic lows in equities) don't get it. The private sector still carries enormous leverage, but now a good portion of it has been transferred to the sovereign side. This means no paper currency can be trusted to hold its value. Even though I think the US Dollar could rise again if we have another panic, I think Gold will rise right along with the Dollar if this happens.
You can bet that Gold will go from being the sworn enemy of every central banker to the "great yellow hope" of the currency boxing world. Central bankers will grow to love Gold once they lose what little credibility they have left during the next cyclical bear market in equities.
Here's a 6 month daily candlestick chart of the GLD ETF (to allow me to use candlestick charting, as I can't do that with the futures contract prices on stockcharts) thru today's close:
I had previously wondered about a triangle for this correction, and perhaps we are headed that direction. In any case, Gold's relative out performance to me is a major signal not to be ignored. Gold relative to stocks and commodities when looked at from the perspective of a ratio chart (i.e. relative rather than nominal gains) has been on a tear. A breakout from what is shaping up to be a sloppy ascending triangle could lead to a rapid, extended fifth wave type bull thrust to the upside in Gold.
My subscribers and I are honing in on the Gold stock sector, as I think Gold stocks will outperform Gold on the move out of the gate. Specific trading recommendations and more in-depth analysis reserved for subscribers. However, my main recommendation is the same that it's been for years and is no secret: hold onto your physical Gold until the Dow to Gold ratio hits 2 and we may well go below 1 this cycle. Physical Gold is my only long-term "buy and hold" investment and everything else is for renting or shorting in my opinion.
Wednesday, June 22, 2011
In the modern fiat world, a deflationary-style stock market collapse isn't supposed to happen. And yet that is exactly what Greece has already experienced and I don't think it's over yet. Here's a modified chart any real bear has seen before: the first half of the 1929-1932 Dow Jones Industrial Average stock market bear, which saw a total loss from top to bottom of 89% (chart stolen from chartsrus.com, a great site, and modified):
This isn't the whole bear market - the eventual bottom in the Dow was 40 in 1932, and the above chart only goes thru part of 1930. Now, here's the rhyme: a chart of the Greek stock market using the ATG share index over the past 5 years (monthly candlestick plot using a linear scale):
The Greek stock market is going to be ground further into the dirt. They are also likely headed for an 89% loss from the peak in late 2007. Why? Simple. The Euro currency is acting as a deflationary straight jacket, strangling the over-indebted Greek nation. As weak and flawed as the Euro currency is, it is too strong for Greece. If Greece doesn't leave the Euro, their deflationary spiral will continue.
It is with great interest that I read a recent report of Greek people raiding their banks for cash and many subsequently using that cash to buy Gold. One of the hallmarks of a deflationary collapse is bank runs. Cash under the mattress and physical Gold are the items of choice in such a scenario, as you never know when a bank holiday will strike. And because you can guarantee that apparatchiks will do the exact wrong thing in this scenario and find a way to devalue and/or confiscate money held in the banking system come hook or crook, I'll take Gold over paper in such a scenario.
This is the real secret behind the U.S. deflationary collapse in the 1930s that revisionist history conveniently fails to mention. People wanted the U.S. Dollar because it was almost the only major currency that remained backed by Gold once Britain started the wave of European countries leaving their respective Gold standards. Because the U.S. remained on a "hard" money system (until 1933-34) that allowed free convertibility of paper currency into Gold, the deflationary forces in the U.S. were overwhelming. People wanted Gold, not a piece of paper with a pending broken promise written on it.
Greek Gold demand is at historical extremes precisely because the country is in the midst of a deflationary collapse. It is not the end of the world and things will eventually turn around, but holding Gold in the mean time is the right thing to do for Greek savers. Eventually, the Euro will massively devalue to accommodate the so-called "PIIGS" economies and/or the PIIGS economies will leave the Euro system. In the meantime, the Euro will act as an unbearable deflationary weight upon the weaker Euro economies. Any can kicking at this time won't buy more than a few months reprieve in the Greek stock market until the next wave down begins.
Gold is money. It has been money for thousands of years. I'll take that track record over any of the existing fiat currencies currently in use. In fact, I'll take physical Gold over any asset class until the Dow to Gold ratio hits 2, and we may well go below 1 this cycle. Shiny metal or the filthy paper promises of those whom history has shown cannot be trusted when the storm clouds finally start to release their cleansing rain.
NOTE: I recommend physical Gold held outside the banking system as a significant part of any serious investor's portfolio. At this stage of the secular bear market in traditional asset classes, I don't see even a 100% allocation to physical precious metals as unreasonable for those seeking to preserve wealth. For those who also seek speculative returns, I run a low-cost subscription service with specific trading recommendations and more in-depth analysis on markets with a focus on the precious metals sector.
Sunday, June 19, 2011
The problem I have with sentiment data is that there is so much of it now and the data is often conflicting. One survey shows too many bears and one shows too many bulls. It gets confusing. Thus, rather than write about how one data point is more meaningful than another, I simply present the following chart stolen from Market Harmonics for what it is: one of many pieces of sentiment data (albeit a very interesting one). Here is the daily NASDAQ Sentiment Index from mid-2004 thru Friday's close, according to Market Harmonics:
The lowest daily sentiment reading on the NASDAQ in at least 7 years! I was surprised by this. Reading around the blogosphere this weekend, things seem very gloomy and bearish on balance, which is my unofficial and non-scientific read on the general sentiment out there.
Me, I am bullish here for the short to intermediate-term, as I believe topping is a process. I don't like common stocks as an investment and haven't for years. Gold is my only long term investment. But I am not ready to short equities just yet and I wouldn't dream of opening a new short position on common stocks right now in my trading account, as I see better opportunities ahead. Keep in mind that the sentiment data above exists and yet we are not even in a confirmed cyclical bear market in the NASDAQ yet!
I am speaking in trading terms, not investing terms. Nothing moves in a straight line. The fundamentals for the global economy are horrible, but they have been for a while when one looks at the "big picture." This "big picture" information is useless when trading and only helps longer term investors that need to focus on what asset classes are likely to come out the other side intact and with a gain on an inflation-adjusted basis (ahem, um, GOLD!!!).
The same gloomy sentiment seems to exist in the Gold mining sector, which I think presents a buying opportunity. More detailed information and specific trading recommendations are reserved for subscribers.
Saturday, June 18, 2011
After picking on U.S. government bond perma-bears a few week ago, I have to admit that shorting long-term U.S. government debt as a trade looks good here. Notice I did not say as an investment, but as a trade. Even though everyone said it wouldn't happen (and one day, it won't), the herd once again instinctively jumped out of the frying pan and into the fire of government debt when stock markets tanked.
Here is an 18 month daily chart of the yield on the 30 year U.S. government bond ($TYX) with my thoughts:
The fact that 30 year yields won't go any lower despite the fear in the equities markets is important in my opinion. A short-term bottom in long-term yields should correspond nicely with the "risk on" trade returning. By the way, I won't be taking this "short government bonds" trade, as I think there are better opportunities out there. I am looking for a nice rally in risk assets over the next month or so. Common stocks as well as the precious metals patch and commodities should all have a nice relief rally. This will get the herd out of bonds and back into chasing performance. Of course, I think this is all likely part of a topping process in global equity markets, but these things have a habit of taking longer than seems possible.
And why do I think a relief rally is coming? A few important data points. First, we got a pop in the $VIX into the mid-20s. Next, the percent of stocks below their 50 day moving average is now at levels that have marked previous bottoms during bull markets. Finally, the equity put-to-call ratio is off the charts bearish and screaming for a short squeeze higher in the stock market. Here's a 6 year daily chart of the equity only put-to-call ratio ($CPCE), using the exponential 10 day moving average to avoid the "noisiness" of the raw daily data:
It's rally time in risk assets in my opinion. Additional important data and specific trading recommendations are reserved for subscribers. Join us!
Wednesday, June 15, 2011
My daily study of the markets always brings me back to my favorite chart - the price of Gold. What a powerful and steady secular trend with no signs of being near a top. All those who continue to insist that Gold failed to hold steady during the Great Fall Panic of 2008 always neglect to extend their chart out to the evil, 666 bottom in the S&P 500 during March of 2009, when Gold was already back at $1000/oz despite the world coming to an end. Physical Gold (and some silver) held outside the banking system should be the bedrock of any serious precious metals portfolio. The long-term Gold price chart remains a thing of beauty, but I also focus on the short to intermediate term as a trader.
My Gold thought for the day relates to the current short-term correction in Gold that began in early May. My question for Gold is simple - how about a triangle? We haven't had one in a while and it would be a perfect way to fake out a lot of people. Here's a 2.7 year daily chart thru today's close:
Now, I am no Elliott Wave guru, but hey, one of the major so called experts on Elliott wave has been wrong on his Gold count for 10 years...
Here's a 4 month daily chart of the GLD ETF (so I can show my favored candlesticks) thru today's close with some additional thoughts:
It's just a thought and I am not married to this scenario. Gold could just as well collapse down 4-5% into another zig zag and tag its 150 day moving average, but that would be what most traders are probably expecting, so perhaps this is what is least likely to occur? A milder Gold price correction that has already seen its low but needs to burn a little more time while going nowhere significant in price doesn't seem far-fetched to me.
Gold is acting like the world's reserve currency and will continue to do so until the current monetary system blows up and is replaced with something more sane. The paperbugs won't get it until the Dow to Gold ratio has already hit 2 (and we may well go below 1 this cycle). Oh well, we Gold bulls are going to need someone to sell to near the top...
Tuesday, June 14, 2011
The predicted short-term bounce in the U.S. Dollar last week threw the precious metals complex and general U.S. equities for a loop. Is it over? If it's not, does it mean more pain for the anti-dollar bets that make the casino party so lively? Here's a one month chart of the UUP ETF (a US Dollar proxy) to allow me to plot intraday action using 60 minute candles:
Another leg up in the U.S. Dollar over the next week or so should hopefully correspond with a summer low in "risk" assets. All currencies are sinking versus Gold, but markets don't move in straight lines. In the meantime, however, shorter term pain in the Gold and silver price is likely. My subscribers and I are honing in on the Gold stock sector and getting ready for the next bull trade. Join us if you're interested!
Saturday, June 11, 2011
Let's just say that I wouldn't want to be buying domestic municipal bonds at current levels if I lived in the United States and was seeking safety. Here's a 6 year weekly log-scale chart of the Nuveen Municipal Bond Price Return Index ETF ($NMUNP) thru Friday's close:
Corporate junk bonds are breaking down with the stock markets in the short-term but their charts look a whole lot healthier than municipal bonds. That tells you all you need to know about what the market thinks are the real junk bonds. Municipal bonds as an asset class are going to get killed in nominal terms. If the U.S. government steps in to rescue the nominal coupon payments for the larger municipalities, the holders of these bonds will get killed in inflation-adjusted terms. There's no way to win on these bonds (unique/specialized situations aside).
Cash under the mattress is safer than muni bonds right now in my opinion. U.S. federal government bonds are safer as well over the short to intermediate term. Of course, Gold is better than any of these options over the long term, but that's a well-told story around here...
Thursday, June 9, 2011
I think they are. The top is not yet confirmed, however. Additionally, the next cyclical global equity bear market will be getting into dangerous territory. Evil speculators will have to be careful shorting the markets once the opportunity arises in case the apparatchiks pull out their bazookas and declare that all asset prices except Gold and commodities can only rise and never fall. Don't laugh, because price controls are certain to come in many forms over the next several years as governments fight their losing battles against what is left of the global free market. Being a bear will be fraught with peril once the next downward cycle gets going.
Don't forget the ban on short sales against financial institutions that were considered "important" (i.e. biggest political campaign contributors) in 2008 that proved to the world once again that America is very far from a bastion of free market capitalism. Short sale bans don't work in the long (or even intermediate) run, but common sense never stopped government policies from being enacted in the past, which is why we will again have another round of quantitative easing once things start getting bad even though all it does is reward those closest to the monetary spigots while punishing nearly everyone else.
Though I enjoy trading, the best thing most people can do is buy physical Gold (and some silver) and hold it outside the banking system, away from the greedy paws and prying eyes of the corporatist system that has come to dominate almost all of the developed economies of the world. Though I prefer the word fascist to describe these systems (i.e. the union of corporations and the state, generally with associated aggressive military overtones), some people are put off by terms that are overly "truthy." Things are going to get uglier, as the current rioting in Europe and the seemingly staged uprisings in the Middle East leading to rapid and "secretive" military strikes suggest. I am horrified to learn that the United States has started bombing campaigns in Yemen. Those claiming to fight terrorism have become terrorists. It's an Orwellian world, to be sure.
As John Hathaway stated in a recent piece, we are past the point of no return. He was referring to debt, but we clearly have also done more than lost our moral compass - we have managed to re-jigger it to point us in the exact opposite direction of right.
This political side of things is important to speculators, because you can be assured that being a bear with your trading money will become more dangerous during the next cyclical bear market. Pockets will be picked based on random rule changes and short-squeezes will be engineered more aggressively than usual. Having said all these things, it is certain that all intervention will fail and the markets will find their "natural" levels (at least on an inflation-adjusted and/or Gold-adjusted basis...). Seeing more than one article about 70-90% discounts from the 2005-6 peak on real estate deals in certain parts of the U.S. shows how powerless governments are to stop the things that "must" happen economically. But apparatchiks remain happy to waste more of your future purchasing power trying to stop what cannot be stopped, so bears need to understand this before jumping in once the opportunity presents itself.
I don't think we are there yet from from a trader's perspective. I think the downward slide going on currently could go on a bit further, preferably with a day or two of panic to end it, and then the "risk on" trade will likely come back with a vengeance, as speculation is always alive and well during the extremis period of a fiat currency system. It is all part of the so-called "Crack Up Boom." Working for a living is just a way to watch your standard of living decline further and further via the ravages of co-exisitng inflation and deflation at this point in the cycle. Speculation offers a chance to "get ahead," much like a lottery ticket or a trip to the gambling casino. You can't win if you don't play, right?
Sorry for the rambling, but I've had the week off from my day job and I felt like writing. Back to business...
When it comes to equities, there are a few charts of interest I would like to show related to market internals and some potential warning indicators as they relate to U.S. equity markets. First up, a chart of the number of new 52 week lows in the New York Stock Exchange ($NYLOW) over the past 6 years using a daily linear scale plot:
Same concept using a slightly different chart, the new highs minus new lows in the New York Stock Exchange ($NYHL) over the past 6 years using a daily, linear scale chart:
A significant spike in these charts would be a strong warning sign that the topping process is "for real." Adding quantitative easing (QE) to the fire in the setting of a market that is trying to roll over may only be able to cause a spike in Gold and commodity prices, which might just hasten the bear market's return. Those who say inflation and "money printing" are good for equities haven't studied the equity charts of the 1970s. Another decent-sized oil spike would send the global economy into a nasty tailspin.
The advance decline line of the New York Stock Exchange has held up well so far. Here is, however, the advance decline volume line of the American Stock Exchange (AMEX or $XAX) over the past 2 years and 9 months:
And the medium-term breadth indicator known as the Summation Index for the New York Stock Exchange ($NYSI) has a potentially interesting technical break down. Here is a 30 month daily chart of this indicator thru today's close:
And here's a chart that speaks volumes about the underlying health of the global economy, the Baltic Dry Index ($BDI). If lots of companies are buying and shipping lots of raw goods due to a booming global economy, the price of shipping should be rising, not falling, as excess demand creates a seller's market. I would say the following chart of the $BDI over the past 30 months suggests the opposite:
And one of my favorite indicators, the copper to Gold ratio, predicted the current equity decline rather nicely. It seems to be at an interesting short-term juncture currently. Here is a daily chart of this ratio over the past 18 months, using the JJC ETF to represent the copper price and the GLD ETF to represent the Gold price (i.e. JJC:GLD; thanks very little to stockcharts.com for taking away my favored candlestick charting option in the commodities patch, which is why I didn't use the futures contract prices to create this chart):
In all, I think the paperbugs have a decent chance at pushing a few individual global equity market prices to new nominal highs, although I suspect that many markets have already made their final cyclical top and will continue to lag, failing to make new highs if one more strong push higher for global equity markets occurs. However, what the paperbugs will continue to fail to notice (until it is too late) is that the cyclical bull market in common equities has been over for some time when measured in the only current widely recognized hard currency in the world (i.e. Gold). One need only review a chart of the Dow Jones World Index ($DJW) to Gold ($GOLD) ratio over the past 2.5 years to see that a shiny piece of metal has been outperforming equities (yes, that includes dividends and yes, I realize that most people don't like to eat Gold) for almost 2 years:
Though you can't spend Gold at most stores (just like you can't spend stocks), Gold will continue to outperform common equities for the remainder of this secular cycle. This is what the Dow to Gold ratio is all about. Gold will continue to provide a relative increase in wealth in a world where the standard measuring sticks (i.e. paper currencies) have become even more unreliable than usual. All currencies are sinking relative to Gold and will continue to do so. Ditto common equities, real estate and bonds. Gold rising relative to all other asset classes is one of the hallmarks of a secular private sector credit contraction/economic depression, and the one we're currently in ain't over yet. Once the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle), we can talk about "stocks for the long haul." Until then, Gold is the premier asset class and other asset classes are for trading/renting in my opinion.
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