KSS - paydirt!

I have been patiently waiting for Kohl's corp (ticker KSS) to break down out of its bearish wedge while holding April puts against it. This morning, it happened. The downward move should be fast and furious over the next 1-2 weeks, though I will be taking profits well before the bottom of the move once my profit objective is met.



Gold and gold stocks continue to hang tough and catch investor attention. Gold is starting to be mentioned more and more frequently in the mainstream. I am holding my miner puts (GFI, NEM and PAAS) as I smell a bull trap and still believe a plunge is imminent. I tried going short the gold price Tuesday at the close using a double inverse ETF DZZ and was already stopped out at a small loss (used a tight stop loss on this trade) when I woke up Wednesday morning.

The message to me is clear: gold and gold stocks are in significant bull markets (unlike all other stock sectors) and you need to buy some (more?) of both on the next steep correction! I think gold stocks are going to explode after the next correction and I intend to be along for the ride (after these stocks make me some money on the short side, of course).

Paradigm shifts - right in front of your eyes!

Watching history evolve and people's reactions to it is always interesting. Phrases that are no longer true are clung to like:

"Gold is a barbarous relic."
"Stocks are the best investment for the long haul."
"Warren Buffett is the greatest investor of all time."

This last one is funny to me in particular. Buffett rode the wave of the greatest secular bull market in American history by holding onto strong companies "forever." This is a great strategy in a bull market. But how about in a bear market? You would think a guy like Buffett, since he is the greatest investor of all time, would steer his company to a large degree of outperformance relative to the general markets, right? WRONG. REALLY, REALLY WRONG.

Look at a 12 year chart of Berkshire Hathaway (BRK.b) stock, with the Dow Jones Industrial Average at the bottom of the chart for comparison:



Now, I already know the replies from those that want to cling to fantasies, heroes, and outdated paradigms: Warren's just in a slump. These are the same people who point to the fact that the gold price has gone nowhere in 30 years. We'll get to see whether gold or Warren Buffett is a better investment in the next few years. Once gold is proven right, it will be too late for those who insisted on a prophet and didn't want to do their own homework.

Today was an important day in the general markets in my opinion. The general indexes (i.e. S&P 500, Dow) wiped out a few weeks worth of range trading in one fell swoop on decent volume. Let's just say I didn't close any of my short positions in KSS, NEM, GFI or PAAS. I even added a little DZZ (double short gold ETN) near the close today in anticipation of a short-term gold price drop. Full disclosure: profits from these trades will be used to buy and hoard more barbarous relics.

More stimulus = Greater Depression

I am rather weary of those who think Obama can "fix" our economy. This thinking, promulgated and hyped by the mass media, is patently false, has never worked in the history of civilization, and won't work this time. The only thing it will accomplish is to prolong the misery.

The economic time frame from roughly 1930 to 1945 is referred to as "The Great Depression." Rest assured, at the speed our government is going, this will surely be "The Greater" if not "The Greatest" depression for our country. The larger the stimulus packages and debt creation by our federal government, the longer it will take our country to recover.

This is the secret of the last "Great Depression": the government got heavily involved in managing the economy once the recession started, spent money it didn't have, subsidized prices, created jobs and turn a recession into a nasty depression. Yes, I said it. Our government caused the last Depression and they are doing it all over again and making the same mistakes all over again only on an even grander scale! Prepare accordingly.

The common sense test is supposedly irrelevant when it comes to modern economics. When there is too much debt, too much currency debasement, and too much malinvestment in things like McMansions and Super-Hummer auto dealerships, does it make sense that the solution is the same? Trying to "prop up" asset prices is code word for destroying the value of our currency. Adding debt to a system and country of individuals who already have too much debt is a recipe for total disaster.

Recessions are not aberrations to be fought tooth and nail by throwing counterfeited money at them! The boom was overindulgent so the bust will overshoot to the downside. Yes, people will lose jobs and lose their homes. Capitalism (or what's left of it) is not about making sure everyone lives the American Dream by hook or by crook, it's about giving people opportunity. Now, I realize we haven't been a capitalist society for quite some time, but this current experiment in fascism will work as well as the planned central economies of Russia.

Unemployment can be made artificially lower by expanding government, but this has a cost to us all and will decrease the standard of living for everyone. The government cannot "stimulate" anything without stealing money and prosperity from its citizens. The government cannot create jobs without stealing money and prosperity from its citizens. Of course the money stolen doesn't feel like it's been taken from us, which is the shameless con game that goes on with bonds sold to the world. Those bonds require interest payments and from where do you think the interest comes?

Kicking the can down the road and foisting debt onto the next generation is a travesty and highly unjust. If the auto companies, insurance companies, Wall Street firms and banks of this country are failing, then they should fail. Period. All those who talk about how bad things would get if we let that happen don't have to worry: both the Bush and Obama administrations have committed themselves to making sure it doesn't happen.

How bad would things get if the government did nothing, stopped destroying the future value of our money and stopped getting our children and grandchildren into debt? For 2-3 years, pretty fucking bad. Yes, there would be mass unemployment and yes there would be crime and riots. The dirty little secret is that we are going to have those things anyway, we are just piling debt and currency destruction on top of it and making sure the hard times last a decade or more!

Jag-offs like Paul Krugman always point to little tweaks and shimmies that need to be done just the right way by god-like PhD economists or the whole economy just falls apart. Keynesian economics is the biggest economic lie ever told, perpetuated to allow continuous government expansion and a slide into socialism. Bernanke and his crew are not mechanics that need to turn a fucking wing nut 3 more degrees to the right. Bernanke is a PhD with no real world experience in managing a company, an industry, or employees. He has no idea what the hell he is doing and the sooner we all come to accept that, the sooner we can all begin to educate ourselves and stop waiting for mommy to save us.

Investment wise, still short. Gold is being a real bugger and I am excited by the strength it has shown. It means that after the impending correction in the gold price occurs, we ought to get a very strong rally into the spring. Waiting patiently to re-enter gold stocks from the long side and buy more physical gold.

Goldman Sachs

Stock ticker GS, is looking like a very ripe shorting candidate. If this stock gets over $100/share, it will be hard for me to resist starting a short position:

Here's a 6 month chart:



Here's a 2 year chart to provide perspective and an example of a prior correction circled:



And here's a 5 year ratio chart of GS to its sector, represented by the Dow Jones Financial Index ($DJUSFN), showing how ridiculously overbought GS is:



Any bulls out there who think GS is a strong company and this move up is due to strong fundamentals are about to find out the truth. GS is going back under $50 a share in 2009 as a no-brainer, bet your grandma's money-type trade.

Signals not to be ignored

I am short. I am heavily short. Today was not a banner day. Am I worried? Absolutely not.

One chart, one message. Keeping things simple. When sentiment swings too far one way, it swings back. Not always at the exact time you think it will, of course. But things are rarely "different this time."

The total options put-to-call ratio chart shows that people are betting more long and less short than they have in over a year!



For those who say "who cares?" I say: spook the previous barbecue signals, yo:



The Volatility Index ($VIX) during these cha-ching times also fired up the options premiums:



So, yes, this time it could be different. That's why traders have to be flexible. But betting that this time will be different is more reckless than betting on human folly repeating all over again.

Gold versus gold stocks - key point!

Yes, gold is hanging in there strong, isn't it? Old school gold bugs are all fired up due to breaks in the trend line and they should be. But as a short term event, gold and gold stocks are about to plunge. Their strength has been impressive and it tells you what's coming once the spring rally gets going. But right now, the message is loud and clear and unequivocal: gold and gold stocks are about to plunge.

Comparing gold and gold stock prices charts relative to one another is an important exercise for gold stock and gold price traders. If gold stocks as a sector don't leverage gains in the gold price or at least keep pace with the gold price, you should be worried about the health of the current trend.

First, the price of gold, with important points marked with letters on the chart:



Next, the $HUI gold bugs mining index, a basket of unhedged miners (meaning that these companies benefit immediately from a rise in gold price):



This isn't just a difference in price movements over a few hours or even a few days. This is a flat gold stock chart over the past 6 weeks while gold has been quietly making new highs. This divergence is one of the absolute must know about and follow secrets of gold stock trading. When gold is rising and gold stocks aren't, they're both probably about to go down. And don't get me wrong, this is a short-term correction we're talking about.

However, short-term corrections in gold stocks can be 20-25% routinely and that's why I'm short. Once this correction is over, and it will be before February is, I will be betting the farm going long gold stocks for a powerful spring rally I am confident will occur. Nothing has changed over these past two weeks to change my outlook and, in fact, today's move in gold up without a new high in the $HUI makes me even more confident a plunge is imminent. I am anxiously awaiting this next buying opportunity not only in gold stocks, but in physical gold.

Some other important new lows...

My last post forgot to mention some additional important new lows made by blue chip, bellwether stocks. Again, this exercise is important as it demonstrates deterioration in fundamentals and investor sentiment bubbling/boiling/festering/screaming below the surface. How about Proctor and Gamble (PG):



Perhaps Microsoft (MSFT) might be even scarier, as this is a company with 20 billion in cash on its balance sheet during a deflationary bear market:



Of course, we shouldn't have to worry about Wal-Mart (WMT), because if it can go down during the Greater Depression, then every other retail business is basically screwed:



OK, anyone still feeling bullish right now? If so, you need to get off your meds and turn Cramer TV off. Re-testing the panic lows in the general market stock indices seems like a no brainer to me now. I'm thinking the lows are going to hold (at least for now)...

Remember that my favored scenario is a re-test of the panic November lows in the general market indices in the next 1-2 weeks, possibly with a close or two slightly below them as a bear trap, followed by a barn burner rally into the spring. After the anticipated March or April top, I expect a plunge into chaos. Don't say nobody warned ya!

New lows

Since the November lows, almost all sectors and stocks have risen and are now higher. However, a few key stocks and sectors have made additional new lows and I think they are sending an important message that the current correction is not yet over.

The Dow Transports ($TRAN) made a new low:




The Banking index ($BKX) made a new low:




Bellwether General Electric (GE) made a new low:



Caterpillar (CAT) made a new low:




JP Morgan (JPM) also made a new low recently:



Dow Chemical (DOW) is in free fall:




Internationally, the French stock market blue chips ($CAC) made a new low:



None of these is good news and all portend further weakness in the markets before the spring rally can occur. I am still looking for a re-test of the November panic lows in the S&P 500 and Dow Jones Average. I remain short, primarily via KSS, NEM, GFI and PAAS.

Staying the course

On my shorts. Nothing tells me to go long or get out of shorts and gold and gold stocks so far are dropping as anticipated. KSS is being stubborn but I smell a waterfall decline coming that I think will begin before the week is out. When watching intra-day charts, it is easy to get spooked on counter-trend moves. It is important for traders who have a time horizon of more than a few hours to not only monitor the intra-day activity, but also keep a bigger picture framework in mind. A current example is instructive. First, a 6 month daily chart of the S&P 500 with my favored "road map" for the next 1-2 weeks:



Because I believe we are in a corrective pattern, it makes sense for the first down wave "A" to nearly equal the second suspected downward thrust that I believe has already started, labeled "C". This would take us down to a re-test of the fall panic lows and we may even exceed them by a few points just to draw in a few more unsuspecting bears.

When watching the intra-day action on a one minute chart (instead of paying attention at work like I am supposed to do), the quick movements can seem confusing. This is why the bigger picture must be kept in mind. On a one minute chart, it seems reversals and countertrend moves are almost always imminent! Below is a 30 minute intraday chart over the past month:



I personally believe that being short almost any sector right now should work, although individual stocks (when not trading sector or general market ETFs) have to be evaluated on their own merits/chart patterns. I remain in my put option contracts on KSS and NEM and I couldn't resist buying some puts on PAAS (silver miner) and GFI (gold miner) today near the highs this morning.

Remember, though, that these are short term trades. I may even be out of them by the end of the week if a waterfall decline of 10-20% occurs. The more important move is what comes after mid-February, which I think will be a blistering rally upward that will take every stinky old stock with it until at least mid-March and possibly until the end of April. Both gold stocks (GDX ETF is a basket of miners) and the double levered bullish oil stock ETF (ticker DIG) should be good for a 50% gain or so once the bottom is in and I believe the bottom will be in within 2 weeks.

Can't get that shiny shit outta my mind

Another short-term gold chart. I am obsessing over the gold price right now for several reasons. The most important and immediate one is that I am looking to take some of my recent stock market trading gains and buy some more physical gold. I believe a correction in the gold price is imminent and will probably start tomorrow. This would fit in with one last U.S. Dollar thrust up and one last thrust down in stocks (including gold stocks).



Before a trend change occurs, it is often telegraphed by the breaking of a trend line. The first "attempt" at changing the trend in price often fails, but sets the emotional stage for a true and lasting trend change. I believe the "peek-a-boo" break above the trend line in the chart above is such an event. The gold stocks have already telegraphed that this first attempted trend line break in the gold price will fail. Gold stocks would be going bananas right now if the gold price was about to explode to the upside.

A quick waterfall decline over the next 2 weeks is what I am waiting for to enter my next purchase order for physical gold. No, not the GLD ETF, but hard, physical, shiny shit for hoarding. Unlike many, I believe gold will do better than the U.S. Dollar and believe gold is the ultimate currency to weather a deflationary credit collapse. When this storm is over, gold will no longer be thought of as a kooky, barbarous relic by the average investor.