Green Hoot - Only 5 bank failures this week

and one credit union (see here and here). Clearly things are stabilizing, as only 6 financial institutions failed this week and only one (Colonial Bank) was a $25 billion institution with 346 branches. Keep in mind that the "massive bank failures" from the last "Great Depression" were in the hundreds to thousands per year, but this was before the day of counting one bank with 346 branches as only one failure. In other words, back in the 1930s, the failure of Colonial Bank alone would mean that there were 346 bank failures this week (and that's ignoring the other 5 failed institutions and their multiple branches)!

The Greatest Depression is intensifying right on schedule. The stock market hasn't discounted any of it and is dangerously oversold in the setting of obscene complacency given the fundamentals (see the last three paragraphs of this article). People who think the stock market has discounted the next wave of residential mortgage foreclosures, the current onslaught of commercial real estate walk aways, the massive pending regional bank failures (as if the ones that have occurred already aren't enough of a concern) and the tightening of the consumer belt that has been overdue for a decade are welcome to stay long stocks, commodities and corporate bonds.

Me? I'd prefer to stay in physical Gold, long Gold miners and short anything besides cash equivalents denominated in US Dollars. And believe me, once the pending deflationary wave ends in the next year or so, I'll be looking to take every US Dollar I've got and trade it for something else (probably more Gold and Gold miners).

Green hoots and spanky boots - get shawt or get out da way!

Buying a Few Junior Gold Miners

The junior Gold mining sector is the next mania in my opinion. As the forces of deflation intensify over the next few months and stocks, commodities and corporate bonds resume their bear markets, there are few places to hide. Gold is a great safe haven. The US Dollar will be a temporary, albeit risky safe haven that must be bought and sold at the right times to avoid major losses when the inevitable Dollar devaluation comes.

Junior Gold mining companies are risky, speculative plays. In aggregate, this sector is a wonderful investment. The problem is that some companies will go up 500-5,000% and some will go to zero. A basket of companies is always needed for proper diversification in this sector unless you know how to properly evaluate an early stage mining company and its management. I personally don't. So, I am looking to scale into this sector on weakness and start buying some of these companies.

Van Eck Global, the firm that brought you the senior Gold mining GDX ETF, has filed with the SEC to launch a junior Gold mining ETF. The ticker will be GDXJ, but it is currently unknown how long it will take until this vehicle is available.

I am not interested in spending the time or research to figure out "the" junior mining companies to own. I am compiling lists of junior mining firms listed on American stock exchanges mentioned by other analysts as worthy of investigation and am buying some of these stocks based solely on technical analysis with a small portion of my speculative capital, knowing that I will hit some home runs that should more than balance the strike outs.

Two firms I am scaling into and their charts follow. Again, keep in mind that I really know nothing about these firms and they may be total scams. I am letting the charts tell the story and using the old adage that "a rising tide lifts all boats." Even a pig stock can fly when its' underlying sector moves in a big way. And believe me, junior Gold mining stocks are going to move in a big way and the move will last for at least a few years.

First up, Gold Reserve (ticker: GRZ). Following is a one year daily chart:



Next up, Pacific Rim Mining (ticker: PMU). Following is a 16 month daily chart:



Just from looking at these charts, I know that these companies are not leaders in the sector, they are weaker firms. My guess would be that their fundamentals aren't great. I am trading their charts however, looking for a longer term pay-off. These are just a few of the junior Gold miners I am following while I patiently wait for attractive entry points to scale into the next big bull market.

Couldn't resist and went short the silver miner Pan American Silver (PAAS) yesterday on strength. This is a short-term trade.

Silver - look out below!

When trading in commodities, one always has to be cognizant of divergences between the commodity price and the underlying stock prices. When the price of the commodity is going up but the price of the corporate stock prices for firms that deal in that commodity are going down, alarm bells should start ringing for the trader. Though nothing is fool-proof in technical analysis, a drop in stock prices when the commodity price is going up is always cause for concern (conversely, a rise in commodity stock prices while the commodity price is declining can indicate an imminent turn higher in the commodity price).

An alarm bell is ringing loudly in the silver sector right now. I am not bullish on silver short-term based on economic weakness and deflation. Gold outperforms silver in a credit contractionary bear market wave, which I believe is about to begin within the next several weeks.

Following is a busy 3 month 60 minute intraday chart that plots the price of silver (green background area plot) versus two senior silver mining stocks - Silver Standard Resources (ticker: SSRI) and Pan American Silver (ticker: PAAS) - which are the black linear squiggles on the chart that nearly overlap and are thus difficult to distinguish from each other (which is part of the point - these two major blue chip silver miners are acting similarly):



Senior silver stocks like PAAS and SSRI are due for a short-term bounce that should last a few days, but then they are a great short as a trade. I believe the silver price is in trouble for the intermediate term along with all commodities. Gold will get hit initially with this commodity drop, but then Gold will re-establish itself as a currency once the commodity bulls are shaken out. I think Gold goes to new highs while commodities don't, confounding most who don't realize Gold is money and a currency, not a commodity. Cash is king during deflation and Gold is the ultimate form of cash!

Now, I am not saying silver is not a good long term (i.e. multi-decade) investment, I am simply talking about the intermediate term. I don't want silver bugs all pissed off at me for telling them the truth. Just because Ted Butler lays out the fundamentals and just because conspiracies against silver exist doesn't mean a fresh intermediate-term price collapse can't occur. Trading is not always based on fundamentals. I will be looking to establish at least one silver mining stock short position once a good bounce higher in this sector occurs.

Yes, the site is called Gold Versus Paper and yes I am a Gold bull. But with my capital that is not tied up in physical Gold I would short my mama if I thought it was a profitable trade (just kidding, ma!). Gold and silver are not the same thing and I think Gold will vastly outperform silver this fall. I remain long the Gold royalty company Royal Gold (ticker: RGLD) and I am waiting patiently to go long Gold miners if we get a good spike low in the senior mining sector in the next few weeks.

It's All Coming Together

Although the waiting is the hardest part. The next phase of the credit contraction and next down leg in the bear market is set to begin. Elliott Wave just announced that on a recent day there were only 3% bulls on a daily sentiment index for the US Dollar. Now I don't care what you think about the Dollar or it's ultimate fate, a trader should be interested in taking the other side of that trade!

The Dollar may have already bottomed and simply need a short correction (i.e. less than 2 weeks) before a major thrust higher, which would put a stake in the equity, corporate bond and commodity rallies. I think Gold will initially get hit but will then stabilize in the $880 to $920 range.

Here's a 2 year daily US Dollar chart:



The Volatility Index ($VIX) remains within or has just barely escaped from (depends on how you draw the lines) a terminal corrective wedge and is coiled like a spring ready to begin its next sustained bull move. Here's a 2 year daily chart of the $VIX:



Remember that Gold stocks are countercyclical assets during a deflationary bear market and Gold stocks already made multi-year lows last fall. They will not be making new lows along with the stock market because as deflationary pressures intensify (and they will, believe me), Gold miners will become more profitable. This can be expressed using a "real" price of Gold that ignores the fiat price per ounce and compares the price of Gold to other commodities (i.e. mining costs like energy). The Gold to oil ratio chart is a thing of beauty for Gold stock bulls right now. Here's a 2 year daily chart of the Gold price divided by the oil price ($GOLD:$WTIC):



Though Gold stocks are not immune to major downturns in the stock market, they can weather them well once their uptrend is established and will rise on net balance. Because I am expecting serious nastiness in the general stock markets, I am even more cautious about buying Gold stocks at the right time. The pending buying opportunity that should occur in the next few weeks is a little bit of a mystery right now and its character will be important. A mild, wimpy bottom will likely have to be re-tested later this fall and won't get me very excited (should still be a decent multi-week trade for those so inclined, though). A strong, panicky spike bottom will present the buying opportunity of the year in my opinion.

The bittersweet irony for Gold stock investors is that a turn up in the Gold to commodities ratio or "real" price of Gold typically indicates an intensification of the credit contraction in this environment, which is bearish for all stocks. This is counterbalanced by the immediate increase in profitability that can be achieved by unhedged Gold miners when this ratio turns up. On balance, Gold mining stocks will rise, but the corrections will likely be jagged and scary due to the overall stock market environment.

A bottom in the Dollar and the $VIX and a top in commodities, stocks and corporate bonds as well as a tradeable bottom in senior Gold stocks - it's all finally starting to come together although no one knows the exact day it will occur. It's been very difficult being bearish over the past few months, to be sure, but the light at the end of the tunnel is now clearly visible. Now is not the time for bears to capitulate.

Goldcorp - Canary in the Coal Mine?

Goldcorp (ticker: GG) might be the canary in the coal mine for the senior Gold mining stock sector. Today was a break of the trendline, setting up for a "C" wave plunge of an A-B-C correction. I still think we need one more plunge in senior Gold stocks to set up a good intermediate-term buying opportunity.

Here's the current Goldcorp chart (6 month intraday 60 minute chart):



We'll see, but I believe the current move in GG is telegraphing what's next for the senior Gold sector. This is a longer-term correction than originally anticipated, but the important thing for Gold stock traders is to be patient and wait for a good opportunity to buy. It's coming soon, I promise.

Gold Versus Stocks - Trade of the Decade

Stocks have been a terrible investment over the past decade and they are about to get worse. Gold has been one of the best if not the best investment over the past decade and is about to get better. When you examine investments via relative merits, Gold has trounced general equities. Gold has also trounced paper cash, regardless of the fiat currency held, as well as real estate and commodities over the past decade.

Despite this vast outperformance and the fact that Gold is safe and retains its value over the long term, it continues to be a relatively shunned asset class. This is bullish and will help sustain the "wall of worry" that continues to drive the current secular Gold bull market.

The Dow to Gold ratio is a key concept in my investment strategy. Although I also like to take risks trading, my core investment and savings continue to be held in physical Gold. Expressed as a reverse ratio (i.e. Gold price divided by the Dow Jones Industrial Average or Gold to Dow ratio), Gold is about to continue its trend of outperforming the stock market. This trend began at the turn of the century and has a ways to go in terms of price action. The Dow to Gold ratio will reach 2 and may even go below 1 before this secular stock bear market is over.

Some may argue that the US Dollar will outperform Gold in a deflationary environment, but that has not been the case since the current cyclical bear market began in October of 2007 or since the current secular bear market began in 2000. Things could change of course and the timeframe one selects will certainly alter the comparison. But the time frame I am interested in relates to the long term Dow to Gold ratio, which is what I am using to make my long-term decisions related to my core physical Gold holdings (and no, I am not talking about fraudulent paper proxies like the GLD ETF).

I would not advise selling Gold until the Dow to Gold ratio has reached 2 and I personally may wait to see if it goes even lower. Looking at a long-term ratio chart of the Gold to Dow ratio indicates a pending bull move is coming in this ratio, which means that Gold will be outperforming the Dow Jones again. I suspect the move in this ratio chart will be dramatic given the unfolding events in the economy boiling under the surface and the current stages of the respective Gold bull and stock bear markets. Here's the current Gold to Dow chart (15 year weekly log-scale chart up thru Friday's close):



Now, I am still expecting one more short-term break lower in Gold and Gold stocks this month, which will be a buying opportunity for investors. However, looking at the more intermediate to long-term time frame, there is no change to the trade of the decade. The trade of the decade is to sell general stocks and buy Gold. Even if Gold fails to make spectacular gains, it will continue to rise relative to stocks and provide the holder an ability to buy far more stocks at a future date.

Currently, the Dow to Gold ratio is approaching 10. Since this ratio will get to 2 or lower, Gold will continue to become much more valuable relative to general equities. With history as a guide, the final stage of collapse in the Dow to Gold ratio towards parity won't take long. Trade in your general equities for Gold while there's still time, as this fall promises to be exciting in a bad way for equity holders.

Key Reversal Day

Is likely in progress. Blow-off tops are finishing their moves in droves today, in multiple asset classes. Because of the strength of the momentum higher in many sectors and asset classes, a double top or close to it (i.e. slight under- or overshoot) is likely. I think we are starting a meaningful correction that should be good for a hard downturn that lasts 1-4 weeks, then a re-test of the highs to set up a momentum divergence and a nasty resumption of the bear market this fall.

Here are two short-term charts to illustrate my thoughts. Both are 15 minute intraday candlestick charts. The first is the NASDAQ ($COMPQ):



Next is copper, using the ETF with ticker JJC as a proxy:



It feels like August of 2007 to me. Here's the S&P 500 in 2007 (using a daily 18 month candlestick chart) as the bull market was topping and my thoughts:



The US Dollar may have bottomed, but a double bottom (again with slight under- or overshoot) would be supportive of this stock market scenario. Gold and Gold stocks should get taken down initially and provide another great buying opportunity later this month. I am looking for Gold to go to the 200 day moving average as the worst case scenario (around $880 right now) and Gold stocks to also move down to their 200 day moving average. Gold stock bulls should be patient and get ready to buy on weakness. Patience will be rewarded.

Short-term Chart Porn - S&P 500

Possible terminal wedge in the S&P 500 to end this powerful move that went beyond my expectations, to be sure. This termination pattern, were it to be validated by a breakdown, is still likely to result in a re-test of the highs (potentially with slight overshoot) to set up a momentum divergence, as this move higher has been too strong to just collapse immediately.

Anyway, here's my thoughts of what may happen, first on a 4 month 60 minute intraday-chart of the S&P 500 ($SPX) and then on a 10 day 15 minute intraday chart:





The pending correction will likely take everything with it but the US Dollar and government bonds, as Gold, commodities, stocks and corporate bonds have all been rising together and animal spirits are at an insane high right now.

Gold Fractal - Current Correction

Fractals or patterns in market prices repeat because they are a reflection of human behavior, which hasn't changed much last time I checked. I often look for fractals as guidelines to what's possible in a stock price pattern. The current Gold price correction is shown below in a 2 year daily line chart with the 200 day moving average drawn in:



Now here's a similar correction in the price of Gold from 2002 using a daily line chart with the 50 day moving average drawn in:



The current correction is larger in terms of magnitude (i.e. percentage and time) but has a similar pattern and proportions compared with the one in 2002. This is the essence of a fractal pattern. Now history rarely repeats exactly, but it often rhymes. Below is what happened next in 2002:



I am looking for one more quick short-term spike lower to shake out a few weak hands and present one last great buying opportunity in Gold stocks this month before a strong move higher into the fall. I am thinking that the price of Gold will likely remain relatively firm and only dip mildly (no lower than the 200 day moving average at $880) while the senior Gold mining stock indices briefly spike significantly lower, setting up a divergence that is to be bought. Looks like the US Dollar is going for one more short-term spike lower, which is a buying opportunity for those into trading fiat currencies.

Broadening Top in Stocks?

As I believe we are likely to be near the end of this bear market rally from the fall 2008 and March 2009 lows, I admit to looking for chart patterns to support this belief. Because I believe in technical analysis only as a method to support fundamental underpinnings, I really cannot conceive of a new bull market in stocks unless we are going to bypass the needed deflation and head into hyperinflation right here and right now. I find this premise unreasonable at this point in the deleveraging cycle, but own a large core position of physical Gold as my cash equivalent and thus wouldn't suffer if such a scenario were to play out.

My current Elliott Wave count varies slightly from people much better than me at this stuff (like Robert Prechter) but to me it looks like a broadening top could be forming in some of the large US stock market indices like the S&P 500. This is a termination pattern that suggests a reversal is near. The broadening top technical pattern is also akin to a megaphone or reverse expanding triangle pattern. Here's what I am seeing:



We are currently significantly overbought for the short-term in general stocks, but the strong momentum indicated by the RSI suggests that the current upward thrust, once a short-term correction occurs, is likely to be followed by a re-test of the highs to set up a momentum divergence. I think the area of wave 4 on the chart above, 1010-1040, should be the limiting upside target range for the S&P 500.

Once the top is in later this summer or in early fall, a massive leg down in general stocks, corporate bonds and commodities will occur and result in new lows below the fall 2008 and March 2009 lows in these asset classes. The US Dollar will rise during this time frame and I believe the nominal price of Gold will rise along with it. I expect Gold to outperform the US Dollar during this period, as all fiat currencies are sinking relative to real debt-free money.

Just for fun, here's a broadening top example from recent history in everyone's favorite company, Goldmun Sucks: