HUI - Gold Ratio, daily & weekly

The master of the obvious says it looks like some pretty major transitions are in progress in the financial markets. This week saw a lot of gold positive macro fundamentals bubble up to the surface. As stated in the past it is best to prepare in the real world with whatever gold/silver bullion investments you might think prudent, off dollar denominated debt where possible and stay away from business as usual casino mentality. But here I talk about gold stocks and they are different. They can make you a lot of money very quickly or rip you a new one just as fast. With one caveat (rising oil which is a major cost input for miners) I remain bullish. On the metal I am bullish and have been bullish since I came to the realization that what we call 'money' is anything but. Posting will be infrequent next week so I'll take this op to say good luck and watch your backside out there.

VIX - A monthly view

Miners

Sellers still puking and we are still adding... Sometimes you just throw the charts (HUI & XAU) out to some degree and buy the panic. You can just feel the sector getting regurgitated by weak holders even as several fundamental factors begin to shift in gold's favor and in the favor of the miners as leveraged vehicles on the metal. Blood in the streets? We got dat. Edit (1:27) PS: Energy trust positions have also been added to today and yesterday. Gold & NatGas are the favored assets in this quarter at this time. Yours may be different. Again, it's what makes a market.

ZOLL

Bottom feeder special, Zoll Medical is closed out in an account we manage for a nice trade off of a well defined support area to what 'appears' to be a pretty well defined resistance zone. +26%.

Gold stocks resetting from over bought

Edit (7/26 @ 6:00) "Wall St. Indexes sell off on housing, credit fears"... "New home sales fall, durable goods orders weak"... add to this weakening oil, gold/silver ratio rising and the rising Yen and you have some fundamentals for economic contraction which is why we own gold miners. The noted level was tested severely today but we took it as a buying op. Others may disagree; it's what makes a market.

USD

Assuming Uncle Buck even gets back up into the wedge, the first resistance level is shown. Yesterday was an attack on major long term support which was/is unlikely to fail initially.

TNX-IRX Weekly

Johnny Yen

Chart from a reader

Claude became 'not cautious' on gold well before I did. He uses his own 'gold barometer' to gauge sentiment. A great call.

"Hey Gary, here is my choice. Requires no explanation.

Just straight talk from GG.

Aren't PM stock supposed to move ahead of the metal?.

Claude"

TNX

It is getting down to the wire on our TNX projection of 4.9 to 5% then reversal to new highs. On the last chart of this post, it was noted that it is possible that an inverted H&S has already expressed itself to target and lower rates are to come. That was not and is not our most favored scenario even though it seems the world is again falling in love with long term US bonds amid growing economic anxiety. I can't change my projection until the chart tells me I am wrong and as such, the TNX has still only pulled back to the middle of the projected range.

DGR

I received an angry email from an older gentleman who is a '35 year pro' who took issue with the fact that I use log scale charts instead of linear. His point was that the log chart I posted (showing the weekly breakdown) painted a picture that is too bearish on gold. I felt my chart was very bullish (talking of upside explosions and all) but he took issue. In light of that, I thought I'd play around with linear charts and see what happens. Here's one of the Dow-Gold ratio and what it shows is a picture that is more bearish (but still big picture bullish) for gold vs. dow than the log charts I have been using. Taking into account the indicators (approaching over-bought levels while still in a long term down trend and near resistance, I am in the camp that thinks this rebound in stocks is similar to what happened in 2003 to early 2004; an over sold rebound to get the happy people thinking all is well and conventional before stocks either a) tank into a new bear market or b) tank into a new leg of the bear market when measured in Gold. BTW, it never pleases me from a contrary indicator standpoint to get angry email from gold bugs or 'pro gold' readers.

BRL

Closing this trade just under the 53 resistance area noted previously for +4.8%. I 'think' it has higher to go but our objective has been achieved and the stock is replaced with some palladium/platinum exposure.

The Gold Market in One Picture

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Dow 15,000 continued...

I want to explain why I am a skittish short, especially on the multi-national industrials. It is because we as a nation are devaluing our currency, which is something I thought would involve a lot more subterfuge and a lot less bald faced disregard for what the rest of the world is seeing. The dollar's plight may be a result of over-bearish speculators in the short term but in the big picture it reflects how the US lives and does business. Consume now and pay later - in devaluing dollars. I would guess our global creditors are none too pleased and are buyers in our venerable Dow, snapping up US assets as the currency devalues. The miners could be signaling a gold explosion to come and while this is what I have waited for, it really doesn't bring a lot of pleasure. I like living in America, not Bananaville.

Anyway, back to the subject at hand. Aside from the financials, homies, lenders and other 'at risk' sectors, stocks are gaining the dollar panic bid. The manufacturing sector loves this. But with the nation's currency on the line (literally, at 80) what does Dow 15K really mean? It is why I call this a casino and nothing more. Churn up the liquidity and play the game. But do have other grounded and sensible plans in play in case the dollar does not bounce for the contrarians. That's my gameplan anyway.

Oh yeah, and PS... Vote Ron Paul (thanks to Michael Nystrom for sending this to me)

HUI

Dow 15,000?

In the face of my Dow short, here comes Adam with a rather significant upside projection based on a measured move: Measuring the Dow. Or see my intro here: Biiwii.com/ino.htm

I do not disagree with the target, as hard as that is to write. That is not to say it is a shoe in, but it is by no means unattainable. I am looking for a hard correction first however. Hence the short position. But if I am proven wrong - and traders must always be ready for that outcome - I will adjust accordingly. Edit (9:42) And just like that, the short is gone. I have mentioned in the past that I have what I consider to be a bit of a flaw; a negative emotion response to being short and having the pig fly in my face in a seemingly irrational manner. This open could be a sucker rally but I will limit the loss here and be glad I was not piggish on the SMH poots yesterday. Good luck out there!

Interesting day

Well how was that for finally getting the miners out of the pig's wake? The only smudge on my day was the market recovery at the end. Oooh, there is just so much to be boolleesh about! Worthless Bear hedgies? Poor Intel results? Subprime fiasco not nearly fleshed out and quantified? On and on with the bullish fundamentals. Anyway, why focus on the tiny fraction that did not go our way today? How about them minahs!? I have been busy cobbling away and adding to core positions over the last week or two but have cash ready as well. Something may be changing here as we see gold stocks seeming to feast on the pig's misery. This was one of the most fun days I have watched in the market in a long time.

USD

Well so much for our falling wedge. Helicopter Ben drives a stake through that theory. It is in a debt gorged nation's interest to devalue Uncle Buck. But will we do it in the light of day? The whole world is watching major support in high 70's / low 80's.

SOX

Recall this post and check out the SOX chart. I wrote something like the SOX is still big picture bearish but it won't feel that way when it blows off to resistance. Well, today... bingo! And damned if the world of stocks doesn't feel bullish bullish bullish. But is that bullish? ;-) Edit (7:31) Intel has an issue with margins and stock down after hours. How are they gonna spin this bullish? I bought puts on the SMH today because of this chart. "How are those greedy bulls gonna spin this?" is what I'm asking myself. Edit (7/18 @ 10:55) Along with the SMH poots, I initiated a short on the Dow via DXD (200% inverse with Dow down by 50 some odd points this morning. I wouldn't put it past the bulls to somehow make this whole mess bullish, but I wanted to try this exposure once again to go w/ miners, oil & gas trusts (added another yesterday) , cash and the ongoing BRL trade. Disclaimer: My overall record as a 'short' is not so good. Edit (12:36) SMH puts ejected +30% for a 4 hour hold. Now if I were a day trader I could do this every day. Glad I'm not a day trader.

A few charts for a manic Monday

Edit (3:48) Adding the Dow-Gold ratio for my pal Claude:

Poll - answer any/all that apply

New World Currecncy - New from Adam @ INO

New video from Adam on a subject we are all interested in, or at least should be. The New world Currency or read Adam's intro and watch here: biiwii.com/ino.htm

Well well well... let's hear it for Bully

A few years ago - in the 2004-2005 time frame - I was quite intimate with a few other traders (hi guys, I know some of you check in here) and man did we have the yips. For global readers not acquainted with that word, it means we were spooked - BIG TIME. What were we afraid of? 'El Hyper' as my friend Mark calls it. How would it manifest itself? Try Dow 13,000 to 15,000. Remember, this was when the pig was around 10,500. I referred to these levels in some articles I wrote back then.

Now what would a bunch of bears be doing talking about Dow 15,000? It is simply the effects of desperate, accelerated and possibly covert inflation - the Fed monetizing the debt. Now this theory was posited by our 'guru' and some of you guys know who I mean. This was a fellow who had a group of intelligent, successful grown men scared sh**less - at the prospect of a coming hyperinflation. So much so that I put all my energy into paying off ALL of my company's debt, paying down my personal debt and above all eliminating all vestiges of casino mentality residing within my psyche. I trade, I enjoy but I always remain grounded. Today is no different. Yes, the party line holds that "it is good to have debt during inflation" but what about when it ends? Not so good as the resulting collapse will eat you alive.

Remember the '3 Peaks and a Domed House' theory? Well, that was the model we used for the phenomenon we are witnessing at this moment and it always held open the possibility of a strong market rise in the face of desperately inflated money supplies. BTW, here is an article I wrote in 2004 on hyperinflation; Sind Wir Die Weimarer?

I am a business person and a trader doing his best to navigate this mess just like you. I do not have the grand answers as to the how's and why's. My guess is that this thing is more organically fated to happen vs. the result of shady PTB men in back rooms engineering it all, but I just don't know and frankly don't really care. The result is what it is and I want to trade it correctly and live a life that is in sync with it as best as possible.

Anyway, gold & 'da minahs' were always to be an intimate part of this process. When fears of El Hyper start to bust out of their cages they will be gone man, gone. Is this the moment when a sleeping public finally wakes up? I for one doubt it, but you never know. This process has already taught me that perceptions can hang on for a lot longer than rational people may think. I remember being reluctantly bullish in 2003 and then actively not bearish (against my personal bias) since. I have blow off targets for the Dow and Chinese stock markets and we are getting there. Whether or not I have the conviction to short at those levels remains yet to be seen.

Believe it or not, this started out as a quick acknowledgment to the bullish side, including and especially where the gold miners are concerned. My doubts remain concerning reversals in the currency markets (USD up from falling wedge and Euro down from rising wedge) but given the structure of the bond markets and given the furious nature of the global rallies, it makes sense to increase exposure here to my favorite asset class, gold (which I believe has a chance to continue bullishly - we have watched all along for counter-cyclical gold to detach from everything else, have we not? - after major markets reverse scarily and painfully from their respective blow-offs). Of course that may come after an initial decline as the casino implodes but given the sentiment in the gold market (including me, your friendly contrary indicator) just how much spec gaming is left in the sector?

As such I want to put up daily & weekly charts of a stock I consider a 'bottom feeder special' at the moment, Gammon Gold (GRS). Fundamentally, the stock had been considered a jewel (and was valued as such) until it Missed its Own Guidance and grossed out the market in May. For a fundamental look, see Trey Wasser's unfortunately timed, but insightful look into the company. Me? I am a chart guy and I fall head over heels for NO stock - EVER. That said I do try to keep up on stories and major fundamental themes and as such have found no reason not to try bottom feeding GRS. I have been nibbling this one in and around the 12's and 13's with the idea of a longer term hold. That is my disclaimer: I own the stock and I want to see it do well. I don't believe a young miner with the assets of GRS should be judged and summarily executed based on one lousy Q of production. That said, it could be a long wait before the market regains any kind of confidence in these guys. The stock has been incredibly weak and can't seem to get out of its own way. You know I am a bottom feeder and you know I like these kind of set ups. Do not consider buying this stock unless you can handle some pain until such time that GRS' new management proves it is not the Keystone Cops and can actually run an efficient mine. Of course, it is possible that time may never come, but that is a risk I am willing to take. Whether or not you are interested in such risks is entirely up to you. In fact, don't buy it - it's a POS! ;-)


PS: I realize this is written informally and may even sound a bit lunatic and disjointed to some. But sometimes I like to just write... as opposed to compose.

Edit (9:27) Here is research from BMO (pdf) from June on GRS, courtesy of reader Sylvain. Thank you!

HUI-Gold Ratio

With silver below 13.10 or so and the Dollar near panic lows, we retain our cautious stance, but that is in the face of some pretty smart people going bullish on the PM's, the 'dumb' money out of the sector and the COTS looking favorable. Also, have you seen a weekly chart of GG lately? Check the break out. We don't want to be dumb money so we retain a core and add here and there as smaller, quality miners are summarily executed, but are by no means near all-in. I hope that can change shortly. We will see. HUI-Gold ratio is on the verge of something but not there yet by weekly. Edit (10:41) Intraday Uncle Buck added. Interesting to note Euro is in a RISING wedge of its own but has not overshot the wedge as UB has with its falling wedge.

ZOLL revisited

Recall post from June using ZOLL as a chart study. Well, it worked out nicely - for someone else - as we bought it for an account we manage but not for our own... Doooohhhh! It may be time to consider taking profits at around the 200dma.

Gold, Silver and the GSR Updated

One June 26, we posted three charts. A few weeks later we check in on them to see how they're progressing. Gold held noted support @ 640 and broke up from wedge. Silver as expected has rebounded to 'do or die' resistance and the Gold-Silver ratio has recalibrated itself from impulsively over bought.

When I wrote the other day that the markets are interesting and enjoyable right now it is because many things are in motion and testing limits all at once. It is a carnival atmosphere with Silver trying to do instead of die. The same goes for the US Dollar. Bonds? Is it real or is it Memorex? Gold bugs are trotting out favorable COT data and stock market bulls are waiting for the sky to fall. Don't you just love this s**t?

Risk management and buying fear (in the right assets) will work in the long run. In the short run it appears there is a lot to be settled, but if the PM's do manage to beat resistance here dat would be, err... dat would be bullish (said the master of the obvious). PS- Pardon all the typos on the charts. Guess coffee was not strong enough this morning.

XAU

Edit (12:51) Adding Uncle Buck wedge intraday.

Checkup on some markets & ratios

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Click charts to expand

As noted in a previous post, HUI has sneakily diverged bullishly from gold on its last 3 tests of 320. Here is another look at it after a few more bullish days of trading.

At the same time, the gold miners product is declining vs. their costs. Something has got to give. As long as gold doesn't make new lows vs. the likes of crude oil & industrial metals, we grind forward in the oncoming contraction (of whatever magnitude) camp.
A weekly chart of the S&P 500 shows no break downs whatsoever and in fact looks like a bullish consolidation. With techs leading and short interest high because everybody KNOWS the market is coming down, it may be quite a grind getting this piggy under control. This is the miracle of funny munny, there is enough of it in play that walls of worry have been constructed the world over. Too bad they are all built on a sand foundation (debt).

With short interest high and a holdout public still generally not in acknowledgment of the bull market, it is not a stretch to imagine a blow off to impressive new highs as shorts give up and cover and the public, seeing this, finally jumps in. Henry To covers this subject quite well in High Short Interest the Achilles' Heel of Bears. I have been watching the semi's - a leader of late - with great interest. The SOX is still 'big picture' bearish but a blow off up to stiff resistance will feel like bullish nirvana as techs continue to lead. We of course keep in mind how this scenario ended the last time technology accelerated to the upside. What is needed of course are some good 'stories'; updated versions of '.com', 'XML', 'DWDM', 'e-anything', etc. What is also needed is for the financial media to dutifully get on board the bullishness and give the public permission to buy in - if the public is not yet tapped out and if there are no major leveraged financial accidents along the way.

Meanwhile, crude oil continues to be strong. I was incorrect in not respecting this rebound as I thought 70 and below offered solid resistance. If gold is firm and the miners are strong because of the "inflationary" effects of crude oil, then that is a tragic circumstance for gold bugs because as Bob Hoye and Steve Saville point out again and again, gold is counter-cyclical. Also, rising oil is not inflationary. The only thing that can be inflationary is rising money supply.

Here we have dear old Uncle Buck. The only thing not bullish about the world's reserve currency to bottom feeders and contrarians is the small fact that this note denominates a nation that thinks it can live indefinitely on credit. CONfidence has been bred into the average American that our money is highly desired the world over. And that may be the case, but this is temporary in that developing nations are funding our outright hoggish consumption habits while we fund their development. We are a tool. Our currency is a tool.

Speaking of foreigners' willingness to finance our operation, here is a chart you are probably tired of seeing me post, the TNX (10 year yield). Our target for a retrace has been "4.9% to 5%" (top end of target has been hit) since the TNX did as we expected and made a strong move up to, and failed at the 5.25% resistance noted. To this point I have been looking for a healthy retrace from the impulsive run up and then a blast to new highs. That is still the favored scenario but on this chart we note what could be some sort of a rough inverted head & shoulders pattern which has already expressed itself to target. Just an FYI as we must consider all possibilities and it is possible that rates do not have much higher to go. Again, I don't favor this view - especially with the Dollar still stuck in Mudville, but there it is anyway.

Have fun putting all of the above into a blender along with all the other analysis out there. These are certainly interesting times and frankly, I have rarely enjoyed market watching and participation more than now. As slavishly noted over and over again, our accounts are in defensive mode although I hold no shorts on anything. One potential oncoming no-brainer short is the Chinese stock market. But it has not yet blown off to target. The prospect is exciting however and I look forward to putting a chart up at some point that shows why.

Good luck and be safe.

Chart study: BRL

Recall previous posts where BRL was bought and sold. On July 1st, in the end of Q2 recap it was mentioned that BRL was again bought at support (former resistance) @ 50. Here is the latest chart of BRL and the short term target. My intention is to sell at the noted target of 53, but that is not set in stone. Again, no recommendation here, just a look at what is hopefully efficient trading of a stock while it presents some opportunity. We are not looking for a home run here. Just a trade in a defensive sector.

The Twilight Zone of Good Trades?

Here is INO again with yet another interesting video; The Twilight Zone of Good Trades? Check out the video or read INO's intro and watch the vid here: biiwii.com/ino.htm

Gold stocks

With regard to the most recent chart of HUI, today we have that strong move above 340-345. As such, our trading account cash level has shrunk accordingly with the addition of a nice position in a primo intermediate miner that fell from grace (not for long I think) and looks to be putting in at least a short term bottom. The 'managed' ports maintain their guarded stance with core miner holdings among many defensive positions. Also note that an intra day move is not a daily or WEEKLY close. A few more hours and we'd have a nice weekly break above resistance.

Da Pig

Long term rates

A quick note that 10 year yields nudged below the top side of the 4.9% - 5% target we have been watching. So to me, the criteria is satisfied for a turn up on the way to new highs. Doesn't mean that is what will happen in the very near term, but we got the minimum pull back expected.

Hommies

This is an irregular and down-sloping Head & Shoulders pattern. Target is the 2006 lows upon breakage of the neck line. This shows how bad the home builders look already as the target is not much lower than the NL. It may also imply that the '06 lows will not hold and might simply be a rest stop before a real gross out occurs later in the year.

HUI

Yen

Uncle Buck up to the minute

Wedge bottom getting closer. Not so sure this time that the wedge top will contain the Dollar. That would signal the USD's rally, of whatever strength and length, was underway.

Ten Year Yields - daily

2nd Q in the books

And we put in a heck of a lot of work to basically go nowhere! But this is a marathon, not a sprint. My goal for the 'managed' account is 25-30% per year while maintaining an ongoing risk management regimen. The goal for the 'trading' account is open ended; anything from high risk blow ups to 100%+ gains. For the 2nd Q, we are basically flat, while the broad market made nice gains and has caught up to our performance for '07.

2007 YTD:

Managed Account +7.38%
Trading Account +18.17%

S&P 500 +6%
Dow +7.59%
NDX +10.9%
XOI oil +18.66%
XAU gold & silver -4.43% (obviously this has put the pressure on our performance)

Currently the trading account holds a grand total of ONE gold stock - our favorite one, and 70% cash. The managed port holds a few more gold stocks, but in limited amounts. The ports are in what would be considered a very defensive stance for the time being. I am beyond bullish on gold and the miners in the big picture, but it goes against my makeup to just buy and hold and wait for inevitable bullish outcomes. I must try to time markets, it's a personal thing. I still think the Dollar is going to break UP from that falling wedge and I think long term interest rates have higher to go before any meaningful decline.

Along with modest core gold miner positions, we continue to sport a couple oil & gas trusts and a global bond fund for diversified income along with the likes of SHY & SHV for exposure to the lowest risk area of the 'cash equiv's' market, short term treasuries. Cash & equiv's level is 72% with a lot of dividend income. Aside from that there is exposure to Japan via EWJ and I picked up old friend BRL for a trade at what is perceived to be support @ 50. We shall see on that one.

Good luck for Q3!

Extravaganza of technical analysis

From Robert McHugh, one of the writers who along w/ Messrs. Droke, To and Chan I used to highlight in this space's previous life as a commentary blog. I am linking this because it is a lot of TA (with a few other observations) and obviously the product of someone working hard at what he does. This comes via Safehaven.com: Expanded Technical Market Report (pdf). Regardless of whether one agrees with the conclusions, this expanded report adds nice texture to what is usually available for free.