Gold-Silver Ratio - Code yellow

There is a technical case to be made that the stock market has significantly higher to go before it poops out. It would have been healthier to get a 'B' style decline into a 'C' rise, but such is life. The market has the potential to go out in a blaze of ultimately ill-fated glory. But the rally will not have the endurance it would have had if there was a proper correction by this time, in my opinion. At this point it does not seem to be in the cards.

Regardless, all this speculating about the nature of the rally will be moot if the GSR does something other than just creep higher, as it has been doing. Big, sovereign elephants creeping into t-bills? GSR grinding higher? No, regardless of short term bullish potential I do not like the stock market's risk/reward ratio at this point. Nuh uh.

Nor am I overly thrilled with the gold stocks in the short term even as I hold 'em firm, and with this ratio still looking like it has a better than even chance to continue rising I don't like the risk/reward in silver stocks and thus, as a note to NFTRH subscribers, I sold the lone silver producer in NFTRH's speculative portfolio today for a chicken feed profit. Cash level in that portfolio is at 42% and looking to add more gold stocks. Patience. Will they decline to the current no brainer target or is that a little bull flag that will lead to bigger and better things near term? No matter because I am bullish for more than a play, the gold miners are counter cyclical and as was shown in NFTRH26, available here as a sample, there are long stretches when the HUI can and will follow the GSR on the counter cycle.

In short, the miners will do relatively lousy if this is a real recovery. It however, isn't. It can't be. It is born of the cold reality of post-crash sentiment and a whole lot of bad policy that already killed us once. Watch the GSR and watch those events in treasury land (and for god's sake, when Larry Summers comes on the idiot box, change the channel) with short rates declining and long rates increasing. Dat as they say, ain't good.

Long winded post done, it's off to soccer. Later.

Is Agro next?

Uranium - Big bid right on schedule

On March 21, NFTRH25 provided a chart of Uranium Participation Corp. (U.to) showing a distinct downtrend line, a break of which would indicate a potential return of positive sentiment to the beaten down Uranium sector. U.to is a play on spot uranium and is subject to fluctuations in its premium/discount to NAV, making it a good sentiment indicator. On April 11, NFTRH28 again noted the downtrend line in U.to (along with constructive looking bottoms in coal and palladium) with this view on commodity rotation: "While copper has run up to our target, other things are just getting started. Following are some commodity sector charts that still look constructive as far as bottom making goes. I am not necessarily recommending commodities be bought now, given that I have done more selling than buying. But NFTRH does not operate in a vacuum and should not be your only market analysis source. In the event you have good reason to be buying commodities, I would like you to consider the items that still have good looking bottom patterns in the making as opposed to those that have already blown upward. Remember what happens when the ‘hedgies’ come into the sector; it rotates like crazy. One manic play to the next. Casino style."

Well folks, look who's in da house! U.to has broken out and individual U's are popping all over the place. This as things like copper and oil correct/consolidate their gains. Are you going to tell me the market runs sensibly on macro-fundamentals or are you going to tell me it runs like a high stakes, momentum driven casino? The U's are getting the play as the hedge fund whiz kids pick up the story. So predictable, so laughable and so dangerous for people who still approach the markets in a traditional manner.

Here is the updated chart of U.to, along with several U's in launch mode. Look at the elephant footprints. These guys can't wait to stampede into the next 'play'. URZ was NFTRH's main play on the U's for a trade (and yeh, I sold it too soon, dohhh) but I've held... ah hell, I'll name it since Otto has been pumping it left and right over there at IKN ;-) FRG as an investment since the dark days of Armageddon '08 along with a TSX listed little guy that I have not named due to its relative illiquidity and penny stock status. But it, unlike the gold burdened (huh?) FRG, is in launch mode.

As a side note, there is no better way to pitch a product than to allow prospective buyers to sample it. Historical NFTRH continue to be added here, where you can do some work and evaluate the letter for what it is, and for what it is not in these times when sentiment and perception have come to the forefront. NFTRH was among the analysis sources on the lookout for the current global market rally (Hope '09) and it seeks to be ready for what comes next, and sentiment-wise, things remain on track (as I type the Fed is touting the recession is weakening and the market is buying it). Is this a real recovery or is this the 'false dawn' that would ultimately break the hearts of the hopeful? Whether or not you choose to give NFTRH a try, please keep that question foremost in mind going forward.

Back to the post's theme, here is U.to along with some U charts complete with elephant tracks:

Global Market Perspective

EWI is extending its free access to the Global Market Perspective until May 8. I know a lot of readers have taken advantage but if you did not, you have another chance. I downloaded it and it is huge... and worth your while.

From EWI:

Great news! Due to thousands of downloads and tremendous demand, Elliott Wave International has agreed to extend free access to its global forecasts until May 8. If you missed out on the original offer, now is your chance to get more than 100 pages of free analysis and forecasts on every major world market.

For the first time ever, EWI is giving away one month of its most popular global analysis publication, a 120-page "little black book" of investment insights called Global Market Perspective, which includes EWI's three regional publications:

• The U.S. Elliott Wave Financial Forecast ($19/month value)
• The European Elliott Wave Financial Forecast ($29/month value)
• The Asian-Pacific Elliott Wave Financial Forecast ($31/month value)

PLUS, the 120-page book includes analysis culled straight from EWI's professional-grade Specialty Services, each of which is valued at $199/month. This means you also get analysis and forecasts for the following global markets:

• World stock markets (China, Japan, Korea, U.S, France, Britain and more)
• Global interest rates (Australia, Europe, Japan, U.S.)
• International currency relationships (U.S. Dollar, Euro rates, Swiss Francs, Japanese Yen and more)
• Metals and Energy (Crude Oil, Gold, Silver, Natural Gas)
• And so much more!

It’s not too late to take advantage of this special offer!

Learn how to get your free 120 pages of global analysis here

Credit Spreads and hope...

I have pounded away at the gold-silver ratio, t-bills vs. long term treasuries and other indicators in an effort to get a look behind the scenes into the 'invisible' story being told by markets when they are viewed in non-nominal terms. Now that this leg of relief appears to be getting long in the tooth, I thought I would put up one of several ratios that can be interpreted as a credit spread. In this case the perceived relative safety of long term US treasury bonds vs. high yield corporate bonds. I think I will start incorporating some version of this in NFTRH along with the other indicators as the story of the increased sentiment toward risk taking is of course a contrary signal.

It appears the financial apparatus is well into the process of getting back on track, pitching what can be described as high risk (to go with the high yield) garbage with buyers willing to take on the risk. The creator of that long term treasury debt, the chronic inflator known as the US government is backstopping everything, after all. This chart generated a bullish divergence for the stock market when everyone was convinced the bearishness would never end.

It would be wise for people to remember to be scared when everyone is brave and consider being brave the next time everyone is frightened. The reason I hedge on the latter is that it is no sure bet that our operating script ('B' leg down before new and hopeful highs in the market) will play out. Regardless, there is a lot of bravery going on out there in Ponzi-ville, and it should be due to terminate soon. Then we begin to watch for a would-be 'B' leg leading to 'C' up to new highs. Emphasis on 'would-be' as we want to make this mess prove itself to the bullish side. It remains a bear market after all, with potential on this rally to eventually reach the downtrend line noted on the chart, or even higher as there are longer term lines that can be drawn to higher levels. But first things first...

Mr. Sinclair - Gold, Swine Flu, etc.

As I have mentioned before, I am on the mailing list of Tanzanian Royalty Exploration Corp.'s CEO and noted gold analyst, Jim Sinclair. Now, this gentleman has been in the gold sector trenches and at war with the CoT 'Commercials' since near the beginning of time, but I still do not find the following to be helpful.

My critique is as follows:

1) People calling themselves 'Comrades in Golden Arms (CIGA)' are setting themselves up for disappointment and a weak handed position due to the 'at war' imagery. That is because emotion enters through this image and in war there are winners and there are losers. To me, if you have fought the gold wars long enough, you still lose even if you one day 'win' as your hyperinfaltionary ship comes in. You lose because the constant 'at war' stance has degraded you, taken chunks out of your being. In short, I do not think it is healthy. Also, gold is a tool. We do not want to worship golden idols here. We want to avoid the damage being inflicted by a corrupt and bankrupt system. Gold is not the be all and end all. It is a means to an end.

2) Gold is simply a throwback to honest money. If we are confident in that simple concept, then why get all worked up at what the 'evil' cabals, banksters and global conspirators are doing? Truth wins in the end. Have confidence.

3) Getting behind a leader, maybe especially a grizzled, experienced and charismatic leader in the gold wars promotes a herd mentality. It stunts the process of coming to understand oneself and gaining confidence in one's own decision making process.

4) All too often I find honest money being wrapped up with negative things like Bird Flu, a tenuous Pakistan, SARS, general Middle East and oil conflict and now, Swine Flu. The worst global terror to me remains the Keynesian debt paper experiment that is trying to exponentially expand even now, as it threatens to deflate. Gold pays no dividend because it is not levered against any of these scams. That is really all you need to know in my opinion. The terror, war and pandemic angle is counterproductive.

Here is the most recent email going out to the 'gold community':


Dear Comrades In Golden Arms,

Stay Focused.

The first fallout casualty of the Flu panic today is a $50 billion dollar request to the IMF by Mexico. Quantitative Easing is going to shift into high gear everywhere.

The COT are such a lucky bunch that are perfectly positioned to hammer gold from unchanged into the hard negatives since about 5am today.

If you throw away your gold protection, as some of you are right now, you might as well take off your mask on the Swiss train car with the exploding virus vials or run up to someone in Mexico City and say please sneeze on me a few times.




Keep your eye on the ball.

Respectfully yours,
Jim

A little HUI micro-management (60 min. chart)

TYX & IRX

Today is Swine Flu day and I am going to let multitudes of other sources cover it as I put up another boring chart. Long term interest rates are doing what Mr. Bernanke does not want them to do and they are doing what the naive people who listened to the reprehensible Larry Summers do not want them to do. They are making a move toward breaking out of the long consolidation to the upside.

This, even as t-bill rates are declining as somebody is showing desperation for safety from the chronic inflators in high places.

If I am right about this, how perverted is it that a respected American official can sooth-say unsophisticated people into the supposed safety of long term treasuries while providing cover for our 'partner', China to slip on down the curve, barely noticed?

NFTRH30 out now

NFTRH30 starts off with what is likely to be the first of several segments to come about trading and portfolio management. We can have all the fundamental education in the world but this can be totally negated by counterproductive trading habits and a poor risk management regimen. There is so much more that goes into effective trading against a world of competitors, all would-be winners in a game that relatively few actually win at. Trading is not 'one size fits all' and there is a heavy psychology element that I believe disqualifies most normal, well adjusted people unless they are willing to do the work of self reflection and understanding and break deep seated habits and impulses. NFTRH30 has only scratched the surface of this extremely interesting and potentially rewarding subject.

Gold and gold stocks are looked at in much detail as is an individual gold, silver and copper miner New Gold (NGD) that I have owned in one form or another since buying the dear departed Metallica Resources at a buck several years ago. A NOBS research report on NGD is also forthcoming as part of NFTRH30. The gold-silver ratio is again used for a take on general market and economic sentiment, this time in a weekly view. Broad market and commodity risk level is noted. The dollar remains on the course NFTRH has been following for several weeks and current portfolio structures are reviewed.

NFTRH30 is 12 pages of what I consider very relevant material at this juncture.

Revisiting Inflation / Deflation

You know, it is very pleasing to me that the readers of the blog are not just concerned about trading, about market direction or perish the thought, stock picks. I myself have less and less patience for people who only care about the trade, as if the system that the trade relies upon is going to be there forever. A lot of readers of this blog care deeply about the macro fundamentals that serve as the canvas upon which all the other stuff is painted. There is no more important macro fundamental than the dynamics at play between inflation and deflation. This from a blog reader:

"...Inflation after all, is what is happening now. Never mind general prices. They will follow one day after the trade is well in progress. [--Gary]

Principally you may be right. But as Prof. Fekete says, when it takes more credit dollars to produce one dollar of GDP, an economy is devouring itself. We have long passed that point, and I don't think the system is fixable with today's tools. A complete overhaul is required. That inflation is baked into the cake is a given with today's printing orgy. Problem is real deflation can be much faster and more vicious than inflation, because it is a natural reaction over which the banksters have little control. So while inflation is certainly programmed and on the way, deflation might kill the economy first, before inflation ever has a chance to manifest itself in a serious way.

Could you address that question also?
Thanks, Peter"

I am not an economist. I am a business person and a stock trader. Oh, and I happen to be honest about what I see and have seen for many years going wrong in the macro global economy. And I am talking decades, going back to the mid 80's. As the owner of a US manufacturing business, I have watched the global economy stacking itself against me little by little and through various means over the entirety of this time. This constant pressure has forced progress upon me and my company and this progress has been a really good thing.

But I have also carried forward the issue of what the hollowing out of the United States, a great industrial superpower, will do to the country as a whole. The idea that we can consume our way to prosperity has been a constant slap in the face to members of the US manufacturing sector. My company, with its focus on technology and its niche in the vast 'service' industry, health care, has survived. But many less scalable and adaptable companies and industries, have gone the way of the Dodo Bird. That is fine I suppose, in the name of progress, in and of itself. But to think that productivity can be replaced with consumerism has been a recurring slap in the face to people who lost productive jobs in service to this utter, failed mess we now find ourselves with.

I agree with Peter, that we are long past the point of devouring ourselves. We have long since eaten our seed corn in a pathetic attempt to keep up the illusion. I will leave the inflation/deflation mental masturbation to the intellectuals and academics because we really are in uncharted waters, and there is a gaping hole ripped in the hull. Nothing is going to work and the only question is which poison will win out. Deflation is and has been trying to happen for many years. Inflation has been promoted by policy for many years. That is all we really need to know and it is why, dialing back down to the micro, I am a gold stock trader. As long as the system remains intact and lurches forward, they stand to be the big winner for all the reasons I have put forth and continue to put forth in my newsletter.

Meanwhile, here is something I wrote on deflation back in 2004. Again, it is written by a business person, not an economist. I don't see any reason to change my thinking now. I have said all along, that the next real deflation will be the last deflation and the end of the current system. I am not prepared to definitively state whether I believe there is one more inflationary kick save in the making or not. But the system is going to end, sooner or later. Meanwhile, I for one move forward with that depressing fact in mind, as I have for decades. From the article:

"The well-spring of productivity has been drained by ever larger government and spending. Not only has productive value been drained, but the spending has continued right off the balance sheet and into mind boggling debt. Thus, a deflationary spiral could only be painful now. The same entities that have told us they will defend us against it are the ones who made it malignant to begin with. I can't help thinking of the Jungian "shadow"; the longer it is denied, the more fierce it will ultimately be in exacting revenge for that denial.

I have read respected analysts who believe deflation is on the doorstep, others who believe it has virtually no chance of occurring while the Fed is on the watch, and yet others who see inflation leading to deflation or visa-versa. I regret to say that what I see, as a member of the real productive economy, is a blow-up of some kind either way as a virtuous continuum of productivity has been destroyed. Furthermore, with the debt levels off the charts and an electorate more concerned about George Bush's IQ or John Kerry's backbone, we are in no position to deal with it either.

To think, it didn't have to be this way."

I hope this at least partially answered your question Peter. Also for reference, regarding deflation being 'much faster and more vicious than inflation', subscriber 'J' addresses Bernanke's predicament nicely. I added his thoughts at the end of a previous post.

HUI - sitting on my hands

Is that a bear flag forming or has Huey decided to turn up for real ABOVE the support that is compelling for reasons noted in NFTRH? Today, I am sitting on my hands in that comforting place where I know I would like to add gold miners, but can afford to wait out the answer to the above question. That is because of the strategy that I have used for years now, which keeps me well in the game even when I sense a correction coming.

I am human and thus I do get thoughts like 'dohhh, you saw it coming... why didn't you dump everything?' Days like today are the answer. Because we can never really pick the tops or bottoms and I have found that liberal profit taking, while maintaining holds on positions that I am pretty sure are going to be drawn down in the short term, is a winning strategy. I honestly care not whether that is a bear flag. I will welcome a decline to HUI 250 as I will welcome the next leg up.

Separately, I want to share this email from a subscriber and blog reader. He is not just those things, he is a very substantial market person. Correspondence like this remains the 'free bonus' I get for having a newsletter and for operating the blog.

Gary as a regular bullion trader, I am always aware of the price manipulation; it’s been going on for years and you factor it into your trading and spend as little time as possible being stressed or ranting about it. However, lately I am quite convinced that Ben the Butcher has taken his thumb off the scale. Why, you ask…Ben is desperate and he has to inflate before pernicious deflation takes hold and I believe he came to the conclusion recently (since nothing else has worked) that if he lets the hard money (gold) run it just may provoke enough fear in the masses that all their postponed purchases just may cost more next month. If it provokes these inflationary “fears” he also gets the USD going over the side and he will feel doubly blessed. Meanwhile he gets the market to do all the heavy lifting and I assure you it will as the bullion banks and those they have lent to get squeezed as the central banks either want their gold back or raise their lease rates. Best, J

Thank you for your insights as always J, do you mind if I post this on the blog?

Sure, just don't tell them about my aluminum foil headgear.

J, it is no wonder you have remained so rational sounding throughout all of this. Aluminum does not work. You need the real deal, TIN!

Aha...just read your notes and I see that you do favor tin...well I shall try it and report back.

Deflation returns to Britain?

Did you know deflation has returned to the UK for the first time since JFK was running for president of the US? Well, this guardian.co.uk article wants you to know that yes, it is true! DEFLATION has returned!

"Deflation returned to Britain for the first time in nearly five decades last month as prices measured by the retail price index (RPI) were lower than the same time a year ago."

I have not belabored this point for a while now because with all the hopeful market activity of late, sprung by the heroic inflation efforts by Britain's leaders, along with those in the US, China and Europe with a dose of G20 and IMF noise thrown in for good measure, it was time for the deflation angle to take a back seat.

Now, I am not going to argue that deflation does not exist and is not possible. If the forces of credit contraction can overwhelm the desperate Keynesian Hail Mary attempt, then the dark forces of deflation and perhaps depression will indeed come calling. But please do not present to me falling prices as evidence of deflation, as this article does.

Falling prices should be good. No matter how a political and financial establishment would like to have us fear falling prices, they are good for the whole of society and are NOT deflation. Deflation can be defined as the contraction of credit leading to the contraction of money supply. Global authorities are inflating 24/7 and articles like this one, highlighting falling prices, help give them license to do so. The system is trying to save itself, but is not necessarily trying to help you or me.

Now of course, with the way a would-be sound and productive global economy has been perverted by decades of meddling policy, falling prices now come with a downside. That is because leverage is unwinding at the same time. So policy makers pretend that deflation (incorrectly defined as falling prices) is bad, most people believe them, and there is cover for more toxic policy. Do you see why my newsletter conjures up the Rabbit Hole? It is because you simply must get a different view on these clowns and stay one step ahead.

Inflation policy is happening 24/7 and it has nothing to do with prices. Authorities have no choice as this is the system they have built. The system will end if policy is not successful. I believe they will be ultimately successful, with success defined as a tepidly recovering economy with another leap (ho hum) in moral hazard that may hold the potential to end the system one day soon, if the current crisis has not already done so.

Your eyes are being diverted. I do not own a tin foil hat and I ignore those black helicopters flying outside my window. But I see articles like this and it really kind of ticks me off that most people believe in fairy tales about deflation, and those about inflation as well, for that matter. Inflation after all, is what is happening now. Never mind general prices. They will follow one day after the trade is well in progress.

Gold manip - a rational take by Gary North

"The latest example of this came at the G20 meeting on April 2. An announcement was made that the International Monetary Fund will make available special drawing rights (SDRs), which will serve as money for central banks. To raise some of this money, the IMF will sell some of its gold. That was the official announcement.

The IMF has been threatening to sell gold for several years. To do this takes a majority vote of the member nations of the IMF. It is clear that the member nations are willing to allow the IMF to do this. Previously, this was not clear.

The figure quoted by the press regarding the amount of gold be sold is 400 tonnes. World production of gold each year is in the range of 2500 tonnes. It is unlikely that the IMF will sell all of this gold at the same time. It is likely that these sales will be stretched out over at least a two-year period. So, the sales are likely to increase the supply of available gold by perhaps 8% for two years. In a time when central banks are increasing the monetary base by 100% per annum or more, this increase in the supply of gold available for purchase is not substantial."

Why Gold Owners Are Targets of the Government

This is coordinated fear mongering by our illustrious monetary leaders. Unfortunately, people not attuned to how markets work, will fall for it every time. Mr. North sums up as follows...

"Why would a central bank or the IMF say in advance that it planned to sell a large portion of its gold holdings? When a large holder of commodities is going to sell the commodity into the open market, he does not announce this in advance. His goal is to maximize the amount of money he gains by the sale of the asset. If he warns the world in advance how much he plans to sell and over which time period, this will depress the price if the sale constitutes a significant quantity."

Think about it.

Final word from Mr. North: "Governments and central banks are going to lose the war on gold because they refuse to fight gold by the one technique that can give them victory: stop printing money."

Gold stocks vs. broad stocks

The gold miners led this mess out of Armageddon '08, just as they did back in that training run for today's crisis, the giddy old days of 2001.

Feel free to get emotional, to let the noise bother you and to make incorrect decisions due to these forces. I am going to keep my eye on the ball, and the ball says that soon the gold miners are going to re-assert leadership.

But of course, I don't have the actual fact in hand yet to back me up. We will leave it to the momos to grab hold of the actual fact later on well after the reversal. Meanwhile, I look to add at the previously shown 'buy op' levels.

Gold doing the expected too...

Let's not forget that this had to happen. Gold became technically over-extended. We saw it, we prepared for it, and now we must endure it. I am pretty sure I know where the real trade exists beyond these adjustments, but said adjustments can drag on for an inconveniently long period of time.

I cannot give you a call on whether the nominal correction in gold, nor gold in terms of the positively correlated assets, is over. My hunch is that it is not. On the other hand, the pullbacks have satisfied some pretty good retrace requirements. Please don't get freaked out by the 'C' leg scenario in the nominal chart of gold. It is a scenario, after all. I want to see every potential, including the most nasty. There is plenty of potential for it to bottom well above that level. But 'C' is in play.

I do not want readers coming to this blog to be bullishly reinforced. I want them coming here to see all potentials. I figure you are big enough to handle it.

Huey, doing the expected

Is it fun? Yes, marginally more so than having a root canal. But the HUI is doing what it should be doing in preparation for a test of support. 250 is the level to watch, and that is not just because of this daily chart. If the current stance is correct, it spells opportunity. If it is not, then the stance will have to be reevaluated.

That is the way the markets are. You go with the probabilities and with what is working. But you cannot control the outcomes. I believe this is a healthy shakeout for several reasons, which I go over each weekend. Now, soon we shall see if that belief is well founded.

SPX, 60 minute view

Snippet from NFTRH29: As you know, NFTRH has recoiled into a cautious stance as this week I sold the last of what was considered positively correlated (to the economy and markets) stuff. This is due to the bullish state of the Gold-Silver Ratio (shown later in the report) as well as some commodities, notably copper, having reached the targets laid out in NFTRH dating back to January http://biiwii.blogspot.com/2009/04/copper-hits-target.html . This does not however, mean Hope ’09 will not proceed higher. In fact, it is likely we are nearing the end of ‘A’ in an ABC upward correction. With the power of the historic decline into March, and with world leaders busily conspiring in attempts to construct a story that calms the angry masses (basically the story goes ‘we are going to do whatever is necessary to provide confidence and get [insert country here] back to work again’ but is in actuality ‘don’t ask me, we’re just rolling out the global fire hoses and spraying freshly ‘printed’ money around until the pain stops’) it will not be surprising to see this be a drawn out affair to the upside.

Well, 'A' wasted no time in announcing its completion, as the market did end last week right at resistance that was noted on a daily chart in NFTRH29. With the terrible fundamentals becoming all the more terrible via the policy of administering more of the poison that killed us, I do not confidently declare this merely an 'A' leg into a 'B' decline before new highs. But the A-B-C is on the table and bears who are looking to get back in business might want to take note. This scenario has implications with gold and commodities as well as it appears markets are moving in concert, which is a far cry from the all out panic of October-November 2008.

NFTRH29 showed the daily chart of SPX to plot out a potential upside target along with a big picture monthly to support the case that there may be higher to go after shaking the momo players and 'sellers' remorse' capitulators.

Here is a 60 minute chart showing yesterday's breakdown with some downside targets. At this point I am not sure whether I will plan to buy anything positively correlated to hope for a would-be 'C' leg into summer. I prefer to just let things unfold and see if we are correct on the A-B-C correction first.

Just a bunch of lines on a chart?

Well, you could look at it that way. What I see though is a picture of correlations and inverse correlations, one stock index relating to another as well as to the product (gold) that its components produce.

We all see the 250 support in the HUI but are we looking at its significance from all angles and time frames? There is more to this than the daily chart and it spells 'buying opportunity'.

Gold's inverse correlation to the entire 'hope' trade, including commodities, is heartening in the short term, as the markets look set for the predictable short term correction. But will gold suffer the much ballyhooed 'C' leg of an ABC down to 680 later on as markets recover for 'C' (final leg) up in the Hope '09 festivities? That is yet to be determined.

There is short term trading, and there is the big picture. I don't want to get too wordy here or else I will have no newsletter business, but I will again just ask readers to realize that the short term is filled with noise. That noise is being made in many cases by people and entities with short term and very biased views. The big picture filters this static and allows you to move forward within a game plan. The counter-cyclicality of gold is very important right now. Both for financial survivalists and gold stock traders. Edit (12:55) As mentioned in an email update to subscribers this morning, the DZZ position has been closed out for a tiny profit. But that position was never about profit anyway. Gold still resides below the 'neck line' but at this juncture I prefer to go unhedged and await buying opportunities. The risk in the gold miners has been reduced sufficiently in the last couple weeks.

NFTRH29 out now

NFTRH29 starts off with a little introspection, inspired by subscriber feedback. This segment, entitled 'NFTRH Introspects' is reproduced at the end of this post. We then transition into a daily and big picture monthly look at the broad US market, also taking into account the similar status of most global markets. This segment ends with a look at the major US bank index, which of course holds the 'assets' of the primary global financial culprits.

Commodities are then reviewed with a review of those on the way to target, those at target and still others that are non starters. NFTRH views hedge fund rotation as a factor here. But risk is rising, at least for short term corrections of the positively correlated stuff and the gold-silver ratio remains front and center. I believe Hope '09 will have a chance at a pretty good run, but things are stretched at the moment in the world of commodities and stocks.

Precious metals sentiment is coming along nicely and a new indicator is introduced along with a new charting service I have subscribed to that will augment the stockcharts.com subscription I use. This helps refine and improve the tools NFTRH uses and will provide more enlightening views into sentiment. As for the gold sector, let's just say it is time to be open to bullishness now that sentiment is declining rapidly.

NFTRH29 covers the US dollar and some final thoughts before reviewing the state of the capital preservation and speculation portfolios. NFTRH29 out now. Check out NFTRH for a month and you might just find yourself sticking around.

NFTRH Introspects

I think a quality financial market newsletter should evolve over time. A key factor in this evolution is in understanding strengths and weaknesses so that strengths, which subscribers are likely relying upon, are emphasized and weaknesses are not put forth too often with the unrealistic expectation that they will do anybody much good, given the wealth of other information sources available.

Why the introspection? Well, this week on the blog I asked for reader input on the dynamics at play in the ultra-short Financials ETF, SKF. What I got were some highly informative responses from NFTRH subscribers. This led directly to the following exchange with an NFTRH subscriber:

Peter: I was under the impression you were aware of this, but just in case you're not, the key to understanding why the two don't correlate too well is similar to the fact that a decrease of 50% in something followed by a 50% increase does not get you back to the original starting point (100-50-75). Since these 'double' funds (including the double short silver you were/are using) target % daily returns, they only track if the path up/down is a straight line. A lot of back and forth kills those correlations (I've done the math/simulation in an excel sheet, if you're interested I can send it to you). Fyi over at Minyanville (where as far as I can see Kevin Depew is basically my -cheaper- view into the thinking of the elliott wave guys) call them trading crack, only to be used over very short time periods, probably less than a week... All reasons why I use the regular short funds, not the double ones to keep for an possibly extended period of time, like now with gold :-)

Gary : Yes, send the spreadsheet along if you get the chance. I am going to strictly day trade this stuff if I touch it at all. I am more interested in getting the big pic right and that is coming in nicely.

Peter : Here you [go]. It's got a few scenario's in it, some quite [interesting] (if you're fairly sure of a large move, even a hedged position will do well). The one you're looking at is at the bottom of the tab, when it goes up and then back down (or vice versa), you'll see that's a money [loser]...

Gary : Ah, a MATH guy! You will note that I am a psychology guy and a looking at pictures guy. Definitely not a real numbers guy. I will try to make sense of [your spreadsheet] though. :-)

Peter : LOL, big time numbers guy :-))))) Economist by training, but I've recently learned to appreciate the psychological side of things. Before that I was more in the Otto camp, but I can now see the value in the technical analysis (as the underlying is really mostly psychology), hence why I like the added-value provided by your newsletter!!!!

Gary : If only the markets were rational and stuck to the numbers. According to my pal Otto copper would still be on the mat. Luckily, it is not all just random. Usually the pictures are dancing with one another and more often than not make sense if viewed through the lens of sentiment. I am a bit of an oddball in that I am not able to become expert at any singular thing, but I am able to make sense of many things all juggling at once.

Peter : Not a skill numbers people are know for :-) which is why I (need to) surround myself with people who do have such skills...

That is how NFTRH sees itself; as added value in a world full of quality analysis of PE ratios, high risk and lower risk bonds, measures of money supply, cyclical sector analysis, global macro analysis and so many other well defined aspects of the world of finance.

I believe this added value is vital because markets are not always what they seem and they do not always act rationally in any given short term segment. The ‘misperceptions’ you have seen me write about over and over again are the result to too many people accepting the easily dispensed bromides of an industry that is geared to get as many people on the wrong side as possible. The winners need a counter-party after all.

Sentiment and technical analysis play a big role in leveling the playing field. I do not know if you have ever seen me use the term ‘PE ratio’ before today, and there is a reason for that. You have however seen me write in sometimes cartoon like fashion about casinos and herds with the odd flying pig image thrown in for good measure. I am trying to illustrate. NFTRH is trying to paint a picture. A picture that never ends but just keeps filling in more color and depth. I will use raw data, as you saw when I put up that money supply, TED and LIBOR data week after week during Armageddon ’08 (which is, along with Hope ’09 really just another image in support of NFTRH’s sentiment analysis). I will certainly use ratio data between asset classes however, as this is an overlooked and extremely useful tool for determining what is going on beneath the surface of markets. I think ratios take TA to a whole new level.

NFTRH will always seek to understand macroeconomics from a big picture standpoint and work its way down through the daily, weekly and monthly grind of navigating markets by using this understanding in conjunction with technical analysis and sentiment psychology to keep us on the right side of markets that can be downright confusing more often than not.

As a side note to the above, Otto took his cameo in the email exchange above in the spirit intended, as I would have expected. I think the world of this man's market analysis as well as the way he views the world.

Gold target correction

This is something that a chart twittler hopes never to have to do, but I put something out there in the public realm that had an error on it. A 100 point error. As I was working on a gold chart for NFTRH29 this morning, I realized the measured target noted in this article should have been 780, not 680. I had noted in the article "if said decline comes to be and that's a big if" and now we can change that to 'that's a really big if' as in highly unlikely, although there remains a valid ABC correction scenario on longer term charts that still holds that potential.

You go years and years doing this stuff, double checking your work and trying to put out the best quality analysis possible and then... out of nowhere, a boneheaded screw up! Please accept my sincere apologies for any discomfort this may have caused.

On the plus side I got the direction of gold right as the over bullishness in the sector implied a decline. So, anyone who prepared for a decline is looking good. Here is a corrected chart, which actually pleases me greatly as it appears we can begin preparing for the end of the decline much sooner, as in now.

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USD: Daily bullish, weekly not so much...

We have been following the dollar each week in NFTRH as the weekly chart remains bearish and I have been looking for a decline to the daily SMA 200, which would just be a reaction down to the lower line of a potential rising wedge, as the dollar grinds higher over the months ahead.

That is still the scenario I am operating under, because the weekly chart is more compelling beyond the next few days than the daily shown here. But the daily chart and current market events force us to redraw the lower line in an exercise of 'what if?'.

The current events I am talking about are things like yesterday's top call on copper by a major financial media outlet claiming copper can back currencies, stories beginning to filter through the noise with the predictable 'worst is over' patina to them, and of course stories beginning to surface that gold is headed to below 700. This, even as the CoT makes a move toward bullish. Let's see what this week's release has to say there. Meanwhile, I still hold the DZZ 2X gold short. But, I suspect, not for long.

Our script is playing out so far and if the script remains on track some pretty big changes are coming before too long. That includes the dollar, which is resisted here by the SMA 50 and should be supported by the SMA 200.

'Another screaming copper has topped signal'

Otto and I have had a friendly back and forth on copper over the last few weeks. Otto, the base metals fundamentals guy says copper is bearish, there is no reason for the rise. Me, who is technical and sentiment oriented says 'yeh but, it's a technical sentiment thing... SMA 200 is a magnet'.

Well, my parameters have been met and I am neutral now and certainly not buying the base metals story. The trade, regardless of how much higher it may go in the short term, is over for me. You can read Otto's post on the subject of Ambrose Evans-Pritchard unwittingly calling a top in copper with what I found to be a hilarious article after it was emailed to me by a friend just this morning. Leave it to Otto, nothing gets by the dood.

Adding a weekly chart of copper. I have shown the daily with our target around 2.05 previously. Usually unwitting top callers have a grace period before their status as contrary indicator shines through. This chart, dialing out to a bigger picture, shows where that period may end. Bear in mind that all this noise is just part of the Hope '09 festivities.

See the big picture, I implore you

The 'gold community' whatever that is, has its generals, its leaders and its deep thinkers who often do the hard and deep thinking for the gold herd. I have watched for years and years the 'community' march up Hamburger Hill, rag tag bunch with heads bandaged, a couple guys on flute and drum out front with a strident and unyielding general in the rear barking out orders.

Every friggin' time they get mowed down and sentiment shifts from overly confident to very cowardly. Right about now they are dropping their weapons and running back down the hill.

What, you thought being a bear was easy?

You know, I have little doubt that SKF (ultra short financials) is going to make people who are brave enough to buy it a lot of money one day in the not too distant future. But here we are, probably closer to the beginning than the end of a major bear market and look at this thing... absolute devastation.

This vehicle attempts to leverage short the Dow Jones US Financial index, which includes JP Morgan, Goldman Sachs and Wells Fargo in its top holdings. In other words, the fix was in against anyone who bought SKF and just tucked it away into their bear market portfolio. Being a bear in a bear market can sometimes be worse than being a bull in a bear market as you get blown up watching evil geniuses attempt to engineer their way out of structural and systemic problems. I expect them to ultimately fail, but the damage that they can do with desperate, dishonest and ultimately inflationary policy, as they try anything to instill confidence, will have terrible effects on what is left of the economy after it finishes goring this bear fund.

Side note: You recall I took advantage of the ElliottWave International promo a few months ago for 40% off of a 3 months subscription? I did it because I wanted to see what the deflationmiesters had to say over what was sure to be an interesting run up to spring (and the anticipated hope pump). Well, I have to give credit to Prechter who dumped all his shorts in the time frame that SKF was peaking, before the terrible decline. They did not catch the exact bottom in the S&P 500, but they got the huge majority of the decline. That was a simply masterful trade. You never hold out for the exact top or bottom if you are a trader and especially if you are a bear.

Now, if anyone knows how and why SKF (XLF - financial ETF - is still less than half its level of September) tracks so poorly, please let me know. I know the fund uses derivatives in gaining its leverage, but this downside 'leverage' is ridiculous. It is this poor tracking that has kept me out of SKF, and made me take profits quickly on its sister, SRS (ultra short real estate) a few months ago [edit 7:48 and I think I gave the majority of them right back back just as quickly in a separate trade, as I recall]. I have my strengths, but micromanaging the internal dynamics of some of the tools I might use is not one of them. And this thing is a tool, a very dangerous and potentially profitable tool.

So I will plan to keep watching the banking index (NFTRH29 will begin to plot the upside target for BKX and by extension, the entirety of the Hope '09 festivities) and XLF for signs of upside exhaustion and see if I can't get a poke at this monster for an exhilarating ride in the other direction.

And no, dat ain't no recommendation. The recommendation remains a grounded, well balanced view of the markets and capital deployed sensibly with regard to preservation in a bear market. The wizards are attempting to instill confidence right now. But we saw this coming before the dopey bulls, did we not? Keep a big picture game plan front and center at all times.

Edit (2:15) Thank you for the very insightful responses from readers that clued me in on the dynamics at play on the 2X leverage. I think I will avoid this for anything but a DAY trade, if even that.

Guest blog on MarketClub Traders blog - Ratio Charts

I have bludgeoned you, dear blog readers, to death with ratio charts over the last few years and that is for a good reason; they are invaluable in helping us see things that may not be readily apparent to 'nominal' stock and asset traders.

The best recent example is the out-performance of gold to other assets (gold's real price rising) with many of those assets representing gold mining costs. While many people would not touch gold miners with the HUI sub-170, we knew that the real price of gold, and hence the gold mining industry's margins, were improving. We bought. We profited, and it was all because of this compelling view into gold in ratio to other assets.

So, I know most readers get the concept. But you can check the post out here if interested. The MarketClub blog gives frequent lessons in trading and also some nice commentary and analysis from other guest bloggers.

Euro

I do not often show currencies here and I guess that is because I like to spend more time looking at things with some kind of intrinsic value as opposed to stuff that has value simply because governments say it does.

But currencies are key to the goings on in the asset world of stocks, commodities and precious metals, so it is good to keep an eye on them. Here we see the euro looking to confirm a double bottom, break the downtrend and attack the SMA 200. Importantly, a break of the dotted blue line targets the all time highs. That is not a typo. The downward slope of the 'W' increases the power with which the all time highs should contain the euro however.

This could fit in with the scenario whereby the US continues to attempt to degrade its currency and Uncle Buck actually obliges for a while. Note to NFTRH subscribers: You know the minimum downside target I am expecting for the dollar, but if the situation in the euro expresses itself to near the all time highs, the buck is going much lower in the near term. Let's keep an eye on this situation. A rising euro could play a part in the global relief rally. Caveat: The Yen could also be nearing a short term bottom, and it remains to be seen what the ghosts of the old carry trade might do there.

ZSL mental stop

Unlike DZZ, on which I have an actual stop in place, I have been taking ZSL (2x short silver) day to day. Well, today I took a 6% loss on the position. Silver's chart actually looks more bullish than gold and I am well aware that even on gold, a weekly chart shows support right here.

As I said before, I am naturally a weak handed short with the precious metals. SLV popped up, perhaps to fill a gap before declining. But I had shorted it because of what appeared to be a little bear flag forming and because of its positive correlation with the gold stocks, which are my major holdings. Given that the flag expressed itself upward, I figure I will just hold cash and await buying opportunities as they present.

At least I know why I hold DZZ and what the limits are. With ZSL, I was never really sure on either count. Hey, it happens.

Big picture- Gold and t-bills

One of those busy macro charts comin' at ya. I am getting a bit tired of fooling around with the short term noisy picture of gold and want to again shift to the big picture where it is so quiet and where rational and monetarily sane people should be focused. Sometimes the trader in me gets interested in the short term, but this is where the real money is made - or preserved.

So, despite the less than bullish short term potentials that have been shown on the blog recently, the big picture is much more instructive to what is really going on. If those who remain unprepared for the next inflation cycle are lucky enough, a decline to the noted support zone just above and below 700 would indeed be a gift. Support up higher would need to break first however, and that roughly corresponds to the daily support we are watching in the short term. But again, that is the noisy short term stuff.

What I find interesting in the big picture is the expanding volatility, represented by the MACD momentum indicator that has awoken from its slumber in a big way since well before Armageddon '08 began its eruption and on through today's Hope '09 festivities. This implies elephants stampeding in and momentum players being driven out. The MACD is actually a nice visual of a real bull market being played to the fullest. It is a picture of winners and losers with correct perceptions and bogus ones. It is a picture of a noisy struggle that will ultimately shake out with investors having made their beds based on their perceptions and based on who they choose to believe.

Meanwhile, the lower panel shows the 3 month t-bill interest rate, or what used to be an interest rate before the United States finished devouring all of its seed corn. Note the steady decline in the 'interest' in participating in the US as a going concern? When people (or entities, or global business partners) buy t-bills, they are concerned about solvency and they may also be concerned about inflation. This panel shows a long and ongoing march to the bottom while the chart of gold above is a reflection of what is probably the best monetary tool to avoid the devastating effects of this degradation.

First things first however; the short term must play out and perceptions must be sorted through. Winners and losers must announce their intentions before the real macro play kicks in for all to see.

Side note: Please do not read too much into the fork. I am just having some fun with it again lately.

Edit (10:59) Reader JC nails what I am shooting for:

Greetings Gary -

Always enjoy your stuff. The charts you posted today are the encouraging visuals we need to see. This is what makes one take a step back to get a birds' eye view of what is reality, for there indeed is much noise & confusion going on at the ground level. I think at this point the only factor of any relevance is the Acceleration Rate of already established trends.

Keep it coming.

Best, JC

Speaking of shorts - SPX looking wedgie...

The market was experiencing what looked like a nice, normal correction within an ongoing intermediate uptrend. Then the Washington-Wall Street pump tandem took over last week as Wells Fargo saved the day. Typically, news driven pumps are not sustainable.

I can see two scenarios here. 1) More 'oh I guess the world is not ending' financial sector results burst the BKX up to target (which I am beginning to look at) in a blaze of glory and the rally ends sooner (April/May) rather than later or 2) the market takes a correction (retracing about 1/3 to 1/2 of the wedge) for a more sustainable rally that goes well into summer.

Here's a 60 min. chart of the SPX.

Shorts

No doubt some of the more strident gold bugs are releasing endorphins right now as we get a nice little pop, but there is enough slush in the distance between the neck line (hey, maybe I should have named this post neckline with a thematically correct picture) and my stop loss level that the gold short lives on. As does that in silver.

But it still says here that it would not be a bad thing to purge more of the unhealthy gold holders who a) are financially soulless and only bought their GLD (not real gold folks) because they felt compelled to or b) worship this hunk of metal as if it were the be all and end all of everything. No, life is everything. Specifically quality of life is everything and gold can be a tool to help in that area. The 'go gold!' cheering squad really should take another hit.

That said, the breakdown is on the verge of being negated but there is a reason I put slush in the stop; I want evidence of it. My gold mining positions, which have not only all been held but in a couple cases added to recently, are dwarfing the temporary damage of the DZZ and ZSL positions. As I wrote in the article that brought in some gold bug misery, I actually hope the shorts fail. But I am not yet prepared to declare they have done so. Regardless, the big picture remains err, bullish. Big time.

NFTRH28 out now

NFTRH28 begins with a review of the sentiment picture, both in the gold sector and over there in the conventional world as Hope '09 takes a stride forward. With each stride forward for the hopeful, we shimmy backward into caution mode and caution indicators are again reviewed and will continue to be going forward, as long as is necessary as predictable sentiment events play out. Here is the second half of the opening segment of NFTRH28, Sentiment Picture Becomes Clearer.

NFTRH28 looks at the progress of the stock market with regard to ultimate targets, near term resistance and support levels as well as the progress of the stock market's real price, in terms of ounces of gold. Yes, it's a sentiment thing.

For those bullish on commodities, a few charts are presented that still represent nice looking bottoms with the idea that the run may not be over and that the hedgies are notorious for rotation within the commodity world. Copper has hit our target and may have more upside, but there look to be better opportunities for people interested in commodities.

A positively nasty thing is going on in US Treasuries, with Mr. Larry Summers as mouth piece and soothsayer. Do not listen to this man because he is not giving you a straight deal. NFTRH28 looks at who may be being accommodated in T-bills and who may be duped into the long end. The dollar is setting up perfectly, the CoTs are improving in gold, portfolio status is reviewed and final thoughts for perspective are presented. NFTRH28 out now.

Copper hits target

Back on January 4, in NFTRH14, I set a target for copper of 204.50 based on the Fib retrace shown here, as well as sentiment and a close above the EMA 20 for the first time. Now, a target is simply that, a target, not a prediction. I leave the predictions to the swamis.

From NFTRH14: "Every bull market has a copper roof, isn't that the old line? Well, if indeed we have the rally I think we have, so too will this bear market rally have a red roof. The utter destruction suffered by this previously over-hyped sector (China anyone?) has resulted in the predictable swing to the opposite pole. Again, looking at this as a trade in human hope only, the close above the [EMA] 20 is notable and we look ahead to an eventual and potential upside target of the 38% bear market retrace level with the idea that turbulence is likely at resistance near the SMA 50."

Well, the SMA 50 did indeed introduce turbulence as copper ground out a 'bottoming stance' for the next two months, which was tracked in NFTRH. Now, it has hit target. It may and probably will go higher because you know the class of investors that are now getting their hands on the story. They are the hopers, momo's and capitulators with seller's remorse. This phase requires patience. We were early to the party and made some profits with the likes of TGB shown here on the blog and other Hope '09 trade positions, only a few of which remain.

I would venture a guess that a lot of the people piling in now were sitting there making in their pants when they should have been buying. Well, now I am fearful of these momo's. The target level can be blown away here in Hope '09, but for my purposes, the target is in and I am getting more defensive yet in preparation for opportunities in the real bull market. You know the one.

I am usually early and the 204.50 may become history, but when it was set no doubt many people would have thought it lunacy. It is time to look ahead once again.

Edit (7:32) You want a bearish signal? Here's one... Howe Street has an author on talking about 'HOPE' and iron clad banks. This is rationalization and trend following that is just one brick in the wall of hope that we have been expecting. He then goes on with some kind of 'we're too dependent on the government, we're too dependent on being wired...' kind of thing at which point I shut it off. The main nut was in the first few minutes. The stock and commodity rally will not end until the hopers believe it. This is a brick in the wall.

GLD-DIA Ratio

We'll let the chart do all the talking about the Gold-Dow Ratio or the GLD-DIA shown here.

Flying Pigs

Well, how predictable is this? Surely you, dear astute reader, get the script. Today is a major event as Piggy #1 reports a 'surprise'... wink wink, nudge, nudge: Wells Fargo Q profit climbed to $3 billion. Maybe we get a hint here about why these pigs did not lend out our money after we gave it to them. Da fix, as dey say, was in. Oh and don't tell me about the lending at the 'low end of the market'. These pigs were warmed over and bailed out of their sins and any lending they do now is window dressing and profit opportunity at other peoples' expense.

I don't know about you, but I am planning to get out my 9mm and attempt to shoot that thing thing down in time. Not now, there are too many shorts and bear true believers hiding out in the face of the miracle pig. But one day soon.

Hope '09 has a shelf life after all.

Gold - tick tock... tick tock... tick

To be honest, I would prefer that my shorts on gold and silver do not work out and that gold negates this pattern. That is because I want to see the honest monetary barometer shine a light on the big lie that government and Fed officials can engineer their way out of an absolute, unmitigated and historic mess that their own toxic policy helped create. That and the fact that I have not done any significant gold miner selling since HUI's thrust up into the 300's in February and have however, done some adding in the March downturn and nibbling over the last few days. So I have a healthy gold miner portfolio.

While gold miner fundamentals remain excellent (and will remain so even if gold takes a brief - and I expect it to be bought like gangbusters - decline to the 680 measured target on this chart) they have become somewhat counter the stock market and would take a beating if gold falls out of bed.

I remember enduring times like this back before the last bull cycle got perverted by the commodity geniuses, China story heroes and 'buy the resources sector, especially the ones that advertise on my site, it's your only hope to avoid getting wiped out by hyperinflation!' slicksters. We are in Hope '09 and it is supposed to feel hopeful to the majority - which is why it may last a few more weeks (we will as always watch our 'caution indicators' in NFTRH) or who the hell knows, months.

But again, I remember many times when a hopeful stock market was doing well and the gold sector had to endure some pretty protracted declines and consolidations. There is a world of difference now, however. The commodity/inflation mania is done. The commodity bull true believers have long since repudiated their guru leaders who kept them invested with their 'resources' brainwashing. Gold is no longer all caught up with assumptions and inflation sound bites designed to lure in the non-discriminating public. Stocks and commodities are in hope mode and gold is in counter cycle corrective mode.

As for broad stocks, it is a bear market and as I mentioned before, there is a new baby bull market in sound monetary thinking. There are relatively few participants in this bull at this point, just the true believers - and one of 'em at least is short gold and silver ;-). After the current toxic policy manifests itself in ways the policy makers never intended, there will be more riders on this bull market. That may well be the thrust that takes gold to the next major target of 1300. But even then, the bull will not be carrying a full load - a bull market ending load - like the one that finally put an end to the equities secular bull in 2000.

No, after the decline implied by this chart - if said decline comes to be and that's a big if - gold will be held by only the truest of believers after being purged of the unhealthy former casino patrons who came to Jesus during Armageddon '08. This stuff seems to take forever to play out, but it all makes sense in the bigger picture, which is why it is good to go to Radio Shack (if they are still in business), spring for the $19.95 and install one of those noise filters in your trading cap.

Yes, I am short gold and silver and yes I hope the short fails (the parameters are set). I suspect it will not however. I cannot get the nagging issue of gold's historic performance during Armageddon '08 out of my mind and all of the nervous nellies who must be sitting there owning their GLD or SLV and wondering why it's not going 'TO DA MOON!!!'. That class of holder must not be aboard the next up phase, and they won't be.

Blog housekeeping note...

There has been an off and on glitch with the blog's feed since it was transferred from Feedburner to Google. Some people are having trouble with it not showing up in their readers and I believe some email subscribers may be having issues as well.

Being a market geek and not a tech geek, I am not really sure what the cause of this is. What I think will solve it though is, if you are having problems, delete your current feed in your reader and re-subscribe with the little orange chicklet there on the right--->

Same thing for email subscription. If you are having problems, cancel it and resubscribe.

I think this will work... I think.

Gold - parameters pretty well defined

The metal is fundamentally a monetary lifeline in these times where everyone is finally facing the reality that many of us troubled ourselves over for years; that the wizards running the show are at best charlatans, and at worst political animals driven by a dull cynicism if not suppressed hatred of the public for which they supposedly work.

Keynesianism is dead, only the corpse keeps on twitching.

You are starting to hear some predictable stuff now. Bernanke says Fed will withdraw liquidity as the economy recovers, even as Geithner pledges more purchases of toxic 'assets'. The United States goes deeper into its denial even as the public becomes increasingly outraged. Ah, nothing like a stock rally to help shut them up. Alcoa has pooped stocks and commodities this morning although this could well be a necessary continuation of a decline to purge traders before continued upside by a pig that would try to get as many believers on board the happy hope train as possible.

Anyway, the charts are the charts and gold's daily chart is bearish and it remains bearish unless that neck line can be surmounted. I don't believe the sentiment backdrop is in place for a rise to new highs, but I can certainly be whipsawed out of the 2X gold short trade by this parameter, no emotion, no what if's. On the plus side for gold the SMA 200 is usually a good, solid support for a healthy bull. If it fails there, along with the weekly EMA's 50 & 75 (see weekly chart from previous post), look for significantly lower levels.

The weekly big picture is bullish, however. Gold could find support at the mid 800's or it could decline all the way to the 600's. It would still be bullish. As I have written before, that would come amid renewed hope that the worst is over with policy makers trumpeting success and pretending to be prudent. Most people who have not yet protected themselves will again fail to do so down there, if given a chance.

Meanwhile, I think it is telling that some of the people most bearish on gold's current price are the ones looking to do some buying or adding. They know this is just a counter move. Smart stock traders know that the market's predictable rally is of the counter variety as well.

Yes, I know I say I don't micromanage the price of gold. But when I am double short the soundest form of money in a monetary world gone berserk, I micromanage.

Edit (9:55) Added ZSL (2X short silver) as well given that silver tracks the HUI better than gold. I am not a true believer against these metals so I am by definition a weak handed short, and will manage risk accordingly. Edit (10:08) Put in a tight stop on DZZ to keep it simple. Neck line breaks and a small amount of slush gives way? Out. Simple.

DZZ

I just did something I have never done before and shorted gold using DZZ (double short).

You don't find many people more bullish on gold in the big picture than me. But given my holdings in gold stocks, and given my charts that continue to say 'gold lower' in all time frames as sentiment continues to correct from over bullish, I figured I would attempt to protect miner positions with this vehicle which seems to inversely track the GLD (lower chart) very nicely.

In the event that the breakdown in gold below the neck line - it is merely back testing today - is negated, I will unwind this trade so fast it will make your head spin. There are many things that could go wrong here, like a general market liquidation and return to USD and gold as the primary recipients of scared money. But that's life, a series of risks and hopefully a few rewards sprinkled in. ;-)

Edit (6:43) Well okay, I feel a bit better about this now. Just got this email from a person who I think really highly of in his capacity for unbiased analysis.

Are you kidding me Gary?

Hi Gary, I just had a look at your blog, and had to laugh in astonishment! :-)

I placed a limit order to buy DZZ last night (I don't get up for the market open at 3:30 local time unless one of my sound alerts wake me up) in case of a bounce back to the neckline after the Sunday breakdown, and got a fill this morning. Short-term short gold position before reversing long (of course I am holding on to my physical gold position regardless). I'll probably be out if gold approaches $850, though I think it could easily get closer to $800 (perhaps right around $823?).

It is scary that we did the exact same thing! :-)

Christian