Next leg down for gold stocks?

I am not bearish on Huey. I am bullish but have withheld lot's of dry powder for lower levels on HUI, as NFTRH readers know. There are several gems I want to either re-buy or add to at lower targets. So, I am not unhappy to see the gold miners get hit, possibly into new lows for the correction, per the 60 min. chart shown here.

We have our targets for several gold stocks, as well as the HUI and the most preferred ones are lower than here.

Good luck out there.

NFTRH39 - an excerpt on commodities

Just want to call your attention to a short excerpt from #39: Commodities

NFTRH39 out now

...and boy am I pooped. A great weekend thus far and in New England lately we define great as 'it hasn't rained in 12 hours, yey!'. I want to get out and enjoy some of it.

NFTRH39 considers the grind going on in markets as we roll into the dog days. Our ongoing major themes are still very much front and center and the implications of one vs. the other are profound, at least for those who would like to grow and/or preserve capital.

Have a great weekend all.

5 Fatal Flaws of Trading

At the moment I am holding several strategic short positions against gold stock positions that I am in the process of reloading after the decline from the predictable (in NFTRH) resistance in the HUI 375-400 area. These shorts may or may not end up being successful taken individually, but they are not in the speculative portfolio so that I can make knock out trades and brag about them here. They are in the port to help me be a stronger buyer and holder of the main big picture bullish area (IMO), the goldies.

In other words, I resisted the urge to dump these things as a trading jockey and take profits and instead am being what I usually am; a bottom feeder, portfolio tweaker and longer term swing trader. My self-taught method has worked to the tune of +194% since 2002, when I began managing my own accounts. Over that time, the S&P 500 is about even.

Why the tout? Because, while an annualized 20+% is not as sexy as the gaudy figures you see in those trading service advertisement cartoons, it is real and it is reflective of a long-term system that works. I understand who I am when I show up each day to the markets. I understand that I sometimes hold positions that I am fairly sure are going to lose me some money on paper in any given short term scenario. I understand that in my trading world, some things balance out other things and have relationships to each other that are not readily apparent on the surface. I understand that I need to be right about some intermediate and long term trends and then make many adjustments in any given year.

Most importantly, I understand that I need to manage risk at all times. Much of this comes from my background building, shaping and operating a real world business in a sector that much of the world has left for dead, US manufacturing. It has been necessary to be adaptable, progressive and strategic which not coincidentally are things that go into my approach to the markets.

In short, I know the trading style that works for me and that is why I am one of the 10% who can make money in the markets. Start with Reminiscences of a Stock Operator and work your way out from there. Meanwhile, understand that we are all different and there is no one size fits all if you are going to do this yourself. The only other options are to use a canned, automated service, submit to a guru or go through the process of trying to separate the pretenders from the real deals in the financial planner herd.

Meanwhile, Jeffrey Kennedy has some good basic tips to trading here: Five Fatal Flaws of Trading

Nat Gas - UNG

Separately, and in direct contrast to my bearish commodity stance is Natty, looking for all the world to be presenting one of the best looking bottoms I have seen in a long time. It's got a MACD bullish divergence to the previous strong downtrend and a beautiful looking bend upward, on volume. Even better, the trend has recently triggered up by AROON even as UNG came down for 5 days in a row.

Only caveat? Symmetrical triangles are usually 'continuation' patterns. So, is this a consolidation before new, unthinkable lows? I put the odds at 65% bullish, 35% bearish. This may be worth a look for a blogger who is having thoughts of having to consider whether he began micromanaging the end of Hope '09 a bit too soon (NFTRH's 'best case' upsides have not been registered in SPX, oil, etc. after all). Edit (10:29) Well, UNG declines this morning and I say what the heck, put some money where your chart is. UNG added in all accounts for a trade at the least. This after checking the chart of the actual commodity, which does not show a sym-tri.

Gold, silver and the GSR

The grind continues. Gold, in its ratio to other things remains depressed as the ratio pays the price of exploding higher during a time of unsustainable fear and loathing.

Policy makers have done all they can to ignite the spirits of bi-polar market participants and they have swung to the opposite end of the scale, without fear of speculation and looking mighty right. Which of course means that blogs like this one continue to look mighty unsexy with messages of caution. So be it.

Here are the parameters on the Gold-Silver Ratio. They are to be taken in conjunction with several other indicators and financial signposts, which will be reviewed in NFTRH39 this weekend.

GSR (using GLD-SLV) will help end the festivities with a break above noted resistance and the top of the wedge. Alternatively, could those hopped up bulls actually break the GSR down and Hope '09 to new highs? Stay tuned.



GLD meanwhile, wants to fill some gaps to the upside after breaking the downtrend. Gold is still going with the Hope trade more than against it. A decoupling of gold from everything else would indicate the turn is on.



Contrary to the silver bulls' ever bullish view, I don't see a lot of bullish here. Can silver (SLV) rise? Yeh, look at that gap up there. But it will have to break and hold the downtrend line to imply anything more.



Edit (8:35) I just found this post by my pal Otto, where he explains the gold-silver ratio in a way that human beings can understand it. If you have any question whatsoever as to what I am rambling on (and on) about with the GSR, Otto decodes the message here in wonderfully simple terms.

Will NDX-SPX ratio beg to differ?

I don't know and really, since I think I am set up correctly here (not over extended on the short side and more than offset by bullish gold stock positions), I guess I don't really care because if the shorts work out, the goldies will probably get hit and if the shorts fail, the gold stocks should continue bullishly.

If the weekly NDX-SPX ratio were to break to multi-year highs, one would have to be cautious from the short side I guess, because it would imply that speculative spirits are still in force and should not be fought. The NDX-DOW ratio has already broken to the upside, but I will consider the NDX-SPX a more telling signal. Ain't markets fun?

Sorry bulls, but I don't buy it... not yet anyway

US Dollar - Forsaken but not dead yet

Here is lonely Uncle Buck clinging to life above do or die support that has more important implications than the simple short term parameters shown here. The Dollar Collapse Cult (the DCC) is pounding a steady drum beat, the Fed will not even pretend to care about inflation and the commodity and resources trade grows more confident by the day.

Still, our important parameter on the dollar has not been broken and until it is, I will remain cautious, and guarded against a market downturn in the form of ultra short positions in a growing list of strategic areas, to be updated in NFTRH. Once again, I do not recommend getting short the hope fest to most people, but I do recommend patience throughout the process of grinding out what could be a turning point as certain things look to be rolling over.

As for the dollar, I have little doubt the US government would like to devalue its currency and magically reduce its debts through the miracle of inflation. The question is, will the market let it do so?

Either way, the gold miners remain the play. Deflation impulse or inflationary fears let out of the bottle... both are bullish. It's just that one may provide a lot more opportunity to get comfortably situated than the other. Either way, the dollar is intrinsically worthless and the entities that create it out of nothing are in trouble. Desperate times, lots of confidence out there. I have little doubt that an interesting summer and fall are on deck.

Wimps don't get to borrow my money...

The Fed pretends to be in control of something that is beyond them. Pretending inflation is under control so that they can continue inflating. Well guys, thanks but I am cashing in my 2 week profit of 1.50% on your treasury debt and awaiting the pro-rated dividend.

I have other vehicles for playing a would-be deflation impulse, but these creeps do not even care about keeping up appearances. The markets may do it for them however.

Treasury debt may indeed end up being a good near term play, but I feel less dirty now that I no longer own this garbage. Better to be patient and continue awaiting opportunities that policy makers are serving up to on a silver platter. And I don't mean burgers.

Fed Day

Today is FOMC day and in the hours before the official release, one is left to ponder the factors that will influence the outcome. Things like a critically sick US dollar and US Treasury bonds that look headed for the macro-financial dust bin.

People might want to think about how the Fed loads its gun to be able to shoot out ever more inflationary policy. With the dollar tragically ill and in danger of falling through some important big picture levels, and with T bonds having done the opposite of what Lyin' Larry said they would do, there are some important confidence bullets missing from the chamber.

So how can the Fed gain some credibility? Oh I don't know... but backing off the wimpy talk, even by a small increment, would be a start. Here is April's release, where they practically begged speculators to take over, which of course was embraced by newly brave casino patrons in a show of greed that continues to today:

Release Date: April 29, 2009

For immediate release

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

HUI - 60 min.

HUI has had an impressive day. But what does this chart tell you? Not much other than Huey has not proved a thing yet.

Edit (6/24 @ 12:08) Okay Huey, I get it. You have proved your point. Now if you can only get a daily MACD up trigger...

While trying to work up the nerve to short China or Japan...

I came up with this little ratio chart. Hong Kong, obviously the speculative playground compared to Japan, led to the downside into the last deflation event. Not that any one indicator can be taken on its own face value, but when stacked up with lot's of others maybe this is giving a hint of a warning that some casino patrons should be listening to.

Yes that's it, I am in indicator stacking mode. One by one, building a case.

Bad typing leads to this chart...

As I was trying to type in USO at stockcharts.com, to check on the technical condition of my oil short, I instead typoed in UPS. Here is what I found. I have no interest in this, but if that neck line were to break, I am sure some bears might.

DBC updated - again

This ETF was noted at the end of a typically cautionary post in late May as being a vehicle that one might take a look at for some end of rally upside. Recall I had no personal interest however, as I was more focused on preserving gains than adding to them in a high risk enviro.

Then came the update as DBC approached the target above the SMA 200. Now, the downturn. I owe DBC's late starter status to its heavy concentration in Jim Rogers' beloved oats and grains.... and gold, which should be cranking it up right about here to break out of those flags in ratio to all this other stuff.

I drew some green support lines on the chart but I am totally disinterested in this thing because I am disinterested in commodities, other than my short in oil.

One gold stock's journey

One of NFTRH's favorite gold miners is one it no longer has a position in. NXG's journey off of the bottom has been textbook and allowed for successful trading all the way up to our target of 2.50 (I made my final sales just below in the 2.40's) that had been in place since the bottoming process of Q4, 2008.

Today is a tough one and NXG is getting hit along with everything else. But what I consider a real good buy point lay below here, and it was noted in NFTRH a few issues ago along with those of six other gold stocks. I have added a couple of them as they came toward target, but with the look of the markets and the gold sector, I see no reason not to use a ton of patience here and hold high levels of cash.

Remember what last fall felt like? Still holding all short positions in the speculation portfolio to balance gold stocks, which will ultimately benefit from gold's anticipated outperformance vs. everything as hope runs dry. But I cannot stress strongly enough, to go about this slowly... as in weeks or months. Take a big picture view and have cash. Opportunities are more fun that way.

NFTRH38 out now

NFTRH38 reviews the interplay between inflation and deflation with the idea that one is the 'lever' for the other. 38 reviews which one of these monetary buzz words is the real, structural and ongoing phenomenon and which one begets more of it, every time thus far in the current tragically flawed monetary system.

Domestic and global markets and commodities are tracked as the tedious rally continues forward. NFTRH may or may not be right in one of its two main themes, but it will surely be ready to adjust if needed as the correct signposts will be watched closely going forward.

The gold miners' current status is reviewed along with some moves made by your blogger and letter writer in this all important sector this week. Lot's more is included in NFTRH38 as well.

Have a good weekend.

Happy thought for a Friday...

2 Scenarios

All along, into and throughout what NFTRH has called the predictable 'Hope '09' rally, there have been two scenarios in play for the broad markets, commodities and euro (in other words, the stuff that is anti-USD). Gold miners? Yes, they could take the hit if the dollar rebounds, but these dynamics would only fuel their bottom lines for the next big leg up. They are different; they benefit from economic contraction for all the reasons harped upon over the years.

So back to the anti-USD trade, still hanging on and still hoping. I am short financials, short oil and short euro and watching these proceedings closely because ironically, if the Hope trade follows its most bearish scenario it will rise here and now to new highs and I will probably abandon the shorts. While I am great at some things, like strongly bottom feeding other peoples' fear, I do not seem to have the psychological makeup to remain short human hope beyond certain short term parameters. Blog readers saw me attempt to short oil repeatedly in 2008, finally catch the top and proceed to barely take advantage as I sold my USO puts too soon. That is because I was psyched out due to my Achilles heal.

So with that baggage, I will likely not be short oil up to the NFTRH best case target of 78 and a broad market taking a next leg up here and now to best case targets. As it is, everything from the SPX to oil to silver (and gold) are potentially forming little bear flags before additional downside. Today and maybe early next week will be pivotal.

Scenario 1 = New highs for hope and bearish from then on. Shorts abandoned (for now).

Scenario 2 = Hope bear flags into a correction, the nature of which will be evaluated for possible bullish potential thereafter. Shorts are covered at downside targets.

BKX, you buyin' it?

The chart says it all. The BKX is trying to find support at the SMA 50 after it failed to do what it had done all the way up into the spring. Namely, find strong support at the EMA 20. This is a picture of waning momentum and while the target of the SMA 200 still remains open, perhaps it will come after a short term decline to what should be strong support.

If this were to play out, the scenario kicks in where the broad market takes a short term dump before resuming its rise to new highs, and NFTRH's 'most optimistic' upside targets.

Needless to say, I am still holding SKF (ultra short financials) and may consider adding a bit here. Don't try this at home. Cash is a position. Hyperinflation is not likely to steal your value tomorrow.


Edit (12:31) This just in, courtesy of my broker, Fidelity, via email. Take it FWIW:

Traders Predict Rally Will Continue

With last year's sharp drop and the spring rally in their rearview mirrors, active traders are looking forward, and what they are seeing is making them somewhat optimistic.

Eight out of 10 traders think that the S&P 500^® Index will remain stable or go up by 10 percent by the end of 2009, according to a recent poll conducted at Fidelity’s Traders' Summit in Boston on June 9, an event that drew more than 500 active traders for hands on workshops and presentations by industry experts.¹

Not only are the traders expecting the markets to rise, they are also expecting their activity level to go up. More than 60 percent of the traders polled are planning to increase the number of trades they make over the coming months.

“It’s interesting to see that on the whole, the attendees at this event were positive about the market and confident in their opportunity,” said James C. Burton, president of Fidelity’s retail brokerage business.

1. The Fidelity 2009 Boston Traders’ Summit Active Trader Poll was conducted June 9, 2009, on hand-held Audience Response System devices by JStryker, Inc. On average, 307 Traders’ Summit attendees responded to each question. Fidelity invited customers and other guests to the Traders’ Summit, many of whom are active traders making 120 or more trades per year.

The experience of the active traders who responded to the Fidelity 2009 Boston Traders' Summit Active Trader Poll may not be representative of the experiences of all investors.

HUI - Daily status

A few subscribers who had few or no gold stock positions mailed me during the HUI's furious leg up to the thick zone of resistance at 375-400, describing their frustration (in some very humorous terms, I might add) and seeking reinforcement of my usual 'don't chase' message. With Huey pounding 400, they got it.

NFTRH had been warning that weekly resistance was very likely to repel the advance, so I will admit to you that I am happy with the proceedings, as HUI has now pulled back to the preferred target around the daily SMA 50. I have very slowly begun the process of adding back gold stock positions on this pull back.

Whether or not this is the bottom (NFTRH will watch the nature of correction and any relief rallies very closely week to week) we can state without a doubt that people wanting to buy gold stocks will be much more successful over the long haul when they buy corrections like this than euphoric rises like the one in May.

You cannot control the markets, but you can control your emotions and have discipline. I would imagine the gentleman who was running out table legs to chew off and the gentleman who felt like he was being mentally water boarded watching the miners blast off without them are feeling a whole lot better now.

Anyway, check out the chart. I'll leave the analysis a bit cryptic, as we'll let NFTRH do the heavy micromanagement going forward.

Adding to the short list - EUO

This little bottom pattern only targets 22 and change, but that does not mean it won't go higher. Considering my remaining gold miners have been the best movers in an 'all one inflation trade' rally this spring, I think it is time to hedge with some things that I think are bearish in relation to gold over the coming err, adjustment phase.

The euro's one of 'em. Oil is another. Slowly adding to the shorts here. Now short financials and euro. Looking for entry on others. People who want to play it safe in this high risk environment might wish to stick to a high level of cash. Edit (10:58) Short list now includes crude oil via SCO.

Flags of hope

And now for your moment of Zen... ponder these weekly gold consolidation flags:

What to short?

I remain short the financials via SKF and long IEF in the deflation scare trade, and would like to put more 'money where my mouth is' in shorting the markets for a trade.

Hmmm, let's look at some sectors that might be interesting, starting with oil & gas in the form of DUG.

Falling wedge and modest bullish divergence. Yes, let's keep an eye on DUG.

EWI giving it away again...

Once again I am going to suggest you tap that banner up above, or a link below in the copy provided by EWI to gain access to valuable free information. No strings, no nothing. I already downloaded it and skimmed it and it is loaded with analysis on the Asia Pacific regional markets. It just so happens that Asia is one of the areas NFTRH has mentioned it would look into with regard to investment, pending short term market disturbances. Needless to say I am glad to have this highly detailed report.

Asian-Pacific stock indexes are poised for big moves. Prepare yourself for opportunities in 8 of Asia’s biggest markets with Elliott Wave International’s free report. Discover The Bull Markets Youre Missing.

How do you separate the bulls from bears for 8 of Asia’s biggest markets?

It’s simple: Download your free 10-page report, Discover The Bull Markets You’re Missing.

Elliott Wave International is making the 10-page, chart-packed issue of their Asian Financial Forecast available free for a limited time.

You’ll get price targets for each region's main market so you can spot opportunities missed by common mainstream sources. Your coverage includes:

• India's SENSEX
• Taiwan's TAIEX
• Korea's KOSPI
• Japan's NIKKEI and Small Caps
• China's Shanghai Composite and Shenzhen SME Indexes
• Singapore' Straits Times
• Hong Kong's Hang Seng
• Australia's ASX

More importantly, the detailed market analysis identifies upcoming rallies and potential bull market moves so you can be ready to take advantage of each region's emerging opportunities.

Learn more about the free 10-page report, Discover The Bull Markets You're Missing..

Natty gets bid...

That trumpeting sound heard recently was the increasing volume and higher low in UNG. The elephants are at play in the Natty patch.

From copper to oil to uranium to natural gas they frolic. It is fun watching these lovable beasts at play amid commodity rotation and happy bullish stories.

I get a warm fuzzy feeling all over.

Gold-Silver Ratio

Why do we watch the GSR? Take a look around today at the damage that tends to happen when it turns up. GLD-SLV surrogate is shown in the chart.

Is today's move the start of something or just a shake out before the next hope leg higher? Don't know, don't care. Risk is way higher now with the GSR coming off 6 than it was at the panic highs near 9. It is no coincidence that the dollar is catching a parallel bid.

US dollar - a short term view

NFTRH37 out now... Long post to purge a demon

As I usually do each weekend, here is the little tickler promo for the new NFTRH37, emailed to subscribers yesterday. Rather than describe it, I thought it would take a short excerpt from it along with a big picture monthly chart of gold, also included in this issue:

"Here is the monthly chart of gold, which has not been shown in a while. Given that we are entering a time window when the loudest blow horns are likely to get in your ear, it is good to retreat to the calm of the big picture views like this.

Gold, the ancient metal known as sound money through the centuries, remains in a bull market that is likely to continue as long as human beings continue to cling to the confidence that the state of the financial and monetary systems they have created is anything less than terminal. A higher low in the high 600’s or low 700’s is nothing short of perhaps the last great opportunity to buy peace of mind. And that level is no given by any means. But if it comes, at least you know NFTRH’s viewpoint: BUY IT strongly if you want exposure to gold.

Meanwhile, the EMA 18 that has supported the entire bull market, with the fleeting exception of the fall crash, says that 700 may already be a pipe dream. Gold did slash down through it once however, and if it does so again, I expect it to be a short term affair, again."

In light of the fact that the illusory inverted H&S in gold, being micromanaged and mentally masturbated over by a good chunk of the 'gold community' just refuses to go away, I am going to try to explain my thoughts clearly. I try to do this always, but I realize that sometimes reporting the truth as one sees it can be so simple it is confusing. That is because many people have been spoon fed some easily understood cartoons in major and not so major financial media. The problem is, reality is not a cartoon. You have no idea how irate people can become when you dare even mention the possibility of something like gold to 700. To me, that gives a clue as to someone's insecurity in their own beliefs.

Why am I conjuring this issue up again? Well, I am not. Lucas at Trend & Value - an excellent independent thinker by the way - sent an email this morning highlighting this post in which the gold inverted H&S issue lives on.

I originally saw the inverted H&S show up in someone's analysis on a gold website. Can't remember who the fellow was. I then saw it appear on several TA oriented websites and services. I then saw it in an article submission by a trading jock whose work we do not publish at biiwii.com because I do not like the focus on price price price all the time, with no distinction about value. "ENOUGH already!" said I again and again. Now come to find out, it apparently originated with none other than Bill Buckler of the Privateer. I thought highly enough of what I had seen of Mr. Buckler's work that I emailed a request to publish his work on Biiwii.com. No response.

There is a fundamental problem with technical analysis; you cannot prove nor disprove its implications and it is an inexact science (art is more like it). That is why we charties use a lot of if/then type statements. But it is the ones who command from on high that the chart says this or that (in support of their already cemented fundamental views) who are dangerous to your financial health. An example was the self-described 'scariest gold chart in the world' that someone sent me a link to. I think I highlighted it here and had a laugh about its prediction of gold under 200 or 300 or whatever, at the height of a deflation scare no less.

Now, in support of gold [price] bullish analysis, we have the inverted H&S cropping up all over the place. Now, there is context here. First off, the trader jock has apparently already been stopped out. Also, it is not just the gold community captains that have promoted this pattern. As I said, the H&S has shown up in many places that would be considered impartial as far as the gold sector goes.

But that does not make it valid. There is no prior downtrend so there is no inverted head & shoulders. Take a look at that monthly chart up there. Where is prior downtrend Babu? SHOW me prior downtrend! Now can we get over this and move on?

As I wrote in one of my posts, I am not bearish on gold and whatever that pattern is, if (wait for it...) the illusory 'neck line' is broken to the upside, then the target is 1300. Big deal. If gold goes to 1300, oil goes to 200 and copper to 8 bucks, how much is 1300 gold going to help you? It is gold's ratio to these things that is important. But the gold bugs do not want you to know that as they cheer gold 1000, 1200, 1500... 5000 along with all the other 'resources'. Nice and easy analysis for the masses.

Conversely, if gold goes to 700 as part of another deflationary impulse, that 700 bucks is going to be buying a heck of a lot of everything else because the inflationary plays out there are going to implode in relation to gold, again.

I have mentioned this on occasion and the time is right to do so again. I had a guru once. (2003-2005). He was a fellow once called a 'guru's guru' by Rick Ackerman. The wildly relevant Chris Martenson knew him too. The man took to me because he felt I was honest and willing to look into the gaping maw of 'this mess' (his words, parroted often here) without flinching. His vision of imminent destruction became too much for me on a daily basis as I attempted to live a normal life. At least as normal as possible while making preparations for the unraveling of your country (in progress). So, when we drifted apart, I let it happen.

In my opinion, this fellow was somewhat alarmist and I did not then nor do I now agree with everything he put forth. But one thing he hammered into my skull back then was the strongest and most simple truth: 'Gold is not about price... gold is about? Yes Beuller, gold is about value'. All too many crack heads and casino patrons have no grasp on that concept. That is why I am able to take advantage of them with a fair amount of regularity.

Have a great Sunday.

Edit (2:25) As the subject at hand continues on I want to make two points...

1) I did not even know the Privateer was the supposed origin of the inverted H&S and who the hell really cares where it originated? It came from one alter or another where gold bugs worship and it is wrong.

2) I am not bearish on gold, but people get so emotional over this metal it is no wonder they set themselves up over and over again from a sentiment standpoint and become really cranky people in the process.

Here is the weekly chart of gold showing something in between a bullish ascending triangle and a bullish symmetrical triangle. Both project some big upside a few months down the road but both need another successful hit of the lower line (currently in the 700's) to be valid. Are you hearing that with any frequency in Goldbugville?



Alternatively, Kyle's emailer is right. The more times something bangs away at a resistance level, the weaker it becomes. Gold just may decide 'screw this, I'm outta here' and leave 1000 in dust for a long time to come. It really does not matter to me one way or the other.

"Risk is High"

http://www.biiwii.com
http://www.biiwii.blogspot.com

I put the title of this post in quotes because as blog readers know, I (and my newsletter) have been highlighting these words for several weeks now... 'risk is high', 'risk is rising', 'code yellow', 'code red', etc.

Sentiment has been predictably going in a positive direction off of the unsustainable misery of October, 2008 to March, 2009. This sentiment shift has been boosted or better yet, aided and abetted by global policy makers (those in the US front and center) in a desperate attempt to get somebody, anybody to pick up the ball and run with it. Well, run with it they did.

But it is important to determine who sold the long term US Treasury sooth-saying of Larry Summers and the highly intellectualized yet quite possibly naive Ben Bernanke (a man I do not consider an 'evil genius' like his predecessor). So, here is one of my charts that attempts to quantify the who's and what's. You can see that smart money sold long term bonds (TLT proxy used here) upon getting the supposed 'okay' to own them from policy makers.

What did they buy? Well, all that newly created debt monetization made for a great trade into low quality debt (HYG is the proxy here) with the fairy story in place that the government would backstop the entire financial world. It is a good bet that whatever dumb money is capitulating out of treasuries now that the damage has been done, is buying all sorts of risk at the behest of the stock market and commodity touts now on auto-pump. That risk includes the garbage held by HYG.

This post will not go into the mechanics and 'signpost' indicators NFTRH is watching, but suffice it to say, the game plan remains on track. Things continue to make a lot of sense to market participants who are able to tune out the cacophony of bull horns blowing in various commodities, stock markets and debt markets. It is time to consider the value of being a contrary sort because, with the encouragement of the likes of Larry Summers, it now looks like things have nearly completed their swing to the opposite and equal end of the spectrum from Q4 of 2008, when I became so bullish I could taste it. Now, I have a different taste in my mouth.

Blog readers, meet Lester!

As if they knew my exact personal preferences, Gibson has recently come out with a Les Paul that has everything I wanted in a guitar and none of what I didn't. The new Les Paul Standard Traditional Pro has a slim 60's style neck, coil split Burstbucker and '57 Classic humbuckers, a solid (non-chambered) body and locking tuners. I have been researching LP's for the better part of the last year, finding most of the above characteristics over different models but never all in one package. Without the AAA flamed maple top (I don't care), it is priced right too.

I consider this my little reward for a job well done in repairing the damage that was done to my portfolios in Q4, 2008.

IEF & SKF

Well, if I am going to put my money where my mouth is, I am going to be long IEF and SKF because my mouth is saying that there will soon be an end to the relief party now in progress and a deflation impulse is forthcoming.

Actually, as noted to subscribers I am long SKF for a modest position since last week (NOT a recommendation of any kind) and as of yesterday's treasury market silliness and after reading all kinds of bond market contrary indicators in the financial media, I am long an asset that is continually denigrated here on the blog, IEF, holder of all those 7-10 year treasury bonds. I figure now that Lyin' Larry has got everybody off sides, it's worth a poke for a perhaps extended trade to see if we can't reel in some bond price increases while collecting dividends with money just sitting there. The position is also modest in the grand scheme of things.

Here is a chart showing both of these 'deflation scare' vehicles, one getting trounced (SKF) and one doing great (IEF). IEF's gain and SKF's loss are balancing out today, considering the relative amounts of each that are held. BTW, please do not take IEF as a recommendation either because the blog has not seen detailed analysis of the parameters I am using which, if violated, will unwind both of these trades so fast your head will spin.

Gold-Oil ratio, etc.

This post is an answer to an email received this morning:

"What do you make of the gold-oil ratio these days? You see gold dropping back in line with oil, or oil continuing to surge back to gold, or that they are now in a new equilibrium, or is it a meaningless ratio, or what? This could be a fun chart."

What I make of the GOR is that, as is typical in markets, things are being pushed to an extreme to the downside in consolidation of the unsustainable upside gold experienced in ratio to oil, silver, industrial metals and just about everything else during Armageddon '08.

Now, as the US dollar is taken out for execution (yet again?), and the world goes into blow off risk taking mode, gold is of course thrown aside in favor of the 'play' whereby the global casino gets one more play at the table. This has been of course accompanied by all kinds of gold market analysts seeing the illusory inverted head & shoulders bullish 'bottom' pattern and the gold bug captains sounding their most caustic and strident tones. This is of course, bearish. The uncommitted flock that ran to gold out of panic is now being bled out. Simple.

So the answer is no, I don't see gold dropping back with oil. I don't see oil surging relative to gold much beyond the support noted in the chart and I don't see nominal oil going much higher than NFTRH's long standing secondary upside target of 78. What I see is a simple market mechanism in play whereby sentiment is being reset before the usual market participants assume their usual roles into coming events where the usual winners and the usual losers will assemble and do their thing.

If and when the next deflationary scare (as opposed to real deflation) arrives, gold will again gain the bid relative to all these plays. Meanwhile, we patiently wait.

Blog reader turned NFTRH subscriber...

I used to have a 'donate' button over there on the side bar because I have always felt that while the blog can at times get a little off topic, silly or just plain old cranky, it also provides value to regular readers who have come to 'get' me and the simple truths that I put a lot of energy into trying to illustrate. So once in a while some kind souls would say 'yeh, let me donate to this guy'.

Then came the decision to launch a full out newsletter into the jaws of Armageddon '08. Down came the 'donate' button. This has been a wildly positive move on my part as the opportunity to show in detail how I operate in the real world of investing and trading, during a historic market event and its aftermath, was actually an opportunity to distinguish the service in times where not everyone looks smart (unlike in an all boats rising bull enviro) just by showing up.

Anyway, a new subscriber had this to say today (after I sent a welcoming email) and it really does let me know I am on the right track here:

"My pleasure Gary. Your 'free' blog insights have served my clients and my business well. Figured it was time to start paying you back. Really appreciate your passion, your objectivity and your work product. Cheers," P.A., Registered General Securities Representative

Sure, this is a promo. That's how you build a business. But every time I receive input like this I know that I am putting out a quality product that adds value to peoples' lives and livelihood to some degree. And that is not even including the premium bottle of Scotch one awesome subscriber sent to me. Blew my mind!

The 5 Biggest Myths About Gold

Well, I just came across some unexpectedly high quality content at the Motely Fool: The 5 Biggest Myths About Gold. Not because it is bullish on gold, but because it is a measured commentary and cuts through the b/s, even getting me to question my tone toward 'gold bugs'. :-)

I still feel that the gold bug 'community' is its own worst enemy and its strident tones are responsible for a lot of unnecessary pain. But when you have the truth on your side, I guess you can become a bit over the top, even as most of the world refuses to listen.

Compelling chart of the day $TYX

This chart was sent out to NFTRH subscribers this morning as part of a fairly involved analysis on the asset markets, the US dollar and of course the long bond's yield.

I find this chart so compelling and so interesting that I wanted to put it up here for blog readers to ponder. There is a big time message contained within.

HUI at 1st support

Huey has had a nice week long correction down to our first support level defined roughly as the EMA 20 and the former daily resistance of 360 (now support), which was cut through like butter on the upside after a couple days of congestion.

NFTRH has laid out stronger support lower that corresponds well in all time frames. I am leaning toward the lower supports being hit but thus far, there is nothing much technically wrong with the gold stocks, save for that down trigger on the MACD.

Patience will continue to be a good thing in the near term.

Blogger in remorse

KGN has risen some 600% off my first buy levels back in the crazy Q4 of 2008. With a 107% gain on the remaining shares on this latest trade, I say goodbye KGN - for now and hopefully not forever.

I tried to make this one an investment, but it has forced my hand with the words 'don't be greedy Gary' echoing in my head. NFTRH's other standout explorer, FRG, has had similar gains near the 100% level and remains in the fold.

KGN is at what would have been my most optimistic target for this intial burst off the bottom. That doesn't mean it won't go higher. It just means that I am done for now, after well over a half a year of association with this gem.

All the usual signs, loud and clear...

'DEATH OF THE DOLLAR!' from the dollar collapse cult, inverted H&S in gold in the imaginations of people clicking the heels of their ruby slippers, gold bugs becoming more strident by the day, gold CoTs growing more bearish by the week, broad market participants in full pump mode, Mr. Bernanke featured on 60 minutes sounding a bit satisfied that policy is working, a modest down tick in the pace of job loss setting off bullish rationalizations... and all those worthless treasuries, sloshing around looking for buyers.

One problem though, Uncle Buck did not get the memo. The dollar is thus far looking on track right from our target, the point at which previous decades demanded it had better hold. It is making its attempt while the band plays on, with all the usual horns blowing loud and clear.

NFTRH36 out now

After a recap of the situations in stock markets, commodities and the all important US dollar (which has been playing to our script for months now) and US Treasuries, NFTRH36 gets into the gold sector as promised, with 10 charts, including the HUI in three different time frames, all pointing to a convergence of bullish levels, now that the sector is pulling back as expected. This helps greatly in identifying buy points on the 7 daily gold stock charts included this week. More will no doubt be added as we go forward. But I wanted to start the process with some of my favorites so that readers are prepared ahead of time.

Everything revolves around the dollar and long term US Treasury bonds. The gold stocks are the play, pending the correction that may have commenced this week.

Have a good weekend.

Gold CoT

The fake inverted H&S in gold showed up all over the internet and I guess I have to attribute it to some sort of group hysteria, because it was promoted by some sources that I would have expected a higher level of TA from.

Gold has been knocked back down a bit, although technically nothing much has gone wrong, with no MACD downside confirmation and no loss of trend. That could follow shortly, however if the CoT report is to be respected once again. If there is a reaction it will be because gold has hopped aboard the hope trade yet again and is part of a play that is likely to terminate. Then, as we will follow in NFTRH, the real move can begin.

Don't micromanage this metal. Look at it as your anchor to sanity. Just because there is a little bit of 'feel good' creeping in to the macro picture, it does not mean things are any less insane economically. Quite the contrary.

Fidelity: Will Bond Yields Derail the Rally?

Fidelity is my brokerage. I got this by email this morning:

By Dirk Hofschire, Fidelity's Vice President of Market Analysis

June 02, 2009

Global stock markets posted their third consecutive month of gains in May, capping the best three-month period for stocks worldwide in three decades. Broad-based signs that the economy is stabilizing buoyed investors' spirits, though spikes in Treasury yields and mortgage rates underscored the high level of uncertainty that remains. --Ooh, the best in 3 decades, Dick? Wow. Investors' buoyed spirits wouldn't have anything to do with the historic and unsustainable negativity of a few months ago would it? I mean where were their spirits going to go, down? Ah, treasury yields... now you are adding some content. Let's read on.

Last week, 10-year Treasury yields hit 3.7% before falling back at the end of the week, capping an abrupt rise from just 2.5% at the beginning of the year. Mortgage rates followed the move up, threatening to put a damper on the improved housing affordability that had been providing hope the housing downturn may be nearing a bottom. --Yes, they did indeed. Hey Dick, do you know that I refinanced the modest remainder of my home mortgage with urgency on the day rates gapped down to the lows in December? Why the urgency? Because despite deflation fears of the time, the government's inflate or die mandate dictated that one be hasty to take advantage of a once in a generation opportunity before rising rates begin to reflect lost confidence in the chronic inflator.

The key question for investors is why these rates have moved up. On one hand, rising Treasury yields typically reflect improvement in the economy and a greater comfort by investors to increase their exposure to riskier assets. This is probably a part of the explanation today. Economic data has continued to support the notion that the nation's economy appears to be contracting at a slower rate than earlier in the year (see our report Road to Recovery: Signals to Watch). --Dick, you were doing well to this point. But now, there you go... out with the conventional wisdom that baffles the masses with bullshit (or do you actually believe rates are rising due economic improvement?). Yes, the crack addicts are in full risk mode. You are right there. With the freshly created debt money sloshing around the system, we have been bound to get some less negative economic signs, for the short term.

Hope in the numbers
Last week, consumer confidence rose to its highest level in eight months and initial unemployment insurance claims, a proxy for layoffs, continued to fall from their March peak. Meanwhile, rising commodity prices could signal that China's economy has stabilized as well as a moderating pace of decline in the global economy. --Ah, the old 'China story' is dusted off for another play. Consumers are simply gaining confidence in line with sentiment waves, so predictable and likely so fleeting. The consumer is a lagging hop head wondering where his credit went.

Consumer confidence has been rising but remains well below its recent highs.

Source: The Conference Board, Haver Analytics, FMRCo (MARE) as of 5/31/2009.

As the economy shows signs of stabilizing, riskier asset classes have climbed, continuing a rebound that began in early March. U.S. stocks have jumped more than 35% off the March lows, while emerging market equities have soared about 50%. Riskier bond categories such as high-yield corporate bonds have gained more than 20% in 2009, and commodities have staged a broad rebound. --Yee haw! Let's party!

But economic optimism and a reversal of last year's flight to the safety of Treasury bonds are only part of the reason Treasury yields have risen so sharply. (Treasury bond prices and yields move in opposite directions.) --Wait for it...

Record issuance of new debt by the U.S. government, accompanied by rising concerns about the medium-term outlook for the budget, are also to blame. With yields near record lows and a flood of new Treasury supply on the horizon, the demand from investors -- including the foreign central banks who have been the largest buyers in recent years -- may be waning. --'May be' waning? Thank you for slipping part of the truth into the report after the happy talk.

The Fed's tough spot
Up until the past two weeks, the Federal Reserve, in its extraordinary efforts to push down mortgage rates to help the housing market, had kept a lid on long-term market rates by purchasing Treasurys. But this effort has led to concerns among some investors that this monetization of debt could lead to higher inflation down the road. --Not only 'could' it lead to inflation down the road, the monetization of debt is mainlining inflation right into the veins of FrankenConomy. It is inflate or die, but then, some dark recess of your soul knows that, doesn't it? But let's keep it sanitary for Fidelity's clients.

The yield on the benchmark 10-year Treasury has jumped in recent months but rates are still lower than they were for most of 2008.

Source: Haver Analytics, Federal Reserve Board, FMRCo (MARE) as of 5/28/2009. --Don't give us that 'still lower than most of 2008 crap. The violence with which rates have risen implies something is on the verge of changing in a secular fashion and you, with your conventional 'rates are still low' spiel will be behind the curve and trend following if you do not adjust. There is a secular trend in treasury yields under assault and a long term line of support for the dollar. We have recently hit both and this must reverse... or else.

The Fed is in a tight spot. If it increases its purchases of Treasurys in a bid to keep bond yields low, it may stoke inflation fears, which in turn could reinforce investor demand for higher bond yields. If the U.S. central bank does nothing and Treasury yields keep rising, housing and mortgage refinancing demand could suffer a big hit. Because the housing market remains critical to the recovery for both consumers and banks, this is a real threat to continued improvement in the economy and credit markets. Inflate or die Ben... what's it gonna be?

For investors, the rise in Treasury yields may be more than offset in the coming months if evidence grows that the economy is indeed moving toward recovery. -- It's likely that FrankenMarket will eventually rise on the illusion of economic growth, but gold and eventually commodities will outperform like crazy. You can continue to advise a nice conventional allocation of stocks and bonds, however.

Stocks last week shrugged off the rise in bond yields, instead reflecting the view that riskier asset categories have historically been above-average performers during the final stages of recession. --Or the final stages of a rally easily predicted to the upside and now in its twilight.

However, the sharp fluctuations in the Treasury markets underscore that market volatility is unlikely to disappear as the aftermath of the financial crisis -- and the policies implemented to confront it -- continue to unwind. --Blah blah blah.

Past performance is no guarantee of future results. <--No, really?

NFTRH36 Baaahhh

Well, I am not sure about the previously stated black and white theme I said might be part of NFTRH36. But it certainly looks like it is time to begin charting buy levels for gold miners as the hit has arrived on schedule.

Now it is time to begin to look at the nature of the correction from daily and weekly standpoints and chart out some levels for the gems that need to be bought back. Let's see how today finishes up. But you know, with all the semi-gold bug / Austrian theory I sometimes put forth, the fun thing for me really is charting buy levels; bottom feeding or correction feeding. I love it when da herd is assembled and on the verge of panic. Love it.

Now, at the moment they're just standing around a bit dazed, but let's see if we can get some real anxiety whooped up out there.

Casino patrons feasting on moral hazard

One of the many reasons I tune out the conventional analysis that talks about PE Ratios, dividends, diversification between stocks and bonds and many other mythical dogma of an age gone by is because none of it matters nearly as much, in a late stage pathetic attempt to maintain appearances, so much as the wizards' ability to manipulate what we call money to influence boom and bust cycles.

From 2004, when Mary Puplava first invited me to submit an article to FSO (I was psyched!), I harped on about the 'inflation bull', the 'global casino' and 'funny munny'. This was a way of acknowledging that the bear market in NOMINAL stock prices was over, even as the ongoing stock crash measured in a stable money anchor (Dow-Gold Ratio) and that officially sponsored moral hazard was once again in play.

Today, we look at indicators like the ratio of low quality debt (HYG) to [supposed] high quality debt (7-10 year US treasury fund) in an effort to gauge how the mother of all moral hazards (to date) is coming along. There is a scenario in play that has the ultimate bottom in stock markets not much lower than the lows of the last few months, if a new low is even registered. The crazies who would feel there is no downside to buying bad debt in an environment where debt is being destroyed obviously feel that the US government will backstop EVERYTHING. This is moral hazard, it is unhealthy and it just may keep the illusion of prosperity alive for another cycle, even as the real returns continue to diminish and even crash.

Real returns will be measured in gold and the number one equity sector in a bigger picture than the very near term remains the gold miners.

NFTRH favorite FRG

FRG couldn't be headed to 6 on this run, could it? It makes no difference to me because it is an investment. And I do not currently plan to unload the remaining shares until at least that level.

Not everything is a play. When you find a prospective gem like this just sitting there at 2 bucks, stuffed with cash and run by people who know what they are doing, you can have confidence in using the word 'investment'. That is how I have played FRG since it was thrown away and trampled by the manic, panicked commodity bull herd last year.

Companion post to this morning's NFTRH update

As mentioned in the email update, the gold miner pullback yesterday did nothing more than bring the HUI and most associated miners back to near the short term EMA 20. Hence, it was either the start of something big or very well could have been a one shot pause before higher levels.

In that regard, and considering the moves I have mentioned recently, MFN was bought back this morning at 8.60 after being sold in the low 9's. This is not because I think 8.60 is an incredible value but rather because the ratio of MFN to things I have sold like JAG and NXG has pulled back sufficiently and because these things are in a bull market. Don't want to be too far under exposed. The spec portfolio still has tons of cash waiting.

I am not suggesting blog readers run out and buy MFN, because this stock owes me nothing having been bought and successfully traded off the bottom under 3.

US Dollar gives a preview

Yesterday was a preview of what might happen if by some chance the 'death of the dollar' chanting going on in every corner of the internet fails to come through this time, again.

The dollar is evidently not going to go quietly to the script that the resource pumpers, dollar collapse cultists and the lunatic fringe segment of the gold bug 'community' insist it must play to.

The dollar is a worthless piece of paper with broken promises written all over it, but are you going to pitch me the euro? How about zinc? Copper? Or whatever oats and nuts Jim Rogers is buying? That's not gonna work well in contraction, round 2.

The gold miners should lead the way, down and up again. Very interesting times and as disturbed as this may sound, I have rarely enjoyed the markets so much as over the last half a year or so.

Okay Uncle Buck, you're up. What ya gonna do? Near term events hinge on whether or not policy makers are going to be allowed to break the buck. Either way, it will be interesting. 'El Hyper' or deflationary dunk. The dollar and the treasury market will tell.

DBC updated

At the end of a previous post was this bit for any of you traders out there looking to scalp the rally built on sentiment, hope and a naive desire for renewal in a burst of 'yes we can... together we can make a new tomorrow' silliness.

"Here is one tool that can be used if you are a high wire act looking to bleed every last cent out of the rally. The DBC commodity ETF has not come to target yet off of the nice bottom pattern. There's the target. Me? I'll sit this one out, do some more profit taking and then get ready for a nice, relaxing (relatively speaking) summer awaiting the future opportunities that are likely to arise in abundance."

DBC is yet another play coming to target. Things are going to script and I am a bear. Just not actively, yet.

Edit (8:30) Speaking of DBC, an etf that includes agro, let's note that DBA, the pure agro etf - previously highlighted in NFTRH - has come to target. And then consider this: Why Jim Rogers is Betting the Farm. Are people still listening to this guy after last year's tragedy? Sell signal.

Sometimes ya just don't wanna look...

I know that many people are on the outside looking in with the gold stocks, and it is painful. While I have been enjoying some very nice rises in gold stocks (mostly quality exploration ones), I have a zinger staring me right in the face as a reminder of how stupid I actually am. SYMX shook me out as I got rid of it and FTEK in preparation for a lock down period of holding only cash (67%) and gold stocks (33%) in the speculation portfolio. Now look at SYMX. Ouch!

But doods (and that means you too, ladies), this just comes with the territory. We are not the geniuses we sometimes think we are, and we are not the utter dopes we sometimes feel like either. We are human beings (well, most of us) just trying to weigh probabilities on a daily basis and outperform at the end of the day, or more importantly, year.

So yeh, here is SYMX, testament to my stupidity. For this week anyway.

Black & White - NFTRH36 will add color

I think I am going to start off NFTRH36 with a segment that shows just how black and white the general financial milieu is when it comes to inflation/deflation, bullish/bearish, good/evil, etc... These are easy signposts for the public to grasp and this is where guru worship and a blind adherence to convention comes from. A person or entity makes a few good calls, becomes 'known' for something and then erects a cottage industry promoting the dogma.

One thing though; to get it right over the long haul in the markets, you need to fill in the vast space between BLACK and WHITE with COLORS; colors that can hold you to a near term bearish stance while at the same time carrying bullish positions for example.

Yes, this blog and the NFTRH letter are currently very guarded in their tone and warning against going into the camp where the 'inflationistas' await to confirm your fears about oil and the 'resources' going back up (or maybe a world full of casino patrons is actually happy to see oil rise this time).

But even as I am in full risk alert mode, the NFTRH speculative portfolio continues to take good advantage while the party goes on even after a gain of 144% off the bottom (and associated risk management moves). That is because I have a fundamental foundation with the gold sector and a directive that says 'think long and hard before being all out of a real bull market'. The sad irony is that I know I will take a ding on things like FRG, KGN, AAU, TRY.to, SBB.v and several others that will probably get hit if held into the next deflation impulse episode. But then again, the sector's fundamentals will only improve once again with such an event (unlike at this moment as their fundamentals flag in relation to gold's pullback in the positively correlated stuff) and it would be a buying/adding opportunity.

So I am not all black or all white, all in or all out. I am here to make money, preserve capital and carry forward a rational plan that takes advantage of all the nuance in between black and white. Readers can consider the general themes in NFTRH and if they are in agreement, take whatever actions or non-actions they deem appropriate for the times.

Well, this little tickler went on long enough that I just may have gotten a decent amount of my point across, thereby possibly negating the need to go over it again this weekend. We'll see. Meanwhile, I have got to tell you, I am loving this market juncture as things remain aligned with the plan, summer is coming and after a very difficult year things are simply going well. I think NFTRH is finding its niche by the way. Not short term oriented, nor long term. I think that a focus on the intermediate term plays well for avoiding day trader habits while at the same time avoiding the 'invest for the long term' pablum of the previous cycle's conventional wisdom.

Edit (2:23) Okay, in keeping with the theme of a relaxing summer, I will now try to get less wordy on the blog and go back to my favorite thing, twittlin' dem charts. The words can be reserved for the newsletter.

Inflation & Deflation: Fears vs. realities

I want to recommend you read Steve Saville's latest thoughts on the dynamics at work in the interplay between inflation and deflation, and the fears inherent therein: Money Confusion & Inflation/Deflation.

Listen folks, this is really not that complicated. Many financial gurus keep their herds in line by making it seem that way, however. It is a great racket to be in where you can take a subject that scares the shit out of people (money and livelihood) and then wrap it in all kinds of esoteric mumbo jumbo and voila, a guru speaks from on high to his flock.

Saville lays out the simplicity of the dynamics as follows:

"Naturally, the fear of deflation that overtook the financial world last September-December provoked a massive inflationary response from the central banking community, leading, as usual, to the fear of deflation peaking at around the same time as the rate of monetary inflation was probing its highs of the past 20 years.

Equally naturally, the effects of the September-December monetary binge have recently started to become evident in some prices, causing the public's attention to shift from the so-called deflation monster to the potential for an inflation problem. And this is going on even though the rate of monetary inflation has since tapered off (M2 money supply has expanded by 2% -- equivalent to a relatively modest 5.2% annualised growth rate -- since the beginning of this year, and has not expanded at all over the past two months)."

We have begun showing the M2 and MZM money supplies in NFTRH of late (leveling off), as the inflation pump apparatus kicks in once again to get the herds offside. These same money supply measures along with things like the TED and LIBOR were used months ago as part of the NFTRH argument that the deflation impulse of Q4 2008 was a great OPPORTUNITY. And so it has been. This while the deflation gurus were locking in the end of the world. And no, I do not mean Prechter and EWI. They were taking massive profits and calling for a relief rally.

But now the same measures show the herd may once again be assembling on the wrong pasture, positively reinforced by a thousand fairy tales about hyperinflation coming here and now, and fixated on prices, which are the most lagging detail in the inflation/deflation debate. This is how the markets work. You come to this blog, you get a different view.

Anyway, Steve Saville is a sane voice of reason among an awful lot of garbage commentary and noise out there. Read this piece and consider it.

Rut roh, SPX at 1st target

SPX climbs to our 1st bullish short term target above the SMA 200 and is in the process of negating the very bullish potential of an inverted H&S that would have required a decline to perhaps 750-800 to form the right side shoulder before continuation of a more substantial rally. Oh well, hope has not the time for such things.

The ratio of junk bond fund HYG to mid term treasury fund IEF (lower panel) only serves to highlight the idea that some very unhealthy speculators have taken over the markets. The upper target just above 1000 is open on SPX and this could be achieved, possibly in conjunction with the BKX finally hitting its SMA 200, while sporting a bearish divergence to the market. Then it would be time to turn out the lights for a while -- or go short, in my opinion. Alternatively, this could end at any time now in an over bought, hope fueled flame out.

Bogus H&S 'bottom' in gold

The bogus inverted head & shoulders pattern refuses to go away as it is still showing up out there in support of bullish analysis. Again, gold may indeed break out near term (I have my doubts for all the reasons harped at recently - think US Treasuries first and foremost), but it won't be from an inverted H&S. There is no prior down trend for this would-be reversal pattern to reverse from. So there is no inverted H&S.

Get over it.

The weekly EMA 75 shown on the chart has been supportive for the life of the bull market. We will look for support there once again if there is a downside reaction.

Special offer-NFTRH35 free

I have decided to make this week's NFTRH35 available for free for anyone who would like to review whether the letter is right for them. Simply pop me an email requesting it at gt @ biiwii.com (remove the spaces around the '@').

I have not done this previously mostly because I had some fairly lofty expectations for the NFTRH 'stock picks' that are now being distributed into euphoria. You understand, that was for subscribers to take advantage of. But now things like GG, JAG and MFN are sold out along with partials in NXG, NGD and several others as targets have come into view. Several favored exploration companies are still held, but I cannot recommend new buys at these levels.

So really, NFTRH35 comes out at a time when risk is high and you will not get lathered up by anything I have to write. I will leave that to the trend followers and momentum players who had nothing to do with the gold stocks when the real buying opportunities presented at HUI 150-175 and later at 250-260.

I want to continue to map out a more mature method to investing and trading over a longer term. This involves tuning out the noise of the moment and telling readers what they perhaps don't want to hear, at the times it is appropriate. And I do not only mean the 'risk is high' side of today. Many people did not want to hear that it was time to buy gold stocks when deflation hysteria was at a fever pitch.