Value of Perfect Information

After writing an article about the Platinum-to-Gold ratio, I decided to do more with the excel sheet,
like calculating correlations and plotting the price charts for example.
In this article, I will just focus on the Gold price.

Here we go, the Monthly average Gold Price since January 1968:

It looks a bit bubbly, right?
If you think this looks like a bubble, then please have a look at this Log-scaled chart, which looks far from bubbly:

The thing I observed was that the price action in Gold from early 2000 until today was similar to the price action from 1968 until April 1979. Let me show you:

One might argue that the price action from 1972 until 1975 is not similar. I agree. However, the correlation between the gold price from 1968 until 1979 and the gold price from early 2000 until today is an amazing 89,65%.

Now what else did I notice? That the price action from November 1975 until April 1979 is almost exactly the same as the price action from January 2008 until today. To show you, here is a chart:

If this monthly chart was not convincing enough, here is a weekly chart (click the chart to ENLARGE):

Chart created with Prorealtime.com

How high do you think the correlation between both periods is (measured on a monthly basis)?
That’s right, an astonishing 97,83%!

Don’t believe me? Here is the excel sheet I used, with data from Kitco.com

So what would be a price target for gold, based on the 1981 intraday high of $873 per ounce if the correlation would hold?

That’s right, $5,000 per ounce:

Now you have another way to look at mr. Armstrongs prediction of $5,000 gold.

 

For more analyses and updates, please visit www.profitimes.com

 

 SIGNS OF THE TIMES

For those of you who can’t sleep at night or like to talk about things that go bump in the night I will be appearing on George Knapp’s Coast to Coast program Sunday evening May 15th.  Technically May16th 3 to 5AM (EDT) -please check local listings for stations in your area.

Topics will range from my novel Black Jack -A Drama of Magic (available on Amazon Kindle) to comparisons of the Great Depression vs the Great Recession to speculation about the Hopi “Blue Star” prophecy and my next novel.  It will be a lot of fun!

TOWER OF BABEL! 

THE NEW

Fi masterpiece.  It shares a theme with my novel  Black Jack -A Drama of Magic! Inspirationally driven as I was by my great uncle’s spirit:  HIS “chilling Vision”!

 

 

I just saw Metropolis, Fritz Lang’s 1927 Sci-

 

Metropolis’ premiere performance?  January 1927 Berlin.  Fritz Lang says his 1st vision of New York harbor in 1924 influenced his design of this futuristic city -

Mystery Babylon

-and all things that spring forth.

 

 

 

 

This is the current Stage and Trend table

 

 

 

———————————————————-

 

“But did thee feel the earth move?”
— Ernest Hemingway (For Whom the Bell Tolls)

 

———————————————————-

 

Did you see how the earth beneath silver move?

 

Tectonic if you ask me.

 

Let’s do a post mortem

 

Let’s review the anatomy of the tectonic move

 

I posted this chart in the premium post of April 22

 

 

And said:

 

“Because of parabolic nature of silver’s rise, it is hard to pick tight exit points based MAs

 

One thing I personally would do is to switch from any leverage double ETF I might have into a single ETF like SLV. Another think I could do could be selling some out of money call and buying at money or close to money puts. I could also use a 60-min chart and use its MAs or successive short-term higher highs as stops. This has been wonderful ride. I don’t want to just sell out and leave, but would like to keep as much as possible and having some sort of trailing levels is one way of doing that. Using options with part of the position can help as well.“

 

When one makes 50-50-70% or so, a 5-7-10% put and selling a 2-3-5% call does not hurt much, does it?
In the premium post of April 27, I said this for GLD:

 

“I will keep trailing the price till it breaks me out of my position. I am thinking of 13-21 EMAs as immediate support. I can alternatively use the small uptrend line as my immediate support. I have marked the trend line with a red arrow. I am picking 144-145 as my immediate support level for now.”

 

and this for SLV

 

“I have 42-43 as immediate support. There all all sorts of opinios where silver would go from here. From the uber-bears that have been saying a crash in imminent for months and months to those who see it at 100 or 200 dollars an ounce.

 

To each his own is my motto

 

I personally just want to make sure that I have a position that I can handle and just let the market get me out. I can easily sell calls and perhaps buy puts and set a collared position with options.”

 

In the premium post of May 2, Isaid:

 

“We seem to be having a correction getting started in PM ETFs. In fact, PM mining ETFs have been behaving poorly for quite some time falling out of step with the metals.”

 

In the same post I showed this chart

 

 

And said:

 

“One issue with accelerated trends and vertical moves is that they become hard to count as they do not correct enough to form discernible swing/waves. Another issue is that they can correct sharply and deeply and still maintain their larger trends.”

 

and

 

“I have support for SLV around 40-41. I would become seriously suspicious of SLV’s prospects if 40 fails”

 

Did I for sure know there was a top pending to unravel so soon? No.

 

But that’s what risk management and a bit of common sense is for. Any premium one might have paid on puts after building in 10s of percentage of profit would just be a nominal insurance fee. It’s easy to get caught in the euphoric moment and look for lofty and loftier targets. It is just as easy to forget about risk and risk management.

 

Notice that on the chart I had marked two shorter-term trend line with red arrows. Notice that they are quite a few point down from where price was. That’s how much technical drop a trader needs to put up with just to see if the short-term uptrend holds or not. As I mentioned to a subscriber via an email:

 

“my goal is to capture 60-70% of the trade

 

trailing stops, occasional pruning for size, buying outs, selling calls, stuff like that can help me reduce my anxiety”

 

In hind sight we know it all. we are oracles of the past. The future, well, I think only prophets and delusionals know the future. To borrow from Alexander Elder, we not get the luxury of trading the ledt side of the chart. We must act on the right side of the chart and there no certainties on that side.

 

That reminds me of this quote of excellent insight

 

“The sharp edge of a razor is difficult to pass over; thus the wise say the path to Salvation is hard.”

– From Katha-Upanishad aka Death as Teacher

 

—————————————————————————

 

So we got to be saved and keep some profits by being prudent, but what now?

 

Silver is in an OEW mid-term downtrend

 

 

A first area of support is the area of Minor (dark blue) wave 4, which is 27-30 area. There may be quite a few shell-shocked longs trapped all the way to to the top and that may create a sizable overhead supply causing a dragged-out correction

 

GLD has not confirmed an OEW downtrend yet

 

 

GLD has dropped to 13-wk EMA, on heavy volume. I think there is a good chance that after the hurried dash we had to dump SLV and GLD, we get a low soon and an attempt at a bounce.

 

This is a daily GLD

 

 

GLD is not in a confirmed mid-term downtrend — not yet, anyways. But that may be very small comfort as GLD can drop to 140 without threatening the current mid-term uptrend. I think GLD is lagging SLV the peak of Major (black) 3 wave. I think GLD is in a Minute(green) 4 correction, and will have another attempt to at least challenge the high. This drop may be just the first leg of a correction, but if GLD has not peaked its Major wave 3, then it is very likely that it will not confirm an OEW downtrend just yet

 

I shall be proven wrong about my thinking if GLD makes it below 138-139, some 4-5% lower from here. If that happens Major 3 is in and we are correcting major 4 and GLD has been in sync with SLV and I am wrong.

 

If I am right, I may get a good push up to challenge the prior high. So, 138-139 is the cut-off for any trade from oversold conditions. Notice that GLD came to rest on an uptrend line that started late Jan 2011 which also coincides with 55-day EMA. I would be taking a trade if GLD moves below the trend line while having 138-139 in mind as a stop

 

I humbly suggest that new subscribers read the three precious metal premium posts of

 

April 22

 

April 27

and

 

May 2

 

That is the way I look for clues and make different scenarios as I deal with the uncertainty of the future. I am not a guru. I do not believe in gurus. And I am the first to admit that I have no knowledge of the future. All I have is a simple knowledge of charts and a desire to identify risk levels and scenarios.

 

I have launched a MIDAS resistance curve (yellow) for GLD. It’s currently around 139

 

 

The channel on the chart is an adaptive channel and its mid-line is 55-day EMA. The lower boundary of the channel is around 131 at the moment. If this is not Minute wave 4 as I think it is, and if it is Major wave 4, I would expe

 

PM mining ETFs started acting poorly way ahead of PM metal ETFs.

 

Many times I have said as long as gold does OK the rest of the PM area may get by somehow. I have also been saying that I would want “more than just getting by”.

 

When gold finally started its correction, which we suspected and mentioned in the post of May 2, all hell started breaking loose.

 

We had repeatedly noted the poor performance of PM mining ETFs. On the MAI chart of those ETFs. I had said that there was room for improvement and that composite trend (as measured by OEW indicator) and composite posture (as measured by MAI) was not acceptable as they were. The internal trend and structire of the ETFs components did not improve, and when gold finally petered , they stopped getting just by and fell.

 

GDX

 

 

GDX was doomed when it broke out of the double fork to the downside.Daily resistance is at 59 and then 61

 

GDX’s McClellan has fallen to oversold levels

 

 

Notice that since Feb 2010, the area around 233-day EMA has absorbed corrections. I have marked past occurrences with black arrows. GDX is at 233-day EMA righ now. Failure to hold now, or after an oversold bounce may send GDX into a fast a furious drop.

 

MAI and OEW indicators have taken a hard beating

 

 

In the post of May 2, I said:

 

“For quite some time, I have been saying that both daily and weekly MAI needed improvement. GDX could never improve those. Now, we have mid-term OEW dipping which means some of the constituents have entered into confirmed downtrends. This is not a disaster yet, but it is hanging on to neutral and urgently needs buying to turn things back up”

 

So, the buying, which was needed urgently, did not come and the neutral situation broke into a disaster.

 

Now, OEW is dredging the bottom of its range. That means most of its components are in mid-term downtrends.

 

I was curious to see who might still be in a mid-term uptrend because they may, I emphasize may, be good candidates when teh PM area firms up to run for another uptrend

 

The ones that are still uptrending are

 

EGO (Eldorado Gold)

MFN (Minefinders)

RGLD (Royal Gold)

TRE (Tanzanian Royalty Exploration)

 

This is not a blank check to go and buy these but a possibly interesting situation of some miners still hanging on to their uptrends. I leave it up to you to do further investigation in those or any individual miner if you are interested to monitor individual stocks

 

The other mining ETFs are in similar situation: broken down prices, and oversold internals

 

GDX’s weekly MAI is down to neutral. It would good if it could stay above or around neutral as GDX works on some sort of a bottom

 

GDXJ

 

 

 

 

Weekly MAI is down to neutral. It would good if it could stay above or around neutral as GDXJ works on some sort of a bottom

 

SIL

 

 

 

SIL’s McClellan has just crashed into deep oversold.

 

Almost all components of SIL are downtrending

 

 

The only ones still hanging to their mid-termuptrends are

 

MFN (Minefinders)

OKOFF (Orko Silver)

 

Again, this is just an observation and not an endorsement of any stocks. If you are interested in picking stocks, you can take a look at the technicals for yourself

 

All three mining ETFs fell out of the forks I had going. Let’s have some down swing forks

 

 

 

 

There is hype, propaganda, conjecture, and there is the cold hard facts of technicals and price levels.

 

For every ounce of gold, there are tons of experts. Some say gold will crash to pennies, some say there shall be backwardation widening upward from here to eternity, and some say so many other things that fall between those extremes.

 

I shall ignore them all and play my own game and manage my own risk. That policy has served me well — so far!

 

In a post of April 12, when things looked good and healthy, I said:

 

“So far, so good, but complacency is not an option, it will be an abomination — outright sacrilege to let fat profits evaporate, or, even worse, turn to loss.

 

This is a volatile area, 10-20% drops or more are just routine and common place. If I were losing sleep over it, it would mean that I had more skin in the game that I could handle being peeled by the market. I would reduce for size, or set partial stops tight to reduce for size so that I could sleep well. To me not losing money is more important than making it — I like to sleep well is what I am saying “

 

That is the bottom line of my approach: manage risk and let profits take care of themselves

 

Enjoy the Rest of Your Weekend!

 

By Piazzi

http://www.markettimepremium.com/
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Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. All information included in Market Time Premium reflects ongoing thoughts of Market Time authors about market-related issues, and is prepared for educational purposes, and is presented as authors’ observations, and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. Market Time Premium, its author(s), and its affiliates do not represent themselves as acting in the position of an investment adviser or investment manager. Market Time Premium, its author(s), and its affiliates shall not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, Market Time Premium, its author(s), and its affiliates may hold positions in securities mentioned, but are under no obligation to either divulge or hold such positions.

Rare earth’s are all the rage these days, thanks to China. Everywhere you read, you hear China is going to corner the market and bring Western Civilization to its knees. Although it is pretty shortsighted allowing China to control 97% of the production, all is not what it appears. First some facts:

* The rare earth marketplace is $2 billion per year.
* The anticipated growth rate for the rare earth markets is speculated to be 9% per year.
* The United States requires approximately 5% of the metal prodution as raw materials for domestic manufacturing.
*
* The military see no shortages in rare earth’s. From Bloomberg last week. “The U.S. Defense Department has concluded that China’s monopoly on rare-earth materials, used in military hardware such as missile guidance and radar systems, poses no threat to national security, according to a person familiar with a year-long study by the Pentagon.”
* There are no export controls on the sale of value added products from China, made with these materials.
* By 2012-13, The Lynas mine in Australia will be producing, and it is likely that MolyCorp will be, as well.
* The Market capitalization of Molycorp (MCP) is $2.6 billion, and Rare element Resources (REE) is $266 million. Lynas Corp (LYC:AU) $2.4 billion.
* The Market Cap of all Rare Earth companies are $10 billion.
* Annualized stock price appreciation since mid August for REE and MCP is 1,200%
* Molycorp needs to secure additional financing equal to its original investment of $250 million.

Based on the above facts, this is a bubble, market caps exceed the entire industry annual production by 5x. These mines will not have any pricing power once they are up and running. Remember, China can control the price of these metals downward, as well as upwards.

I sold my position in REE last week and have no intention of buying Molycorp, until they have completed their dilutive follow-on offerings and the insider lock up periods end. I will evaluate them, then.

This is a rollercoaster I do not wish to ride.

http://arum-geld-gold.blogspot.com/

The broad markets along with metals have been on fire but in the last two weeks we have seen the sentiment become stronger. The extreme bullishness we are seeing has made it difficult for low risk swing traders to get in on the action simply because there have not been many sizable pullbacks. Instead the prices have been inching their way higher with very minor pullbacks before surging again.

The only way to take advantage of this type of price action in order to keep risk low is to take small positions when the market drops to the 5, 10 or 14 moving averages with a mental stop to exit the position if the market closes below the 14ma. Any position take up here should be small because the market is in runaway mode, meaning everyone is buying on the smallest of dips. The largest moves tend to be near the end of a trend which is why I feel this market could keep running for a few more weeks before taking a sharp plunge.

Natural Gas

If you have been reading my work over the past year you should know I don’t like natural gas. More people have lost money trying to play natural gas than any other investment vehicle out there which is why I don’t cover it very often. Many of you have been asking about Natural Gas (UNG) so here are my thoughts on it.

UNG has been in a down trend for several years and the only trades should be short positions at this time. The argument from some is that it’s undervalued and with winter just around the corner prices should go up. It’s a valid argument but price action is what makes traders money, not fundamentals.

The daily chart of Nat Gas below shows what I feel is about to happen. Remember, UNG is a terrible fund to be buying. Unless natural gas is moving strongly in your favor, this fund continually loses value simply because of the way its created.

Looking at the actual natural gas commodity chart is a different story… The trend is still down, but it does look as though it’s trying to form a base when looking at a 3 year weekly chart. That being said, there is still a very good chance we see gas test near the $3 level before starting a new trend so trying to pick a bottom here is not something I would be doing.

Trading Conclusion:

In short, the equities market is still in a strong uptrend. I’m not comfortable taking any large positions at this stage of the game but if we get a setup I will not hesitate to enter with a little money.

As for natural gas… trying to pick a bottom is deadly in a down trend as bounces tend to be short lived or flat.

I will cover the dollar, gold, oil and the market internals in the member’s pre-market morning video…

Happy Trading

In… September’s Federal Open Market Committee minutes, the Fed officially announced that … “Unless … underlying inflation moved back toward a level consistent with the Committee’s mandate, they would consider it appropriate to take action soon” and take “… possible steps to affect inflation expectations.” That’s Fed-speak for a MANDATE TO CREATE INFLATION — with lots more money printing, and many more purchases of Treasury bonds, mortgage bonds, corporate bonds, commercial paper, even possibly equities or real estate! No wonder the dollar is crashing toward new, all-time lows against ALL major currencies!…  No wonder gold is soaring — again!

So says Larry Edelson (www.moneyandmarkets.com) in an article* which Lorimer Wilson, editor of  http://www.MunKnee.com, has reformatted into edited excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Edelson goes on to say:

For a long time I’ve been warning that Fed Chief Ben Bernanke would:
• Print money, virtually nonstop.
• Do everything in his power to keep interest rates near zero “for as far as the eye can see.”
• Worst of all, literally CREATE inflation, even if it meant going into the open markets to buy up all kinds of assets.
Now, this is precisely what the Fed says it wants to do!

Overseas investors are clearly running scared of the endless supply of dollars the Fed will be printing …so they are buying gold, hand over fist. Meanwhile, savvy domestic investors are also gobbling up gold, driving gold trading volume to record highs … piling into every conceivable gold investment under the sun — from gold coins and bars … to mutual funds … to gold ETFs … and gold futures contracts.

Editor’s Note: Don’t forget to sign up for our http://www.munknee.com/newsletter/”>FREE</a> weekly “Top 100 Stock Market, Asset Ratio & Economic Indicators in Review”]

The above is hardly surprising when you consider the dollar’s downside fate is now virtually sealed … that the Fed has officially admitted that it will take any measures it deems necessary to devalue the dollar and boost inflation — no matter how unorthodox those measures may be. Adding fuel to this fire …a massive tug of war is about to begin in Washington!

In my 32 years in the markets I have never seen a set of forces merge together at one time and place like we have today!
Not only is the U.S. still mired in the worst economic disaster since the Great Depression …[and] the Fed embarking on unprecedented misadventures to boost inflation … but we ALSO face one of the most historic Congressional elections, ever!

What will happen? There is no question in my mind that, in this teetering economy, we will see:
1. a monumental tug of war between a more conservative Congress and a more aggressive Fed backed by the Obama administration …
2. a sea change in the financial markets, and …
3. every stock and ETF you own directly impacted.

My Recommendations
1. You absolutely must hold a long-term core position in gold regardless of any short-term fluctuations. The most handy vehicles are gold ETFs like GLD.
2. If gold suffers a temporary correction — which would be completely normal — [you should] use it as a buying opportunity to ADD to your core gold holdings.
3. [You should] seriously consider foreign currencies. On any short-term weakness, one good choice is the Australian dollar, which you can also buy via an ETF — symbol FXA.

*http://www.moneyandmarkets.com/news-flash-fed-declares-it-must-create-inflation-dollar-collapsing-gold-soaring-40373?FIELD9=2 Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. To view archives or subscribe, visit www.moneyandmarkets.com

Got Gold? I’m in Invercargill, the southern tip of South Island, New Zealand. I have one week to go before finally heading home. I want to see as much as I can. I’m supposed to be escaping the next data point. However, I cannot escape the fact that there’s a tempest brewing and it’s about to make landfall.

The Euro is imploding. Despite protests to the contrary, the ECB is about to embark on an aggressive debt monetization plan. They have no choice—otherwise the whole charade will collapse. Britain may be in even worse shape. On Friday, we learned that Hungary may be in trouble as well. The difference is that Hungary has no adult supervision. They can just print money. At least, at the ECB, they pretend to be prudent. Hungary is threatening to print or default or something else of that nature. They really don’t know what they are going to do. All they are sure of is that they have a problem. They have too much debt.

In the States, we are blissfully ignorant of our own out of control fiscal issues. Are bonds actually rallying? Did no one learn anything from the housing bubble? You cannot loan money to people who do not have the ability or desire to pay you back. While Europe pretends to implement austerity measures, in the US, our politicians are trying to find creative ways to piss away money they don’t have. Free health care anyone? We’re only a year behind Europe in this rolling crisis. With dismal employment statistics and an election in November, no politician worth his campaign contributions will sit by idly. Get ready for Bailout Round II—Bigger! Bader!! More Corrupt!!! How to pay for it? What choice will our government have but to print more money as well?

For me, this has all been obvious for quite some time. You could see the crisis building. You could position yourself. I feel that most people are unsure what to do. You can see it in the trading action. It’s erratic, with huge swings as people try and react to the various political posturing. I see it in the emails that I get from friends. People don’t know what to do. They feel we are in uncertain times, and they don’t know what asset class to own. Equities will be impacted by inflation, regulation and weak growth ahead. Real estate is still going down—there’s inventory everywhere. You can’t own cash because you know it will be debased. The Pavlovian response to fear has been to buy bonds. To me, those are just as bad as owning cash. I think that, with a jolt, the whole planet is about to discover gold—or rediscover it, actually.

For millennia, gold was money. It was the no risk way to store wealth. Over the last few generations, the Western World has allowed governments to decide what constitutes money. They were never good stewards of the currencies they created. However, a slow and creeping depreciation is easy to ignore. What governments of the world are contemplating now cannot be ignored. The US expects trillion dollar deficits for the next decade. Are they on glue? Does anyone think they can even hit those deficit targets? Europe doesn’t even really have a plan. They are making it up as they go. Greece set the precedent. They spent themselves broke and asked for a bailout. What reason does Spain have to even try and balance the budget—they want the Greece treatment. Poor Ireland—they actually went down the austerity road. They tried to do the right thing. Now, they’ve been called upon to bail out the Greeks who didn’t even make an effort. Will politicians ever again risk re-election in the name of austerity? Or will the new rallying cry be to spend the money before the Greeks do? We now know the ECB stands for European Commission for Bailouts. They’ve shown their hand.

For the past decade, gold has slowly crept higher. One by one, people have awoken to its charms. It’s not really an investment per se—It’s an escape from government imprudence. You don’t own gold because you expect it to do remarkable things—you own it because you are scared of your government doing remarkable things. Think of gold like the credit rating of world governments. It’s the CDS you buy if you don’t trust the politicians and their stewardship of the currency.

What is unique about the current crisis is that it is so global. When Argentina imploded last time, it didn’t impact me. If I were Argentine, I had a hundred currencies to swap into. Almost all of them were better than the Peso. We are now witnessing a world-wide currency death spiral. Clearly some are circling the drain at a slower rate—but why try to guess which is least bad. For the past decade, shrewd investors have hop-scotched from Dollars to Dinars, from Krona to Lira and back again. Now they own gold. When you read through the list of outspoken gold owners, you realize that you are staring at an All Star Team of investors. Every day, gold attracts new adherents amongst the brightest of investors. Get ready for the remora.

For most of the last three decades, gold has been a shunned asset. If you mentioned it at an investment committee meeting, you got strange looks. Potentially you got fired. Career risk is a very powerful investment deterrent. With the All Stars heavily invested in gold, you can at least talk about it. If you look at past investment trends, the asset in question slowly crept higher as the smart guys got positioned. Then, there is this cathartic moment. A few brave fund consultants mentioned it. A few funds bought, then a few more. There’s safety in numbers. Soon endowments and pension funds are tripping over each other to pile into an asset class they do not really understand. From technology to forestry to infrastructure to CDOs cubed. Gold will be no different in this regard.

Gold will be very different in two significant ways. First, retail investors will play along. You can just feel them joining in. The daily swings are wider now. The volume is up. Now the chart is starting to look strong. They never buy the first breakout. They buy after it’s been in motion for a while. This could get wild. The world produces 80 million ounces of gold a year. That number is dwarfed by the number of investment accounts in the US. If retail investors get involved in a big way, there just isn’t enough supply to go around.

Even more significantly, you could sit out the technology bubble—I mostly did. You cannot sit out the  coming gold bubble. If you do, you could lose everything. Fear is a very powerful motivator. Gold is still seen as an investment class. Soon it will be seen as an antidote to fear. If your government is defaulting, do you want to buy puts, or actual protection? Think of gold as a fear gauge. In just a month, fear of sovereign defaults launched the VIX from the mid teens to the high 40’s. You can’t really capture VIX—you can own gold.

This has all been a long time coming. Suddenly, I think it matters. I talk to people all day. People, who derided me for talking about gold last year, now want to know more. The chart increasingly looks pretty. A move over $1250 could be explosive. I cut back my gold exposure before going on vacation. I felt naked without it. I recently bought it back and then some. I paid up a few dollars. That’s fine. I’m using a stop on what I rebought—just in case. I think the big move is imminent. Got gold?

Over the years we have seen the stock market make some pretty exciting moves for share holders. This year alone there have been some interesting events unfold causing wild market swings which most of us did not think could happen. Things like countries going bankrupt and the May flash crash. Also the BP Oil well leak which looks as though its about to kill not only businesses around the world but a large population of animals and fish which our planet will never be able to get back… It’s been a crazy year!

It sure would be nice if the financial situations between all he countries could be resolved, and if we could have some proper regulations on banks and the financial system to minimize fraud and manipulation. From the looks of everything we have a few years still before things get sorted out, fixed and some what stabilized.

Below are some charts showing where the Dow, Gold and Oil are currently trading and my thoughts on them.

DIA – Dow Jones Industrial Average ETF – Daily Chart

The past 12 years we have seen the DJIA go through some large bull and bear markets providing those with trading experience to generate large profits in both the bull and bear markets.

Recently we have seen the DJIA pullback and test the key pivot point and has started to bounce. Although this price action is positive I have my doubts about another bull market rally because of how the chart looks. I focus most of my analysis on chart patterns, volume and market internals. These allow me to monitor the overall heath of the market on a daily, week and monthly basis. Using these techniques I am able to pull money from the market consistently.

This year we saw some extremely heavy selling in May which could have been strong enough to shift the trend from an up trend to a down trend. I call these large volume candles Get Ready Spikes. If they are green then we are looking for higher prices but when they are red it means distribution is starting and lower prices could start to form in the coming months.

The DIA chart below looks to be forming a very large head and shoulders pattern which is currently trading near the top of the right shoulder. This pattern is very bearish and points to much lower prices in the next couple years if the major support level (neckline) is broken.

GLD – Gold Exchange Traded Fund – Daily Chart

The chart of gold shows the same cup and handle pattern which I have been talking about for a while now. Last week the price of gold made a new high breaking out of this pattern. We could see the price of gold start to work its way up to the $1400-1500 level over the next 3-6 months which calculates to $140-150 on the GLD etf.

USO – Crude Oil Fund – Daily Chart

USO oil fund has been trend down for a couple months and recently put in a nice bounce from the May low. I feel as though oil is forming a bear flag and could head lower in the coming weeks. Until it breaks the key resistance level traders must be cautious if they have any long trades right now.

Weekend Dow, Gold and Oil Trading Conclusion:

In short, I’m bullish on stocks for the short term and think we could retest the April high in the next month or two. But after that the market could roll over and from there we could see much lower prices. Or we could see the indexes breakout and start another leg higher… During volatile times like we are in now… we must trade with caution until the overall health of the market clearly indicates the direction of stocks. Until then focusing on low risk setups and taking profits quickly is the safest trading strategy.

Gold looks to be setup for a strong move higher. I am hoping for another dip to shake out some investors before it continues its march upwards. Oil on the other hand is trading near a key resistance level. Only time will tell if it can break through and start a rally. If not then we will see the market struggle.

If you would like to receive my ETF Trading Signals take a look at my website: www.TheGoldAndOilGuy.com

Market volatility continues to shake things up making it profitable for traders who are quick to spotting key reversal points, manage risk and taking profits before it evaporates. On Tuesday we saw the market go up and down more than I have seen in a long time… It moved over 5% as it trended up then down in 1% increments as shown in the chart below. Members of FuturesTradingSignals were able to capture a 1-2% gain which may not sound like much but when trading the leveraged ETFs, Futures or CFD’s we are making 4-200% profit within a few hours. That being said this type of price action is proof that the market just does not know which way to go and why trades must be very quick to enter and exit positions.

The SP500 daily etf chart shows my simple volume analysis during market corrections. During the early stages of a trend, pullbacks are quick and simple. But as a trend matures we start to see corrections become much more complex. We first saw the simple 1 wave corrections in 2009, then we saw a much deeper 3 wave correction which was enough to shake most retail (average Joe’s) out of the market before heading higher, and now it looks as though we are headed into a complex 5 wave correction which should be enough to shake out the majority again.

It’s important to note that the longer a trend lasts the larger the corrections/shake outs must be in order to get everyone out. From what I am reading and seeing everywhere online are doom and gloom scenarios. In my opinion this is good. One more leg down should be enough to shake everyone before we see a nice 10-20% rally. Once we see that bounce/rally then we can reanalyze the market to see if we are headed back up to test the 2010 highs or if its just a bear market rally. In the end it does not matter as we play both the long and short side of the market.

The Gold ETF continues to unfold as planned. We caught a good chunk of the recent rally and are now in cash waiting for another low risk entry point in the coming days or weeks.

Crude oil Fund (USO) has been struggling to stay up the past 2 months. As you can see the chart below it’s trading at a key resistance level and at this point it could go either way… I don’t like to get involved in trades when they look to be a 50/50 probability of going each direction. If anything I would think oil will head back down as the US dollar continues its strong rally.

Mid-Week ETF Trading Conclusion:

In short, the broad market is in a down trend and selling volume continues to rise. Investors around the world continue to accumulate gold and the US dollar as they seem to be the safe havens for the time being. Oil is also in a down trend and trading at resistance which means we should see lower prices for oil and oil companies and this will weigh heavily on the equities market.

Cash is king and during times of uncertainty that’s for sure… It is very comforting to know we are in cash most of the time and only get involved with the market when there is a low risk, high probability setup on the charts.

If you would like to get my trading analysis and trading alerts check out my services at: www.FuturesTradingSignals.com and www.TheGoldAndOilGuy.com.

It’s sad to say but I’m afraid 90/95% of all retail traders/investors are not going to successfully ride the gold bull. The reason of course is that they are deathly afraid of draw downs. It’s glaringly apparent every time gold pulls back or suffers the slightest correction. Immediately a slew of traders come on the blog and warned of impending doom. “Gold is going to $600″ (think Elliot wave). Some are even brave (maybe I should say ‘foolish’) enough to short. Here is one we hear a lot lately, “miners are going to get crushed if the stock market enters a new leg down in the secular bear market”.

Pure nonsense!

Let me show you what happened to gold and miners during the 2000-2003 bear market.

During one of the worst bear markets in history gold rallied over 50% and miners well over 200%. So this notion that the precious metals sector has to get hit during a bear market is simply ludicrous.

Now I know what you are going to say, “Just look at what happened in ’08″.

The reality is that the crash in ’08 was a very special set of circumstances that aren’t likely to repeat. Up until September the bear market was following the normal path most bear markets follow. Slow grinding declines followed by explosive counter trend rallies. Gold was holding up amazingly well during this period as were miners. Both were actually up significantly during the first 5 months of the stock market bear. It wasn’t until gold entered a normal D-wave correction in March of ’08 that either corrected at all.

In September a rare event happened that drastically changed the entire fundamental picture of the bear market. At that time roughly $700 billion in debt came due. The financial system needed to roll that debt over but couldn’t as the credit bubble was in the process of imploding. That led to one of the few true stock market crashes in history.

The ensuing panic led to a selling climax in every asset class even including, to some extent, gold. The actual price of physical gold never even came close to dropping to the levels of the paper market. Smart money investors were taking advantage of the irrational selling by buying up every single available oz. of physical gold on the market. At the time premiums on physical were over $100 above the paper price.

The point I’m trying to get across is it took a very special set of circumstances to create the kind of selling climax that could take down the precious metals sector. Those circumstances are not present today. The EU has already gone to the printing press to halt their debt problems. The US has done away with the mark to market rules and Ben stands ready to print so we have no looming debt crisis in our future.

So if we are about to enter another leg down in the secular stock market bear the odds are it will be another slow grinding affair, very similar to the 2000-2003 bear. There will be plenty of sharp counter trend rallies and one can bank on the Fed throwing more and more trillions of freshly printed dollars at the problem all along the way.

And that, my friends, is the fundamental bedrock of the gold bull.

Now let me show you a long term chart of the last great secular bull market.

This is just about text book for a big secular bull market. We see a very extended period of consolidation below a key resistance level. Eventually that resistance level gets broken. Once it does it’s like a damn breaking, the force then becomes unstoppable, ultimately reaching heights far beyond what anyone can foresee at the original break out.

In oil’s case the secular bull rallied almost 300% above the $40 breakout level, topping out with a massive parabolic move lasting about a year and a half (remember me saying bubbles tend to last about 1 to 1 1/2 years as the final phase tops out?).

I want to point out this happened in oil, a commodity that was virtually impossible for the average Joe to invest in. This was a bubble driven purely by the the investing community. Remember this because it’s important.

Now let’s take a look at the next secular bull, one that’s still in the baby stage.

Gold has just recently broken out above the old 1980 high of $850. It hasn’t even doubled yet much less rallied 300%. Now if you think gold rallying to $3500 is ridiculous you are absolutely correct. There is no way gold is going to stop at a mere 300%.

Unlike oil, gold is readily available to the public and ultimately that is what drives the final stages of a secular bull market/bubble. When the public comes into the market their panic buying drives the final parabolic move to unbelievable heights. We saw perfect examples with both the tech and housing bubbles. The public was deeply involved in both.

And now, for the topping on the cake. The precious metals markets are infinitely smaller than the stock market, real estate markets or energy market. That means it won’t take anywhere near as much money to drive these markets to incredible heights.

Look at that chart of oil again. A 300% gain in a very large liquid market without ever drawing in any perceptible buying from the general public.

Now look at that chart of gold again, only this time with fresh eyes. The possibilities are simply staggering. I wasn’t kidding when I said this will be the greatest bull market any of us will ever see in our lifetime.

If, and this is a big if, you can ignore the nonsense from the Nervous Nellies or the gold Bears (a breed destined for extinction) and just hold on to your positions you will ultimately reap unimaginable rewards as this bull progresses.

Now I will say that yes, there are times to take profits in bull markets. You take profits when gold and miners are stretched far above the 200 day moving average. Everything eventually regresses to the mean. So when we see the HUI 40-55% above the 200 DMA then yes, you should think about selling at least some portion of your positions. But to sell positions with the miners 3% above the 200 DMA is … well, it’s just plain dumb. This isn’t the time to sell it’s time to buy, buy, buy.

Let me say this as plain as possible. If you want to get rich from this, the largest bull market you are ever going to see, you don’t listen to the traders and you certainly don’t adopt their flawed strategies. You simply can’t think like that if you want to ride this bull. You need to think like a value investor. When you see value you scoop it up no questions asked. And if the market is foolish enough to give you an even better bargain down the road you buy more.

Unfortunately here is what happens. Retail investors are unable to buy value. For the average retail investor to buy he needs emotional confirmation. I see this all the time. “Wait till the breakout for confirmation before buying.” The problem with that approach is that most breakouts soon fail. If one waited for the recent breakout above $1225 to buy they then had to weather an immediate draw down.

I saw this in spades at the December top. Retail traders entered in droves during that time. They were getting the emotional confirmation they needed. Then when gold corrected they either got knocked out for a loss or they held on just long enough to get out even. Most simply don’t have the patience to ride the bull on his terms. They want the bull to do what they want, when they want. I suspect more investors have been lost to boredom that draw downs.

The best strategy right now is to just sit tight. Remember this is still just a baby bull and it has a long long way to go yet.

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.