Gold-Silver Ratio (GSR) Updated

No, it's not some bizarre geometry problem.  It's a chart of the liquidity indicator GSR!

The chart shows my beautiful Inverted H&S bottoming pattern that Mr. Bernanke decided was not to be in 2010 when he outlawed illiquid markets and made us all a lot of money.

What does this chart tell us today?  Well, GSR (rising market stress) was stopped at the resistance zone we have been taking note of since it bottomed in 2011.  A break above that resistance means some real trouble.  Not only has GSR remained beneath resistance, but it is now breaking down on what it thinks it knows policy will be in the near term (before the end of 2012?).

Things are really getting interesting.

Hey, have a great weekend.

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Silver

Silver had been resisted by the EMA 50 (blue dotted line) before its definitive breakout.  I felt it could retrace all the way back to that line, given Ag's notorious volatility.  I lost a little money being short silver against precious metals positions, but that's show biz.  The hedge did its job I guess.

Just as you never let a silver bull pump you to frothy excess, you never stand in his way when he has that crazy look in his eye.  :-)

It looks like Ag wants to hold the 200 day moving averages in a sign of relative strength.

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Gold

The breakout above the EMA 200 resistance (red dotted line) was clear.  What was evidently not so clear - to me anyway - was the retrace point.  I felt a no brainer would have been a pullback to the EMA 200.  Not to be... maybe the SMA 200 (solid red) is all we get.

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Jackson Hole...

Move along, nothing to see here.  Markets will now sink or swim of their own merits, technicals and sentiment profiles.  And I wouldn't have it any other way.

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NatGas Index Has Already Broken Down

As a companion to the previous post, here are the Natty's already broken down from their channel after flagging momentum made a signal.

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Oil Index on the Verge of a Breakdown?

Momentum has come off nicely, but the Wedge is not decidedly broken.  If it does break down, the converged EMA's 50 and 200 or the noted visual lateral support zone could come into play.

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What Do Small Caps and Semiconductors Think They See?

The general Small Cap and the Semiconductor sectors are considered speculative leaders to the broad US stock market.  In painting bullish chart potentials, what do they think they see?

Small Caps: Still Bullish, But at Important Resistance

We observed a bearish pattern on the Small Caps and a bullish one on the inverse fund TWM in mid-May, noted the "kiss goodbye" to the topping pattern at the end of May, noted a precarious situation for bears in mid-July, a Bull Flag channel in early August and then the competing bullish patterns a week ago.

From the mid-July post:

"Markets are still making higher highs and higher lows.  But but but... the markets are supposed to tank claim the bears.  Well maybe my furry friends, but despite the negative feel of this summer, they are making higher highs and higher lows."

Technically, the bulls continue to hold sway.  I have been beating the drum on risk because any non substance abuser in the financial markets must remain aware of the risk profile at all points during the ongoing cycles, but thus far 'price' says bullish.

Today we update the IWM ETF and find a maturing Cup - complete with Inverted H&S characteristics (it's not an H&S reversal pattern because there was no previous downtrend from which to reverse) - that would ideally break above the red neckline, form a Handle and move higher to the ridiculous sounding target of the equivalent of RUT 930 or IWM 92.

It sounds crazy, since we know the economy is decelerating and corporate performance is slowly degrading.  But the charts (along with risk and psych profiles) said be bullish in May and June.  Now this crazy chart says IWM has the potential to make jaws drop on the upside.  Well, speaking of jaws, that jawbone about to start moving in Jackson Hole tomorrow morning will have a lot to say about that, as will the red neckline on the chart above.

Semiconductors:  At Support

The semiconductor ETF SMH broke down through the neckline of an H&S top as noted back in mid-May:  Semi's back below a neckline... not a pleasant chart.  As the spring of angst (+ price destruction) morphed into the summer of continuing angst (+ contrarian bullishness) SMH found a bottom, painted a nice 'W' on the chart (targeting 35+) and broke above the old neckline.  That is now support.

Interestingly, I talked with an associate the other day who - unlike your blogger - remains intimately involved with the semiconductor industry and the manufacturing sector in general.  He told me that semi is "dead in the water".

Hmmm... what does the chart above think it sees?  What does the IWM (small caps) chart above think it sees?  Why do these charts have the nerve to think they can paint such bullish potentials?  Well, we all know what these charts think they see; they think they see what the precious metals that blasted upward last week out of long-term consolidation patterns think they see; just like the broad US and European markets we have been bullishly tracking all summer. 

They think they see a perhaps coordinated campaign by US, European and Chinese policy makers to blow the inflationary gasket by engaging the competitive currency devaluation sweepstakes.  Given that the risk profile has risen notably over the summer from its previous 'contrarian bullish' status, it could be a good idea to hear what the man has to say (or not say) tomorrow morning before committing too heavily to a particular viewpoint.

Bullish looking charts can after all, be broken with the flap and yammer of a jaw.

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"Political, Economic Potholes Along the Yellow Brick Road"

MarketWatch has a piece today on the recent headline making noise out of the GOP about a return to the gold standard.

GOP's Gold Standard Idea Isn't Likely to Shine

"The gold standard, it is argued, would foster economic stability and prosperity, primarily by creating price stability, fixed exchange rates and placing limits government deficit spending as well as trade imbalances. It would also limit credit-driven boom/bust cycles through constraints on the supply of money."

Yes, absolutely.

"Opponents argue that the gold standard would limit the flexibility of governments and central banks in managing economies, restricting the ability to adjust money supply, government budgets and exchange rates. Opponents also point to the inflexibility of the gold standard, which may have contributed to the severity and length of the Great Depression."

In other words, a gold standard would limit monetary authorities' ability to "manage" economies by manipulating money supplies.  As a knock on effect, it would also limit their ability to provide welfare to favored constituents like the first users and abusers of newly created money, e.g. the big investment banks.

The article then goes on to make several points about why a return to the gold standard is unlikely (I agree that it is unlikely any time soon).  Here is the most telling reason, however:

"Money is now a matter of pure trust. American dollars still [bear] the words: “In God We Trust”. But God is not directly responsible for control of money; governments and central banks are. Politicians and policy makers are unlikely to willingly cede the power that a paper money system provides"

The article goes on to some silly stuff about a Tuscan spa, wealthy clients and the covering of these clients in 24k gold.   So, we'll leave the article now except to note that it also has a link to the ever clear headed Mark Hulbert and his Bullishness rising faster than gold.  Read it.  Gold is not the risk/reward proposition it was a few weeks ago as it has raced to over bought levels in quick time.  But that's how the barbarous relic rolls when it breaks out.  From Hulbert:

"Unfortunately, there’s some bad news to accompany the good: Gold timers have reacted to bullion’s recent strength by eagerly and enthusiastically jumping on the bullish bandwagon."

We anticipated this in the newsletter, gave parameters for over bought upside and for a potential reaction to correct the over eagerness.  A downside reaction, if indeed it comes about could be an ideal spot for traders of the metal to initiate new positions.  Holders of the metal should have taken long term positions long ago and should calmly sleep through any near term turbulence. 

Back on theme, while there is talk about the gold standard by the Republicans, they are just blowing hot air and taking advantage of a hot button issue and relevant topic.  Don't hold your breath on a gold standard even if Romney/Ryan gain the White House.  You and I, as lowly market participants and economic survivalists need to read between the lines in a functional way.

Gold is fine, as a standard or not.  As long as it remains an asset class as opposed to official money, it will be subject to market forces and the macro manipulations of current power holders.  These manipulations can constrain the metal as Operation Twist has played a roll in doing for a year now.  They can also launch the metal to higher levels, when the manipulation is toward increased money supply.

Sign up for Notes From the Rabbit Hole (NFTRH) to effectively manage the process if you would like an effective source of market intelligence to track the progress of gold as well as the bigger picture macro landscape.  Or simply watch the blog and/or check out the free eLetter for a lighter and less formal version of the analysis.

Edit (on 8/30 @ 7:25 am)  Comment by reader 'Gary', which I accidentally deleted instead of publishing:

'As long as it remains an asset class as opposed to official money, it will be subject to market forces and the macro manipulations of current power holders. These manipulations can constrain the metal as Operation Twist has played a roll in doing for a year now. They can also launch the metal to higher levels, when the manipulation is toward increased money supply.'

A thought that I hope everyone bears in mind with regard to gold, is that the Fed can only control the price of electronic/paper gold, and derivatives thereof, but there's bugger all the assholes can do to control the real thing, so gold lovers, fill your boots whilst you can (with the real thing), because there ain't much to go around!!!

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Au vs. Industrial Metals

The pecking order kind of goes like this... Au -> Ag -> Cu -> Sn, etc.

Here is a look at gold vs. the broad GYX index of industrial metals.

Oh yes, that's a Cup in the making.  It should eventually break upward, form a Handle that would break upward if the pattern holds true; and then you can wave bye bye to the fantasy of man-made economic growth because when gold out performs the positively correlated stuff in a big way, we are in full throttled economic contraction.

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Gold in Euros

You could call it a Cup or your could call it an Ascending Triangle... or you could just call it bullish.

First support is around 13 at the 50 day moving averages (if a Cup) and then in the 12.60's (if an Ascending Tri) at the EMA 200.

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Flipping the GSR over... Silver-Gold Ratio (SGR)

Another way to look at it is that one of our indicators to speculation and liquidity, the SGR has gotten very peppy very quickly.  In other words, it's over bought.  Something just seems a little fishy with the big brain preparing to speak from J-Hole on Friday.

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From a Website Billing Itself as the Corporate Propaganda Antidote...

...comes this little bit of propaganda:

The Ultimate 100 Year QUADRUPLE TOP BREAKOUT in Silver is Coming - and so is the Collapse

Ha ha ha...

This showed up in my inbox through a supposedly reputable source.

Ha ha ha...

You of course know what this headline means, don't you?  Seen the silver CoT lately?  Seems somebody does not agree.  It is really sad how this stuff comes out concurrent with images like the below all too often.  I am short against silver as a hedge to protect the quality gold stock core I have decided to hold through the coming volatility.  That short may or may not end up working out, but I can assuredly tell you that $800 silver is not coming round any time soon.

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Gold Mining Sector - Real Big Picture

In NFTRH 201 we looked at daily, weekly and monthly views of the HUI and interpreted what each had to say about their respective time frames (short term, intermediate and bigger picture).

Here is the REAL big picture view as represented by the Barron's Gold Mining Index.  Don't Elliott Wave people go on about a concept known as 5 waves?  Isn't the 5th wave supposed to be a powerful one?

I am not an EW, so consider that a disclaimer for this post.  We'll stick with the shorter time frames mostly, but this chart helped us keep perspective over the last year when used along with the shorter term stuff.

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NFTRH 201 Out Now

Model portfolio... profitable
Speculation portfolio... profitable
New Trading account... profitable (with all 5 trades executed so far green and two that are active also green thus far)

The point is not to brag because how do you brag with a precious metals dominated Speculation portfolio that is only a market under performing +3.5% for 2012?  The others are doing better however, and it is now time to pull down this Risk v Reward flag in favor of a this Risk v Reward flag and protect gains.

RvR is not a timing tool however, and there are a couple different scenarios in play, including straight bull until unhealthy sentiment becomes extreme.  None of this changes the degraded RvR though.  That's the thing.

NFTRH 201 out now.

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Energy a Good Risk vs. Reward?

For a bearish trade maybe.  That's a Wedge and that's support so...

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Gold-Silver Ratio Becoming Deeply Over Sold

This status does not mean that the broad bull party needs to reverse right this minute, but it does mean that risk vs. reward is out the window and anyone getting wildly bullish now is a risk taker and/or a trend follower, plain and simple.

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Checking in on the Continuum (AKA Long-Term View of 30 Year Yield)

This is the ongoing channel within which we operate, you and me.  You can like it, hate it or ignore it (as most crack cocaine addicted market participants tend to do), but it is a road map to the biggest macro fundamental backdrop. 

It is a picture of the ongoing and natural need of markets to correct the man-made excesses of monetary inflation and leverage creation.  You know, the stuff that keeps the addicts satisfied?

Today we find our friend the "Continuum" having held the lows of 2008's Armageddon but finding resistance at the red dotted channel line we might imagine exists.  As blogger pal IWNATTOS might advise, maybe I should put a 'TM' after that word, because it is only one of the most important macro indicators out there - to me anyway.

If it's "party on Garth", then that line will break and T bond yields will rise.  If not, it's 'hello Bob!', as in Prechter.  But speaking of Bob, his decade+ bugaboo - AKA his blind spot on gold - will make a pure deflation argument hard to reconcile. 

I, Captain Obvious, say that gold has done something very convincing this week.  There will be a lot of political energy fueling the proceedings over the next couple months and they are even politicizing the Fed - as in 'AUDIT IT!'

The perceptions game is just getting warmed up and a really virulent market has now turned into a really enjoyable one again.  I have been advised that to grow my newsletter I need to make stock picks.  Ha ha ha... I'll take slower growth there and get the macro right because there are few successful stock picks without being on the right side of the macro.

This chart always seems to get me drifting into rant, ramble or screed mode for some reason.  Wonder why.

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WTIC Crude Oil Hit Target

WTIC obediently hit a long standing target at 96 per this NFTRH chart...

And then the ETF painted a bearish engulfing candle yesterday beneath a resistance zone, as its evil twin the Proshares Ultrashort Crude Oil fund painted a bullish one at support.

I got long SCO yesterday morning at 36.57 in the trading account and was pleased to see how the day ended.  The Bearish Engulfing candle implies another day or two (at least) of downside, just as it did with QQQ, DIA, SPY a couple days ago and GDX, HUI last week.

B.E.'s are not long term bear signals, but it does not mean the bearishness has to be arrested in the short term.

I find the need to be short some things against the compact, quality stable of long positions in precious metals.  Even there I have done a fair amount of profit taking, as per parameters noted to subscribers by email update and in the letter leading up to this quite satisfying week.

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Sandstorm is a $***storm for recent buyers

How many times have we seen a Canadian resource stock pump higher and blow off right into a 'bought deal' financing?  Momentum chasers are being punished but good on this quality gold streamer.  I thought I would not have a chance to buy it, but maybe I thought wrong.

I have committed to hold only the likes of quality, and like Royal Gold and Silver Wheaton, that's what I think this is; a younger version of those two.  But boy you don't want to chase the upside explosions because you never know when you're running right into the teeth of one of these financing deals.

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Small Caps Updated

The R2K is on a test of the neckline to the little pattern that was added to the right side shoulder of the big daddy pattern.

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Keep Perspective - It's the Winning Trade Over the Long Haul

The gold-silver ratio is declining with the broad asset market party as silver explodes higher, leading the speculative impulse.

We are managing the now confirmed bottom in the HUI, we are managing its upside targets (hint, we're just about at the first one) and we are managing the probabilities with respect to the breakouts in gold and silver... all in the newsletter week to week and more dynamically, in email updates such as the one that went out this morning.

For our general purposes here however, let's just note that the entire endorphin release in the broad markets has come against a situation where the noise level about QE has gone way over the top with the euro leaders squabbling and jawboning and US Fed members alternately playing good cop and bad cop to a market that doesn't really know what to think, other than 'let's party!'.

I would imagine that there are a lot of people feeling like "shit, I missed the bottom... I better get in!" and indeed, the AAII individual investors are at a 4 month high in bullish sentiment:  See 5th item down, here  http://www.biiwii.com/analysis.htm.

T bonds are UP, while Uncle Buck is down in the face of the euro, which is UP and probably getting short-covered.  The precious metals are doing something really constructive here, but what I will say is keep the whole in mind, not just one or two particular areas of interest.  It's a circus, a carnival and a casino all rolled into one and perceptions are now being built and cemented in a mirror opposite to those that got burnished into the investor mindset in the spring and early summer.

FWIW.

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TSX Venture

The wild west of Canadian speculation, AKA the TSXdotVEE is at a rather important juncture don't you think?

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Euro Targets

Euro is going to encounter resistance at around 127.  It is already getting over bought - my, how things change and rotate in hyper drive here in the casino - but there is price support at 124 (50 day moving averages) and RSI support at around 55.

One wonders if the euro can eventually make it all the way up to the 200 day moving averages before the rally stalls.  But again, 127 should have some resistance to it first.

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Fed Minutes Pump

Many on FOMC Favored Easing

Silly market... I guess the SPX chart in the previous post is going to hold for now.  Gold liked it and silver liked it even more. 

The market is in full substance abuse mode and all is going according to plan.  I was not able to write that a couple months ago.  But now it appears that policy makers are ushering the markets forward into a situation where it could get really ugly if the naysayers like Lockhart and Fisher have their way.

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S&P 500 at a Crucial Juncture

If the current level does not hold, the 1360 to 1380 zone becomes important support around the EMA and SMA 50's.

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China Target Still Open?

A target was set for the China 25 ETF back in NFTRH194 on July 1, pending a break upward from the consolidation at support around 32.  FXI obediently did so and then steamed up to the EMA 200, where it found very predictable resistance.  Now it must hold 34 for the bull case to continue.

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Twist Update

Man with the big brain:  Sell more 3's, sell more 2's... buy the 10's, buy the 30's!!!

Barbarous Relic:  Screw You.

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Bearish Engulfing Candle on the Q's

Last week it was on the HUI and NFTRH advised it would have short term implications only.  Check.

This week it shows up on the Cube.  My bet is that QQQ declines only enough to fill the first gap then makes new highs.  But that's just my guess here in a rising risk broad market atmosphere in which I have little skin in the game (outside the precious metals).

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Of Course You Know What Happens Next

We are obviously realigning sentiment in the broad market to such a degree that the crash alarmists (at least the ones that put their views out publicly) from May/June have had a chance to retool their presentation.  You see, it is now time for the pitch men to portray having been right about this rally (or at least to sweep a previous stance under the rug) and to play bull smart Alec.

Where once the deflationists caught a buzz with the rising T bond and US dollar, now the inflation users get their turn with rising T bond yields and a correcting USD.  It was the dumber deflationists that were preaching to sell all assets and raise cash when the T bond was critically over bought and so many assets were at critical support.

Now it is time for the inflationists to step up and start pitching.  Come on boys!  Who wants some copper?  How about coffee?  Isn't there some soy bean hysteria kicking up too?  The Fed is gonna PRINT!!!!  Oh wait, that's not happening quite yet.  Well, give it some time say the inflationists.

Everybody into the pool.  That will be the message of the bulls right into another turning point.  Meanwhile, the CPCE's 20 day exponential moving average continues to burrow down toward our target.  The gold-silver ratio and Uncle Buck continue right on plan and things are making sense.

In that regard, when the Tickersense blogger sentiment poll shows up in my inbox later in the week I am likely to check off 'Biiwii, Bearish' for the first time since the spring with regard to the 30 day forward looking window on the SPX.

The time to be bullish on a risk vs. reward basis is well in the past.


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Fed's Lockhart Kills Hopes of Further QEasing

From Zero Hedge, and I could not agree more.  I mean really, the stock market has been doing the inflators' job for them for most of the summer.

Fed's Lockhart Kills Hopes of Further QEasing

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Looks Who's Following the GSR Lower...

Why it's none other than Uncle Buck (UUP), after getting the memo entitled "Ample Liquidity".

This is not expected to last and we have downside targets for Uncle Buck along with a whole host of other indicators that will probably play in concert when it is time to head for the exits.  Today I leaked out of AGQ for the 4th consecutive profitable trade (out of 4 total) in the new trading account.

Meanwhile, we party along with Garth.

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Au Following Ag

Well look who's following the wild man to an attempted breakout... why, it's the stodgy old man himself.

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Gold-Silver Ratio to Market: "Party on Garth... for Now"

One result of silver's pop yesterday was to drive big daddy liquidity indicator the gold-silver ratio down from the EMA 50, to which it had been clinging.  To all the other indicators we are watching, an over sold RSI on the GSR will be added. 

This market really is making so much sense to me now after an early summer of discombobulation.  Think about it; the analysis has been correct since the May lows (bullish, or at least DO NOT be actively bearish) and yet this POS market had me doubting myself at one point.  Now things seem much more clear.

I am glad to have the GSR playing nice now and welcome it into the tool box.

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DAX achieves upside target

DAX was targeted for 7000 way back on July 1 in NFTRH194 per this chart.  Boink.

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Silver making its move

...after finding support at the EMA's 50 and 20.  A new trading account I established (in prep for a new service coming post-Labor Day) holds silver ultra bull AGQ for just this reason.  So far every trade has been green and I really did miss trading like... well, a trader. 

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Gold Updated (Using GLD)

They say the more times a resistance point is pounded, the weaker that resistance tends to be come.  Gold is in a higher lows stance out of May and has well defined resistance at the EMA 200 (red dotted).  GLD's target would be around 168 or so if resistance gives way.

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NFTRH 200 Out Now

Risk is rising... sorry bulls, but it is.  Still, targets are higher and if the rally spurts higher it will be sponsored by increasingly dumb and emotional money.  Something to think about.  Meanwhile, in the precious metals we have mature corrections and very definitive technical sign posts in their miners.

NFTRH 200 (wow, 200 times I have sat down and channeled this manic entity we call the financial markets) is out now.  22 pages of well balanced and unbiased (to the best of my ability) stuff.

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Equity Put/Call Ratio Draws Nearer to Signal

EWI is out with a warning piece on investor sentiment.  It's focus is on the Equity Put/Call Ratio, which NFTRH has been watching since the 196th issue four weeks ago.  As an aside, I can't believe I am about to write the 200th newsletter this weekend.  Wow.

Anyway, EWI notes:  "The chart plots the 5-day closing CBOE Equity put/call ratio, which declined to .60 at yesterday's [Aug. 9] close.  That was the lowest close since May 1 (.58)"

Well, the NFTRH measure is a bit different.  We have been using .60 as a target but instead of using the spiky indicator itself, or the not quite so spiky 5 day average, the 20 day exponential moving average is used to smooth out the signal.  I mean, who is going to chase the nominal CPCE all around?  Talk about jagged.

The smoothed out signal on NFTRH's chart has a way to go before code red - which should come with other indicators falling in line as well.  The bear opportunity should be very good and EWI will be right about a market top, eventually.

I find the  20 or even 10 day average much easier to deal with.  Here is the 20 vs. 5.  It helps one avoid false signals and mental whipsaws.  When the EMA 20 gets to .60, risk is likely to be alarming.  And who do you suppose will have bought back in to the market by then?

We have an upside target on SPX, a downside target on the CPCE's EMA 20 and a hell of a lot of other indicators that need to play in concert to give a strong bear signal.  Meanwhile, the first chart above is one of the tools I used in determining that risk is now rising (see NFTRH199's page 1 screenshot) right along with the ongoing market rally.  But as of last weekend was not yet terminal.  I look forward to getting to work this weekend because it is only in doing the work each weekend that I feel well oriented.

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Russell 2000 Updated

On August 6 we noted the Bull Flag on the $RUT along with a crazy sounding upside target.  It broke out and a new pattern has formed with more reasonable upside objective.  Here is a crazy looking chart with too many lines for your viewing pleasure.

It still says here that bearish is and has been the wrong way to be since May.  It also says here that I expect this to change when sentiment profiles finish getting adjusted.  Meanwhile, party on Garth.

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Stuff...

The following was sent to subscribers on Tuesday in pre-market after HUI had painted a Bearish Engulfing candle implying short term trouble only...

"As for the HUI, attached is a weekly chart updating the gold stock situation.  The TRIX trigger lines have pulled even and this indicator that we have been using as a would-be confirmation of the bottoming process is looking better.  But a daily chart (also attached) painted a Bearish Engulfing candle yesterday, which implies very short term downside follow through.  An example of a short term Bearish Engulfing reaction from late July is circled.  We want to see the 415 to 420 support area hold.

Resistance is over head at 440 and the upside targets would remain 460 and 540 if the bottoming process continues successfully.

Of more importance is the 415-420 area.  This should hold for the advance to remain normal."

Well, it remained normal alright.  Got this feedback from a subscriber:

"Using your prescience on the move has been a winner.  Thanks mucho."  --DC, 10.16.12

Which brings me to another point.  People like DC are trading the heck out of the precious metals and PM stocks and doing so successfully.  It makes me happy if I am able to provide parameters and help in the process.

But writing the newsletter has been like lugging a piano around on my back with respect to my own personal trading.  I don't know how many times I've let excellent profits just go poof because I try to provide stability within the letter in service to whatever the bigger picture macro view may be.  Don't get me wrong, risk is managed with extreme predjudice when needed within the macro, but sometimes you just gotta take profits well earned.

Well enough is enough.  I want to be more like the subscribers who like to trade and use the analysis to gauge and capitalize on shorter term opportunities.  While I will not trade just for the sake of it, I seem to remember being a pretty good trader with the requisite psychological framework for doing it successfully.  Vocation-wise, I am now a one-trick pony as I am no longer a business person out there in the real world.

The market is my thing now and aside from the newsletter, trading is my only income.  I am going to minimize the individual stock focus to a few prospective gems (that I still intend to hold) and maximize the use of GDXJ, SLV, GLD, UGL, AGQ, GDX (not to mention bull ETF's and bear vehicles from around the global market spectrum), etc.  My thing is the macro markets, not individual stocks.

I have not owned the piece of garbage written about a few posts ago (GBG) in years, but there are other basket cases out there that have disappointed as well and not being a stock fundamentals guy but being a macro fundamentals guy, it only makes sense I focus on macro issues like 'what SECTOR is going up or down?', not what some individual company run by some dope is going to do.

As I said, I have my favorites in individual equities, but the focus is changing and I am psyched about that.

The post started as promo of some in-week email update management NFTRH provided and ended up a little screedish.  All's normal in biiwii land I guess.

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Silver-Gold Ratio Updated (SLV-GLD)

So, do you think speculation is alive and well?  Do you think silver looks good vs. gold?  Do you think bearish has been the wrong way to be since May?  Hmmm?

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GBG = Great Big (pile of) Garbage

Aside from owning best of breed mining/exploration companies in safer locations with lower risk profiles, and management that has proven itself in the past, I am defaulting to my strengths.  Those are macro market management and chart reading.  For me, it will be much easier to manage the GDXJ ETF for instance than it would be for a piece of garbage like Great Basin Gold.  Here is what GBG management (and interim management) has brought for shareholders to date:

3 bucks to 23 cents.  Great job boys.

Here's the latest ignominy from a company whose mines once had potential until the former CEO began massively diluting shareholders at inopportune times.  When that happened, it compromised the benefit to shareholders even if the mines were operated well.  It turns out these clowns cannot even operate well.

Aside from a few trusted fundamental sources I have for individual stocks, I'll stick with the Royal Golds, Silver Wheatons and maybe a solid and proven mutual fund or two.  But mostly I think that trading GDXJ and GDX will be the way to smooth out the significant company risk in this sector.

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30 Year Yield at Important Resistance

Now we will see if the deflation case takes another hit.  I believe big D can come back with a vengeance later in the year, but I am not at all sure it will happen in the very short term.  See the previous post on TLT, which looks bearish.  If the long bond drops, rates will of course rise - right through the noted trend line on this chart.

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T bonds bounce, decline anew

Last week we reviewed a chart looking for a bounce.  TLT promptly did so and then just as promptly resumed its decline.  A gap is being filled in a support zone, but the bond continues to look bearish on a short term basis, which would be supportive of the stock market again, on the short term.

 

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Rise, Platform, Blowoff, Correction...

I found this chart hanging around in the list.  I like this chart because I like to have perspective and patience.

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Gold's Road to Nowhere

From 'Road to Nowhere' by the Talking Heads:

We're on a road to nowhere
come on inside.
Takin' that ride to nowhere
we'll take that ride.
Maybe you wonder where you are
I don't care.
Here is where time is on our side 
take you there.

From the US Federal Reserve's website and the sub-section The Federal Reserve's Response to the Crisis:

"On September 21, 2011, the FOMC announced that it would extend the average maturity of its holdings of securities--by purchasing $400 billion par of Treasury securities with remaining maturities of 6 years to 30 years and selling an equal par amount of Treasury securities with remaining maturities of 3 years or less--by the end of June 2012. The FOMC also announced that it will reinvest principal payments from its holdings of agency debt and agency MBS in agency MBS. In addition, the FOMC will maintain its existing policy of rolling over maturing Treasury securities at auction."

"On June 20, 2012, the FOMC announced that it would extend the maturity extension program by purchasing over the second half of 2012 an additional $267 billion in longer-term Treasury securities, and selling an equal amount of shorter-term Treasury securities." 

Gold blew out a year ago under the weight of its own momentum and suspect sponsorship as new buyers came into the monetary metal in a panicked, knee jerk fashion.  Gold should be bought on the QT, on the sly, while it is being sold off or ignored.  Rarely does panic buying work out well.  Here is the current state of the gold correction as it ambles along on a road to nowhere.

The corrective consolidation drags on, with weekly MACD on an up-trigger and a slower TRIX still in non-confirmation mode.  The chart above is kept simple so that it is self-evident.  Gold is dealing with resistance in the low 1600's with the upper blue downtrend line a key level for serious discussion of the correction's end.

Gold was fated to correct due to the extreme momentum excess last year, but the two Fed entries quoted above are macro-fundamental road maps that allow gold market participants to a) have perspective on the seemingly endless correction and b) begin to strategize and prepare for its end.

The spread between "long-term Treasury securities" and "short-term Treasury securities" (30 year - 2 year shown above, with 30 - 3's looking similar) has not surprisingly been in consolidation since the euro crisis blowout.  Gold has reliably followed this macro indicator in corrective consolidation; a consolidation that was created by the will of man, not natural market forces.

A rising yield curve signals stress within the financial system as investors come to favor short term Treasury bonds over long term bonds.  Among the reasons for this is the fear of inflationary response to crisis by monetary authorities.

Obviously, the Fed's control of the yield curve has the benefit of creating a painting that if believed, tells a story of little financial stress.  Hence, gold theoretically has no job to do in protecting people.  So as long as the man-made painting is adhered to by the majority, gold will remain in corrective consolidation right along with the curve.

But using this perspective to advantage, one wonders about such things as the limited supply of short term Treasuries the Fed has to sell and one wonders about concepts like slingshots and pent up energy.

Will the entirety of Operation Twist one day be looked at as the pulling back on a sling shot, slowly and agonizingly approaching the point where it can be stretched no more?  Will energy denied and finally released make the surge in summer of 2011 look mild?

These are questions for another time because as of now, players are looking in other directions.  With all the notoriety the metal got in the kickoff to the euro crisis, the current correction had to be; first because the initial momentum thrust had to blow out and then because Operation Twist saw to it that an important macro indicator was put in place to keep the metal under control.  Remember though that wise players get bullish on gold only when it is hated or at least well under control.

That control may last only as long as the Fed's supply of short term Treasury securities.

This is just a reminder about patience and perspective.  Do sign up for the free (and spam free) eLetter for ongoing perspectives on financial matters large and small.

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GLD vs. SPY... Still no hint of a trend change

I would still say the risk vs. reward is much greater in gold vs. stock market, as has been the case since spring time when trend followers came out with dire proclamations against gold and pro the stock market (right before the big market dump, BTW).

But gold vs. the broad US market has done nothing in the way of establishing a new trend.  That cannot even begin to be discussed until the ratio gets over the 50 day moving averages.  Meanwhile it just fans along sleepily, right in line with the pro-Goldilocks, Operation Twist instigated long term T Bond vs. short term T bond yield curves.

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Support zones for the S&P 500

The lowest support at 1360 is the most critical.

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NFTRH199 Out Now

I like where 199 is going.  That is because NFTRH did the hard work of gauging the very annoying beginnings of the broad market rally (against a very noisy backdrop) and while there are few definitive or extreme reasons to anticipate its imminent end, signs are slowly gathering that foretell its eventual demise.

Patience and a hard working approach on an ongoing basis will keep us in good shape.  By the way, last week finally saw the non-diversified Speculation portfolio climb back to break even (it has swung from roughly +11% to -6%) for 2012 with the continued improvement in the gold sector.  We are managing a bottoming process but still awaiting a couple important confirmers.  That portfolio is +155% from NFTRH launch at 9/28/08.

The Model portfolio is a cash transaction adjusted +12% in 2012 due to diversification and much more rigid risk management throughout the year.  A new, small trading account is just idling after making couple profitable trades and is awaiting the launch of a new service (now that I am becoming a near full time market manager).

It is time to begin planning for what comes after the broad global rally that is slowly seeing its sponsorship rotate from smart money to that which is well... less smart.

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Junk vs. Investment grade bonds & USD

I think it is safe to say that the ratio between the HYG (junk) and LQD (investment grade) bond funds vs. the USD fund UUP is important.  With the exception of one anomaly, the ratio has inversely mirrored the UUP very reliably.

So it is probably very important to the summer rally that HYG-LQD hold the cluster of moving averages it is currently dealing with.  This is all about sentiment resetting isn't it?  Over here http://www.biiwii.com/analysis.htm, a note from the AAII on sentiment (top item) says that dumb money is starting to get a little more confident.

While I think the asset rally is more likely than not to continue pending some August chop, it may not be wise to count out the anti-market (Uncle Buck) in any sort of lasting way.  NFTRH has set a parameter for USD that could end the global rally. 

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