Whoops Thursday Aug 23 2012 7:20 AM CST
Now gold is only up $6.10 which just goes to show that one should not be attempting to day trade predictions. Stock futures are off which probably means that much more pressure on Bernanke to do 'something' in his speech next week. So temper my remarks below with JP Morgan's famous comment about the markets to a young reporter
prices will fluctuate....
Thursday August 23, 2012
At JSMineset, ultra-experienced old gold hand Jim Sinclair confines himself to republishing an Aug. 1 essay from technician Alf Fields: “The bottom line is that we now have a really strong probability that the correction which started at $1,913 on Aug. 23, 2011, has been completed both in terms of Elliott waves and also in terms of time elapsed.”
“If this is correct, the gold price should soon be expressing itself in violent upside action as it moves into the third of third wave, which is still targeted to reach $4,500.”
Is Gold Headed to $4,500? Peter Brimelow referenced below
The Euro takes off, the Dollar dives, Gold Soars,Ka Ching goes the Portfolio if you have followed our recommendations. At left is a screen shot from Finance.yahoo.com at 5:10 AM CST this morning. A gorgeous picture if ever I saw one!
Peter Brimelow links the gold surge with the Fed minutes. Well, I would note that the Euro finally moved over its 50 day MA and the Dollar dropped, but Peter does do a good job of surveying the successful market letters. Attempting to link any one market move to any one news event on a give day is somewhat pointless. By that I mean whether the FED minutes drove the Euro up or the sheer commitment of traders long the Euro or by golly, it's just time to get a bit more positive on Europe, who knows. The point is to devise a strategic system that establishes long positions before the market rise.
EWT does a great job on socionomics but I am baffled at their this outlook for metals and oil by Jeffrey Kennedy. He recommends shorting gold, silver, and oil. One reader was using a google search engine to identify EWT calls for tops as a contrary indicator, looks like it has happened again.
Regular readers are aware of my prediction that the looming college debt crisis will be a factor in coming market turn down. I am seeing more and more articles like this one attempting to defend the spiralling cost of a 'college education.' This writer, employed by a college of course, lumps all degrees into the same market basket, which is of course ludicrous. The big problem is the expansion of degrees that have little worth in the job market, and incurring the same debt for them as one would for engineering or accounting, or computer programming, all degrees that lead to certifications in the professional workplace. Oh well, let's get to the fun stuff, making money.
At far right notice that the Euro closed over its 50 day MA Tuesday, and rose again Wednesday. As we say above, you can link whatever event you want but traders moved out of the US Dollar shown in green. The result is an explosion in commodity shares and emerging markets which we have recommended. This weekend we ran the chart from August 14 showing how different stock indexes topped at different times in 2008. Commodity prices topped last with oil going to $145. Oil is already banging on $100 so I am starting to think it will sail past $110 the high earlier this year.
GDXJ - A Lesson In Fractals
As I have said to the point of repetition, most quant programs that drive trades on Wall Street these days use a 50 and 200 day moving average. Even stockcharts.com shown here defaults to that. I have added multiple MAs spaced evenly between these two numbers. This ribbon effect gives a much better feel for the pulse of the investing crowd. GDXJ popped over the 50, the 87,. and is now at the 125 day MA. It failed at this $22 level in June. And the CCI in the bottom panel is overbought. So what to do? Well the best idea was buying low the last few months but, here is a good lesson in fractals. Markets move in different time dimensions. It would be helpful if stockcharts featured a 2.5 day time frame, as a week is five itmes longer than a day. But here is what I mean, we use telescoping, looking at the same data set using differing time intervals to telescope and step back for a bigger picture.
But wait, here is a by the way for you. A typical text on technical investing will recommend buying when the 50 day MA crosses over the 200 cay MA. Notice that the chart is nowhere near that happening. By the time that happens GDXJ will probably be over 26. That means missing $8 of the move from $18. And that is 8/18 = 44%. So a key to making the larger returns is having the courage to buy low. Yes I am working on the outline for what I plan to name
Buy Low Sell High, A Strategy for Success
Maybe that is not catchy or sexy enough but it certainly states the ideas we have tried to develop here.
Okay so much for digression. Back to our fractal example.
Now what do you see? What you see is a totally different picture. CCI has moved just past the zero line in the bottom frame. The 50 week MA is at 24.55, about ten percent higher than were gdxj is trading now. GDXJ has been in a trading range of 18-22/ If the $25 increase to 1665 holds today, and I expect it will, (as I update this ninety minutes later I am already wrong on that prediction...) that should catapult GDXJ to a new higher trading range. Another feel good theory of investing is to add positions on the way up or take your half out of the middle. This is psychologically reassuring as one sees the portfolio go up most all the time. But it misses a lot of the high percentage action by avoiding the pain of buying lower and lower and seeing the portfolio drop in value. This is why most individuals fail to buy low. Running toward the buffalo herd is a scary proposition.
EWZ Brazil is the main chart, EWI Italy is shown via its racing red color in the bottom panel. Note that Brazil bottomed in late June while Italy bottomed in late July, along with the Euro, see chart one.
The Big Picture
I can recall sitting in Macro Economics class in 1968. The Professor commented that it looked like his wife and he would not be able to afford acquiring the silver service (knives and forks and such) that she had wanted. That also reflected an heirloom value statement of that day and age. Such silver services used to be stored in wooden boxes lined with velvet. Polishing the silver is a term that was real but has fallen out of use. When was the last time that you were in someone's home eating with a 'silver spoon.'
My point is that such ideas are part of a mania. I see signs while I am driving around San Antonio that stores will buy your gold. The mania will of course really get underway when the signs say, Gold for Sale. We have been in a stealthy gold bull market since the year 2000. Every year gold has closed higher. I suspect the article quoted at the start of this post is correct, the year long correction has ended. 1640 has been an important sign post and the market has already jumped to $1665 this morning. The 'oil boom mania' is alive and well in West Texas and south of San Antonio. Ordinary homes rent for $2,000 a month, existing motels are full and others are being built. Here is a photo I took last summer in Andrews, Texas. Andrews is a top oil producing county in Texas locatd in the oil rich Permian Basin. And yes I graduated from Andrews High School. I awas back for the class reunion. CDL stands for commercial drivers license. The problem is finding someone that both has a CDL and can pass a drug test, another sign of our times. But my point is that this sign demonstrates the kind of mania that eventually takes hold across the entire commodity spectrum.
While $4500 gold might sound high, it is only about three times the existing gold price. Remember gold bottomed at $250 in 1998 or so, it has already advanced 6.66X. This is another example of how the big percentage gain occurs in the first part of the move. Remember the socionomic observation that extreme mood happens at the end of a move. This is how the NASD advanced 40% of its entire 18 year move from 1982-2000 in the last six months. The recent move to $50 in silver exhibited that same get on the bandwagon at the last minute mentality.
Here is the correction of this past year with gold dropping from $1925 to $1525 and silver from $50 to about $27. Note that gold just closed over its 200 day MA and silver advanced over its 50 day MA. The jumps you are seeing today are further confirmation of the 50/200 reference for most trading programs used by funds for order placement.
Well, not much else to say at this point. I am going to enjoy my day and hope TMP readers are doing likewise! I have added those of you who e mailed me to our notice list. I do send out an e mail blast when we have a change in strategy or make a post. We are glad to add you to this list and no we do not sell or share with anyone else. The list is sent with the other names suppressed in BCC.
thanks for reading The Market Perspective