Archive for June 2010
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In Market Analysis on June 29, 2010 at 8:45 pm
Stocks went down sharply today on concerns over consumer confidence and indications that show that the economy is stalling in China. China has been a leading market in this recovery and its bull market has helped the price of industrial metals and base metals.
Over the past few weeks I have highlighted that the market has given signs of a major deflationary crisis and economic slowdown. Today these signs became apparent with a significant sell off on high volume and a break into new lows for the S&P 500 and Nasdaq.
Today major institutions sold equities and sought shelter in treasuries and the dollar. Gold and silver both sold off early in the day but gold fought back and closed up and silver was able to recoup some of its losses. Gold and silver are still in a uptrend and above both the 50 day and 200 day moving average. Gold and silver miners also appear to be close to a major breakout.
The S&P 500 and Nasdaq had a significant break of previous lows on high volume. I alerted readers several days ago to buy inverse etf’s when the markets failed to regain the 50 day moving average for the second time. Many times after this second failure the market has a major breakdown. The time to short is when the averages fail at the 50 day not when it makes new lows as many less experienced traders are doing now.
Many traders are fearing that silver and gold may be a top here as they are comparing 2010 to 2008. I understand that fear and am monitoring that situation closely. I have received a lot of requests to comment on the situation.
At the moment I believe that we will not see a correction in precious metals like we saw in 2008. There has been a global concerted effort for governments to devalue currency and assist the economy with unprecedented spending and cheap dollars. The Euro is on the verge of a collapse and there are major sovereign debt issues that is spreading to more countries. I do not believe the U.S. government will be immune from those debt issues. The United States has high unemployment, weak consumer confidence, a huge amount of debt and poor GDP growth.
Gold miners appear to be on the verge of a major breakout into new pre credit crisis highs.
The chart above shows the relative strength of the gold miner etf to the S&P 500. A break to 51 on that chart would show great relative strength to the market. During this market downturn since May 6th miners and bullion have shown good relative strength which does not make me conclude that we are having a repeat of 2008.
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In Market Analysis on June 25, 2010 at 2:41 pm
Major mining indexes appear to be approaching a major breakout point fueled by the sweeping overhaul and takeover of banks. Banks have been under pressure from a continuing recession, high unemployment, a weak housing market and now more government oversight and audits. This does not help a recovery process for housing or financials. These are two industries where I need to see strength to believe in a real economic recovery.
Financial are under a lot of pressure. In the past 6 months, the financials have had 7 major weekly distributions verse 1 major accumulation which leads me to believe that this bearish crossover could lead to a major financial decline. Notice how the financials when it broke into new 52 week highs it was on low volume which means it didn’t have the momentum to really hold those highs. This is also evidenced by the declining momentum indicators. The financials had 5 major weekly sell off in the 8 weeks of April and May. The bearish crossover pattern plus the failure of the financials to hold the 200 day leads me to be long term bearish.
On the other hand Silver, Gold and Miners all appear to be reaching new breakout points.
Silver is very close to a 3 year breakout and I would not be surprised if over the next couple of weeks silver makes a move into new 36 month highs. If this move breaks $19 on silver, which is a major resistance level my target would move to $30 an ounce. Silver has shown increasing demand as it has found support at the rising trendline support and is at the verge of a major breakout.
The connection between the financials and silver is showing that more investors are moving away from investment vehicles which are exposed to debt, government regulation and weak economic growth. Investors want their assets in real money which is silver and gold. Keep an eye on $19 silver and a breakdown of XLF past $14.
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In Stock Movers on June 24, 2010 at 10:59 am
El Gallo’s story is continuing to impress the mining community. U.S. Gold has invested a lot of capital into drilling El Gallo this year and believe that by 2013 they can be producing up to 10,000,000 ounces of silver a year plus 35,000 ounces of gold. This drilling program has been extremely successful. They have expanded the mineralization and are now showing a potential to connect different zones to have one large shallow open pit mine. In two weeks the initial resource estimate will be published which should add momentum to this gold and silver growth story.
UXG’s shares have significantly outperformed mining stocks and gold bullion this year. Since our initial recommendation from last May, UXG is up close to a 100%.
Even though UXG at the moment has little institutional sponsorship other than the CEO himself, I believe the investment community is coming to realize that the company has an impressive growth story. That has been highlighted technically over the past 12 months. You are welcome to view archived posts where I have shown the incredible strength these past 6 months.
Since investing in the mining sector since 2001 I have found relative strength to be a key indicator of where capital is flowing. It is easy to identify which companies are experiencing increasing demand compared to a benchmark. Since I consider myself a miner of mining stocks, I spend hours researching the mining companies which have the greatest ability to outperform gold bullion and the mining sector. Even in a great precious metals bull market one can underperform if not aware of how to use technical analysis and relative strength.
This chart shows the relative strength of UXG to the gold and silver index. Clearly the breakout to new 52 week highs is confirmed by its bullish strength. The longer the outperformance of price and the confirmed breakout leads me to believe its growth story going forward.
Using relative strength one can evaluate if this recent breakout in UXG is sustainable. The chart above shows a major breakout for UXG confirmed by relative strength. I believe that this stock can significantly outperform the sector over the next few years as did Goldcorp did from 2001-2005 while Mr. Mcewen was CEO.
Over the past 6 months UXG has significantly outperformed Mcewen’s former company Goldcorp. While Goldcorp is up less than 15%, UXG is up close to a 100%. This further emphasizes how important it is to use relative strength to really profit in precious metals bull market.
Price volume action is excellent highlighted by the big volume breakouts. I believe UXG is a great long term growth story. New investors who want to get in should wait for a pullback as it is short term overbought.
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In Market Analysis on June 22, 2010 at 8:44 pm
The United States is facing a crisis of a rising dollar and a recession where basic industries over the past several months have experienced a nasty decline. This condition is a concern for policy makers as the federal stimulus appears to be wearing off. The economy seems to be slowing and cash, treasuries, silver and gold appear to be the area of strength.
One bellweather blue chip Alcoa is down over 25% the past 6 months.
In January after breaking into new 52 week highs Alcoa experienced a nasty reversal and has been in a 6 month downtrend. Meanwhile, the U.S. dollar is rallying as well as gold and silver. This is a major deflationary sign.
Yesterday’s move to disconnect the yuan to the dollar was a mutual decision for both governments to stem the global deflationary crisis by devaluing the dollar. The U.S. government has done everything they can to prevent a deflation by keeping interest rates at all time lows, buying back treasuries to keep mortgage rates low and a massive federal stimulus. Now this latest move is another attempt to use China to decouple its currency, devaluing the dollar.
Although yesterday’s attempt appeared to be bullish as every media outlet believed that this would help global economic growth and the U.S. Economy, the market showed that government intervention can not subdue nature’s law of supply and demand.
The reality is years of bad debt and easy money need to work its way through the system. Eventually the markets and forces of supply and demand will reach equilibrium. Now investors are protecting their wealth by moving into gold and silver and I have done the same.
Economically sensitive equities and basic materials need to be avoided. It is an important time to preserve wealth by being in gold and silver during this next downturn.
Gold appears to be making a very bullish crossover pattern on its relative strength chart compared to the S&P 500 index. Each time it has made this pattern over the past 3 years with both moving averages pointing upwards has been very lucrative to gold investors.
The transportation averages had a nasty reversal today to further prove that movement of goods is under pressure. Transportation is the clue to see if economic recovery is continuing. Today’s reversal is evidence of weakness and further proof that businesses and individuals are holding onto their cash.
Today showed strong resistance and failure at the 50 day. This is an extremely bearish pattern. We must be defensive.
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In Market Analysis on June 21, 2010 at 6:31 pm
There are key points and days to consider heavily when following markets and deciding which direction to play. If you study charts you are able to see patterns that repeat themselves over and over again.
One key shorting opportunity that I have seen before major market declines is the second failure of the 50 day moving average. Today’s nasty reversal where it closed down after being up for most of the day fits this criteria especially when it coincides with the failure of the 50 day moving average.
The volume was above average and this leads me to once again be bearish on the market. Now is the time to short or buy inverse etf’s such as REW or SH to protect against another decline. It is not wise to be long this market. Trailing stops should be monitored closely. Now is the time to short not when the market reaches new lows.
Gold mining stocks will be monitored closely.
Stay tuned.
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In Stock Movers on June 20, 2010 at 3:30 pm
Copper is an extremely useful indicator which shows the strength of the global economy and whether the economy is growing or decreasing. At the moment Copper is flashing a “red alert!” A very bearish crossover pattern means that copper could go lower for many months.
This pattern is taking place with a broken trend, weakening rsi and momentum. All these signals together makes the chance of a fakeout, bear trap or whipsaw less probable. Next target is $250 which is the 50% retracement.
The bearish copper pattern is taking place at the same time as an extremely bullish cup and handle breakout on gold. Many investors are finding gold and silver a better place to be right now rather than equities or commodities that are more susceptible to a weak economy.
I especially like silver here and have recommended UXG U.S. Gold which has made a huge discovery in Mexico. UXG is one of the leading stocks in the market right now up a 108% in the last 6 months. Although it is extended and I do believe there will be a pullback I am still extremely bullish on this company. In the next couple of weeks more news will be coming out summarizing the massive amount of work UXG is doing in Mexico.
Silver is going to follow gold and breakout into new highs and when that breakout is done a huge move could follow according to my point and figure charting. As you can tell by this chart that as the global economy is in danger people are buying silver. This is a sign of deflation, when the general public hoard silver and gold rather than being exposed to debt.
Silver is making a long term ascending triangle which is a bullish pattern and hasn’t violated any trend lines or moving averages. I predict silver on this next breakout could catch up with gold.
In a real economic crisis silver is a much more practical item as an alternative currency as it is much cheaper. A middle class person could easily cash in some dollars to by a roll of silver dollars verse buying gold coins.
The market is also predicting that interest rates are going to stay low as central banks fight deflation and hoarding of precious metals. This is illustrated by the move in utilities to reverse the bearish crossover signal. This signal is usually bearish unless there is a significant reversal close to the crossover.
Utilities is a sector which is extremely sensitive to higher interest rates. When this sector rallies it usually predicts low interest rates. The fear of bad debt globally and deflation is causing a rush to gold and silver and an easing from central banks.
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In Stock Movers on June 17, 2010 at 9:10 pm
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In Market Analysis on June 15, 2010 at 8:20 pm
Today the major indices made an important move to regain the 200 day moving average and clear resistance on higher volume. After making 2 previous attempts to cross the 200 day the markets are appearing to have made a successful double bottom. The double bottom pattern would be more confirmed if the volume on today’s breakout was above average.
Nevertheless, it was higher than the previous day which means the bulls have won the short term battle and are in charge.
Also the Dow made a double top breakout on the point and figure and a break of a trend line.
Many leading stocks are showing bearish signal reversals on today’s rally which means it may have legs especially aerospace and defense stocks as the Middle Eastern Situation between Iran and Israel intensifies. Any short positions need to be covered and additional buy recommendations will be coming shortly.
The rally was good for gold today and I expect a breakout to new highs shortly. Gold is making an ascending triangle and I expect a breakout to new highs in the short term. $122.50 would be the next breakout with a measured move expected to $137.5.
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In Market Analysis on June 15, 2010 at 12:39 am
In baseball if you swing and miss three times then you are out. On a chart if you see three failed attempts to break resistance…get out or short.
Each time the SP5oo tries to regain the 200 day moving average it fails and it is immediately hit with selling. Sellers are in control and the market is still in correction mode.
Today Moody’s downgraded Greece’s debt which caused the market to give back early leads. The chart shows a picture of a move up to the 200 day on low volume. This means there is very little buying going on. In order for me to gain confidence in the markets I need to see a break through major resistance levels with conviction and that moment is not apparent yet.
Quite contrary three failed attempts to regain major support has failed. This causes me great concern because in a bull market the 200 day acts as support. In this case it is acting as resistance, which is typical of bear markets..buyers beware!
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In Market Analysis on June 11, 2010 at 1:13 pm
On the front page of all the media outlets is the question if gold is in a bubble. I ride bubbles and look for beginning signs of bubbles. Bubbles are irrational, but there is an old saying that markets are irrational a lot longer than one can stay solvent.
I believe gold is nowhere near a bubble top and believe now is the time to profit on the next major asset class ready to run through finding the strongest mining stocks in the sector. I use relative strength to find those companies.
Gold is in a classic cup and handle pattern. The cup and handle pattern has historically led to major market moves.
You can see by the graph the major breakout from the six month saucer on excellent volume. Notice how the volume dries up on the handle. Now I expect a major breakout and a run to $136 on GLD or $1375 an ounce.
Compared to other bubbles gold appears flat.
This a chart of the oil index verse the gold and silver index. Notice the run in oil before the credit collapse. This run lasted almost 5 years before it topped. Meanwhile for the past 15 years the XAU has been relatively flat and yet it has had a nice run we have not seen the run up like other asset class bubbles.
I believe there are signs that we may be moving into a peak gold area and would not be surprised if there is a global rush to gold as investors lose faith in fiat currencies.
The recent collapse of the euro only preludes what will eventually happen with the dollar and treasuries. Now many people have run from the Euro to dollars, but I believe that is temporary. Now is the time, before the masses rush in, to buy gold and specifically the strongest mining shares which I highlight here. This is not the time to be bottom fishing other markets. I believe to stick to strength. This chart above gives me the confidence to know that we have not entered bubble territory yet.
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In Stock Movers on June 10, 2010 at 4:22 pm
The cup and handle breakout is a classic pattern which stock market traders search for constantly. A cup and handle pattern means that the stock has made a consolidation where many of the weaker holders sell their shares. Then as the stock breaks into new highs a handle is formed. It is formed because many investors who bought at the previous high are now trying to get back the capital that was initially invested at the previous high. Then a handle is formed. A handle should move sideways or slightly down so investors who bought at the previous high can get back their capital. Once this handle is completed the stock has very little selling pressure and buyers now gain control and push the stock into new highs. Many times the percentage gains are impressive.
Sometimes a stock forms a triangular pennant after a breakout as in the case of U.S. Gold (UXG). These triangular pattern in a handle are bullish and provide investors an opportunity to get in before a major run.
My ideal buy point is after the breakout of the cup when the handle pulls back to key support. Right now is a good opportunity to add shares before a breakout at $4.31.
There are four upcoming events that could make this stock move.
1) 20 drilled hole results from El Gallo in 2 weeks.
2) El Gallo Initial Resource Estimate in 4 weeks.
3)Additional Results From Regional Exploration in 6 weeks.
4)El Gallo Economic Assessment by year end.
I am excited by the results coming out in mid July from the regional exploration. UXG invested a lot into Mexico this year knowing that this land package could contain a massive amount of silver. I am excited for the next few weeks both from a technical and fundamental perspective.
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In Stock Movers on June 8, 2010 at 8:15 pm
After following and investing in the gold mining sector since 2000 I have tried to identify the major leaders in each run and greatest candidates for my capital. I am looking at great relative strength to the price of gold. This indicator shows me that this miner has great leverage to the price and even if gold stays flat this miner will outperform.
Today New Gold (NGD) made a triple top breakout relative to gold and shows great relative strength. One of the reasons NGD is outperforming even though it has exposure to base metals is that the street is becoming aware of its amazing portfolio of assets, decreasing cash costs and major institutional insiders such as Pierre Lassonde and Seymour Shulich. These are the type of investors who recognize value and growth both of which NGD has.
Today NGD was put on FTSE Gold Mines Index which is an important step in NGD’s growth story as its market cap has improved significantly since our original recommendation at 2.50 last May. Precious metals are outperforming the general indexes. When I see breakouts in specific miners relative to gold this is a huge buy signal and believe NGD will move higher.
NGD has the financial strength to withstand a market downturn and it seems that the investment community is becoming aware of NGD’s assets and growth story.
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In Market Analysis on June 8, 2010 at 8:40 am
On May 28th I wrote to subscribers to monitor the Dow Jones Transportation Average for failure at the 50 day or a break below the 200 day moving average. If any of these two signals occur then this will confirm we are changing trends and will be followed by a bear market where we could have a major retracement of 2009’s impressive rally.
The Dow Jones Transportation Average failed at the 20 day and yesterday broke the 200 day with strong downside volume. The bears are in charge and I hope all subscribers are in defensive mode with inverse etf’s and gold and silver stocks.
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In Stock Movers on June 3, 2010 at 12:25 am
U.S. Gold (UXG) is one mining company where the CEO puts his money where his mouth is. Rob Mcewen believes UXG will be on the SP500 and his aggressive drilling in Mexico is proving to the investment community that he has a major mine there. Rob owns 21% of the shares much more than any other CEO in the business.
The chart shows that in the past 6 months UXG has been outperforming gold. It is showing great relative strength. I believe it will continue to do so as new areas in Mexico start drilling in June and he is continuing to show expanded mineralization. Expect more positive results and outperformance of UXG especially how active they are drilling.
Chart shows a strong breakout on good volume and now it is making a bullish continuation wedge. Look for an upside breakout.
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In Market Analysis on June 1, 2010 at 9:11 pm
The failure to regain the 200 day moving average and the market breadth is very negative. Indicators remain very sold but the overall bearish breadth and the breakdown of many indices I use make me bearish.
I am opening positions in short inverse etf’s such as DXD and SDS to protect my equity positions. I have been stopped out of everything except TGB, GMO, UXG and NGD.
Gold is very strong right now, but I expect silver to follow soon. With all the debt the USA is getting itself into I can not buy treasuries or the dollar.
The chart I want to highlight is the investment grade bonds etf. These are the top most secure investment instruments and when I begin to see a major trend change that is telling me smart money is extremely cautious over sovereign debt and the overall global economy. It also tells me the market is concerned over debt downgrades from major companies.
The investment grade bond etf LQD which invests in the most secure debt of major blue chip companies has finally broken below the 200 day moving average and long term trend support. Momentum is waning and price volume action is poor.
Markets are showing continued weakness and an inability to rally off these extremely oversold levels. There are signs of a major market downturn from the global credit concerns.
I recommend holding good gold and silver investments and to protect now using inverse etf’s such as SDS the short SP500 and DXD Short Dow.
