Mining for Winners in Any Market

Posts Tagged ‘central banks fight deflation’

, , , , , , , , , , ,

U.S. Economy Breaking Down, Attempts To Prevent Deflation Failing

In Market Analysis on June 22, 2010 at 8:44 pm

Get a FREE 30-Day Trial of my Members-Only Premium Stock Analysis Service NOW!

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.

, , , , , , , , , , ,

Fear of Deflation, A Weak Economy and Bad Global Debts

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.