The end of 2011 and the beginning of 2012 greeted investors with spooky market stories to scare investors. A prominent cartoon in the Wall St. Journal depicted a pretty lady shrieking, “The DOW Sank 17%”. Another balloon read “The US Loses Its AAA Rating”. She is screaming, “Who Will Fix Europe?”. Another caption reads, “$71 Billion Yanked From U.S. Stock Mutual Funds”. Another hysterical cry exclaims, “I Want Treasuries!”. As if that cartoon wasn’t enough to scare readers, the headline read, “Spooked Investors Seek Safety: Volatile Quarter Leaves Market Victims Wondering What Is Next”. Another ghastly pronouncement we wrote in early October to the surprise of many was, “Beware Of Stock Market Rallies Ahead”. See the video below from early October predicting a major rally.

There was altogether too much gallows talk in circulation when we sent out the above chart on the S&P500 (SPY). We were brief and to the point and expected a potent rally especially in our oversold uranium (URA) and rare earth miners (REMX). In early October, we noticed positive signals on our indicators suggesting that an impressive rally was in the offing especially in our deeply oversold industrial metal miners(DBC).
Cutting straight to the chase we have witnessed a potent rebound where many of the oversold miners rebounded impressively in 2012. This demonstrates that there is plenty of cash waiting on the sidelines to continue supporting a strong rally. As we said, “When the need is sorest, so the answer comes soonest.” Suffice it to say, that the rally in the undervalued junior (GDXJ) and industrial (REMX) miners has begun and is continuing. Capital will continue to flow out of treasuries into equities.
As we write Bernanke is testifying that the “Federal Reserve is ready to take further actions to spur growth”. They are meeting next week and may announce a transparent horizon of accommodative actions. This is in keeping with our expectations of a potent, surprise rally.
The recent rally in the U.S. dollar (UUP) and the long term treasuries (TLT) represents a thin blanket for a cold night that is not going to last. This liquidity crisis is presenting a buying opportunity for promising, oversold and beaten down natural resource equities which have been pummeled in a merciless market. Since early October, we are continuing to watch this impressive rally and the breaking out of many quality companies into new uptrends.
Gold’s accelerated move to $1900 prior to the decision past overhead resistance indicated the market was waiting for an inflationary QE3. The market got a surprise as Bernanke announced a tepid twist. Negative news which causes a temporary decline with a rapid recovery indicates resilience. The precious metals market appears to be finding its footing and now may return to close some of those downside gaps created in 2011.
The recent selling panic in gold and silver bullion at the end of 2011 has abated and reversals are beginning to occur.
 The uranium(URA), silver(SIL), copper (COPX) and rare earth stocks (REMX) appear to be breaking downtrends and out of bases. The juniors (GDXJ) look like they are beginning to outperform the majors(GDX). The smaller miners have reached compelling valuations that long term, contrarian investors can use to their benefit by adding to positions or initiating purchases in favorite stocks or sectors which one has not participated in yet. We must understand the long term trends and realize this is a rare opportunity to pick up resource stocks just beginning new uptrends and breaking out of bases. Don’t ignore this recent rally.
Check out my recent interview with Jim Mckenzie from Ucore Rare Earths (UCU:TSXV or UURAF:OTC) which possesses the largest 43-101 compliant heavy rare earth asset in the United States. We discuss recent developments, news and how the company is moving ahead into mine development in 2012.
The Dow and S&P 500 is reversing lower as leaders in Washington fail to make the necessary cuts. Whether this is a new leg lower in a confirmed bear market remains to be seen. For the time being the downward move in equities might cause a decline in gold and silver bullion as well as the junior miners. Investors may be forced to sell the good resource stocks with the bad stocks.
For several months we have seen Europe’s Debt Crisis worsening. The large caps in Europe are down close to 30% going into the second half of 2011. In September we alerted our readers that Gold has reached overhead resistance and investors should continue to be prepared for a healthy pause. This is the chart we sent them on 9-13-11.
Gold’s accelerated move past $1600 to $1900 indicates we were seeing a path similar to December of 2010. After that move gold retreated for two months to the 150 day moving average. Gold Stock Trades indicated an extremely overbought condition not seen since late 2010 and maintained a hold recommendation as gold failed to break $1900.
Right now gold and silver are selling at long term support levels, which GST considers to be on discount and a secondary buypoint.
A healthy consolidation has provided additional buying opportunities as gold and silver has pulled back and is ready for its next upward move much like a runner who must push back in his starting block. We may see investors return to precious metals as a safe haven as they question the viability of U.S. debt. Could the current convulsions and irrationality in the markets anticipate further accommodative measures or QE3 by the end of the year? To reiterate, normal and healthy profit taking in gold and silver is characteristic of this market. Both metals are oversold and at support indicating potential reversals in gold and silver.
The Eurozone Crisis continues to trouble global markets and now the United States is having trouble making the necessary budget cuts needed to avert another market meltdown. Many want to sell their miners and bullion in favor of U.S. dollars and treasuries. The consortium of solvent banks in Europe state that they are ready to create Eurobonds for yet another bailout for the PIIGS.
Not to be upstaged, Premier Wen Jiabao from China has offered his good services in offering money to the Eurozone. Such altruism is sure to be well rewarded.
History is replete with cautionary tales of The Trojan Horse, which was built by the Greeks and deposited at Troy’s Gates. The Trojans regarded this as a gift and brought it into the city, not knowing there were thirty elite soldiers hidden inside the magnificent horse. Once inside under cover of night the soldiers were able to open the gates to allow the Greek Army to enter and defeat The Trojans. Modern wars are fought with fungible fiat money without a shot being fired.
What does this all mean to Gold Stock Trades subscribers? Refer to my previous articles where the concept was introduced of the “Chinamese Twins” where it was suggested that there was a grand design entered into during a secretive candlelight dinner.
The conclave was attended by the respective heads of state and representatives from both countries major industries. We feel that is within the realm of possibility that the elites of both nations have a good thing going enjoying “la dolce vida.”
What both sides may want is the dividing of the global spoils. The West needs cheaper currencies to monetize their horrendous debts and to increase exports. The U.S. dollar and the Euro are in similar binds in that they are facing further stimulative moves to increase liquidity. However, these measures may operate on a quid pro quo…one hand washes the other. The Chinese need entree into the Western Marketplace. They have plenty of U.S. Dollars, Euros and U.S. Treasuries which they would prefer translating into the form of Western wealth in the earth mineral assets.
Regardless of any deals that were made at the dinner, there are always daily wheeling-dealing to confuse the herd. Nevertheless, the eagle uses his dual vision to keep both the panoramic view as well as the immediate view in perspective. The near view reveals the Hanlong Bank of China standing accused of underhanded short selling. The possibility exists such sovereign banks may be complicit in shorting so many of the mining stocks. The Chinese Financial entities have been accused before of this slight of hand, shorting resources assets to be able to purchase them for pennies on the dollar.
Such recent actions on the part of corporate takeover attempts reveal the extremely underpriced and downright cheap valuations in the miners. Our technical charts indicate mining assets will eventually leap ahead at many times their present prices. The waiting game continues and has ever been thus, it is not a question of if, it is a question of when these assets will be fairly priced in the marketplace at many times their present value.
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There is fear in the land. Many are asking where to go if a deflationary repeat of 2008 is in the cards. The response to such an event may be an initial decline in all holdings across the board. The market roller coaster may take us down, but if we keep our eyes open, at exactly the same moment we could see a sudden rise directly ahead in certain sectors.
The drop might initially reflect a short term decline in commodity markets which are inherently volatile. Nevertheless, the eventual payoff may be worth the ride. Global debt crisis woes may be causing the recent breakouts in hard assets such as gold and silver as global speculators search for authentic safe havens.
Dollar Vs. Euro: Greater Leeway For QE3
The old game of wheeling and dealing is going on behind the scenes as the G-7 meets. The US needs to have a cheap dollar in order to pay off rising debts. The weakness in the euro has caused a bounce in the US dollar and is only cosmetic. The dollar long term downtrend is still apparent as it attempts to rise above the declining 200 day moving average. The rise in the greenback gives greater leeway for the Fed to institute accommodative measures. Conversely, the Chinese require a rise in the yuan to fight inflation and need access to the West’s natural resources, which they can purchase with their hordes of cash and US treasuries.
Further Government Interventions
Indeed, there may be further interventions and potential easing measures by government and politicians for a short term extension of the ongoing drama, as they dot the I’s and cross the T’s in the publication of some kind of interim bailout.
Our elected representatives will play the old game of kicking the can down the road to the 2012 election. This will serve a major purpose of deflecting blame away from the foxes who raided the hen house in the first place.
They then will be able to shift the blame to the people who are busily paying taxes and government salaries. They will walk away exclaiming that the people have spoken. Little wonder that the public’s belief in politicians is at an all time low.
Bullish On Commodities
My firm maintains our faith in the natural resource sectors and wealth in the ground assets is the place to be. Surely there might be other conventional safe haven plays in such venues as the dollar and treasuries. These countertrend moves are transitory in nature. The bubbles are in long term US debt and deteriorating Western paper currencies, not hard assets and natural resources. Any short term decline in our chosen sectors should rebound violently to the upside.
Investing wealth in the ground is exactly what our Chinese counterparts want to do with their paper assets in the dollar and long term debt.
Look for increased Chinese participation in acquiring mining assets. I believe this is only the beginning in the long range rise in mining resources.
Safe Havens
So where are the safe havens now? Is it in treasuries, which are a promissory note by a government whose fiscal integrity is being questioned? Or is it the US dollar, which is constantly being inflated? Look at your grocery bills and the rising costs throughout the economy. These sectors will surely be punished by Ben Bernanke, a student of the Great Depression.
My firm chooses to regard our natural resource mining sectors as increasingly important safe havens. They represent not only real money, but realistic, non-fiat money of which no more can be manufactured. Do not be diverted or distracted from the path of sound money by bandaids, bailouts, and cosmetic “touch-ups”.
The musicians are fiddling as the world burns. Global markets are navigating slowly in an ocean of greed, stupidity and compromise. Hundreds of years ago, masses of people took to the streets of Europe dancing madly in a kind of national “moshpit”. The cause of this “St. Vitus” mania was never diagnosed.
Today, we are witnessing a similar type of irrational behavior which defies reason. Prominent politicians and economic elites are doing a macabre dance in the grand ballroom of the supposedly unsinkable ship of state. How else to explain that the debt reductions being considered save perhaps a couple of trillion dollars over the next ten years? They are being lauded as meaningful reforms. In reality, they are bandaids applied to an arterial hemorrhage resulting from massive debt and mounting deficits.
It is just not computing. These ten year stratagems to control debt are an inadequate tourniquet that will only worsen the bleeding. Huge debt increases or deficits will continue to grow. The measures necessary to revive the patient are nowhere being proposed. Our public sector is swollen beyond recognition.
What is required is a rational collective that at least keeps our financial ship afloat. We are slowly drowning in a system that costs $6.7 trillion dollars every year at all levels of government, Federal, State and Municipal.
A great scam is occurring as our leaders focus mainly on measures that are at best only stop-gaps. They are not taking the steps needed for the survival of our country. Spending and entitlements need to be cut surgically. Political pork must be excised effectively. Tax increases must be approached with extreme care, less we kill the patient.
Sadly, there are few contemporary leaders who have the moral ethicality, stature and bravery to make the necessary actions that our Founding Fathers might have taken had they been confronted by similar challenges.
George Washington’s Farewell Address published in 1796 had it right. With a vision, characteristic of a biblical prophet, he looked far ahead, two hundred and fifteen years, to our time. In no uncertain language, he cautioned against needless foreign entanglements and kicking the excessive debt can down the road to our children, that rightfully should be our responsibility to correct.
Instead, we are surrounded by leaders who profit from a system of cronyism, insider dealings and leveraged vote-buying. Politicians will face another beating at the ballot box in November of 2012 if their economic irresponsibility continues to run amok.
It makes no sense that the 2012 budget should be above the $2.2 trillion dollars in anticipated revenues. Simply put our spending is way more than our income. The truth is we are broke as a nation. We could not manage our households in such a reckless manner.
Shortly, a “compromise” will be reached. It will be exactly that, a face saving political maneuver for the time being. The real battle-lines will have to be faced eventually as we approach the 2012 elections and their aftermath.
For the time being, there will be minimal resolutions to a serious problem. Eventually, the musicians will have to be paid in legal tender.We allow ourselves to be swayed from our highest principles of national morality. Our survival will hang in the balance.
What does this mean for our subscribers? Precious metals represent lifeboats in the midst of what Gold Stock Trades has labeled the “Titanic Syndrome” – the conceit that our financial ship is unsinkable. So have the bubbly ready for the pending announcement of compromise and subterfuge. We may run for awhile, but we will not be able to hide from the coming deluge of 2012.
Although the technical picture for mining stocks and precious metals is improving, there will be periods of volatility as the global markets shake. A consolidation in gold and silver bullion in August would be normal and healthy.
We are in this for the long term and maintain our confidence in the secular uptrend in precious metals which results in large profits. There has been some technical damage to the downside in our selected miners. This is characteristic of moves in the precious metals market which are designed to shakeout the summer soldiers and weak holders.
This current weakness in miners may be attributed to the declining equity markets and the need for liquidity. The U.S. dollar is benefitting from the risk of contagion of bad debts through the Euro-Zone and foreign exchange interventions by the Japanese. Italy appears to be the next Greece. The Euro’s recent uptrend is under pressure as Trichet begins Europe’s next round of quantitative easing and the Gold ETF (GLD) is reaching my late January targets. Stay tuned to my daily intelligence reports byclicking here.
“This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst others,” said Jeb Handwerger, editor of GoldStockTrades.com.
This chaos has had a positive effect on gold bullion and now investors are finally jumping on board,” he said. “This may be a significant move for several weeks.”
So why should anyone even suggest the possibility for any sizable declines in gold prices?
If the market develops a “parabolic rise” it may encounter “severe downturns,” said Handwerger, who’s also a natural-resource analyst. “Investors in any asset must grow cautious as a trade becomes crowded.”
Tides can turn
Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and supportive news for gold prices is plentiful.
But silver is a good example of just how quickly a tide can turn.
For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver.
“The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria,” said Handwerger.
Recently, investors have been concerned over the possible effect of the expiration of QE2. They have been looking for a clear mission statement in order to understand how government policy can impact their investment universe. This has sent gold and silver miners to key support levels and oversold conditions not seen in more than two years. Recently, Federal Reserve Chairman Ben Bernanke brought renewed hope for precious metals and mining stock investors. The U.S. central bank is prepared to provide additional stimulus if the current economic slow patch persists.
My firm has stated unequivocally that we have been programmed over the past two months to accept accommodative policies and QE3. The recent downturn in economic data such as home prices, increased unemployment and decreased manufacturing, indicates that we are being prepared to accept further bailouts and money printing measures. The Fed has already invested trillions of dollars in order to stabilize the capital markets. We are heading into the election year. Fed policies may be affected by political concerns in order to continue the accommodative measures of the Obama administration.
We have assiduously monitored the all important level of GDX $52.50 for several weeks. It was important that this support held for the long term uptrend. We saw a head fake, or bear trap through $52.50, the 2011 low. The new low was not confirmed by our indicators. This signaled a potential turning point and head fake.
The market will often do what it can to confuse us. Ergo, in an attempt to shake out weak holders, a head fake break below this support occurred. After these fakeouts occur at support, powerful moves tend to follow, which we are currently witnessing.
In plain language, the all important 200-day moving average, which has been regained, proves the long term trend in mining stocks moves on a labyrinthian path; however the path ascends upward over time.
Silver is showing signs of demand as it regains its 50-day moving average. Notice the 200-day moving average continues to catch up with the price during this consolidation. This recent pullback has been quite healthy for the silver market and has wiped out a lot of speculative hedge funds and day traders who bought at the wrong time when it was overbought and extended way above the 200-day moving average. Notice the decreasing volume, showing that the enthusiasm of profit taking and selling is waning.
An ascending triangle has been forming and I believe we may see a breakout to the upside where we can challenge April highs.
Gold is making a record breakout and is forming a bullish symmetrical triangle. This breakout may lead us to our $160 target, originally forecasted in late January. A high volume breakout to the upside has occurred. These continuation patterns favor a confirmed upside breakout.
At times such as these the economy reminds us of the inscription that Dante read at the gates to hell, “Abandon Hope, All Ye Who Enter Here.” My firm takes a different view of this grim admonition. At the risk of sounding pollyanish, we look for the silver lining instead of succumbing to panic.
Can the economy get any worse from here? Perhaps, yet the situation brings to mind an old aphorism, “The worse things were…the better they got.” The Gershwin Brothers put the same thought another way, “With gloom to lead the way, I’ve seen more skies of gray, then any Russian play can guarantee.” The time to buy stocks is when the lumpen are terrified, not euphoric.
This year investors have been engulfed by the perfect storm of the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the US, the exacerbation of Eurozone debt fears, and more. What does this all mean? The global market has had all the slings and arrows of outrageous fortune thrown at it. This chaos has had a positive effect on precious metal stocks that has not been reflected in its current price.
Newcomers to the arena are being given a golden opportunity to participate in an underpriced and oversold mining sector. Gold is close to all time highs yet miners have recently been basing at 52 week lows.
This represents an unusual opportunity. Central banks are increasingly buying gold. Witness the recent acquisitions by Mexico, Russia, China, and India who adding to their repositories of precious metals as they choose to diversify away from the US dollar.
This dollar bounce and mining stock selloff is providing one of the best opportunities for long term mining investors to enter the market during this short term liquidity crisis.
There is currently a short term consolidation and pause in the US dollar decline. This is a phenomenon resulting from the extreme weakness of the Euro and the need for liquidity rising from the potential exit from QE2.
Looking forward to the rest of the summer and the 2012 election it may become evident that a QE3 – in whatever semantic guise – may have to be instituted to buoy the economy, improve employment, and postpone a financial crisis. Already President Obama has told the nation that he will propose a massive infrastructure stimulus after today’s horrendous jobs data.
This unemployment crisis may benefit the long term holders of precious metals and mining stocks as interest rate hikes will have to be kicked down the road to some future date. Quantitative easing and stimulus projects will also be instituted, putting us into further debts.
There are too many well publicized negative considerations when the see-saw of speculation tilts to one side. It is entirely possible that the equilibrium is somehow going to be restored. In time, there has got to be a morning after. Precious metals will inevitably occupy their rightful place in the investment universe. Miners have bounced off 2011 lows and are now positioned for a breakout, while gold is challenging record highs.
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In August 2010 and January of 2011, gold and silver presented excellent buying opportunities. But what now?
When one begins trading it is important to realize that it is like any other business and your goods are your stocks. There is a basic rule that one must learn and never forget when buying and selling merchandise. You must be prepared to accumulate your products when there is a panic and sell them when there is euphoria. One has to sell when the product is in demand and the investment public becomes aggressive and buy when it is out of favor and the public shows little to no interest. In August of 2010 and January of 2011, precious metals both gold and silver presented excellent buying opportunities.
Please note, as silver surpasses our late January target and continues its parabolic move since our buy signal, that my goal is to make significant profits and not get greedy for the extra 5-10%. Do not get me wrong. I believe silver and gold’s long term trend could push gold to $3,000 and silver to $100 by 2013, but I am welcoming a short term healthy correction of at least 20% in silver before I will consider buying again. I will wait for pullbacks and not chase silver at these elevated levels. The key to selling correctly is buying at the right time when the commodity is oversold and out of favor. Parabolic moves end with significant corrections and I would like to see a healthy pullback. This current blow off move means that a correction could be quite painful for the investor who has overextended themselves accumulating at euphoric levels. A healthy correction will improve the chance of an orderly and healthy uptrend and provide my readers with a secondary buy point.
My basic objective of this service is to help readers secure profits and realize gains. You must sell and take partial profits as targets are reached. Selling at overhead resistance or while it is still advancing is reminiscent of the great investors such as the Rothschild’s and Bernard Baruch who stated that no one gets the top or bottom. The goal is catching the majority of the move.
Once my technical targets begin getting hit, I begin to reduce my exposure as the price continues to advance past that target. One has to remember that the reason we are in this position of sitting with hefty gains is because we bought right in late January as gold and silver were oversold and reaching long term support. Now in late April three months later silver has reversed reaching overhead resistance and gold is still in the process of reaching the $1,600 target. I would use gold’s upper resistance line as a more valid place to look for profit taking opportunities on both metals.
It is important to learn to sell when others are too optimistic and buy when others are scared to death. Silver (NYSE: SLV) is close to 70% above the 200 day moving parabolically and surpassing overhead resistance, while gold is (NYSE: GLD) is only 12% above the 200 day moving average. This is extremely divergent from the historical mean. We may see silver stalling while gold plays catch up. We are in a buying hysteria and short squeeze in silver. During these times, it has historically been wise to sell into euphoria. When the herd begins exiting it may be painful, the pigs wanting the top may get slaughtered.
Gold broke out of its 6 month consolidation and cup and handle pattern. The gold bulls are now in control and short covering should begin to cause an explosive move to my late January target of $1600 on gold and $40 on silver. In late January, gold and silver were in a sell-off and many were predicting lower prices as moving averages were broken. Now we are on our way to the January target in gold of $1600. Many ask what to do as they sit on hefty gains. I have learned through many years of studying the markets that the use of measured moves and technical targets when making a selling decision is quite important and must be followed. Institutional investors sell into strength at overhead resistance and are able to take profits. At those times of extreme optimism is when one must get worried and take some risk off the table. For some people it may be going off margin, for others it may mean raising cash. At times when technical targets are reached, risk management becomes crucial as the most difficult time to sell is when the consensus turns positive. Please stay tuned to daily bulletins on when technical targets are reached.
What is interesting about last weekend’s breakout in gold is that it occurred simultaneously with China raising rates.
In November and December, when China was battling inflation and increased rates, sharp reversals and selloffs occurred in gold and silver to the downside. Now the exact opposite has happened. Excellent price action on negative news from China raising rates shows the yellow metal’s relative strength at this juncture. When precious metals rally and breakout on interest-rate increases that are supposed to slow down inflation, it’s a very bullish sign. This may signal that any rate hikes will not be enough to get inflation under control. Jesse Livermore teaches us that it is not the news item itself that should be monitored, but the market’s reaction to the event is most which is most important. Are we seeing the clues that precious metals are leaving for us? This breakout might cause a powerful 10% move to the upside and a powerful four to six week rally.
Although you may start getting excited with the major gains you’ll be seeing from the late January buy signal and all the Johnny come lately analysts buying gold during this euphoric breakout, I ask you to not get overly optimistic as technical targets will soon be reached in gold, silver, and my mining recommendations. Please reward yourself and take profits when technical targets will be reached. No one gets poor by taking profits.
Many investors have fled the yen (FXY) and are looking for alternative currencies to hedge their positions. The Japanese Earthquake may have many positive benefits to their local manufacturing. For months Japan was concerned about a rising currency and the falling US dollar (UUP) as this affected their exports. Japan was intervening in the foreign exchange markets, buying the US dollar to prevent devaluation. A weak US dollar and strong yen caused major concerns to Honda (HMC), Toyota (TM), and other export giants. This waterfall decline in the yen has not caused any rebound in the US dollar as investors have sold yen, buyinggold (GLD) and silver (SLV) instead. The weakness in the US dollar, a historical safe haven in times of uncertainty, is causing investors to reevaluate that status. This is definitely a catalyst for gold and silver.
The euro (FXE) is reaching technical resistance. Interest rate hikes in China and Europe will not derail this rally in precious metals as inflation is spiraling out of control. Investors are nervous about fiat currencies. Moody’s just downgraded Portugal and may consider further reductions in their bond ratings. If cuts are not made in the US and the debt ceiling is raised, we may see the US get downgraded. This will cause further weakness in the US dollar and rising bond yields. All this may be negative for the global equity markets and will be carefully monitored.
Although investors are celebrating new highs in equities and commodities on Wall Street, leaders in Washington are facing some serious decisions on how to balance the budget. The reckless spending in the government is forcing lawmakers to make some important resolutions about raising the debt ceiling and reducing entitlements. This uncertainty in the US Government combined with the Middle East Crisis escalating has caused investors to seek out the safety of silver and gold. Investors are seeking out the safety of precious metals as gold broke out of its cup and handle pattern and silver races towards my $40 target from late January.
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It’s very difficult for a trader to stick to a plan and not let news events dictate decisions. But every once in awhile there are news items that come along and attempt to trip investors up, forcing some to take their eye off the big picture. Many of us understand the long-term potential of precious metals and commodities, but the emotions — either unbridled enthusiasm or gloom and doom — of the herd often affect our decisions negatively at short-term turning points. This past week the news out of Japan (iShares MSCI Japan Index (EWJ)) affected the majority of investors, who liquidated their positions and ran to the US dollar and to long-term Treasuries as safe havens, which I believe was a mistake as the G-7 came to the support of Japan. Margin calls were issued and the fire sale intensified due to the hysteria produced by the doom-and-gloom media. It is important not to become influenced and to not allow news-related items to shake one off a long-term trend. Staying the course during times of great fear or news-related reactions is very difficult, but is necessary if one wants to ride a secular bull trend. You must not allow the news background to take your eye off the ball. Already, I heard from some that they want to give up and throw in the towel, and this is normal during sell-offs. When the times are easy and stocks are breaking new highs everyone wants to buy and it is great to be in the stock market, but when there is a sell-off and when companies pull back to key support, many want to throw in the towel and never want to trade again. Be careful of following this behavior as these sell-offs often turn out to be buying opportunities.
I believe the positions that we are in with precious metals and commodities will continue to maintain its two-year trend. The situation in Japan will force them to print yen (FXY), putting more pressure on fiat currencies as deficits soar. I believe the geopolitical issues in the Middle East, combined with the Japanese earthquake relief has pushed off any tightening measures from US Central Banks and may even push Bernanke into expanding QE2 into QE3. The rebuilding efforts and monetary stimulus should be beneficial for gold (UGL), silver (AGQ), base metals (DBB), and commodities (DBC).
The US equity market (SPY) is reaching oversold levels not seen since my buy signal in August of 2010. The Japanese earthquake correction may be reaching a climax and a point of capitulation. The S&P has reached oversold levels on the RSI and stochastics. Each time it has reached this level a reversal has occurred. This should benefit mining stocks that have seen forced liquidation due to margin calls. As the 200-day moving average is moving higher, one needs to stay the course and trust the trend.
SPDR Gold Shares (GLD) has paused for two weeks as investors cover margin calls. Selling has occurred across the board and this may signal forced liquidation. As the equity markets stabilize so too should gold and a breakout into new highs may occur shortly as it appears to be setting up for a cup-and-handle breakout, which is indicative of a major move.
Gold (GLD) is about to breakout of a 6 month cup and handle pattern which has formed since the November highs. This pattern is indicative of a major potential move to the $1600 level in gold and the $40 level in silver. The left side of the cup began forming in October and November and we reached the bottom of the cup at the end of January when I came out with a buy signal. The right hand side formed in February and the first two weeks in March created a downward sloping handle showing profit taking. Profit taking appeared to end last week and a major move may be beginning.
Beware of trading on fear rather than facts. It is easy to become distracted by news stories around us. A cold day in July does not mean that autumn is here. A 9.0 earthquake doesn’t mean that Japan is over as many are predicting or that secular trends have reversed. Japan will begin rebuilding as it has done repetitively in the past following natural disasters. Do not be incorrectly drawn to the conclusion that the trends in precious metals or commodities are reversing. We must step back and separate the wood from the forest. Pullbacks in precious metals should be times to add to positions.
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Last week the Japanese earthquake darkened the skies with an unexpected flock of black swans. On top of an act of nature, we have the persisting presence of eurozone debt fears, currency wars, the Middle East unrest, and the near bankruptcy of many states in America. The Wisconsin problem goes far beyond one local state; there are 46 Wisconsins that have accumulated billions of dollars of deficits. States have more than trillions of dollars in pension obligations which they will be unable to pay. Unions are unwilling to budge and have taken to the streets in protest. Sheer survival mandates humongous cuts in spending. This places US states between a rock and a hard place as they will have to incur serious job cuts with an already high unemployment rate. This is combined with geopolitical issues in the Middle East, where Israel is mourning a family of five, including a four-month old baby, all of whom were murdered in their sleep on the Jewish Sabbath by Palestinian Terrorists over the weekend. I expect the situation to intensify as the region grows increasingly anti-Western.
This litany of woes have been compounded by the news out of Japan. Municipal bonds — once considered to be a sacrosanct safe haven — have been abandoned by the largest fixed-income fund, which sold out its holdings. The manager said he didn’t want to stick around as he felt prices would decline. Astute investors are not seeking Treasuries and the dollar as a safe haven asset.
We are witnessing a crisis of accumulated crises. I have recommended precious metals, uranium, and rare earths that can serve as safe havens in these gathering storms as both a hedge against a deteriorating dollar and leverage for an increased demand for clean energy commodities.
The US equity market is at a critical juncture after reaching overbought territory not seen since before the credit crisis. However, we are at an extremely critical juncture on the S&P 500, where we can be on the verge of an equity correction. If one needs to minimize risk, now is an important juncture to monitor as we may be seeing some of the same forces that caused our summer correction to resurface.
It is crucial to monitor this market and minimize risk as the S&P has reached my measured move after the end of August 2010 reversal. One can predict a move or where the next critical juncture will occur by using this technique, and I often use it to force myself to take profits as it reaches a target. I wrote several weeks ago when equities were reaching record overbought territory to be cautious and not to be blinded by market euphoria.
In July of 2009, the S&P bounced through the 50-day moving average moving from approximately 85-120. That is a 35-point move. Then the summer of 2010 we saw a correction down to point C at 100. The measured move is calculated simply.
A to B = 35 so C to D = 35
100+35=135
The measured move is another valuable tool to predict critical areas. It works in up and down markets. The measured move does well in timing potential profits and it is quite amazing to see such a simple symmetrical phenomenon occur so often in a chaotic market.
A note on the media-induced sell-off in uranium: I have highlighted that we are in the beginning of a nuclear renaissance throughout the globe. Nuclear stocks have been in an uptrend as emerging markets expand their nuclear capabilities. Many fear this is the end of nuclear energy as the media escalates these disasters. In reality, The Japanese have been proud of their nuclear accomplishments over the past 50 years supplying cheap and clean nuclear energy to approximately one out of three Japanese homes. In a catastrophe of epic proportions with a record-setting 9.0 earthquake and subsequent tsunamis, only two plants suffered significant damage, but have not released toxic levels of radiation to the public. One accident will not stop a developing industry that many countries rely on. Will nuclear engineers study and try to perfect reactor design? Yes. Will nuclear energy be abandoned by countries who have growing energy and carbon reducing needs? Absolutely not. Nuclear stocks are in an uptrend and what counts is not the news released but the reaction and resilience. Stay tuned.
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The gold (GLD) and silver (SLV) meteor keeps soaring in the skies over Wall Street as the US dollar (UUP) is parachuting into new lows. The spot price of silver this week broke $34.40, zooming into a record high area unseen since 1980. On March 1, gold followed its poorer brother by breaking out at $1425. The US dollar is challenging all-time lows. It does not take a PhD from Princeton to realize that there may be a problem here. Maybe the recent radical central bank actions should be reconsidered? True, 401(k)’s look good, but it has come at the expense of significant dollar debasement.
The million dollar question: Stampede or showdown? Will gold and silver continue to stampede into new highs making considerable gains or will the struggling dollar reaching record lows make a showdown, putting a ceiling on the precious metals rise?
Some naysayers claim that there is a danger of gold and silver rising into areas that may be considered a blowoff and that risk of a severe downturn is too high. The price of silver has been reaching areas that exceed the squeeze engineered in 1980 by the Hunt Brothers. It is true gold is entering new record territory and there may be areas of profit taking, but one must not deny that 2010 was a major breakout year for silver, proving that the long-term silver bulls have been right.
The true believers argue that there are too many positives going for silver at this time. We know that it is a truism that in times of political and economic instability silver represents a storehouse of value. Moreover, silver is profiting from soaring global inflation rates and political fever on the rise in the Middle East and North Africa. Silver also serves as an industrial metal with more than half of its demand driven by manufacturing. Electronics and solar power areas are active users of silver and are fueling the rise in demand for the precious metal.
Silver’s critics rebut that technically silver futures are moving into overextended territory. Compared to gold, the small size of the silver market renders it more volatile than the yellow metal. This results in historically greater volatility, causing soaring rallies and breathtaking corrections than might be seen in gold. Silver has often been called poor man’s gold. This demonstrates that the average investor is being driven to hedge with precious metals. This places downward pressure on the gold-silver ratio. Investors are seeking to own hard assets. Silver is caught up by the tensions in the Middle East and the fear on inflation. The desire to own precious metals and lack of faith in their own currencies throughout the world is an important factor in the flight to silver. The possibility that central banks may be caught by their maintenance of zero interest rates represent the go-ahead signal for silver.
The current economy is not healthy despite the largest monetary debasement in modern history. The deficit is more than 10% of GDP. This has been a long-term trend over many years. We are spending more than we are making. It does not take a rocket scientist to realize that we are headed down the wrong path, especially in light of seeing the sovereign debt crisis take down the financial markets in May of 2010.
The summer correction started with the flash crash in May and ended with QE2 being announced in August. This commitment by central banks to an unconventional last resort monetary policy named quantitative easing sent hard assets into record territories. What did this economic steroid do for the economy? Although traders of stocks and commodities have greatly benefited with rapidly rising asset prices, outside of this arena many are still suffering. Nearly two years of record stimulus and dollar debasement has not helped unemployment. There are less jobs now than in 2007 in the United States. Unemployment is putting a weight on the recovering housing market. Increased geopolitical tensions in the Middle East have caused a jump in oil prices, influencing a sell-off in equities. One must remember that an increase in oil prices is an extra burden on consumers and businesses.
Investors are jumping into precious metals as a safe haven, causing record breakouts. The dollar on the other hand has shown no interest from safe-haven buyers. The dollar, which proved to be a safe haven during 2008, has not been showing similar characteristics in 2011. Many investors are concerned about a repeat of 2008, where commodities and precious metals suffered a severe decline along with the markets. It is my belief that 2011 is different as evidenced by the recent decoupling of gold and the dollar as a safe haven.
Central banks are addicted to quantitative easing. There are no exit strategies as long as unemployment does not improve. In 2008, it was not known that these drastic measures and spending packages would be adopted. This is the worst it has looked for the US dollar in years and precious metals are decoupling from fiat currency. This may be the beginning of the great flight into the safety of hard assets as fiat currencies struggling with record deficits lose their value. Quantitative easing has never been successfully used before. It may work in the academic world, but in the financial world it is causing a dollar debasement exacerbating fragile geopolitical issues globally. The only precursor of quantitative easing to my knowledge is Japan, which has used it since 2001. Japan is still in a recession and suffering with sovereign debt issues.
As the media and the general public catch on to the precious metals trade, I will be looking to secure trading profits. We are not there yet, but one must monitor when and how to capitalize on this major gain from my late January buy signal and not get caught up in the coming hysteria.
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Many of the great declines in the stock market over the past 30 years have been related to oil (United States Oil (USO)). This week we have seen the major indices plummet on geopolitical chaos throughout North Africa, especially the large oil-producing Libya, as investors returned to gold (SPDR Gold Shares (GLD)), silver (iShares Silver Trust (SLV)), and oil. As the market reached record overbought territory, any excuse could begin a significant pullback in equities (SPDR S&P 500 (SPY)).
Investors are monitoring key assets in Egypt (Market Vectors Egypt Index (EGPT)). If either the Suez Canal or Sumed Pipeline come under attack, then we will see a major oil spike, possibly worse than in the late 1970s. Already Iran has taken advantage of the chaos and passed into the Mediterranean, further escalating potential conflicts between Israel (iShares MSCI Israel Cap Invest Mkt Index (EIS)) and the Iranian Allies of Hezbollah and Syria who want to take back control of the Golan Heights. This Middle Eastern instability may have deeper consequences and I don’t believe it will end anytime soon. In fact, it may even eventually spread to Saudi Arabia where the royal family maintains weak control and extremists are gaining popularity. In late January in an article entitled, Will Gold, Oil Prices Soar on Revolts in Tunisia, Egypt? I wrote about the domino effect hypothesis, stating that chaos would not be contained in Tunisia and Egypt. This spread of chaos, causing volatile power vacuums, could have a significant impact on gold and oil, especially now that the domino hypothesis is being confirmed.
At the end of January investors returned to precious metals. Gold has been on sale every six months. A January phenomenon occurs when mutual funds and institutional investors reposition their holdings, sometimes allowing investors to buy a sector on sale. At the end of January, gold and silver found support as geopolitical conditions worsened. The recent Libyan crisis has caused oil to jump which in turn has caused a decline in equities.
As much as the financial crisis and record government spending has helped gold soar to record highs, terrorism and war have been major drivers of the price since September 11, 2001. The Middle East possesses approximately 65% of the world’s oil reserves, and Egypt in particular has two key assets which effect the global oil trade: the Suez Canal and the Sumed Pipeline. Many analysts did not expect Libya to fall into civil war. Reports are showing that oil exports are being curtailed, sending oil into new 52-week highs.
The “Sputnik” moment which President Obama spoke about in his State of the Union address may come faster than expected out of necessity. Washington is actively pursuing supply of North American heavy rare earth assets to fast-track into production as top-secret defense technologies depend on it. Sanctions on China from the WTO will not be enough to meet the growing demand. Even China, which produces over 97% of the rare earths, has expressed interest in heavy rare earth assets globally. Hyundai, the latest company on the electric-car scene, recently commented that it was pursuing a rare earth supply as well.
Economies are growing and demand has increased since the last major Iranian Revolution in 1979 when oil spiked higher. An oil spike now could be much more detrimental 32 years later. The world is more dependent on fossil fuels and many nations are struggling with slow growth and huge debt burdens. An oil spike could cause a major setback for the global economic recovery unless governments initiate major alternative energy and clean energy programs. I believe these current events will create a more significant push into clean energy, non carbon energy. A few commodity sectors may benefit including uranium (Global X Uranium ETF (URA)), lithium (Global X Lithium ETF (LIT)) and rare earths (Market Vectors Rare Earth/Str Metals ETF (REMX)).
President Obama has released this year’s budget and it was shocking. Many analysts were surprised by the huge amount of capital allocated to clean, alternative energy in order to spur innovation and job growth. In the recent budget, a $7500 tax credit will be given to car buyers who purchase an electric car. Obama has a goal of putting 1 million electric vehicles on the road by 2015. Many analysts are predicting about a 10% increase in cars sold due to this legislation. However, tensions are escalating as Iran sticks out its tongue at Israel by passing through the Suez Canal. Oil prices could spike as turmoil spreads through North Africa and the Middle East. Legislators are sending a message that they want to wean themselves off of Middle Eastern oil and look into clean and independent energy.
Investors should expose themselves to the potential supply-demand constraints and rise in oil prices by purchasing developers with major assets in these clean energy mineral sectors or by diversifying into these newly created ETFS, such as REMX or LIT, which track these sectors. As oil spikes, these clean energy commodities should receive a renewed interest by legislators and investors who believe in clean energy power generation.
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One of the most interesting realizations I have gained from studying the financial markets is that success comes from developing a clear set of rules and sticking to them despite the current psychology and tenor of the market. Contrary to popular opinion, being successful in the market is not based on how smart you are or what university you attended; success is about sticking to your discipline and following a methodology.
One person who has greatly influenced me is Jesse Livermore. Livermore was very poor growing up and didn’t have a formal education like most of the fund managers today. He was extremely disciplined and he developed a rules-based methodology, which made him one of the most successful traders of his time. One of his famous teachings is: The smarter you are, the easier it is for the market to fool you. Many times the market does the exact opposite of what economists and pundits predict. Livermore found a simple method to follow a trend and monitor price volume, which helped him surpass the top traders of the time. However, Jesse Livermore ultimately committed suicide, and in the note he left behind, he stated that he considered himself a failure for not sticking to his own rules.
The recent subprime debacle and the 2008 market crash shows that the smartest academicians had absolutely no grasp of the dire situation that was at hand and continued to recommend the “buy and hold” doctrine. The Federal Reserve itself wasn’t admitting we were in a recession until many investors suffered a major loss. Meanwhile, behind the scenes, institutional investors were trading the volatility and making huge profits on the short side as technicals gave clear sell signals and shorting opportunities during the downtrend. The professional traders and institutions don’t subscribe to the “buy and hold” methodology even though they market it to the ill-informed public. Institutions and hedge funds go long and short and move to cash when conditions warrant it.
Using a basic set of technical rules and reviewing market tops, a technical trader is able to prevent a major loss and wait for less-risky opportunities to capitalize and increase gains.
Since October, the Gold ETF (GLD) had three failures at upper resistance and has not been able to make a major move into new highs. In early October, I warned of a major rally in the dollar and a rise in interest rates much to the dismay of market “experts” who were expecting QE2 to devalue the dollar and keep bond prices high. The exact opposite occurred. Bond prices plummeted, the US dollar rallied, and gold has been range-bound. My mining recommendations in precious metals, uraniums, molybdenum, and rare earths have significantly outperformed.
On Christmas Day, the Chinese central banks raised interest rates for the second time since October. I expected it at their last meeting on December 13, and I wrote that the pause was due to the holiday season and to wait until after the holidays for a hike. Obviously their decision to surprise the markets on Christmas Day demonstrates how urgent it was to curb irrational speculation, rising prices, and commodity costs. The Chinese also cut rare-earth exports, which is causing a major increase in these mining shares. In 2011, I expect them to keep looking for natural resources abroad to further fuel their growth and demand. This last rate hike was looked upon by the markets as weak, and commodities have skyrocketed since the announcement.
Again the market goes against logic. China’s rate hike should have been bearish on the price of gold but instead, commodities are soaring. Gold has bounced off the 50-day moving average and has found support, which is a very positive sign. This second test of the 50-day and the bounce after the raising of rates by China may signal that the three-month consolidation is over and that gold has finally found enough support to make the next leg into new highs. Investors are shrugging off the rate-hike news and moving back into commodities with full force. Technically, this is very bullish, and I am looking for a strong move into new highs. The next leg may be beginning, providing a better market entry point than in early October. New signals have been alerted.
What has been completely overlooked or not mentioned during this sizable run up in stock market profits, including the precious metals sector, is the imminent advent of tax-loss selling. Every year around this time, as sure as snow falls in Vermont, more than ever, there are reasons why this unmentioned event is apt to at least modestly affect stocks before the year end, especially precious metals. Gold has risen over 18%, silver has shown a rise above 50% on the year. Price are reaching new highs, but can they be maintained? I believe we may see more volatility as a breakout on GLD must be monitored especially as investors who have made impressive gains may decide to take profits before the end of the year. The reasons for this are manifold. Tax-loss selling is an annual event. It takes on added significance in that investors have the shadow of increased taxation looming ominously. So tax-loss selling is apt to be more severe, in view of the possibility that the Fed has already murmured that there may be a tax increase. Not to worry they say, the Fed will try to make it “gradual.”
Already the Debt Reduction Commission is on record as citing the need to increase taxes and saying they agree with the bold steps to save the economy. In 2009, China has dealt with imported inflation from the eurozone and the United States which have both had to essentially print money to save the markets. Both currencies came under pressure this year as investors fled to precious metals. The US and European economies are weakening with high unemployment yet food costs and hard assets are soaring. This current economic situation could exacerbate, affecting the quality of life for many. Right now we are in the midst of a euphoric period reminiscent of the phrase “happy days are here again.” Oddly enough the rosy news is occurring smack in the middle of the holiday season. Do not be misled: tax-loss selling will occur as investors rethink 2011 and the investment challenges ahead.{FLIKE}A most important factor that is occurring as 2010 winds down and 2011 looms is that the Federal Reserve Board is launching a full-on offensive on the American economy called QE2, impacting every household. This action is a latter-day version of the Battle of the Bulge in World War II. The bulge is not in the average citizen’s pocket; it’s in how much it’s going to cost global investors and their portfolios. QE2 is nothing more than a metaphor for the profligate printing of dollars. We can not avoid this having a significant effect on every one of us; it will prompt many to take profits now in 2010 as the price of gold challenges new highs. Many have large profits, and investors should be aware year-end profit taking.
In 2009, GLD moved from a low of approximately $80 a share to $120. In December of 2009, we saw some profit-taking without any warnings except extremely overbought readings. Be careful as this recent break to new highs has not shown much enthusiasm. Most of the excitement has been in silver, uranium, and some top-quality junior miners.
I posted a few days ago that DIA is approaching resistance at 9000 and this rise has been on light volume. Some people have said that is because of summer where trading decreases. However, there is a lot of money sitting on the sidelines. If it was a true beginning of a bull then it would appear in the volume.
Therefore, I have been skeptical of this rise and I am very skeptical of this market after three days of increasing selling. I expect a sell off.
This begs the question what about our stock positions in TGB, NGD, GMO, and UXG. We need to be aware of the overall U.S. Market, however there still is strength in emerging markets so I am not prepared to sell my positions in these companies. Stay tuned and I will notify if we have to take our trailing stops.
Base metals soared today as car sales in China are increasing at a rapid pace. Taseko, New Gold and General Moly are companies with huge deposits that have not been developed. TGB and NGD are producing now so they will have cash flow.
Inflation is kicking in and the long term prospects of these companies are excellent. I would buy GMO on any further weakness. Molybdenum is used in making steel stronger and withstand greater heat and pressure.
UXG about to breakout of symmetrical triangle near 52 week high. Notice how the volume is confirming price. Again its giving us another opportunity to get into this position with an incredible land position in Nevada and great opportunity in Mexico. This company has the top management in the business where the owner puts his money where his mouth is. Rob Mcewen owns a good percentage of this company.
On a previous update I mentioned not to get too excited by buying the miners when they are overextended. Look for strength as the mining index will come back to support which was previous resistance at 37.50. Notice the upward sloping trendline that will act as support as well. Coincidentally it appears as the 20 day on the weekly chart is very close to this trendline.
Thompson Creek came out with a news item today which states that it will increase production of molybdenum due to the improved market conditions. This is what we saw here a few months ago in the charts of Thompson Creek and General Moly. We believe that this is an opportune time to get into commodities as prices have not fully reflected market conditions. We will be issuing recommendations shortly on a few more trades. Stay tuned.
NGD came to its 20 day moving average and is closing at the high of the day reversing from being down most of the day shaking out weak hands. Buy at 2.65.
Notice the thick blue line and how FXI (25 largest and most liquid China Stocks) crosses that trendline on the point and figure chart. This shows us the strength of the most leading emerging market and how this market had impacted this rally for the past three months since the March bottom.
It is clear that China is buying up natural resources and stimulating their economy. The real estate market and construction industries in China are heating up. They are building power plants, mines and roads.
There are a few signs that there might be a slight short term pullback the next few weeks from the non confirmation in relative strength and low volume. However, this is the time to get into companies that the Chinese need which have huge amounts of natural resources.
The secret is out China is on the search for precious metals and natural resources. These next couple of days will give second chances to get into companies that have those assets.
We know what the Chinese need and are able tom make huge gains in finding the companies that have the greatest leverage to these necessities.
We wanted to show a 2 year chart on GDX gold miner etf. There is major resistance at the $45 dollar area which needs to be broken. In order to do that I would not be surprised of a short term correction to the $39 area. This is where I would wait so that the GDX comes off its overbought status and prepare for the next leg up.
How hypocritical! Bernanke came out yesterday requesting Congress to curb budget deficits after increasing the money supply exponentially. Use this time period to look for additional opportunities to get into the best commodity opportunities. NGD, TGB, GMO and UXG are great low priced positions that will move higher in an inflationary environment.
A few days ago (please see my archived post from 5/31/09) we mentioned be careful of chasing the gold sector as it is quite overbought. We also mentioned to wait for a retracement to the 20 or 50 day moving average. This is what is happening a retracement to shake out weak holders. Our students and long term followers have been following Taseko for a few months. Today thestreet.com had a video on it. So the mainstream is now picking it up which concerns me as that means we will probably have a pullback.
Dollar is exremely oversold and will bounce. Mining stocks are overbought. Place trailing stop losses to lock in gains. Be careful not to take new positions if stock is overextended. Wait for a pullback to get into positions. We believe we will have second buypoints for our position as a shakeout of weak hands will take place now. We will inform when our stops are hit. We will not be giving out new positions until we find more opportune buying points.
U.S. Gold has one of the largest mineral land positions in Nevada and they have just shown quite impressive results in Mexico. They are owned by Rob Mcewen who built Goldcorp. Rob has success in building gold companies and rewarding his shareholders. Rob has decided to invest his own money in exploration as a way to leverage your investment in gold. UXG is an exploration company which means that if they make a discovery an investor may make huge gains. Their land position in Nevada is located right next to some of the biggest mines in America in one of the most friendliest mining states. The drill results in Mexico that they reported are great and may be a major discovery.
I would buy here as UXG broke out of a symmetrical triangle pattern on above average volume. They have a conference coming up on Wednesday and I would not be surprised if an announcement may be made that would break this stock through $2.75 to $7.
This appears to be an inverted head and shoulders pattern which means that a break to the upside is highly probable. Look for a breakout of the previous top with good volume.
Last week we wrote on the blog about New Gold and the opportunity the chart was presenting to us. We put a buy point at $2.50. On Friday it closed at $3.10 which was a 24% gain for our followers. This was a breakaway gap as it broke out of a base on more than three times normal volume. Breakaway gaps usually do not fill. As the mining sector is overbought there might be opportunities to buy NGD at a cheaper price if there is some overall weakness. Otherwise this is a classic breakaway gap which usually preceded major moves to the upside. So to all our students who got in when we posted are in a great postion.
The S&P 500 remains above the 20 and 50 day moving average. The S&P has moved sideways making a base after breaking out to the downside of a rising wedge pattern. This rally has been on low volume. So this rise has been on the back of other factors such as a seriously declining dollar, a bear market in treasuries and a major rally in the emerging markets.
If you remember when the stock market crashed last year everyone was running into treasuries and the dollar. Now the opposite is the case people are running out of treasuries and cash. The stock markets have rallied and companies with real commodity assets are soaring. It seems as though the opinion that a deflation will precede inflation has been confirmed.
The dollar was hit hard on Friday leading to a huge rally in gold mining stocks and basic materials. As you can see the rally is impressive, however it is extended. Investors need to be cautious in chasing after this sector.
Last week I showed the chart of TBT which is the short etf fund and I mentioned not to get to excited and wait for a pullback. That pullback has come and from the high volume sell off it seems as though the pull back could take longer as it is extremely overbought. I would wait until it approaches the 50 day moving average before taking new positions.
The rally in China is strong and hope has come back that the worst is over which has caused a major upturn in commodity industrial stocks. As you can see the I Shares Hong Kong is much more impressive than the US indices. Other emerging markets such as Brazil and India are also outperforming.
This is a great point to buy New Gold. They have just combined with Western Goldfields. They will produce enough gold to be able to fund their development project in British Columbia called New Afton. This project has close to a billion pounds of copper. When buying a gold company making sure you have the management to grow and finance a company is crucial. They have the top minds in the field behind this company. Buying here at 2.50 is a great point to get in.
The volume is good on Taseko above average today to qualify as a breakout. Let’s hope it closes at the high of the day as more investors pile in and recognize the breakout.
Genereal Moly has one of the largest undeveloped molybdenum mines in North America. Moly is necessary for high strength steel which is used in many industrial applications such as oil drilling and nuclear reactors. Demand is growing again as the economy is bottoming out in China and in other emerging markets. A breakout through $2 on volume will catapult this stock to $5. Arcelor mittal put a lot of money into this company and I wouldn’t be surprised if they got a takeover bid at this level from Thompson Creek Metals.
It is crucial to look for a follow through on yesterday’s huge volume rise. Today will give many investors another chance to get in before the next leg up.
“Our nation’s system of retirement security is imperiled, headed for a serious train wreck. That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system.”
– John Bogle, Feb. 24, 2009
Many people we come across tell me they are invested in the market with a financial adviser and they don’t even look at what they are invested in are how they are invested. They place their hard earned money in load mutual funds where they pay huge fees in ignorant bliss.
So many have lost their retirement or as Madoff has shown these so called advisors are emperors with no clothes. Buy and hold investors have been destroyed or in some cases duped.
In this blog we highlight specific companies that are breaking out using technical analysis. Technical analysis gives one of the tools to know which direction the market is going. We look at price and volume. We also look at key fundamentals of a company that has the ability to grow. Staying on the right side of the trend and managing risk is crucial to make good returns and have a retirement.
Finding small companies that are about to grow exponentially gives one the opportunity to make huge gains. Please follow along as we recommend low priced companies that are about to explode higher. I’m sure you won’t regret it. We do our research, we take chances, and we admit when a trade or stock has went against us and we preserve capital. Straight talk…no double talk from other so called financial experts.
Yesterday I gave a signal that Taseko would breakout of the symmetrical triangle formation. Today it did on huge volume. I believe this will be a quite profitable trade at this point.
Investors are nervous of the government sales of treasuries which is causing the late afternoon selloff. The oversupply of treasuries and Fed’s balance sheet is a concern we should all have. How long can the government be bailing out and spending like there is no tomorrow?
I want you to take a look at this chart of the dollar and the long term treasuries. They are both very bearish charts. The dollar has a head and shoulder reversal pattern. In December there was heavy institutional selling followed by a retest of the high on low volume. Each time it has tried to retest its 50 day moving average it fails. 200 day in danger of turning negative meaning that inflation is on its way. Both treasuries and dollar appear to be very bearish on the GDX which tracks mining stocks is giving a very bullish picture as we just had a breakout. I would wait for GDX to pull back to its 20 day moving average or the 38.50 are before buying.
Taseko is on the verge of a major breakout. Great project…there is a little opposition to the Prosperity mine but that is minimal to the economic benefits to the region. This is a great managed company. Notice it closed on higher volume then the previous day even though it was below average volume. Look for volume through 1.60.
The Dow was up and regained to stay above the 20 day moving average even though volume remains quite light. It does look that the market is rounding and price volume action is poor. Be careful. Look at GLD. Gold closed near the high of the day after opening up lower. Price volume action is good as it approaches all time highs. Look for GLD to pull back to 20 day before breaking out into new high territory.
We are broke…dollar has fallen significantly as well as long term treasuries. Look at the chart of the TLT versus GLD. I believe this trend will continue and now with a lower price of oil and labor select mining stocks will make nice returns.
New Gold is an intermediate gold producer with great projects. They just aquired Western Goldfields. They have the cash flow to grow and develop new projects such as the New Afton project in British Columbia. Their management is the best in the business. Some of the directors ran Newmont and Goldcorp. They know how to finance gold companies and have a history of success for their shareholders.
The copper chart above shows a potential breakout which could lead copper significantly higher. The dollar’s chart as well as the long term treasury chart is extremely bearish this is due to two major reasons the excessive debt the USA is getting itself into and the fear that it will not pay back its debts. Also the copper chart is showing that the global economy is improving which is also bearish for cash as institutions want to invest that cash. There is a huge amount of cash on the sidelines about to be put into key stocks that will protect against inflation. Taseko (TGB) already has a great copper mine that will only be more profitable as copper rises and they are at the ground floor of the major Prosperity project in British Columbia which is one of Canada’s leading undeveloped gold-copper mines. This is a great way to be leveraged to the price of gold and copper.
Symmetrical Triangle Formation…Look out for breakout on volume! MACD about to cross. Great Story with prosperity permitting coming out soon.
Cheaper oil and labor costs coupled with the massive money supply will give a chance to make huge gains on certain mining stocks. The secret is out China is buying gold and are nervous with the US paying back its debt. Select mining stocks will give investors the opportunity to make huge gains and protect themselves of the folly that is going on in Washington.
Notice the thick blue line and how FXI (25 largest and most liquid China Stocks) crosses that trendline on the point and figure chart. This shows us the strength of the most leading emerging market and how this market had impacted this rally for the past three months since the March bottom.
We wanted to show a 2 year chart on GDX gold miner etf. There is major resistance at the $45 dollar area which needs to be broken. In order to do that I would not be surprised of a short term correction to the $39 area. This is where I would wait so that the GDX comes off its overbought status and prepare for the next leg up.
The S&P 500 remains above the 20 and 50 day moving average. The S&P has moved sideways making a base after breaking out to the downside of a rising wedge pattern. This rally has been on low volume. So this rise has been on the back of other factors such as a seriously declining dollar, a bear market in treasuries and a major rally in the emerging markets.
As you can see the rally is impressive, however it is extended. Investors need to be cautious in chasing after this sector.
Genereal Moly has one of the largest undeveloped molybdenum mines in North America. Moly is necessary for high strength steel which is used in many industrial applications such as oil drilling and nuclear reactors. Demand is growing again as the economy is bottoming out in China and in other emerging markets. A breakout through $2 on volume will catapult this stock to $5. Arcelor mittal put a lot of money into this company and I wouldn’t be surprised if they got a takeover bid at this level from Thompson Creek Metals.
Yesterday I gave a signal that Taseko would breakout of the symmetrical triangle formation. Today it did on huge volume. I believe this will be a quite profitable trade at this point.
I want you to take a look at this chart of the dollar and the long term treasuries. They are both very bearish charts. The dollar has a head and shoulder reversal pattern. In December there was heavy institutional selling followed by a retest of the high on low volume. Each time it has tried to retest its 50 day moving average it fails. 200 day in danger of turning negative meaning that inflation is on its way. Both treasuries and dollar appear to be very bearish on the GDX which tracks mining stocks is giving a very bullish picture as we just had a breakout. I would wait for GDX to pull back to its 20 day moving average or the 38.50 are before buying.
Taseko is on the verge of a major breakout. Great project…there is a little opposition to the Prosperity mine but that is minimal to the economic benefits to the region. This is a great managed company. Notice it closed on higher volume then the previous day even though it was below average volume. Look for volume through 1.60.
The Dow was up and regained to stay above the 20 day moving average even though volume remains quite light. It does look that the market is rounding and price volume action is poor. Be careful. 
Look at GLD. Gold closed near the high of the day after opening up lower. Price volume action is good as it approaches all time highs. Look for GLD to pull back to 20 day before breaking out into new high territory.
Symmetrical Triangle