New High For Gold

Gold ETF (GLD)
For the majority of 2009, GLD has been trading in a tight consolidation (Black Lines). I have mentioned on numerous occasions that these consolidations lead to violent moves either up or down. In September, GLD broke out of its trading range on big volume (Blue Arrow). GLD quickly rallied from $95 to $100.

Gold hit a new All Time High today. Gold has been in an 18-month trading range. It broke out of the trading range on significant volume today (Red Arrow). I hope the breakout holds.

Gold Stocks
Royal Gold (RGLD) has been in a trading range for 10 months.

Randgold Resources (GOLD)
This is a pretty educational chart. In 2008, GOLD was in a trading range and put in a triple top at about $57. The third attempt to break $57 failed miserably (Red Arrow). GOLD imploded and did not recover back to $57 again until April 2009 (Green Arrow), 9 months later.

I am hoping that GOLD breaks out above $75 and goes higher. There has been a lot of buying volume the last 2 months. I am hoping that means strong buying from the big boys. However, following the failed breakout last year, I am nervous about trusting the next breakout.

Canadian Dollar (FXC)
The Canadian Dollar is a Commodity-Based Currency. To me, that makes it an anti-US Dollar investment, so as the US Dollar, FXC should rise.

FXC broke out of a 2-month trading range today on large volume (Blue Arrow), hitting a new yearly high.

Crude Oil (USO)
USO is an interesting chart. USO has recently broken its uptrend from its early 2009 low. It then rallied right back up to touch the trendline from below. Normally, this is extremely bearish, but in this new World, where asset prices are not allowed to go down, this could be the perfect setup for a monster short squeeze.

I’ll bet a heck of a lot of shorts have stop losses set right around $38. If there are, then I also suspect that when the time is right, the computers will light up and throw a lot of buy orders at the market to trigger the short stop limits. Or maybe they just gap USO up hard one morning above $38 and trigger all the short stop losses all at once. Or USO just rolls over and crashes.

Any way you slice it, I expect some significant fireworks in Crude Oil in the near future.

Why Is Gold Potentially Breaking Out?

http://www.ny.frb.org/newsevents/speeches/2009/dud091005.html

William Dudley, The President of the New York Fed, gave a speech yesterday entitled “A Bit Better, But Very Far From Best”. Remember, the NY Fed is the group that has levered up the TARP to buy lots of Toxic Waste Bonds from the US Banking Industry and the Central Banks of Asia – so his input is pretty important. In his speech draws the following conclusions about the Economy -

“In summary, I believe the current balance of risks around the inflation outlook lie to the downside due to the very low level of resource utilization and the fact that long-run inflation expectations remain stable. This balance of risks is problematic because the current level of inflation is already so low—the core PCE (personal consumption expenditures) deflator has increased only 1.3 percent over the past 12 months. Thus, we would not need much of a decline in inflation to run the risk of an outright deflation. Outright deflation, in turn, would be a dangerous development because it would drive up real debt burdens and make it much more difficult for households and businesses to deleverage.”

So we face high Unemployment, low Capacity Utilization and falling prices (Deflation). Deflation is economic death in the eyes of Bernanke. They call him “Helicopter Ben”, because he has stated before that he will do such crazy things like drop money from helicopters before he allows Deflation to occur.

The speech by Dudley simply tells the World that the US Government will keep printing money and running up the largest deficits in history. They will do anything to keep asset prices from falling and Deflation from rearing its ugly head.

The US Dollar
Bernanke and Team Obama chose to fight the Credit Meltdown by using newly created Dollars and accounting tricks to prop up the prices of worthless bonds. They moved Trillions of Dollars of crap off the balance sheets of US Banks and Foreign Central Banks and onto the books of the US Taxpayer, via the NY Fed and Government Agencies. Foreigners are onto the game and probably extremely uncomfortable with holding Dollar-denominated assets.

In my opinion, at some point the Dollar will collapse under the weight of all the deficits and printing of new money – it can be a slow motion melt or an over crash. The long term goal no doubt is to lower the value of the Dollar, because that will make domestic manufacturing cheap and allow us to start rebuilding our Middle Class. Like Volcker has said, at some point you have to make the decision between cratering the economy and cratering the currency.

Australia
Overnight, Australia actually raised their Interest Rates by .25%. In the past, raising Interest Rates leads to a flood of money into your country as leveraged, cheap money chases returns. This should continue to put still more pressure on the US Dollar.

The Upgrade Game

AAPL
Late last week I sent a chart of Apple to a buddy of mine. The chart was simple. It showed AAPL in an 11-day trading range. On occasion, you can see the line in the sand that has been drawn to show where the big boys are defending a stock. On AAPL, that level is about $180.

The next morning, UBS “Upgraded” AAPL and raised their “Target Price” to $265. I am not smart enough to tell you where the price of a stock will be on 10/02/2010… Neither is the UBS “Analyst”. He isn’t really telling you that the price will be at $265 in a year. He is trying to support the price of AAPL and doesn’t want it to break $180.

Do you really think it is a coincidence that the upgrade came out when AAPL was on the verge of breaking $180? The “Upgrade” was done to drive buying and Short Covering. We’ll see if it works. $180 needs to hold. $187 needs to hold if you are Short AAPL.



Goldman Upgrades Banks Today
Goldman did the same thing today with the Bank stocks. The Banking Index closed below the 50-day on Friday and then gapped up above the 50-day on the Goldman Upgrade. That is the game.

When the big boys no longer open up their wallets to defend obvious support levels, then the game is over. All I can do is identify these levels and get defensive when support is ultimately broken or rebuy when resistance is taken out.


Wells Fargo was specifically cited by Goldman today. See how WFC closed Friday well below the 50-day (Black Line) and right at support (Blue Line)? After the upgrade, WFC opened just above the 50-day and closed 4 cents below the 20-day. Volume was down 20% today, so it was easy to jam the Futures higher with the lack of volume. What a scam…


I love these multi-week pullbacks, because they allow leadership to set up in new bases and give me new potential entry points. I already mentioned AAPL and you know that I am eyeing KBE above $24.

I looked at the charts of the IBD 100 over the weekend and I like how the charts of 24 of them are setting up.

I will look for rotation out of early stage leaders (Financials, Technology and Transportation) into later stage leaders (Industrials, Materials, Energy).


September ISM (Institute for Supply Management)
Today’s ISM Numbers were nice improvements over those of August. They indicated the first expansion in 12 months. But the number that really popped out at me was that of Prices Paid. Prices Paid fell from 63.1 in August to 48.8 in September. Holy cow!

What this means to me is that the Fed must keep jamming cash into the system to Deflation from taking control and blowing up the pricing of Debt. Cheap cash allows for massive speculation and we know what that has done to the pricing of risky assets.

Gold rallied $14 in the hour after the ISM numbers were released. Crude rallied 3%.

We Lost Some Leaders Today

On September 1st, the markets were down hard on pretty meaningful volume. They then sat around for a day, before rallying sharply over the next few weeks. September was a great month.

Today (October 1st), the markets were down hard on average volume. This is now the 6th down day in the last 7 trading days and the down days have been on decent volume. Will the markets repeat September and just magically rally again or have we entered a more meaningful selloff?

Leaders
International has been the leadership area since late 2008. A lot of Countries broke the 50-day today.

Japan (EWJ) looks the worst, breaking the 50-day and falling lower. The 50-day is important, because it is where the big boys either decide to defend price and buy stock or let price fail and add to the selling.

China (FXI) has also broken the 50-day and is now sitting at trendline support. If the big boys want to pound China, they can do it right here. They can also break it out if they want to. I got stopped in on the failed breakout and may get stopped out soon. We’ll see how it plays out. Either FXI will break down and give me an entry at lower prices, or it will break out and trigger me into more shares above $44. Many Chinese stocks look suspect – CEO, PTR, SNP.

There are a number of Countries and Regions sitting right on their 50-day averages – Canada (EWC), Singapore (EWS), South Africa (EZA). Mexico (EWW) and Hong Kong (EWH) have broken slightly below their 50-days.

Sectors
Several Leadership Sectors have blown up.

Semiconductors
Semiconductors (SMH) got hammered today, breaking the 50-day on big volume. Many stocks in the sector took significant hits today and have broken support – Texas Instruments (TXN), national Semiconductor (NSM), Intel (INTC), Qualcomm (QCOM), Applied Materials (AMAT), Linear Technology (LLTC), Cypress (CY). AMD looks like a pretty nasty top. Remember, the Markets follow Semiconductors, not the other way around.

Housing
The Home Builder Index (XHB) broke the 50-day today and is on the verge of a potentially meaningful breakdown. Several Home Builder stocks look terrible – Ryland (RYL), DR Horton (DHI), KB Homes (KBH), Meritage Homes (MTH). I mean they look TERRIBLE.

Financials
The Banking Index (KBE) hasn’t broken the 50-day yet, but it is close. However, a number of banks looks nasty today – Bank of America (BAC), JPMorgan (JPM), Wells Fargo (WFC). These are important stocks.

I see a lot of stuff breaking the 50-day. I haven’t seen this in a while and will be watching the internals very closely over the next few days. Several key sectors are getting sold hard. That could reverse tomorrow or continue.

I think the markets will slow their rate of accent and you will see much more money focused into fewer and fewer sectors and markets. This will mean that you cannot buy anything and hope that it will go up, you will need to be able to identify and focus on the stuff that is working best.

Greenspan spoke the other day and said that he thinks 2010 will be a year where the markets just sit around and go nowhere. My experience has been that markets never just sit there. They are either bought because they are going up or sold because they are going down. On net, 2010 may begin and end at the same price, but it will probably have quite a rollercoaster ride getting from beginning to end. Or they will just pound stocks in late 2009 and that will give 2010 a much better chance of decent performance numbers. We’ll see.

If they do decide to ramp the market again, it will probably be after prices sit around for a day or two. I have a small buy list and will do a lot of detailed homework this weekend. I will be looking for what is holding up best, because that is normally what leads when prices start back up again.

Weakness Arrived As Expected

I mentioned late last week that I expected a pullback or a pause. The last 3 days, price has stalled and is now sitting on the Red Line (Blue Arrow).

I want to point out how price has broken above the trading channel of the rally off the March low (Dashed Blue Line). Moves through the top of the trading channel are often the final blow off moves before an extended consolidation. Note how I wrote consolidation and not Bear Market or Crash. The breakout above the channel in 2003 extended to a 9% rally over the next 5 weeks. Price then sat around for 9 months.

I would expect the next consolidation to last a couple months and be more of a period of rotation from former leaders into new leaders rather than a Market Top and selloff. I’ll let you know if things change, but for now there simply isn’t much that is breaking down.

Here is the 30-minute chart on SPX. The September uptrend has now broken and we appear to be in a consolidation period. I sold some stuff when price spiked more than 2.5 Standard Deviations away from the 20-day and am looking to reload as either price falls towards back into a rising 20-day.

I keep mentioning the Dollar versus the prices of Risky Assets (Stocks, Junk Bonds, Commodities). Here is a chart of the Short US Dollar ETF (UDN) versus SPX. I am a slave to this chart. The Dollar gets extended and stock prices rise, then the Dollar consolidates and pulls back into the 50-day (Blue Line) and stocks consolidate. The Dollar started a new leg lower (UDN up) in early September and SPX went vertical.

Here is the Point & Figure Chart of the US Dollar ($USD). That is a Major League downtrend! The vertical count method targets at least 67 as the next low. This is not a recommended “Target Price”, it is simply a method of counting that Charles Dow used to figure out how far momentum may carry price.

My guess is that $USD will retest and probably break below its 2008 low near 70. My operating assumption is that risky assets will continue to trend higher until the Dollar hits this level and then we get our “correction” or “Bear Market”. Until the Dollar breaks out, that is my operating assumption.

Flash Trading In Action

Here is “Flash Trading” in action and this why the SEC is voting to ban it.

“Flash Trading” is method where computers throw out series of small orders to see where limit orders are set. The goal of these machines is to trigger stops and then reverse price hard. The firms who do the trades get kickbacks from the Exchanges for the volume they do and the firms can also front run the trades and take advantage of the sudden price moves at the expense of their clients. The rumor is that Goldman is netting $100 million a day doing this crap.

PALM
I owned PALM going into this morning. I bought it at $13.83 on Friday, with a stop at $13.65
PALM opened weak this morning with the rest of the market and then had this mystery spike lower on very little volume to $13.62 and suddenly reversed back up.

I’m out 50 cents a share. I’m pissed. I got ripped off by the machines. On every position I take I have to worry about this stuff. But this is the reality of Wall Street 2009. It is simply my opinion, but the crooks run the show and we are all just monkeys fetching tips for peanuts.

End Of Day Update
PALM went nuts today. I am not happy. But this is what I have to deal with every day. The message at church this weekend was about controlling your anger. I tried real hard today to do just that. Ugh...

Party Like It's 1970-Something...

The Dollar keeps falling and risky assets keep rising
The Dollar broke key support at 78.25 and has imploded over the past week. It sure looks like the lows of 2008 will be at least tested. The heyidiot.com rally part II continues…


Commodities have been sitting in bases for 11 to 17 months and I have been patiently accumulating them. The big boys broke them out of these bases this week!

Energy (XLE) has broken out and there is not much volume until $70.
Oil Services (OIH) broke out and there isn’t much volume until $160. Wow…
Of course these breakouts can fail at any time and you need to know how to protect your money. I am just showing pictures.


Normally the stocks lead the underlying commodity. Crude Oil (USO) is in a nice base and I am hoping for a breakout. The Commodities Index ETF (DBC) broke out today. A big breakout would be above $24.5. Read William O’Neil’s books if you want an idea of when to commit capital.


Agriculture (MOO) broke out today. Do you see any similarities between the charts of MOO and XME (Metals)?


Gold (GLD) has broken out of a 17-month trading range. The longer the trading range (base), the more power there is for the eventual breakout.


Royal Gold (RGLD) has been sitting around for a year now and has finally broken out.


Financials also broke out of trading ranges today. I prefer the chart of the Regional Bank ETF (RKH).
There are many charts still in bases, but there are fewer to find than a few weeks ago. Take a look at how some of the high growth and high relative strength Stocks, Indexes and Sectors have traded over the last few weeks –

South Korea (EWY), Taiwan (EWT), Real Estate (IYR), Materials (IYM) (I wanted to buy this one and IYT last Monday but had technology issues – s***), Metals (XME), Transports (IYT), Salesforce.com (CRM), Redhat (RHT), BIDU, SOHU, FUQI, EMC, Teekay (TK)

All of these have ripped to the upside the last 2 weeks.

I think things are getting extended in here and we may pull back soon. My trading account is up over 7% for September. It is very aggressive and rarely has more than 6 positions, but it shows how powerfully things can move when the buyers show up. My holdings were EMC, MTL, TK, XME, EWT, EWY and RIMM. I got stopped out of UNG or I would have had a ridiculous two weeks…

My account is at its absolute high, but did suffer a nasty draw down of about 4% in August. And that is the whole point to this – you need to take small losses in order to be around for the big rallies. You need to be able to stomach the pullbacks in order to be in for the rallies. You personally need to be able to measure how much risk you want to take.

I will be looking to sell some extended stuff in the next few days. I feel like I am playing a game of Chicken right now, but that is always how it feels when you are invested and things are working in your favor.

There was a rumor today that the Fed will raise rates at its meeting next week. The only reason for a rate increase would be to rescue the Dollar. I think the Markets would hit an air pocket if rates were increased. A Rate increase would cause me a lot of pain!

Potential Bases Keep Building

Here is Friday’s intraday trading of The US Dollar (UUP) versus US Stocks (SPY), Emerging Market Stocks (EEM) and Gold (GLD). UUP gapped up (Green Circle), then sat around until 1:30 (EDT) and then imploded for about 35 minutes.

SPY, EEM and GLD sat around and then ramped at 11:30 (EDT). It is pretty simple, when the Dollar falls, risky assets appreciate. Therefore, watch the Dollar closely. If the correlation disconnects, I will let you know.

I wrote the following about a China tracking stock (CAF) –

“Here is the chart of the China “A Shares” Closed End Fund (CAF). It has broken support and now sits below its 5-month trading range. It seems to be an ideal short, but there have been so many of these false breakdowns lately that have led to massive short squeezes. I would not short anything until the markets top and roll over. Watch what happens if CAF trades above $32.50 over the next few days. I will be watching it closely!”

CAF opened trading on Friday at $32.49! It then sold off -4% in less than an hour, but ended up having a strong day as the Dollar got hit. Another miracle goal line save from the button pushers. Have we grown to expect anything les… Just a hunch, and I am not taking any action on it, but I would not be surprised to see CAF gap up hard again tomorrow morning.

I know this is a recap of Friday, but it is obviously the controlling theme in the Markets. Therefore, if the Dollar is the key, and it is in a trading range, crowded right up again resistance, then you would expect something to give soon and either resistance is broken, or another leg down initiates for the Dollar.

My favorite stock screen is to look for strong Companies and ETFs that have lost their uptrend and have been sitting around for a month or for several months. This pause allows moving averages to catch up with price and gives me a breakout buy point and a breakdown stop loss point. There are a lot of high growth names and key market Sectors and Indexes in these types of consolidations.

I have listed several the last few days –
Countries
South Korea (EWY), Emerging Markets (EEM), Singapore (EWS), Taiwan (EWT), Hong Kong (EWH), China (FXI), Canada (EWC), Brazil (EWZ)

Sectors
Real Estate (IYR), Regional Banks (RKH), Banks (KBE), Materials (IYM), Semiconductors (IGW), Metals (XME), Agriculture (MOO), Energy (XLE), Transports (IYT),Biotech (IBB)

Companies
Royal Gold (RGLD), Kinross Gold (KGC), Agnico Eagle Mines (AEM), Freeport McMoran (FCX), Salesforce.com (CRM), Research In Motion (RIMM), BIDU, SOHU, Life Technologies (LIFE), Fuqi Int’l (FUQI)… I could list another 100 names

Commodities
Gold (GLD), Crude Oil (USO)

My point is not for everybody to go put in limit orders and buy everything. My point is that you do not see this many manes set up with potential buy points in a Bear Market.

Many of these names are extremely violent and you can literally get stopped out within minutes of buying things. That is the market we are in. Do not get married to something. Understand that my opinions can reverse on a dime and that I cannot post about my thoughts for potentially days after things change. These are not recommendations, just a list of my thoughts every couple of nights. I stew about this stuff most every waking moment, but can only write about them a couple times a week.

The bottom line is this –

THE SETUP IS THERE TO GO HIGHER. IT HAS BEEN THERE FOR A WHILE. IF THE BIG BOYS COME IN AND SPEND ENOUGH MONEY, THEN KEY SECTORS, COUNTRIES AND STOCKS WILL BREAKOUT FOR ANOTHER LEG HIGHER. IF THEY DO NOT, THEN WE MAY GET THE CORRECTION EVERYBODY HAS BEEN TELLING YOU WILL HAPPEN.

LET THE BIG BOYS TELL YOU WHAT TO DO. IF THEY REALLY WANT IN, THEN YOU WILL SEE STUFF BREAK OUT. THEY CANNOT HIDE THEIR BUYING, NO MATTER WHAT THEY SAY THEY ARE THINKING ON TV.