Gold Priced in Euros at New High, Not Priced in Dollars

Here is a chart comparing the movement of the price of Gold in Euros (Top Chart) and in US Dollars (Bottom Chart). I want to point out a couple things that I see –

Gold moves in fits and starts. It consolidated for much of 2003 – 2004 and then went parabolic in 2005. It sat around for a lot of 2006 and 2007, then had a sharp rally into early 2008. It then had a series of consolidations for much of 2008 and 2009, before going parabolic again into December 2009.

I bought most of my Gold via GLD at about $84 and again at about $88. I sold a third a day before the top (educated luck) and then sold the remainder on the counter-rally towards $115. Some thought that I was nuts for selling, but I sold because I know how gold trades and I didn’t want to be stuck with 30% of my money in an asset stuck in a violent 12 to 18 month trading range.

Now back to the chart –
The Euro has imploded since the Dubai crisis started on December 1st 2009. It gathered steam as it has become clear that the PIIGS (Portugal, Italy, Ireland, Greece and Spain) need to be bailed out by Germany and France.

The flight from the Euro has caused Gold, as price in Euros, to hit an all time high in price. See how the chart has that wedgy, vertical move so far in 2010? Now compare that to how orderly the consolidation has been for Gold priced in US Dollars. The consolidation in the first half of 2009 was also very orderly for Gold.

2010 has been a very difficult environment in which to make money. Normally, in times like these, I would have a lot of money in safe stuff, earning 5% with no risk. But with the Fed holding safe rates at effectively zero, it is not possible right now to get a decent yield on cash.

Now, with all of that said, Gold is at key resistance. Stocks are also at key resistance. There is a cluster of time cycles from March 3 – 9. So you once again have a market at resistance and time at a place where the boys love to reverse trends.

There has been a Follow-Through Day this week for the NASDAQ, but it barely qualified and volume continues to be crappy. I took note that the Follow-Through Day was right at the beginning of these time cycles and right as price was getting into the meat of resistance. Would it surprise anybody to see them suck you in right before they take price down? I also noted that key risk indicators, like Australian Dollar, are not confirming the last two weeks of the rally.

I think the resolution to Greece will force a lot of money back out of the Dollar and Gold and back into the Euro. I also think that the IMF will have to bail out the PIIGS. This is just naked monetization and should be another driver for risky assets.

I am interested in Gold if it can break out of this consolidation, because it is a pretty easy pattern to see and should attract the herd. Any purchase will be a trade only, as it looks like Wave 5 off of the October 2008 bottom. I am tired of using the word “trade”, but I have to, because risk is higher than at any time in my 19 year career.

Futures-Driven Romp from Key Support Levels

It is clear that the computers rule the Markets and the little guy is simply along for the ride.

The Markets got hammered overnight, opened way down, then caught a bid around mid day and finished things off relatively flat.

Fading rumors and key moving averages was the name of the game today.

Apple is going to split – maybe…

China is going to buy all the Gold being sold by the IMF – maybe…

The Apple rumor was the excuse to start buying SPX Futures. They light up like a pinball machine. There was $9 billion in purchases in ten minutes. The odd thing is that there was no buying of the SPY ETF to justify the massive Futures activity. But that has been the norm recently. The same thing happened yesterday morning at the beginning of Bernanke’s testimony – I guess nobody thought he was going to keep Interest Rates low…


The Fed knows how to play the Markets at key technical levels. Greenspan was a master at trading the technicals. There were several key technical levels hit this morning on SPX (SPX is the key index to watch for this stuff). Almost to the penny, SPX tagged the 38.2% retracement (1,086.52 versus today’s low of 1,086.02) from the February 5th low to the February 19th high - .

Also, the 20-day moving average for SPX was 1,087.4 and the 38.2% retracement of the January 19th high to the February 5th low is 1,084.95

So today was simply a short-term oversold Market at critical support levels being reversed hard by a bunch of computer models. Does anybody else see the danger to this when all of the computers decide to SELL at the same time?


At the same time this was going on domestically, the S&P 100 Global Index gapped down to open below the 200-day average and then spent the rest of the day going straight up.


Does anybody still think that the Markets aren’t being manipulated with intent… Asset Price Appreciation as a policy tool. Keep the rich happy with their stock prices going up, keep the poor happy by extending their unemployment to infinity and stick our kids and their kids with the bill, all while looting the US Treasury for the most politically connect “contributors”.

Markets are still in Correction, but the retest of the February 5th lows is in process and my have ended this morning. I noticed that three sectors broke out of multi-month consolidations today and will be looking to start building positions soon if I get the green light.

Lower Prices Today on Higher Volume

I wrote the following on Friday –

“You can see that SPX is now entering the meat of resistance and that there are some time cycles on Feb 23 and 24. The January 11th high is a pivotal high, because it coincided with a combination of weekly time and price levels. So now you should be looking for a failed retest of the 1,150 range.”

“There is now the potential for a reversal down next week. A reversal down would set up a lower high on the chart and probably set us up for at least a retest of the early February low. We will see if this voodoo triggers. I will look to sell weak areas if it does and then try and add to strength into any Follow-Through Day.”

“Be very careful in here. Many of the pieces are in place for the Markets to reverse lower from here. We will see how things trade, but the setup is there to take prices lower.”

The selling showed up right on cue. Volume increased with today’s selling. The NASDAQ saw its volume increase 22%. Not what you want to see when the selling picks up.

I want to walk you through a couple key stocks, sectors and country-specific ETFs.

Google (GOOG) had a pathetic rally attempt. It hugged the 150-day (Blue Line) and sold off on rising volume today.


Amazon (AMZN) could not even bounce. The best it could do is sit in a narrow trading range. You know what happens if the bottom of the range gets taken out on big volume…


Critical support on Apple (AAPL) is obvious. The $188 range has been tested four times since October. All Apple has been able to do is rally up into the 50-day (Black Line) and then sell off today on increasing volume (Red Arrow).


Goldman Sachs (GS) is stuck below ALL key moving averages. The 50-day is now below the 200-day! That is the definition of a Bear market. Notice how GS has been stuck below the 200-day EMA (Orange Line) and is now in a bearish pattern. Today’s reversal was on big volume (Red Arrow). If that green trendline gets taken out, then really bad things could happen for Goldman.


JPMorgan (JPM) is another very important Financial stock. You can see how it has rallied up into old resistance.


Semiconductors were hit hard today. KLA Tencor (KLAC) is a good example of just how bad things look for some of the stocks in this sector. KLAC looks broken and sold off on big volume today. That ain’t grandma selling. That was the big boys getting out today.


China (FXI) looks like a top too. It is stuck below the 200-day EMA (Orange Line) and the 50-day is about to cross below the 200-day. Yikes! Look at the volume on the last two down days (Red Arrows).


Nothing I have shown you is bullish or justifies purchasing anything risky. Markets are still in Correction and there has not been a Follow-Through Day. The next time cycles are around March 5th, so we could be in for another week or so of weakness.

Still No Follow Through Day

I think there can be no mistake about the fact that this entire rally off of the March 2009 lows has been a liquidity event – namely that all it has been is speculative money chasing its tail all the way up, on little to no fundamental footing.

Now The Fed has started to remove liquidity. That should start to change the calculus.

There was no Follow-Through Day on the rally that started in early February. That means that the big boys were not committing serious capital to the rally. Consider it more of a trade than an investment. Bull moves don’t start without Follow-Through Days.

S&P 500 Resistance and Time Cycles
You can see that SPX is now entering the meat of resistance and that there are some time cycles on Feb 23 and 24. The January 11th high is a pivotal high, because it coincided with a combination of weekly time and price levels. So now you should be looking for a failed retest of the 1,150 range.

What this means in English is that there is now the potential for a reversal down next week. A reversal down would set up a lower high on the chart and probably set us up for at least a retest of the early February low. We will see if this voodoo triggers. I will look to sell weak areas if it does and then try and add to strength on any Follow-Through Day.


Commodities
I have seen lots of potential Bearish Wedges, where prices have rallied over the last few weeks on lower and lower volume.

I have also seen lots of the choppy, panicky up and down action that is commonly referred to as “Wide and Loose” and is often indicative of a top.

Make no mistake, when Commodities top, this Bull Market is over.

Look at how the Metal’s ETF (XME) has rallied on imploding volume –


The broad markets have the same issue ($SPX) –


International Markets
There are many International Markets that have had this – sell on heavy volume, then rally up on light volume, over the last few weeks –

EAFE – Developed Europe, Australasia, Far East (EFA)
Hong Kong (EWH)
Australia (EWA)
Brazil (EWZ)
Austria (EWO)
South Korea (EWY)
Emerging Markets (EEM)
South Africa (EZA)
to name a few…

Be very careful in here. Many of the pieces are in place for the Markets to reverse lower from here. We will see how things trade, but the setup is there to take prices lower.

Apple (AAPL)
Take a look at the chart of Apple (AAPL). That has the potential to be a perfect Top. Look at how the weak rally has been on declining volume and has left a Doji Star at the 50-day. A break of $190 on significant volume would be very bearish for Apple!

Elizabeth Warren on the War Path

Elizabeth Warren was on CNBC today. Elizabeth Warren is the head of the TARP Oversight Panel.

http://www.cnbc.com/id/15840232?video=1410657604&play=1

First she talked about the Commercial Real Estate Market and how 50% of the Mortgages on Commercial Real Estate are now under water. 50%!

She then goes on to talk about how we need to be taking action now to prevent this from causing another systemic catastrophe in a few years. She says that shareholders and bond holders should be forced to eat the losses.

She says that most of these loans were written by small and community banks. That means as these banks eat their losses, they will have less capital to lend to small businesses. These banks represent 40% of our banking system.

She then has to defend her recent Wall Street Journal Op Ed from the GE-employed stooges at CNBC –

http://online.wsj.com/article/SB10001424052748703630404575053514188773400.html?mod=rss_Today%27s_Most_Popular

“Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don't trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.

Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.”

“The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal for a Consumer Financial Protection Agency (CFPA).

So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.”

“The reputations of Wall Street's most storied institutions are evaporating as the lack of meaningful consumer rules has set off a race to the bottom to develop new ways to trick customers. Wall Street executives explain privately that they cannot get rid of fine print, deceptive pricing, and buried tricks unilaterally without losing market share.

This generation of Wall Street CEOs could be the ones to forfeit America's trust. When the history of the Great Recession is written, they can be singled out as the bonus babies who were so short-sighted that they put the economy at risk and contributed to the destruction of their own companies. Or they can acknowledge how Americans' trust has been lost and take the first steps to earn it back.”

Holy cow. She is calling bank CEOs a bunch of lying crooks. She flat out names Jamie Diamond.

CNBC goes after her and she tells them that credit card companies make $100 billion per year in bogus fees and that the credit card companies continue to devise new tricks to steal money from their customers.

“If the only way to make money off of your customers is to trick them… then you shouldn’t be in business.”

Credit Card companies are now borrowing at 0% Interest from the Government and then raising rates on their customers who are paying on time by 8% to 16%!

Eventually, the CNBC commentators go quiet and let Ms Warren say her peace. They know that by trying to defend the banks, they are pissing off their viewers and it is a losing battle.

Banks are a monopoly blessed by our representatives – the government. They were created to allow for the efficient creation and transfer of capital. They now tell us that if we restrict them in certain areas, then they simply won’t lend.

F*** them. If they don’t lend or do offer products that are by definition designed to hurt the American Public, then we can shut them down tomorrow – simply don’t allow that bank to borrow from the Fed. Pull their license and create a new bank out of thin air that will lend. That CAN lend. That will create products that are transparent and productive.

Bearish Wedge?

If you feel like you need some Prozac, here is why –

This is the one minute chart of the S&P 500, going back to last Friday. It has been a rumor-driven rollercoaster ride of a week, that has gotten prices literally nowhere (Black Dashed Line is Monday’s opening price)

The price moves have been impressive, but they have all been the result of whether or not the European Union (EU) will bail out Greece, by guaranteeing Greece’s Treasury debt.

The EU keep leaking rumors that they will do something to back Greece (Blue Arrows) and Germany keeps saying that they are not Europe’s piggy back and will not underwrite the plan (Red Arrows).

If I had waited 2 hours, then I could have shown the rally today on the rumor that they are going to freeze the trading on CDS (Credit Default Swaps), so that investors cannot bet against the worthless debt of Europe and Dubai. Sounds like when Chris Cox tried to ban short selling…

The point to this is that the markets are an absolute farce. The intra-day volatility shows how few true investors there are in the markets and how gamed the numbers are by all of the prop trading and hedge funds. The idea that you are investing by buying stocks and not speculating has long gone by the wayside.


Here is what I see. I am going to use Crude Oil (Symbol OIL) to describe what has happened since last week –

Last week there was a breakdown in Crude Oil that led to a selling panic on Friday morning. In the charting method use, the more volume traded, the bigger the bar. Remember, these are 1-minute bars, so there were 3 minutes of panic selling last Friday!

That was probably some hedge fund getting hit with a margin call and being forced to sell. Normally, once the panic is over and the forced selling is done, there can be a relief rally. This week has been a relief rally. But all OIL did was rally back up to touch the 200-day and it failed hard again this morning.


The markets have to make a big decision in the next week or two – whether to fail and start another leg down, or retest the low and mount a meaningful rally.

The S&P 500 has been hugging the 150-day (Blue Line) for the past five sessions. All of the violence and noise on the 1-minute chart, is simply a bearish wedge along a key moving average on the daily chart. The 200-day EMA (Orange Line) was tagged on last Friday’s selling panic, but this bounce has been pathetic and looks vulnerable for a test of the 1,040 – 1,020 range. The big boys will probably try and squeeze Germany into submission on the Greece Bailout, so I would not be surprised by further weakness to scare the heck out of people.


Financials are The key sector to any market. Remember how they topped out long before the market did in 2007? Well, Financials are now under a 5-month trading range, and on the brink of breaking their 200-day (Purple Line). See how support for the trading range (Green Line and Arrows) held for months and then failed last week? In my opinion, if that support breaks, then the markets are hosed for the short term at least. The flip side is that if price gets back above the green line, then you get one massive short squeeze.

Three Little PIIGS

I want to put the PIIGS into perspective. Right now, they are the excuse for the collapse in the global stock markets. I think the reaction is a little overblown, to say the least.

Here are the GDP Numbers for the current culprits. I compare them to the GDP of States with similar GDP numbers (IMF Database for 2006) -

Spain $1,439 billion GDP, less than California
Greece $314 billion GDP, comparable to Washington
Portugal $223 billion GDP, comparable to Missouri

Combined, these three economies are not much bigger than California. So ask yourself, would the US bail out California or risk it splitting off from the Union and having the US Dollar crash? There is no way that Europe does not bail out these countries. They have too much to lose.

The markets are forcing the leaders of the Euro to blink. The rest of Europe will end up eating all of the crappy debt from these countries and be forced to buy the bonds off of the balance sheets of European Banks like Barclays. The looting of the Taxpayer continues. No doubt Bill Gross is trying to figure out how he can get in on this action…

Did you see how the Fed is already talking about extending the Mortgage Purchase program? There will either be another round of Mortgage purchases to prop up bond prices, to keep Interest Rates low, thus propping up Real Estate prices, or there will be a new program to refinance Commercial Mortgages. Or both (most likely).

They simply cannot allow Real Estate prices to fall. That will explode the balance sheets of banks and lead to another full blown panic – better to steal $1 trillion from our kids, than to permanently unemploy and bankrupt their parents.

So I am looking for the markets to price in another round of monetization – some similar to what just occurred in Dubai and some on par with the massive Mortgage Purchase programs of the NY Fed.

Once the European stuff clears up, I would expect the Euro to recover and another round of the Dollar Carry Trade to commence. It will probably be a violent re-leveraging even, so you had better be on your toes over the next few weeks if you went to heavy cash like I did.