HUI - Daily & Weekly Status

The daily chart of HUI shows a bullish Huey heading toward some short term over bought readings. For the record the AROON indicator, which I neglected to include in the daily still shows a down trend. Fibonacci retrace levels are shown to illustrate that in the short term at least, HUI remains in a corrective mode to the DOWN trend.

Why have I remained positive on the gold miners technically and held the core throughout the correction? Because the weekly chart remains more than fine. Until such time as weekly RSI & MACD fall below the green dotted lines shown, any pullbacks are to be looked at as opportunity. I don't expect such a failure any time soon. A short term pullback to support is unlikely to bust the MACD & RSI.

With the broad market's risk/reward starting to stink from a technical perspective and with the gold stocks having assumed a more traditional counter-cyclical stance, the setup appears to be in place. While traders may want to look for a place to take short term profits, getting too cute trading in and out will likely prove costly at some point soon.
http://www.biiwii.com
http://www.biiwii.blogspot.com

Leading market index NDX: Poor risk vs. reward ratio

Congratulations to Otto!

It's beer time! I lost the bet to this very smart dood but I raised a glass of Smuttynose IPA to him none the less last night. Gold hit 900 before 850 and I gladly paid up the beer munny. This was actually a good outcome for both of us given his bullishness and my holding of core positions.

In previous posts I had written that I would either buy a plunge to the mid-high 300's (HUI) as before, or buy a hold above 420. This week was a whipsaw but I did a good amount of adding to positions. I am mindful of that crazy COW I did theorizing about a potential major head & shoulders top, but for now that is getting way ahead of ourselves. The action is hyper bullish save the caveat of oil's continued rise. We should watch the gold-oil ratio from here on not to mention Dow-Gold and a whole host of other macro indicators.

Back to Otto; if you have any interest at all in Latin America or if you simply have an interest in how a professional equities analyst operates, I recommend you check out his blog. Here is the latest example of this man's insights: Venezuela, Free Markets, Freedom of Speech & Human Rights. Otto has me check out charts for him and when I find something that interests me, I run it by him for a fundamental take. An example is small gold producer Jaguar Mining (JAG), operating in Brazil. I had been watching it get hammered lower and lower for reasons I thought were not commensurate with the bloodbath. My pal confirmed this for me in detail and I bought and now as the stock rises, I am able to be a strong fundamental holder. Enjoy da beer Otto!

Hussman selling his PM shares

I want to be very careful about using someone as smart as Dr. Hussman as a contrary indicator, but... from this week's Market Comment:

On last week's rally in precious metals shares, we clipped our exposure further, to just about 5% of assets. This is about our lowest allocation to precious metals shares since the Strategic Total Return Fund's inception in 2002. Meanwhile, given recent weakness in the euro and British pound, we added an allocation of about 10% of assets to foreign currencies. My impression is that commodity prices and the U.S. dollar will become less correlated in the months ahead. Though commodity prices are still in a frothy blowoff (making the ultimate highs uncertain), I do expect that we will observe a standard, run-of-the-mill, predictable, routine, and I-can't-believe-investors-don't-see-it-coming-a-mile-away commodity price “spike top” over the next few months or even weeks (stare at some historical charts), off of which prices are likely to decline with very little in the way of relief rallies. At the same time, further dollar weakness is likely as the U.S. economy slows and our need for foreign capital persists. As the decline in commodities in terms of “global” prices will probably be faster than the decline in the dollar, U.S. investors are likely to observe an unusual pattern of weakness in both commodities (as priced in U.S. dollars) and the U.S. dollar itself.

I disagree strongly to say the least. It appears Dr. Hussman has been holding PM shares in his bond fund (a very sane and well run bond fund by the way) as a hedge against rising commodities but given their underperformance, I am left to wonder why? If the play was to neutralize the huge rise in commodities, then why not own the likes of USO, UNG, oil & gas stocks and base metals miners instead of precious metals miners?

I will take it as a positive (for the precious metals sector) that Dr. Hussman is liquidating due to perceived economic contraction and an associated commodity sell off to come. I agree with the commodity sell off part but if this smart cat is selling PM shares then so are a LOT of smart fund managers and players. The good Doctor is dumping his debased dollar hedge while projecting a lower dollar. With the financial markets destined to take another hit sooner or later and gold poised to take center stage in the realm of the monetary, I believe this is a tragic decision. But his Total Return Fund is a bond fund, not a stock fund so perhaps he has other reasons factored in as well. This bond fund will do well in a contractionary environment with associated deflation scare. But the play here, for me anyway, has always been to get fully long the gold (and to a lesser extent silver) miners in the environment when commodities are likely to top out and mechanics are in motion for future debasement of the currency. Are the Euro and BP the answer? I think not.

Gold-Oil Ratio

A good first step in debunking bogus thinking like "high oil prices are adding to inflation" is for this well hyped commodity to reverse lower while the monetary metal, gold holds its own or continues higher. Inflation is a monetary policy problem. High oil is merely one symptom of the problem. Using the intraday proxy GLD-USO here, we see the potential for gold finally bottoming out vs. oil. Against the Dow, gold still looks to decline in the very short term but that game could end at any time since one of those markets is in a genuine bull and the other is basically just that, bull (Dow-Gold ratio very bearish beyond the short term). The one scenario I did not want to see was the gold miners rising with oil. Today they are detached from this driver of costs to their bottom lines. I would like to see the trend continue.

Still Alive

Well, it looks like I am still alive in my bet with that smart fundy analyst guy. Gold has been bouncing around between his 900 and my 850 as it appears we have set a nice range for the barbarous relic. My long term target is north of $2400 with even that being just a number that tries to quantify the 1980 inflation adjusted level. Really, I am one of those who cannot see how the US Dollar nor the system it denominates will even survive. So when I look at gold, I see an anchor to value that can keep investors steady and on solid footing as the tide to the polluted and bankrupt seas drifts out further and further, pulling conventional and unquestioning investors along with it.

I am not convinced the worst is over for gold short term. But I just ordered more of it through BullionVault none the less. Some people trade BullionVault gold because it is so darn easy. But for me, I prefer to just buy whenever I have a few bucks to spare and keep the stuff in Zürich. I actually get proud of Biiwii.com's and the blog's readers when they buy like they have over the last few days after having sat out the majority of the final thrust above $1000. If it's good enough for you it's good enough for me. I do not try to sell you here. If I am bearish I am going to write bearish, commissions be damned. But with BullionVault gold and the miners, I also practice what I preach and 'buy all in and around' these corrections.

Edit (10:49) Adam of INO.com has just produced a new video showing a short term sell signal in gold based on their 'trade triangles'. They are looking for 800, which I think is very doable. But again, it's all short term noise unless you're a trade isn't it?

US Dollar - Big Picture for Perspective

Regardless of any near term rallies based on deflationary scares, over-valued foreign currencies or what have you, the US Dollar is sickly in the big picture. It is why I am bullish on gold in the big picture as an American. Now, I am not bullish on any major currency that denominates a nation (or group of nations) that depends on inflation as its primary economic driver. Therefore I am not big picture bullish on any other major currency. I have some Swiss Francs that my wife will be using on a trip to Europe soon, but they were just a tool to keep up with the Euro/USD Forex play. In the big picture it's all garbage in my opinion. None more stinky than the US Dollar. But the big currency picture begs one to be bullish on gold... period. Not in USD. Not in Euro. Not in Yen. Not in Zimbabwe. Not in Argentina. Just bullish.

Nominal Dow

This week gold and the HUI had their "it's showtime!" moments by [bullishly] rising above the necklines of their bearish topping formations. Now the same thing is in store for Mr. Dow in his relationship to gold. It's showtime except that for Dow it is the opposite scenario. The daily Dow-Gold chart simply cannot drop any further without invalidating the short term bullish inverted head & shoulders scenario and its attendant target in the 16.5 to 17 range. Now, with skying oil and AIG's none too subtle hint that the credit crisis is far from over it sounds silly, but the Dow is not broken in its attempt to lure in the hopeful.

Here is a weekly chart of the Dow showing two things I find interesting:

1) There still looks to be upside - believe it or not - to stocks in nominal terms looking at the crosses in MACD & TRIXY and the upside could surprise some people. So much so that we could get all kinds of nouveau contrarians buying a bullish wall of worry story.

2) But in looking at the last bear market, weekly MACD & TRIX argue loudly that the wall (or better yet, ceiling) will be made of iron reinforced concrete. This is a bear market.

A scenario that would resume the climb of stocks vs. gold? Oil would need to top out very soon and reverse. Holders of gold who think high oil is causing inflation would begin to sell and stocks would get a dose of feelgooditis AKA hope. But as usual, we let the markets tell us what will happen. All I can do is illustrate that in the short term things must reverse soon or else it is back to bear market central sooner rather than later.

Oil & Dow-Gold Ratio

Global markets are not looking good pre-NY open. Crude oil is blowing off but if that is the reason gold is rising then contrary to what some gold bugs think, it is not the primary fundamental. That would be the unwinding credit system. I have not forgotten my bearish call on oil from a few days ago and will of course answer for it here if proved wrong. Obviously the price target for USO is kaput, but I have got to believe shorts are covering and the most unhealthy of 'investors' are buying crude @ 124. We'll patiently await the top.

Also, there is the matter of the Dow-Gold ratio. Is it time for a return to angst-o-rama? Possibly, but the ratio has not broken down as of this moment. It looks like I am about to lose my short term gold bet to that wise guy fundy analyst but this will be beer munny well spent and I can't think of a better dood to buy a six pack for.

Check out the last two COWs. This is why I carry my core miners and why I cycled my USD's immediately into Zürich gold bullion once some astute readers finally placed BullionVault orders near the recent lows (it occurs to me that my short term bearish writing doesn't do much for commission generation ;-)) as the long term bull market remains intact; because these bulls have a tendency to buck off traders who try to get too cute with their little technical analysis noodlings or who listen to too many bull horns imploring them that the end is here. It's called a whipsaw and it can burn up a lot of commission and create a lot of heartburn. Edit (8:08) Adding CRB chart which sports bullish ascending triangle thanks in large part obviously, to oil.

It's showtime for Huey

Recall I did some buying on the plunge to the 380's but also kept plenty of dry powder given the neckline break and lower targets. I have fully expected HUI to retest the neckline breakdown. But like gold itself, perhaps the gold stocks have had enough of this foolishness. They are close but no cigar - yet. MACD on the verge of confirming and the rise of the STOCH's above 20 bode well however. The plan is and has been to buy another washout OR buy a break above and hold of the 420 area resistance.

Broker to return 37m to MA towns

Tell me, is ignorance an excuse? My website, Safehaven, FSO, Panzner, Schiff, and many other sources... the word was out for any city or town finance manager worth his or her salt to do a little research. Instead, greed and ignorance combined to get these hacks going for every last % at the expense of prudence - following a line of bread crumbs carefully placed by Wall Street firms. All's well that ends well though; you can just take legal action and get reimbursed for your own ignorance, not learn your lessons and be free to f**k up again next time with the public's funds.

By Beth Healy Globe Staff / May 8, 2008

A major Wall Street firm agreed to return $37 million to 17 cities and towns in the state, as well as to the Massachusetts Turnpike Authority, after it allegedly misled them into buying investments they thought were as safe as cash.

UBS Financial Services Inc. reached an agreement with Attorney General Martha Coakley after she found that the brokerage had not fully disclosed the risks of the investments, known as auction-rate securities. Cities were unable to get their hands on their money when the market for these investments evaporated almost overnight.

Winchester, which had invested more than any other town, will receive $6.8 million in the settlement. The turnpike will receive $4.4 million, and the city of Holyoke and its retirement system will get $3.2 million.

"There have been a lot of new financial products," Coakley said. "There's been a heavy push by brokers to sell them, and a rush by cities and towns to take advantage of what appeared to be a burgeoning market."

The settlement was the first admission by UBS or any US brokerage that something may have been amiss in the sales of municipal debt securities. The market for these securities relied on weekly and monthly auctions run by brokerage firms. But starting in February the auctions attracted only sellers and no buyers, so the market failed.

UBS spokeswoman Karina Byrne characterized the settlement as a one-time event, based on a Massachusetts law that requires towns and cities to keep cash in only highly liquid accounts so they are readily accessible. She said the agreement followed the attorney general's finding that these securities were "not permissible" in municipal accounts.

"UBS is pleased this matter has been resolved," Byrne said. The firm is still under investigation by state and federal regulators for how it sold such investments to individuals and companies.

In Barnstable, which invested the second-largest amount in the state at $6.1 million, director of finance Mark Milne said the town first realized it had a problem in February, when it tried to sell the bonds.

"We had tried to liquidate some of the money from this investment and put it someplace else, and were told that we couldn't," Milne said in an interview. The town needed the funds to pay bills coming due, he said, and had to cash out other investments instead.

The bonds accounted for about 6 percent of Barnstable's cash account, Milne said. Not only was Barnstable treasurer Debra Blanchette told she could withdraw the funds at any time, Milne said, but, "she wasn't even told they were auction-rate securities."

Auction-rate securities were part of a wave of arcane debt products that investment firms sold heavily in the boom period before last summer's subprime mortgage meltdown. With interest rates low, firms offered these municipal bonds as a safe alternative to cash that paid a slightly better yield. Investors were supposed to be able to get out of these securities on a weekly or monthly basis.

But there was a catch many investors didn't foresee: The securities relied on constant investor demand at auctions. In February, spooked investors stopped participating in the auctions altogether, leaving sellers such as towns and public agencies unable to sell their securities.

The result was that investors in this $330 billion auction-rate market were stuck holding bonds they couldn't sell. They weren't losing money, per se, but they could not access their money. UBS is now buying back the bonds - something it and other brokers refused to do when the market collapsed.

The attorney general's action sprang from a case this year, in which Merrill Lynch & Co. agreed to repay the city of Springfield for $14 million in another type of debt that brokers were selling to municipalities, CDOs, or collateralized debt obligations. As with auction-rate bonds, CDOs were promoted as "cash-like" but investors were unable to get their money out when the market for mortgage-related debt froze.

Holyoke's mayor, Michael J. Sullivan, called news of the UBS settlement "manna from heaven." Under the agreement, UBS will buy back $3.2 million in auction-rate bonds from the Western Massachusetts city and its retirement system. Sullivan said the city had been advised by an investment consultant to buy the securities, a move he said he believed was an "honest error."

Holyoke had not been in any immediate financial risk, Sullivan said, but he added, "In the long term, we might have had some exposure to those investments evaporating."

UBS is hoping this matter is closed. This week, the firm said it's leaving the municipal finance business. But this may be just the beginning of the fallout from the collapse of auction-rate markets.

Secretary of State William F. Galvin is investigating whether UBS and other firms may have inappropriately sold these securities to individual investors and businesses. In March, Galvin, who oversees the state Securities Division, issued subpoenas to UBS, Merrill Lynch, and Bank of America Investment Services Inc.

Specifically, the division is examining whether investors were properly informed of the risks in these securities, and whether they were appropriate for the people who bought them. It's also looking into the role the investment banks may have played in causing the auctions to fail. UBS declined to comment on the investigation.

The Securities and Exchange Commission also is investigating the auction-rate markets.

The bet is on!

My friend Otto Rock - a much smarter fundamental stock analyst than me - has made a bet with yours' truly that gold will see 900 before it sees 850. Of course Otto is right about the fundamentals and I expect that 900 level to be vaporized in a rush to much higher levels sometime over the next 6 months. But short term there is the matter of the resetting dow/gold ratio. As he mentioned, this is not child's play. There is enough money involved to buy beer! By my eye, gold has support at 850, 800 (round number) and then lower at 750 (measured off topping pattern) which would be bought like crazy and might likely only happen in a one day blaze of angst, glory and reversal. Edit (1:37) Well, this was one ill researched bet. While gold still looks short term bearish by several metrics a caveat is that I just noticed it is back above the would-be H&S neck line, thus negating (for now) the target of $750 and possibly any additional downside. While I still think lower is in the cards, with the gold miners probing for a bottom I must give weight to the idea that I might lose this bet to this brash fundy guy. :-(

Oil

Remember the reverse symmetrical triangle I used on the COW to find trouble ahead for the HUI? Well, here it is showing up in oil. At a time when everyone is convinced the sky is the limit. Of course, I am the guy who has been a chronic top caller of this market for some time now. Well, why change now? USO to 97.70 and then reversal it says here. ;-)

Edit (5/7 @ 8:15 am) 5 day Oil chart

HUI Daily

To me, the case is pretty cut and dry as far as Huey is concerned; BUY THE WASHOUTS ONLY until resistance around 420 is taken out and held. But bag holders like myself can afford to have that attitude because of the core holds that were ridden down to these levels. At the noted green arrow wash out points on the most recent leg down (which may have been a final 'C' leg but again, hard core resistance just above will have a say in this matter) I picked up some AUY and JAG. Other than that I am sitting on hands and letting the market tell me what is next, keeping in mind the targets of 370, 350 & 325 which remain open unless 420 is put in the rear view mirror.

18 Month Exponential MA's

The 18 month exponential moving averages have been very reliable long term gauges for many markets. It's simple; above the 18 is a good market. Too far above it needs correction. Below it is not good. If the SPX makes a monthly close above the 18, I will take it more seriously. Gold is clearly shown in need of a healthy pull back. Check out the other markets shown as well. I love this stuff.

Anticipating reversals

Inverted H&S's are showing up in many different places. Two of these charts are the Asian ETF's/CEF's I mentioned. Until this morning I owned them both before profit taking. The other inverted H&S is on the 2 year yield. And of course there is poor old gold, sporting a head & shoulders top formation and threatening the neck line. Will it break and hold? Don't know don't care. All I know is that the global herds are driving markets toward some extremes that make sense to me. Dow/Gold ratio - sporting that inverted H&S of its own - NEEDED to reset to accomplish two things; 1) give real gold bulls the chance to re-buy some miners after selling the end of the world hype and 2) get some of those frightened stock market bulls thinking the worst is over. I wonder if Kudlow is crowing yet and if Fast Money is still laughing. I expect all these charts to begin reversals in the next few weeks.

Dow-Gold Ratio... come to papa

It is getting there. Emotions are being reset and expectations are being re-calibrated all around. It's over gold bugs... market says so! Bottoming pattern says 172 for the Dow-GLD ratio shown here. But this thing could Fib out at 50% considering the over bought status. Regardless, the risk/reward is much better on gold miners as even my most horrific scenario is only 15% below this level and that is not necessarily my favored target. HUI has already declined 26% in the slaughter of the not so innocents and for this writer at least, it is time to start getting bullish the gold stocks and bearish the stock market. I have some Asian etf's and cef's (closed end funds) that I have targets for about 5% north of here as we begin to anticipate the topping out of predictable human emotion swings.

Crash Course - Chris Martenson

I have written for years about debt, delusion and crack head economics. This colors and informs my trading and my way of looking at markets and indeed, the world. It is why I cannot be a conventional bullish commentator even when I am bullish on market prices. Because in the final analysis, it is all redeemable in a broken currency, a broken system. I look at the legions of financial media, trading websites and blogs and immediately discount those that do not have a sound basis in risk management and global macroeconomics.

In this light, I want to again highlight Dr. Martenson, a friend of mine going back 5-6 years to a time we both refined an awareness of the nasty dynamics at play. His latest in the Crash Course series A National Failure to Save is as straight a dose of telling it like it is that you could ask for. And it is easy; under 13 minutes of a well spoken, clear headed scientist presenting fact and logic without any hype. Chris and I have a personal hero in common; namely, David Walker, the retiring comptroller General of the United States who has dedicated himself, along with the likes of Ron Paul, to giving the people a straight scoop on what ails us fundamentally from an economic standpoint. Add Chris to the short list. I get absolutely nothing by directing you to his material. Nothing other than the satisfaction of knowing I am keeping a sane and sober blog that will yeh, sometimes get silly, sometimes dig into the macro casino's depths in search of profit opportunities but always keep an underpinning of reality.

Dow 13,750 still targeted BUT...

Ah, there's always a BUT isn't there? As noted previously, there are many obstacles in the way of the Dow's climb, notably the down trend line from the October high. Today bully is flirting with this line but it is Fed day and well, ya know, things have a way of getting woogly on Fed day. Also, Dow is merely retracing the over done and hype fueled decline of January and March's double bottom until proven otherwise (bear market rally).

What the stock market has going for it in my book is the projection of higher levels off the bottoming pattern nominally as well as the nice inverted H&S in the Dow-Gold ratio with the neckline breaking solidly as I type. Remember, if you're a gold sector investor and you identify the sector as being in a legitimate long term bull market, you do not want to see gold exploding higher along with oil, copper, wheat, what have you. You want the casino patrons bled out with extreme prejudice and that is what the Dow-Gold ratio is currently doing. By my eye it is now approximately 2/3 to 3/4 of the way there. By the way, I am seeing the same inverted H&S in the 2 year yield, the Hong Kong market (which I am long) as well as several other areas. Very interesting and it will be fun trying to correlate and make sense of this activity going forward.

I am seeing a lot of stuff that makes me want to post more, start a newsletter and what have you, but I still do not have enough time. It's coming though. I think. ;-)

Anyway, Dow chart for your review.

Edit (3:12) "Rut Rohhh!!" say the bulls. Head fake back below black line.

Gold in Zürich

Considering that the now blessedly over sold gold miners' are rapidly approaching the first target (370, 350 & 325 - see HUI weekly chart analysis on the COW from this morning) and considering everyone sees the H&S top in gold and considering that no one but NO one has been ordering BullionVault gold through biiwii.com's or the blog's banners, I thought it a good time to cycle my available dollars in the BV account into gold. I hold mine in the Zürich vault. Perhaps early, but I got time. ;-)

The dow-gold ratio implies lower gold and/or higher dow before this is over but I for one am not going to let some ratio indicator stand in the way of adding value for the long term.