Hammer Time

I am growing a bit tired of flogging Huey here so suffice it to say we got something of a capitulation yesterday as chart geeks far and wide saw the noted support being lost and dumped out. I expect the beautiful reversal hammer on the chart was the result of a) Cramer's pals covering shorts and b) bottom feeders licking their chops. Here is a chart of Goldcorp instead of HUI. As noted on the chart, I bought the hysteria on GG and have not yet decided whether this is a swing trade or a hold. I also bought back the RGLD that I had dumped out of a couple weeks ago.



Gold stock holders are by no means out of the woods and irritatingly, they went up because oil went up. In the latest letter it was speculated this might happen but I am bearish on oil beyond a relief rally and until gold stocks confirm some kind of trend independent of oil, the fundamentals are not fully locked and loaded. Hence, the outlook is cloudy. Gold and the gold stocks should be about money, or should I say funny MUNNY. Period.

Separately, here is the daily status of the broad stock market as represented by the S&P 500. I put this in just to break the gold stock monotony this blog has displayed recently. This is a bear market rally until the major trend is broken, and we are nowhere near that point.

Groundhog Day

I have seen it all before and I suspect a good number of readers have as well. Emotion is piqued, info and dis-info are flying fast and furious. Stock market promoters are pitching the end of the 'credit crisis' is in view. Commodities are [IMO rightfully] getting slammed as that bubble deflates and finally... precious metals are under siege.

Experience is a good thing to have and I am not talking about last summer when - due to holding a core of gold stocks - I was down significantly at this time but finished the year with a respectable 11% gain. What I considered 'wrong' with last year was gold and gold stocks rising and falling with everything else; stock market, commodity complex, etc. My discomfort with that situation was noted in this space many times.

This time around, watching the hopeful stock market puff out its chest while the PM's take a continued drubbing, we realize the positive market correlation is being remedied. The Gold-Oil Ratio is still on track as well. This reminds me very much of the 2001-2004 time frame, before gold got caught up in the go-go 'inflation trade' where everything went up; houses, stocks, commodities, developing nations and human greed/ignorance. PM's are now contrary to hopeful markets for better or worse, just as they should be.

I did some selling to raise cash earlier this month (another familiar experience is that it never seems like enough ;-) and in hindsight it isn't) but I have been here before. Last August's puke fest and the buying I did was responsible for the yearly profits. But more importantly, I remember the volatile and sometimes painful periods back in '02-'04 (I came along in '02). Back then, as precious metals were going along their jagged, market-contrary path I learned that returns could be diminished by over-trading as opposed to holding quality miners for longer periods.

Last year I dumped the heavy trading routine as the fundamentals began to change in the global 'all one inflation trade' casino but one must always have significant cash to take advantage of opportunities. The trick is in divining opportunity vs. knife catching when looking to bottom feed. The charts have been laid out in an ongoing manner with short and long term parameters. We are near the point where support gives way to panic. The wash-rinse-repeat cycle turned on high. Know and believe in your fundamentals and experience - which may well be different from mine - and keep emotion under wraps.

HUI daily chart

Yey, we are still making higher lows and higher highs! Hurrah, in the big picture we (PM traders/investors) are still way up from the beginning of our bull market! Whee, the banks and general market look shaky here, proving us right! Booo, it feels like we are sinking in quicksand and the gold stocks feel like a heavy weight on our shoulders. One could argue that is the job of a hard correction; to drop a shroud of disappointment and fear over bullish proceedings.

But the daily chart shows a mixed bag. Worst case (for a continued bullish outcome) parameters are still intact but it has not been easy. On the plus side we certainly do have a series of higher lows and higher highs and the SMA 300 makes this look routine, but the daily trend by AROON (not shown) has now turned negative joining the weekly (monthly remains positive). There is a bearish cross of the MA's (which I do not usually give much weight to but it's there so why not toss it in?) and I have dredged up the old potential H&S top scenario that I conjured up over on the COW back in May. I do not think it is an H&S however as it would tell me my fundamentals are out the window and that thing is ill-formed to be a shoulder. Still, the would-be neck line shown on the chart - cutting through the low 390's area - had better not be taken out as it represents support.
The panel indicators also present a mixed bag. MACD is triggered down and breaking below zero and dat ain't good. Trixy is triggered down but still in healthy territory but that guy is a laggard remember. MACD needs to arrest itself right now and not drop lower than June's low. As for RSI & CCI, they sport fledgling upturns from what 'could' be bottoms but if Cramer is right instead of a contrary indicator, the ensuing washout will take out those levels down to the lowest readings around 30 on RSI and near -300 on CCI.

The chart shows the parameters we have been watching from a daily point of view. A review of the big picture monthly chart shows the drop to kiss the bull market backbone (EMA 18 @ 397) as a thing of beauty. Note however that before each new leg up the backbone was broken in a final washout before a quick reversal. The bullish sentiment so prevalent at the reverse symmetrical triangle top in March has been wrung out. The question remains, is the bottom in or not? Unfortunately, that is not yet conclusive. Bearing in mind that we cannot control emotional markets, the next few days should be interesting. Risk managers manage risk. Gamblers gamble. Investors and traders do whatever they do... it will be interesting.

Cramer: SELL GOLD

Here is the man himself.

Perspective Compliments of Otto

Otto Rock is offering up some sobering perspective for anyone investing in or trading small Canadian listed resource stocks. Not only is this valuable perspective in the effort to keep one's eyes open in a Canadian market with a long history of stock promotion, this kind of thinking can be extrapolated to any area in which somebody wants to sell you something. The above is the 2nd in a series of articles Otto will write in following one particular company. It is highly recommended.

New Letter

Posted yesterday: GOR Fest

Confusing chart of the day: Y-Curve

When looking at bonds it is most important for our purposes to know the direction of the yield curves, not the direction of nominal individual maturities. This overly busy chart tries to illustrate just how important the y-curve is to the fate of the gold miners and the banks. Rising yield curve comes with the contraction, remember? The gold stocks have always been a play [here] on contraction, not on inflationary global growth. This yield curve is signaling nothing more than a respite for the banks at this point. Not coincidentally, if it turns back up as expected it may just signal an end the miners' correction as well. Just another indicator in the tool box.

Have a good weekend!

Financials & Anti-Financials

Here we have a bearish picture of the daily BKX with resistance that corresponds nicely with the long term resistance from the hugely bearish monthly chart posted the other day. There is room for additional upside for this Ponzi scheme although that is surely not a given.

Conversely, the GDX (gold stock etf used here because it shows gaps and volume) has additional downside potential despite an okay looking candle and gap fill. The blue [neck] line would correspond to around HUI 390. Although neither is this a given. Bottom picking, a tough racket. Those so inclined might watch individual stocks and buy all in and around as they are barfed up.

AUY - Daily chart

This is one of the producers I took partial profits in last week but with the 'hold' shares I have been dunked but good. I am considering adding back the traded shares of AUY, but there are several other opportunities shaping up as well. Here is the daily chart of AUY that I reviewed this morning. Yes, a dreaded H&S type formation with neck line being challenged. Indicators are getting over sold but there is room for momo led downside. The key, as I have tried to illustrate on the chart, is securing a real bottom as opposed to a 'falling knife' or false bottom. I will be selective here given that I have core shares of AUY already and there are other bargains showing up out there.



I am bearish oil beyond a near term bounce. It should be obvious I am BKX and US financial system bearish as well, despite the attempted socialist cleanup of the toxic mess. Therefore I am bullish gold. Can't be any other way. The oil hysteria is a negative issue short term but as gold continues to outperform crude, and as the financial rot overpowers officials' attempts to sweep it under the rug, the gold miners will benefit. Meanwhile, attempting to pick the exact bottom is difficult. Different stocks will bottom at different times. That is why my bottom feeder MO is to buy all in and around these reactions. Weekly HUI chart included for reference now that the daily has broken down.

BKX - Real bottom or prelude to a crash?

I'll take #2 for 500 please. Are you going to tell me that the financials are okay? It was just a passing issue? Says Fed Chief and SecTreas "we have assumed control... we have assumed control... we have assumed control... it is now safe to emerge from your homes but be advised there is a curfew and we will not allow you to visit certain quarters where sensitive monetary policy records are kept. You do not need to know the details. We have assumed control and you will go forward as if nothing is wrong. In fact you will just go about your business, go shopping. Enjoy the 'cheap' gas, take a summer drive. Move along, nothing to see here. We have assumed control... and if you see any gold bugs along the way kick them in the shins and laugh hysterically at them. We have assumed control..."

Oil, etc.

I have been as bearish oil as anyone could be given recent circumstances. But I tell you I would not be short here. Gap filled (by USO chart) on declining volume down to severely over sold indicators. I am still bearish oil medium term but a bounce may happen soon. I have included a look at the VIX in the bottom panel. Why? Because it looks to be at support and it looks like a short term spike in the oil price could coincide with catching the hopefuls off guard and help send them back to Palookaville, a place already inhabited by slap happy gold bulls like me. Cash and highest quality equiv's are a nice thing to have in abundance right now.

GLD

Bearish engulfing candle lives up to its reputation and engulfs our most positive hopes and aspirations - short term. I am looking for buy opps, but that's just me; a cockeyed optimist.

Daily GLD chart shows a couple pullback possibilities. One would like to think the confluence of support just under 90 would hold (neck line, 62% retrace, 50 day SMA, lateral support). But in emotional markets what one would like has a funny way of being the last thing the market cares about. The 1980 highs mentioned in this morning's post are coming into view on the daily as well.

Pre-market

Oil down. Gold down in... what else? Sympathy. But the GOR remains strong and while nominal technicals appear to be falling apart for the short term, the big picture is right on track as far as the ongoing theme is concerned; it makes no sense to be fundamentally long term bullish gold stocks as long as their cost inputs are outperforming their product and with the inflationary growth oriented phase of the last few years commodities like oil and industrial metals often outperformed. That is changing. There was always the risk that nominal gold and nominal Huey would drop with oil as the wizards at the Fed and Treasury talk up a good game and markets look for relief even as a storm misses some refineries and adds hype value. None of this matters to the big picture.

Speaking of big pictures, remember yesterday's monthly chart of gold? Well, we may not be in danger of a blowoff and in fact may meet the 'backbone' EMA 18 down the road a bit at around the 850 area, conveniently providing another test of the manic 1980 top. Be ready just in case. That would be no brainer territory in my opinion as the media trumpet inflation defeated even as the next inflation cycle kicks in. In the small picture, today would pretty much need to be the reversal day (up) or we are going to get dunked for a while I think.

A little word of warning here

I am going to go back to NOT micro-managing the daily proceedings shortly, but just a note that the GLD & GDX are painting bearish candles if they close near the lows today. These would be engulfing candles and they usually imply additional downside. Everybody's goals are different but be aware, there is a bearish case developing here, especially if the MACD turns down on the GLD & GDX, which it looks like it is doing. This would be confirmed with a break down of the daily uptrend lines we have been watching.

While conjuring up evil spirits...

Here's the Dow-Gold ratio showing weekly bullish divergence. Am I bullish stocks? No. Am I bullish gold? Yes. But the chart is the chart and while bullish divergence isn't everything, if we are going to consider it as a bullish setup for our favored trades, we must also look into its gaping maw when it potentially tells us something we don't like.

Speaking of gold stocks...

The parameters are pretty clear. The reversal in sympathy with oil sucked, but it was what it was and it was expected wasn't it? I am getting tired of this chart and this fledgling uptrend. It is beating the crap out of me. These are capitulation thoughts. I am not the only one having them, which is a good thing I suppose. We'll know soon enough which way this is going. Manage risk.

Gold

Yes, gold. What else? After I likely take a small loss on the QQQQ today, precious metals & cash/short term treasuries will be my only positions. I want to focus on the metal, not the miners today. After all, the gold miners are a speculative playground (and you know I spend a great deal of time playing there) and in my book are not to be viewed as long term investments of the quality of gold bullion. The miners are a part of the market casino. Although they are in a legitimate secular bull market of their own, they are companies after all. They are stocks and they carry all the risk inherent therein. But you know the line on gold bullion; pays no interest and no one's liability... good portfolio insurance... protection from government terrorism upon your native paper currency. On and on goes the list of why sober, sane people would value gold.

Here are daily, weekly & monthly charts for the metal. The daily remains in the uptrend channel toward our target of the March highs out of an inverted head & shoulders pattern. Nope, nothin' wrong here.


The weekly chart shows a bull market beyond question, though so many seem so insistent on questioning it. This is a human behavioral issue in that it is driven by pure emotion instead of fundamental rationality and technical analysis. I put a fork in here just for fun.



Then there is the monthly. I remember back late last year when Goldman issued a warning on gold based on their technical analysts' view that monthly momentum was fading. Their target? 600. I had a chuckle then and wrote something along the lines of 'gold may indeed correct, but it certainly won't be due to declining monthly momo'. If you are still like the majority and taking market cues from the main stream media you might want to reconsider this tact. It does not work. Got that? Monthly gold is super healthy and in fact, is in 'danger' of an upside blowoff as the herd begins to sweat. Watch the EMA 18 which has been the backbone of the entire bull market. Too far above that average and we will be subject to wild swings.


http://www.biiwii.com
http://www.biiwii.blogspot.com

Oil & the Gold-Oil Ratio (GOR) Daily & Weekly Status

http://www.biiwii.com
http://www.biiwii.blogspot.com

We have finally gotten our break in oil. That is a major fundamental relief because with manic oil bulls stampeding, congress and the administration fretting (and plotting hair brained solutions) and the Fed stuck in a box made with walls of Greenspan's easy money policy (inflation) and the effects of that policy (escalated prices), all of us - from the average guy going paycheck to paycheck to precious metals investors - were being held in suspended animation.

The Fed is not simply pretending to be concerned about inflation in this scenario, they ARE concerned because a price explosion like that of oil - and especially the one likely in gold at a later date - threatens to discredit the institution for all to see as they pray to the munny gods for the ability to ease policy while at the same time some moonshot asset class slaps them upside the head day after day.

Unfortunately, a major break in crude may also mean a confirmation of a crippled global economy and for precious metals investors, as I have mentioned endlessly, it could mean a mass exodus of the dreaded 'all the same commodity complex' bulls. See John Hussman's Total Return Fund. Once he became acutely bearish on oil, he dumped his precious metals shares. Since this is an analyst whose opinions I respect, I move forward with this in mind much as I have with Prechter's gold bearish view for years now.

Anyway, enough words. Here are the charts; a daily and a weekly of nominal oil and a daily and weekly of the gold-oil ratio (GOR). We keep in mind that money policy is not improving and that oil is a major cost driver to precious metals miners. We are either right or we are wrong but we remain on a bullish course as long as the fundamentals in which we believe hold true - and as long as the HUI - per Friday's chart - remains intact.

Oil has broken down on the daily but the weekly shows a longer term bull market that could remain intact as long as the current monetary system remains stitched together. The GOR has bottomed and turned up with violence but I would not be surprised to see oil rebound here in nominal as well as gold terms. The charts tell the story:

click to expand charts

Crash Course - Bubbles

I just happened to check in with my friend Chris' Crash Course and found his recent piece on bubbles. You should check it out.

HUI - Still Bullish

Because the chart says so. I have been doing this for too many years to worry about daily losses (and I have them) on pullbacks within bullish patterns or up trends. And what we have here is HUI in a daily up trend. It should be noted that the weekly is still in a DOWN trend but what is operative here is the daily since this was a play off of a bottom and the weekly broke out of trend lines, so the official trend (by AROON) should follow - the 'early warning system' ADX on the weekly has already done so. If the daily up trend is lost and we end up trending down on both time frames, we may have an intermediate term problem. But the chart says stay firm so I do. Rules are rules. This (precious metals) - other than cash and the play on the cubes - is my only position. It tells me technically to remain firm and that is what I will do until such time as technicals change. It would be best to see Huey resolve in the SMA 50 & 200 area but I have included the 300 as well for reference.

Separately, I understand times may be difficult and hence the err, muted response to my gratuitous pitch for PayPal donations. No harm no foul. I ended up shelfing the Les Paul idea (already have an SG with all the humbucking bite I need anyway) and cycled website commissions into a less expensive but more versatile Strat. I needed a trem bar anyway and this FrankenStrat is fitted with a humbucker as a bridge pickup!

Going forward, if things work out I will appreciate whatever nickels or dimes you care to throw my way and I will keep doing what I do in the meantime. The only thing that could upset the blog is if I decide to start a newsletter which as many readers know I have been grappling with and resisting for some time now. So as long as I do not need another job things will likely remain as is.

Have a great weekend!

Gold stocks & Oil

The charts are self-explanatory. Parameters are laid out. I expect the HUI to hold 420 and I expect USO to at least fill that huge gap. Now let's see what happens.

And now on to the main pitch...

Make no mistake it is good to be back. I generally enjoy doing this blog because as I have mentioned before, it is part of the work I am doing anyway to get the markets right or at least way more right than wrong. This is indeed an important juncture for markets, commodities and the very entity we call 'the economy' and all the social implications tied to it. There are times when I get stressed by having too much on my plate and time becomes an issue. At those times the blog is not so fun. But generally it is what it is and it is my pleasure to present it for anyone interested.

But posts like this morning's market wrap up take a lot of time and I consider it work which again, I need to be doing anyway. My pitch is that if you have found value in the form of capital appreciation or perhaps capital preservation... if you find value in the current setups I have laid out or if I have just been a good 'double check' in your information gathering rounds, please consider using the donate button over there on the right side panel. ---->

Do I need the money? No and yes. No because I do not rely on the blog, website or even trading as my primary means of income. Yes because what you may not know is that I routinely recycle commissions (with the exception of BullionVault which I recycle into Zürich bullion) into music gear. Specifically amps and stomp boxes (effects pedals) thus far. Yes, an occasional jam with a couple guys has become original songs destined for recording - one day. It is a long process for us unlike with Tan Odyssey, a band that seemed born ready and is a case of not if, but when. Anyway, we rock and have fun and the songs are really good. But I have a rule (or is it my wife's?); Gear only comes from website/blog funds.

Here is a picture of what I hope will be my new baby. Won't you please help me get my new baby? ;-)

Free Week - Now thru 7/23

It is an important juncture for commodities, no? EWI's Free Week is now through next Wed the 23rd. It's FREE, what are you waiting for?

Wrap up to a very interesting day

Yesterday was exciting, wasn't it? We had a classic over bought reversal on the gold stocks, fear and wild emotional swings in the broad markets as the US Financial system melts down and gold outperforming oil by a wide margin (and silver by a smaller one). Here are some relevant charts. This is one of those times you want to get it right and not be caught napping. Only you know whether you are an investor or a trader [I am a combination and hence took some profits to raise cash but am still long the gold stocks] and only you know at what point you are satisfied with your profits - assuming, like me, you are even a gold bull. If you are an equity bull, well... read on.

First up is gold. As you can see yeller started getting a bit impulsive after the successful retest of the inverted H&S neckline just as the herd's fear began whipping into a frenzy. It remains in an uptrend channel and I expect the noted target to be hit near term although the ride could get bumpy from here. Remember the possible scenario I mentioned for HUI? The same could be said for the metal. It would serve as a shakeout but prove very bullish ultimately if we double top and decline to the lower line of a would-be ascending triangle or maybe even a handle to a cup.

Next up is the Gold-Oil Ratio (GOR). This baby lurched higher in an impulsive manner yesterday, again due to the massive rush for liquidity (and away from the casino) in progress. It would be favorable for gold to turn the noted resistance line into support vs. oil. The ongoing bullish divergence we have been watching is in the process of being hammered into a genuine bottom for GOR.

One of the more notable events of the day was Huey's reversal in sympathy to the large oil decline. This is of course an illogical response on the part of traders since rising oil does not create inflation and in fact it does create a drag on miners' bottom lines. But a consistent theme here has been caution about what will happen when these automatons begin selling. They apparently did yesterday and I would not be surprised to see HUI tag the lower line of the new uptrend channel.

Okay, here is the part that the battered equity bulls (both of you) have been waiting for. Yesterday I had to slap my hand away from pushing the 'buy the cubes!' button. I held off because the VIX has not yet hit our target in the 36-38 range and a look at the $CPC equity put/call ratio shows the 20 day ema typically has higher to climb before a solid - if temporary - bottom in stocks can be had. Still, volumes were high and the markets tried to reverse before fading into the close. On this chart from May it was noted that the $NDX - for which QQQQ is a proxy - had filled a gap in a bearish rising wedge and would now likely decline to fill some downside gaps. Well, mission accomplished or nearly so. With the relative strength of these large cap techs and their overall healthy financial condition, this is the market I wish to play on any counter-bear market rally that may erupt. As I mentioned, I held off buying yesterday as I am hopeful of a final plunge in all major markets. But I am getting itchy to buy. After all, the public is excessively bearish and Suze Ormand and her cartoon-like cautiousness has replaced those snickering Fast Money players on CNBC's prime time slot. I am getting bullish for a trade in the big techs.

Edit (9:50) Long the cubes @ 44.44. Bought back JAG shares @ 1.50 discount to those dumped yesterday. Getting killed on FVI.v but gulp... holding. Oil continues to break down and unlike most inflationistas, I like it. We need to shake out those oil and commodity bulls and shake 'em hard. Edit (10:21) Note that the bottom line of the HUI uptrend channel mentioned above would also be an all important 'higher low' at around 420-430 (which has also been an important lateral support/resistance level) which would be necessary to keep the picture routine and a-okay.

Fortuna Silver (FVI.v, FVITF)

I just did this chart for my pal Otto and his blog. Thought I'd throw it up here as well. Otto is highly bullish on FVI for fundamental reasons. I however like the chart. I added to my underwater positions this morning and will hold. Company has some silver production in Peru and a silver/gold property in Mexico and unlike many juniors, no immediate need for cash. I took some profits in JAG, AUY & RGLD (still hold shares in all of them however) and am beginning to recycle into the beat downs, FVI.v first and foremost. Not a recommendation, do your DD... blah blah blah.

PS: Oh look, USO looks like Jed just put his shotgun to it. Down 4.7%. I thought Otto's email line said it best: gary "broken clock" biiwii calls oil right at last

Message from BullionVault's Tustain

I received this message from BullionVault director Paul Tustain this morning. I find it interesting reading as will you. This is not a drill. This is reality and we have been unraveling into this reality for years now - some would say decades. The herd is waking up but they are still largely ignorant about what to do about it. Using a service like BullionVault is one option. But there is much more to see to in preparation for the social upheaval that becomes more probable by the day. Some people thought I was nuts years ago when making my monetary preparations (running around looking for safe banks among many other moves), heating/energy preps (wood stoves, generator), protection (9mm) and food/water preps. It all sounds so Y2K survivalist, and I hope that is all it ends up being.

It is not to say that things will necessarily degrade into anarchy or Jim Kunstler's vision of the future, but it is also not to say it won't. But being a former boy scout, I guess I got 'be prepared' drilled into my cranium. Every once in a while you are going to get these kind of posts here. After all, the charting... the trading... that's all part of a macro casino. You must be aware of the nasty potentials that threaten the enchilada.

Regarding BullionVault, I would sincerely appreciate it if after having decided it is the service for you, you would initiate your account through one of the blog's or website's BV banners.

Dear BullionVault user,

At the weekend our global financial crisis took the first step
down an ugly new path, with the creditworthiness of America's two
great mortgage brokers, Fannie Mae and Freddie Mac, being called
into question. The US Treasury were forced to issue announcements
appearing to guarantee their protection.

If you don't already know about these two organizations, it's hard
to appreciate the scale of the news. Fannie Mae and Freddie Mac
are the giants of mortgage business in the USA. They stand behind
an incredible $5 trillion of mortgage guarantees.

But with US house prices in free-fall their share prices have
collapsed; Freddie's decline last week was from $14.50 to $4.28.
This time last year it stood at $55.

Fannie's and Freddie's mortgages are financed mainly by bond issues,
and the bonds are sold to the world's financial organisations.
"The Economist" magazine has for years been commenting on the
strangeness of these bonds' status, because although officially they
are NOT government backed, they have been treated by everybody as if they were.

Their status is now important because their solvency has been
called into question both by the markets and by William Poole -
until March this year a full member of the US Federal Reserve.
Poole is notable for being a lone dissenting voice on the Fed's
Open Market's Committee. We don't know if he's a loose cannon or
a beacon of truth.

The protective reaction of the Treasury certainly suggests a national
guarantee stands behind Fannie and Freddie. Yet the strangeness
of the bonds - their quasi-private status - means they are not on
the public accounts. That is wrong.

In accepting responsibility for these liabilities the US government
has catapulted its public debts from $10 trillion to $15 trillion.

The $100,000 of debt owed by every American family, and borrowed
on their behalf by successive US governments since 1980, is the
unmentionable whore in the family of US fiscal competence. A 50%
increase in it overnight is very, very serious, especially when it
is known that the underlying asset backing is already insufficient
and is still falling.

Perhaps we are entering a new phase of the dollar collapse, with
double-digits for both interest rates and inflation. Bonds look
more and more risky.

-----------------------------------------

Very few people have the foresight to buy gold bullion. Those who
do are insuring their savings against the awfulness of our current
situation, and naturally enough the 'premium' for that insurance
is rising.

Perhaps you have heard commentators comparing our ugly 2008 economic situation to the 1930s depression, and to the 1970s 'stagflation'.

Well, between 1929 and 1934 bonds and businesses were collapsing
everywhere, and gold's investment purchasing power rose 17 times.

Then between 1971 and 1980 it rose 15 times.

So far in this cycle gold has only risen three times from the bottom.
With organisations like Fannie and Freddie in trouble that looks
like denial. I believe we're still nearer the bottom than the top
of gold.

When you first registered on BullionVault we were quite a bit
smaller than we are now. You may remember I offered you a free
gram of bullion to allow you a chance to experience owning gold
in Zurich. I'm writing to repeat that offer to you. We're a much
bigger organization now. We have 50,000 registered users and 7.5
tonnes of gold bars stored on their behalf in London, New York
and Zurich. According to the IMF that's twice as much gold as
Canada's central bank.

Our business is to make owning gold simple, secure, cost-effective
and totally transparent.

If you're like most of our clients you'll want to know exactly
what you're getting into. So here I've explained clearly how the
BullionVault service makes [you] safer and costs you less:

http://www.BullionVault.com/Gold/How/ReadyToBuyGold

...when you're ready you can take the next step there's a simple
step-by-step guide here:

http://www.BullionVault.com/help/getting_started_steps.html

Best regards,
Paul Tustain, Director

Caveat : Please remember that neither I nor anybody else actually
knows how serious the economic situation is going to get. I believe
gold offers protection, but prices could fall as well as rise.

HUI - One possible scenario

Here are two charts showing bullish near term patterns for Huey. A daily chart inverted head & shoulders type object and a weekly 'W' bottoming pattern still in need of a close above the 460 area. The daily pattern has broken out from the downtrend line, retested and now broken above the H&S neck line. This targets the March highs. So one could expect the 'W' pattern to follow suit and break 460 on the way to the 520 area.

But at some point the paralyzing fear gripping the markets will produce a temporary bottom and a return of that oh so human emotion, hope. Who knows what the trigger will be - perhaps just an exhaustion of negativity and a little spin. But I can see the gold stocks approaching or marginally breaking above all time highs only to be repelled at the same time the broad market finally bottoms for a bear market rally. I have drawn a would-be ascending triangle on the weekly chart to show a possible pull back point (up trend line) before any real fireworks begin. I have written many times I am uncomfortable about gold running with the oil hysteria. That remains the case.

I did a teeny bit of profit taking on Friday and I might do much more of it near HUI 520, depending on the macro scenario at the time. We shall see.

And now for something completely different... Tan Odyssey!!

Take a break from tanking markets and the angst of the moment. Check out the link to the mp3 file of what I consider to be the best song on an excellent new CD by my pal Joel and his mates in Tan Odyssey. The song is called Thank God for Canada and I first took note of the song's catchy hook when hearing it live. Now recorded, the song comes through with a nice guitar intro and some off the hook lead playing throughout. Oh yes, and then the lyrics. I thought they were pretty poignant considering the troubles the good old US of A faces at the moment.

Thinking up some thoughts on her disposition
Such a fortunate juxtaposition
Sitting and waiting on a mountain of tar
Just cross the border - it isn't too far

Thank God for Canada,
Thank God for Canada,
I vote for Canada,
51st.

Queen on a dollar, Queen on the dime,
When it comes to revolution, she takes her own sweet time.
Takin' a cold shot for the North America team.
Mexico is way too hot,
And we're right here in between.

Thank God for Canada,
Thank God for Canada,
I vote for Canada,
51st.

Comedians and beautiful girls,
Polar bears and most of the wolves,
So damn cold I froze my toes;
Let's warm it up and build some condos.
Oh yeah!

When we find we're needing to fight for our might
She tries to help us out, even when she knows it's half right
She helps to feed the jaws of our celebrity machine
Washes her hands again, and still feels unclean

Thank God for Canada,
Thank God for Canada,
I vote for Canada,
51st.


The band's website has other songs from the new album you can listen to (Every Day rocks too ;-) and if you so desire, ordering is as easy as writing and mailing a check. Everybody's musical tastes are different, but I highly recommend this well crafted album full of original American music.

My God... Fannie & Freddie

Listening on Bloomberg to all the talking heads debating whether these sleezy 'entities' are too big to fail or not. A hysterical Barney Frank states [paraphrased] that 'if this only affects the people in these companies we will feel sorry for them but they profited in the good times and they have to deal with the bad... but if this is going to start a chain reaction OF COURSE, YES... we need a public bailout!'

What these clowns don't get is that the chain reaction is in progress and sticking fingers in the dike is not going to work - least of all with the public's money, as the public is going to need every penny it can scrimp together going forward. Again, I will ask where was everybody 2, 3, 4 years ago? I was running around looking for safe banks. FSO, 321, G-E, Safehaven, etc. have been publishing sound advice from sane authors for years. Who listened? It comes down to this; the heads of these companies were either criminals or retarded. They have golden parachuted to cushy retirement - many owning gold bullion no doubt - while the public gets the shit end of the stick... again.

US Dollar

While nursing my usual ill-fated oil bearish stance, I thought I'd take a look at the primary motivator of the silliness in the crude oil bubble; dear old Uncle Buck. Here we see the Dollar losing panel indicator supports or in some cases still dealing with resistance. The only positive is that it remains in its pathetic but upward biased trend channel. But even that could be a long bear flag.

Just because I write stuff that appears on financial websites and have firm convictions on certain things, it doesn't mean I am not human and as a human it is wearing on me that oil is trading the way it is. It reminds me of the Nasdaq bubble in 2000. Oil bulls are stampeding across the planet; commercial hedgers, the media, the public (their bullishness takes the form of revulsion at the pump) and maybe perhaps a dreaded 'speculator' or two. But in the case of speculators I would bet many of them are helping drive the price by covering shorts.

Anyway, the gold-oil ratio is still in a bottoming process and as long as that remains the case I am okay in my stance (long gold miners). But it is grating. If the USD loses 72 say goodnight and get ready to tuck your dear old Uncle Buck in for a dirt nap. Edit (8:27) Ah, here we go: Crude Oil Rises to Record on Speculation Israel May Attack Iran. Instant oil hype on demand. Also, we are apparently nowhere near the point where war, terrorism and other non-financial events cease to mess with the gold market. I notice it spiking this morning and if it is due to this news I do not like it one damn bit. These events, whether real or imagined tend to obfuscate the real fundamental underpinning of gold; debased paper. Edit (9:55) Now this news I can deal with: Fannie, Freddie Tumble on Takeover Option. Honestly, why most people refused to see this mess coming years ago I just don't know. Gold BOOOLISH. Wall Street greed, government stupidity and public apathy/ignorance combined to commit terrorist acts upon the financial system.

Gold - Inverted H&S target $1040 short term

Kudos to Adam over at ino.com for identifying the inverted head & shoulders on gold in this video. Usually I am all over these things but that is how I sometimes get with the metal itself; I sometimes neglect to look at it for extended periods which is a sign of how much I... yawn, worry about it. I did up a chart showing a classic neck line back test. Nothing is ever a certainty but this is one bullish setup doods & doodettes.

USO - Daily Chart

Like many Deflationistas, I expect oil to decline - at least in the short to medium term. Unlike most Inflationistas I dread watching gold and the gold stocks climb higher in sympathy to oil, as they are doing today. I await the day that gold simply casts off its euro, oil, terrorism and war shackles and climbs simply because of the terrorism committed upon global currencies. But I digress. Here is a daily chart of oil proxy USO. Panel indicators show bearish divergence, declining momo and room to drop further.

i Inflationista

Michael Panzner has just written a piece highlighting Mike Shedlock's blog post which itself centered around a letter received by Mish from a 'former member of the hyperinflation is coming crowd'. I have received emails recently from readers about Mish's views on deflation. I guess he could be described as a 'deflationist' as could Michael Panzner - whose work we value and regularly publish at biiwii.com - and of course Robert Prechter, a man who I have noted many times was a strong influence on me; especially after I read Conquer the Crash in 2002. These are all very smart and thoughtful men.

So with all that said, I do not take Michael Panzner's 'Inflationistas Coming Around' lightly. I have permission from Mr. Panzner to publish anything of his that I find of value and in this piece I find lots of value because it gets to the heart of the matter; it gets to the definitions of inflation and deflation. If you believe inflation is rising prices then of course you believe deflation is declining prices. Here is a three year old email I sent to Rick Ackerman - reprinted on his site - in response to a provocative article Rick wrote on deflation. It gets to the heart of why I am one of the 'Inflationistas'. Especially these lines:

"In my view, the inflation game is played against the deflationary impulse or need to correct. It is the Fed and other forces pushing on a string, and one day they will find the string simply goes limp and all the inflated chickens will then come home to roost...

"deflation (at least in capital flowing to the US manufacturing sector) has been a good thing, driving progress and productivity; but it [deflation] has been perverted in recent years/decades to the point where it is cast as bad, while inflationary policy is cast as good...

Deflation is a wellspring of progress and resulting lower prices that has been poisoned by the easy money crowd."

The national (and global) front porch is loaded with chickens. Clucking, confused, bloated birds with nowhere else to go. The Fed is 'pushing on a string' and talk of deflation is growing by the week. In a genuine deflation 'scare', this needs to happen. But when you define inflation as increasing money supply - similar to that which Mr. Greenspan promoted earlier this decade, then that 'pushing on a string' can only be inflation, regardless of what prices on most goods and services do. The Fed is inflating and global policy makers stand ready to fight the dreaded forces of deflation (in prices) as well, although many developing regions are still dealing with the effects of the last inflation - booming prices.

Recall that Greenspan's inflation regime took some time to take hold (credit and housing bubbles) and it is far from a sure thing that today's policy makers will be successful in keeping the bubble economy alive. But that does not change the fact that we are in for a whopper of an inflation cycle. It's all in how you define inflation. If the Fed is successful, gold will pick up on it before positively correlated (to the economy) commodities and then under-perform as it did in the middle of this decade. If the policy does not succeed, the collapse predicted by the 'deflationistas' will indeed visit us, in which case there will be a continued mad scramble for liquidity, which means cash and gold. And one of those two will actually have intrinsic value in such a scenario. But the point is that there will be massive inflation (by policy) even as the collapse in credit and general liquidity continues.

I am not a gold bug. I would much rather be a sound US Economy bug. In fact there are productive segments of the US economy that are faring relatively well and benefiting from inflationary policy even as the US financial sector, arguably the former beneficiary of the greatest bubble (in confidence) of all time, continues its collapse. This is a confusing time. This is not a drill. It is time to get this right.

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Dow 60 min. chart

I am not a day trader so I do not work with 60 minute charts too often. But the Dow is interesting here as it has plenty of short term positive divergence. If it clears the immediate resistance noted, the initial target is 11,700 or a bit higher. After that we will be back to our trusty daily and weekly charts to look for more bullish potential or lack thereof. Suffice it to say on a daily chart the Dow is very oversold and looking for a reason to rally. The VIX got pushed back below the resistance line noted previously. Look for a break of its uptrend line from mid-May as a bullish clue. Edit (6:18) VIX back above that line at around 24. It don't come easy do it?

TSX Venture Exchange - pain

A while back I noted the breakout from the downtrend of the TSX Venture exchange - the home of all those little '.V's' in the Canadian market. They are the smallest and most speculative of the resource stocks. I own four '.V' precious metals stocks myself and am getting bludgeoned on them. But like the $CDNX itself, they are [at this point] merely consolidating huge gains made in the '05/'06 time frame. While these consolidations remain in force I will rely on the likes of RGLD, MFN, HL, NGD, JAG, AUY, etc. which are more liquid and obviously much less speculative as they are all producers and in RGLD's case, a royalty company.

Here is the weekly $CDNX chart showing the pain... along with a declining volume march down to support and a falling wedge-like object (when disregarding the noise of the downward spikes and reversals of mid '07 and early '08.

Gold-Oil Ratio: Continues to be bullish

The Gold-Oil Ratio (GOR) does not necessarily indicate gold is bullish in nominal Dollar terms - although I believe it is. The GOR simply says that the risk vs. reward ratio for gold is superior to that of oil. The black goopy stuff can continue to the upside - although I don't think it has significant upside - but if the GOR is indeed bottoming, it will not do so without gold outperforming. Likewise, if they both drop in a Deflate-o-rama scare, gold will likely fair much better. This makes sense because the media's neatly packaged 'credit crisis' is returning to the fore - and is that the Suzy Ormand cartoon I see on CNBC in Fast Money's [LOL] time slot? People are beginning to scurry all over the deck again. They will run to cash and gold and might actually begin to question what have been their anti-Dollar safety blankets, the Euro and Oil. Neither of which stand to do so well in a global economic contraction. Oil is over bought to epic proportions. But here is the disclaimer; I have been a damn lousy oil caller for years now, as you may know. ;-)

BTW, I just noticed on the chart under the 'ROC' sub-panel, I wrote Rate of chance bullish divergence. That is obviously 'Rate of CHANGE' although this whole enchilada is basically a play on chances, isn't it?

VIX - Bulls' last chance to avoid washout

Last week I showed a weekly chart of the VIX and a resistance area it needed to cross to begin targeting its old highs in the 36-38 area which would of course mean a major negative market event for a Bully who is already on the ropes. VIX had a weekly close above that line and that begs caution with stocks. Why be a hero? But there is a chance of repelling the VIX and it is the broken former uptrend line which at least temporarily arrested the VIX rise. I give more weight to lateral resistance/support than to trend lines however. Again, you don't need me to tell you this is a dangerous market here - and the fun part is it is now potentially dangerous for shorts as well as longs.

Not a chart study, not a drill - HL

Well, with Huey coming within a whisker of the 62% Fib retrace laid out a few days ago in this post, I decided to put my money where my mouth is and buy HL today (at 8.11) on a retrace of its own. Perfect... a volume breakout and pullback on declining volume and as a bonus we get a gap filled right at the former downtrend line. Hey, nothing is a given in this market but it's all about risk vs. reward isn't it?

Chart Study - UXG

I recall someone pumping this thing at 7-10 bucks and now it's at 2 a couple years later, in a falling wedge down to support on the weekly chart. If it strikes one's fancy it certainly carries a much better risk/reward profile than in early 2006, eh? I never cared for this stock because I felt it was a hype play on the former Goldcorp CEO rounding up Nevada properties. But boy that hype has been bled off in a most painful manner. I don't own it and don't plan to but I thought the chart was interesting.

Inflation - Under Control?

I am listening to an analyst talking about inflation being under control: "you're starting to see global slowing in most of the economies"... "the inflation everybody's worried about is strictly centered around oil and not all of the other produceable items"... "so you've got energy and food, yes but a lot of the other components that we see that are normal and in inflation numbers [?] ah, we don't see high levels of inflation and certainly we don't see it in wages; at least here in the United States. With the unemployment numbers today wage growth was very low and on a year over year basis you're still running at about 3 - 3 1/2%; not the inflation spiral numbers that we saw in the early 70's"... "so we think inflation still is under control in general"... "we still have food and energy inflation but we think the economies of the world will be slowing down as consumers ratchet backwards a lot of their spending because they can only spend so much of that pie"

This is the heart of the matter. Most of the world thinks of rising wages and rising prices as inflation. But of course these prices are really the result of the supply/demand dynamics of money. That is the heart of our current deflation scare; many people are already afraid of deflation and when oil finally breaks, many more will be as well. But the key to surviving and prospering through the deflation scare is in the realization that the prices of everything that the masses are getting hysterical about now are the results of the inflation that Sir Prints-a-lot promoted years ago. The 'deflation' in housing is simply the effects of Greenspan's previous bubble cycle wearing off. The same will probably happen in commodities, including oil. But our secular trend is one of inflation and currently the US Fed is pursuing a whopper of an inflationary policy as they are stuck between a rock (Greenspan's short sighted policies) and a hard place (the meltdown caused by same) as it is really their only way out - and it ain't much of a way out, now is it? It is just politically palatable in the short run.

Gold at 2000/oz. within the next 2 years is not only possible, in my book it is all but a done deal. First we will contend with the flight of the rampaging commodity bulls as they adhere to the mainstream thinking quoted above and that may ding gold. But the financial policies the Fed - and soon global CB's - are shoe horned into are going to be very bullish for the monetary metal because inflation is really [funny] munny supply on steroids and the declining prices that result from a slowing global economy near you are just what are needed to make the world cry for more inflation.

Huey merely on the retrace at this point...

Why the Flag?

This post is going up for July 4th so that I can get a few things clear. There is a flag on the front page of Biiwii.com. I put it there for Memorial Day in memory of my wife's grampy - a WWII hero - and all the fallen heroes of our great country. Yes, I wrote 'GREAT' country in spite of what ails it - much of which has been chronicled on my website and blog for several years. I decided to keep the flag up through the independence day celebration.

But you know what? The flag is going to remain there because the website and blog are surely not 'hate America' sites. There is enough of that going around in other areas and while I am critical of the nonsensical way in which modern America goes about its business (see my first public commentary ever, 2004's FrankenMarket Lives which was really my first and last word on the subject), I realize how lucky I am to have been born and raised here with all the benefits of a 20th century during which the country spent the majority of its time in ascendancy.

Sadly, that is no longer the case and we have future generations to think about. Hard questions must be asked but in typical American fashion, we will roll up our sleeves - after the public becomes fully awake (and they're on their way) - and get on with it. If we hate ourselves... if we give in to the slovenly side of the culture that has increasingly held sway, we are truly done. My website was created as a reaction to what I saw in' FrankenMarket Lives' and it is done out of love for this country.

Oh, and if you are American, you might want to give that crank with no chance of winning the presidency, Ron Paul, a listen. It is your country and it is time to wake up. Can we ever go back to a Constitutional Republic? My oldest kid knows there ain't no Santa Claus. But it is vital that we get back to sound values and practices as a nation... and the flag stays.

Using Ratio Charts to Gain an Edge

The following is an educational post to be submitted for guest commentary on the ino.com Traders' Blog.

Long time readers of the Biiwii.com blog know that I rely on ratio charts to the max. In fact, I find these ratios between different markets to be absolutely vital to being on the right side of the trade where macro themes are concerned. A recent example is the Dow/Gold ratio, which allowed me to navigate the oncoming - and entirely predictable - rally in stocks (both in nominal terms and in 'real' terms as measured in gold) that began in the fear filled days of March. Our April Letter from the main website, Reset/Recalibrate explained the process by which market sentiment needed to be reset. Here is the monthly ratio chart that was used in the letter:






















Of interest now is the Gold/Oil Ratio, which appears to be in the bottoming process amid bullish divergence by RSI & MACD. This is an absolutely vital ratio to gold stock traders as oil is a major cost input to mining operations and with the likelihood of the ratio bottoming, gold miners' bottom lines stand to benefit as their product (gold) begins to outperform one of their major cost drivers (oil). Here is a current daily chart showing the status of the ratio. Gold, while having been pummeled in oil terms recently (along with nearly everything else), may well turn up from here in terms of crude:



I also routinely use the Gold/Silver Ratio to gauge general market confidence or lack thereof, along with more traditional sentiment indicators like the VIX and Put/Call Ratios. Other ratios which have appeared on the blog include the S&P500/Nikkei Ratio, NDX/Dow and even SOX/NDX. All provide hints as to sentiment and/or macro-fundamentals and hence future market direction.

To summarize, you can trade any market but it is very important to be aware of the major trends and turning points between different markets and asset classes so that you may be aware of whether or not you are on the right side of the trade in the bigger picture. As traders and investors, we need every edge we can get.

Just for fun - CRDC

Remember that chart study I did where I was actually considering buying as CRDC snuck out of the downtrend line? Well, unfortunately I found it on the morning of the day that it exploded and had to settle for a silly little chart study instead of real 30%-in-a-day profits. Blecccchhhhh! I kept CRDC on my screen and while I never did go back and research it (as I recall they have some sort of complimentary product to ISRG's DaVinci surgical robot) and thus will likely focus on my precious metals monsters and trading the pig (may get tempted to trade a relief rally which I did successfully in the '01-'03 bear market as it's the same as trading in a bull except that you need to decide when to sell and then SELL hell out of it). No hesitation. Back to CRDC; it has been consolidating that unsustainable rise basically ever since that one day wonder. A strong argument for trading, eh? At least for speculative stuff that explodes out of nowhere.