Critical period for gold. The $1,350 area (Point A) was once key support and now is key resistance (Plus 50-Day M.A in that area-point B). Two closes above it and we can say the market has indeed turned- but not before!

Friday’s monthly employment # almost always has a gold bomb around it so its a big week for gold to to do more than just hold its own. The Crimenex is once again trying to take back the gains made after its close late Friday.

          What You Need to Know     Mark Jasayko MBA, CFA,   Portfolio Manager

      Markets – Weekly Notes: July 29 

The World According to Ben Bernanke: A week ago Ben Bernanke testified over two days before Congress and took pains to convince us that no one really knows about investing in gold and what the price of gold should be. This sort of preaching has been his style when he is trying to counter thoughts and beliefs that are opposed to his or when responding to challenges against the policies that he deploys. The reality, based on gold’s investment characteristics, is that investing in gold is a bet against the success of experimental monetary policies. A rising price for gold represents a bet against Ben Bernanke.

Gold has risen more than fourfold since bottoming out in 1999. It isn’t four times tastier, or four times more brilliant, or produces four times as much income as it did before. It still looks and feels the same and still produces no income. It is only a barometer of the confidence or the lack of confidence with respect the potential and actual devaluation of the U.S. dollar, something over which the Fed has great impact.

Bernanke also went on to lecture us about worrying about the size of the Fed’s balance sheet (which contains mortgage bonds, Treasury bonds, and some toxic investments purchased in exchange for newly printed money). The balance sheet is already incredibly bloated by historical standards, and it continues to grow. Bernanke suggested that it will be a good thing when the balance sheet grows at a slower pace. This is a bit like an unhealthy overweight individual saying that they will be in better shape when their consumption of Big Macs slows down a bit. But this doesn’t do much with respect to reducing serious illness. In the case of the Fed balance sheet, slowing the pace of money-printing/bond-buying doesn’t do much with respect to reducing future inflationary problems and economic imbalances.

Bernanke claims that a bloated Fed Balance sheet is not a problem and that the market should give him some credit when its growth is expected to stop sometime next year (only a promise at this stage). Sounds like he is trying to sell us easy excuses instead of doing the needed hard work.  And suggesting that we shouldn’t bet against him by investing in gold.

Best regards,

Mark

Consistently Working in our Clients’ Best Interest

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In this Weekend Report lets take an unbiased look at the HUI, gold and silver to see if there are any big changes taking place to upset the apple cart so to speak. Emotions can turn on a dime in the markets, as you are all well aware of, from bearish to bullish or the other way around in a heart beat. That’s what the markets thrive on. Being open to change and not being married to a position is critical to survival when you put your hard earned capital to work in the markets.

Lets start by looking at a daily linear chart for the HUI that shows the decline that started back in September of last year that formed the right shoulder of the massive H&S top pattern that most staunch gold bugs still can’t see. There are three chart patterns I’m going to show you that formed off the right shoulder high to the current low at 205. First I want you to look at the two blue bearish expanding falling wedges labeled #1 and #2. Those two patterns are almost exactly the same in time and height. For those that want to see what I mean just set your chart to linear scale and go back a little over a year. Draw in the top blue expanding falling wedge, as you see on the chart below, and grab your top rail and pull it on top of where the lower blue wedge is forming. Then do the same thing with the bottom rail of blue wedge #1 and take it down to bottom of blue wedge #2. I’ve added two thin black rectangles that shows your how closely they are to each other in time and height, labeled one through four. There is a lot of information on this chart so I’ll post it right here so you can see how similar these two patterns actually are. Then I will post this same chart with some more information that is relevant to our most recent low.

…..read much more HERE

The American stock indices have been the strongest in the world over the past several weeks…and the more speculative American indices (The Nasdaq, the Russell 2000 etc.) have been the strongest of the lot. The American stock indices are now above their May 22 levels, when Bernanke first frightened the markets with hints of “tapering” …however the major European, Canadian, Emerging and Global stock indices are still below their May 22 levels…I view this as “further evidence” that the stock market is getting toppy…despite Central Bank “printing.”  

My Stock Market Trading Theme: I’m Anticipating lower prices…I’m just waiting for a confirmation that it’s time to get short.

The S+P 500 benchmark index is now above its May 22 levels:

The more speculative Russell 2000 (smaller cap stocks) is well above its May 22 levels and is probably one of the hottest stock indices in the world. My feeling is that when you have the more speculative markets leading the parade, whether it’s in stocks or real estate, you are getting close to a downturn…at least in terms of time, if not in terms of price!

The Dow Jones Global Stock Index (and the benchmark stock indices of  the major developed countries) are still below their May 22 highs. This relative strength divergence (and other technical indicators) actually led me to take a small short position in the S+P last week…the position was small because I didn’t really have a confirmation that it was time to manifest my bearish attitude with a short position…I covered the trade with a small profit because I didn’t like the price action and I wanted to be flat ahead of going on the road for a week. Looking at this chart I have to think that May 22 really was a Key Turn Date, despite the rally to new highs in the US markets.

Gold: I bought gold in late June when it was getting extremely oversold…I usually don’t buy a market that is falling…It usually works out better to buy a rising market…but I sold the position Tuesday of last week for a decent profit.  I had been concerned about heavy resistance around the $1350 level (gold had sold off hard in April but found a floor around $1350, bounced, then found a floor again around $1350 in May, bounced again,  but broke through that floor dramatically in June…in technical analysis once a level that had been a floor is breached…then that floor becomes a ceiling.)  After gold rallied through $1300 last Sunday afternoon on the Abe election story it quickly ran into overhead resistance (the ceiling) around $1345 – 50 so I sold out and went to the sidelines.

My Gold Trading Theme: I think the gold rally over the past month was a corrective rally from an extremely oversold condition…I don’t think we’ve found THE bottom of the decline from the Sept 2011 all-time-highs. However…if gold can soon get decisively above $1350 resistance then the next major resistance is nearly $200 higher around $1530 (although $1400-1425 could be a tough hurdle.)  If the market now turns lower I think there’s a good chance it will make new lows…BUT…at some point I’m anticipating that Market Psychology will turn bullish on gold…relative to cash and to other assets…especially the stock market.

Gold Vs. the Stock Market:  Gold fell ~36% in US$ terms from its September 2011 All Time Highs to its June 2013 lows…making a 3 year low…BUT… during the same time period Gold fell even harder in terms of the S+P 500…down ~55% to 5 year lows. I’m watching this ratio closely for a Confirmation that it has turned …I’m Anticipating a buying opportunity here, perhaps as early as this fall.

It’s a short blog this week as I’m taking a summer vacation. I’m currently on the sidelines  in my short term trading accounts. There are lots of trading opportunities shaping up in the markets I watch… I’m sure I’m going to miss some of them…and wish I hadn’t…but you gotta take a break now and then and…as a good friend says, “There’s a rumor going around that the markets are going to be open again next week!” Best wishes for good health and good trading!

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