Posted September 15, 2008

Markets in a nutshell

Technically markets as a whole paint a DEFLATION cycle. However, the fundamentals show exactly the opposite is to happen. !?

 The least we can say, is that the last weeks have been extremely volatile and illogic. I have lived the crash of October the 19^th, 1987 and what happens now buys even less logic. Something weird is going on in these financial markets. It makes one think of FORCED SALES of whichever financial asset that creates cash flow. After all, this is the only reasonable explanation we can give: financials in trouble have no choice but to liquidate their ‘real’ financial assets. Having said this, we expect the charts could have been be painted incorrectly now…If we are about to see 1920-30 situations, such a thing is surely possible.

Assuming there was and is FORCED liquidation of Treasury positions of Financials, we are almost certain part of this position is/would have been Gold, Silver and Oil shares. Possibly even Gold and Silver ETF’s. The capitalization of this market being extremely narrow, it could well be one of the underlying factors for the illogical price movements.

• Oil keeps on coming down: neither the war in Georgia, the fact that Pakistan closes down a pipeline for the NATO in Afghanistan and the rebels becoming active in Nigeria, a affirmation by the OPEC that they will cut production by 500,000 barrels/day…nothing seems to help.

• Gold indexes have all been coming down, too fast and too much as if there were NO resistance levels. Something unseen in my life time!

• Financials stay weak. Depending how the market will unfold with the news of Lehman, Merrill and the potential cut in Fed rates tomorrow, the Dow Jones & Co. could well refuse to join the perfect Pre-Election photograph. We would personally not dare the devil.

• The Utility index has confirmed its down break out of the Top/distribution consolidation.

• As explained in earlier newsletters, many Stock market indexes sit between a Downtrend and an Uptrend line. One will soon give away: the Uptrend will.

• The Austrian ATX index has almost reached it 3,050 objective.

• The Retail index sits in the top of its consolidation zone and is ready for a reversal.

• The Yen sparks the possibility for a reversal

• The Bank index is bumping in its secular down trend line

• The Broker index is resuming its down trend

• Many financials are bumping into the top of their down trend line. Not even the PPT, nor a miracle will be able to push these rotten stocks through this resistance line.

• Fully integrated oils, Service and Exploration have all fallen upon their long term UPTREND line. There are some nice reactions.

• Most Gold and Silver shares show a PANIC spike & reversal.  It was too much and too fast. Many Point and Figure charts show Bearish signal reversals and others have reached their bearish objective.

•  Builders, Retailers, Home Depot and Lowes are all in a secular bear trend

• The better stocks are GM, Pepsi, Wal-Mart, Jaso.

Posted September 2, 2008

Markets in a nutshell

For some reason, what we are seeing today makes me think of the Movie “Trading Places” .  The Derivatives market is kept open on a Sunday. The authorities call for the “Mother of All Hurricanes”.  Those who get the ‘secret files’ go short…and cash in on Tuesday. I have seen this excellent movie and each time made sure I saw the end act!

Sometimes, when something unexpected occurs many people stop thinking logically and start to follow the emotional Herd. Often exactly the opposite has to be done. Only those having the ‘understanding’ of what is happening will do so.

• Crude Oil has fallen out of a triangle and the next objective is $ 100 per barrel. If this level doesn’t hold, we can see the correction extend all the way to $ 82 towards the end of 2008.

• Gold needs to stay above $ 810. If not, the possibility exists to see the $ 780 level tested again. Assuming it breaks through the $ 840 level, the objective is $ 940 to $980. Gold being oversold and the A-B-C correction being established, it could now well brake loose from Oil & the Dollar and start to live its own life.

• The correction on the Dollar and Dollar/Euro has resumed: between today and the presidential elections, we could see the Euro as low as 1.44 to 1.39 (- 4.7%). At that point, we will not only have reached the bottom of the trend channel. On top, we will start to run into LONG term resistance. The Dollar being overbought, we think it is rather a dangerous game to take the risk.  Last but not least, on the chart of  the Commitments of Traders, the SHORT position of the commercials,  is as large as it was during the summer of 2006.

• During the months preceding the German Hyperinflation, the Reichsmark showed similar strength as the Dollar shows today. A lot of investors bought Marks because they were convinced the currency would resume its former status.  It did not take a lot of time for them to realize their mistake and they started to offload their positions and hereby initiated the final slide of the Reichsmark and the Hyperinflation.

• The Gold miners, CBOE, Gold bug, Gold and Silver indexes ALL have corrected * and are sitting into the lower part of the 2006-2007 consolidation which is offering HEAVY support.

• Again, Gold, Silver and many related indexes all show a Huge *A-B-C correction. Objective C has been reached and in some cases even overdone.

• Copper (war metal)stays firmly above its trend-line. It could break out of its formation during its next run.

• The Dow Jones, the Nasdaq, S&P500, still sit in a large down-flag/wedge. We don’t rule out to see a level of 12,000 for the Dow as we come closer to the election date. After all, something has to show that “all is well, Mme la Marquise”. However, just like for the Dollar, we are NOT prepared to play the game.

• Apart form the resignation of the Japanese premier, nothing changed in the Far East. Chinese and Japanese stock market indexes are still in a bearish mode.

• Europe shows similar chart patterns as Wall Street does. Still some upward potential, but running into resistance with declining volumes. The charts don’t look pretty.

•  The 10 year US Treasury note price is bumping into its downtrend resistance line.

•  The Sterling needs to break the 1.25 against the Euro before it will be able to test its all time low of 1.10 (1995)

• Gold Shares show the same characteristics (incl. the A-B-C corrections) as the Indexes. Additionally, many have reached their objective. They ALL show positive reversal formations.

•  The Oil index needs to break through the 1360 to resume an uptrend. The actual pattern ranges from 1260 to 1360.

•  Oil shares still have some downside potential left before they reach the bottom of their uptrend channels.

•  Gustav saved the Banks! At the same time as Oil, Gold and Silver suffer because of a Hurricane which wasn’t ‘the mother of all storms’, Financials show all their glory! Don’t get caught…. For they are still ALL firmly sitting in their Secular Downtrend. The least we can say is the authorities are using all the arrows they have left to make sure they show up in good shape this coming November.

• Not only has the Japanese premier resigned, but Mitsubishi UFJ Financial Group (one of the largest Japanese banks) shows signs that it will fall out of a HUGE Head and Shoulder pattern. The neckline is $ 8.

• Certain US shares however show resilience and even strength:  ATT, Bristol Meyers, Cisco, IBM, Johnson & Johnson,  Lockheed (war industry), Pepsi, Colgate, Procter & Gamble, Monsanto and Potash.

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