- Saudi Arabia’s
top power brokers recently claimed they would not allow oil to trade
over $100. Click here now to view the oil price trading above $100 this
- The power brokers
have already failed. How big their failure will become remains to
be seen, but things don’t look good for the oil bears.
- When any major
market might be about to embark on a strong rally or decline there are
both bullish and bearish factors in play. The market’s
direction is ultimately determined by liquidity flows.
- Click here now to view the seasonal trend for the oil price
at this time of year. At www.seasonalcharts.com you can view
similar charts for all the major commodity markets.
- The bottom line is
that oil could rise strongly because of a new MACD buy signal, a large
head and shoulders pattern, tension between Iran and Israel/America, and
because it seasonally tends to do so about now.
- An oil price shock
to the upside could cause major problems for the stock market at a time
when the European financial crisis is still strongly on the
“liquidity flow minds” of institutional investors.
- Click this stock market liquidity flows chart from www.sentimentrader.com.
The picture painted by the liquidity flows on this chart is truly
- You can see that the
commercial group of traders are piling on short
positions by aggressively shorting the Dow, the Nasdaq,
and the Russell indexes.
- My concern is not
that they are shorting the broad stock market, but that they are
shorting with this kind of size in such a short period of time.
The current short position of the commercial traders is now
larger than at any point in the last ten years.
- Do they know that
something very bad is coming your way? Are they simply
shorting to profit from an over-extended stock market rally that has
seen the Dow rally about 2500 points without any kind of serious
- You can’t know
the answer, but you can be as professional as they are with your
liquidity flows. High oil prices and a falling
stocks are ultimately very positive for the price of gold, but
there can be a substantial adjustment period before gold begins to
- When stocks fall
hard the central banks tend to print money. Then they loan that
money to commercial banks. They urge the banks to lend that money
to institutions to buy stocks. That action is very positive for
the price of gold.
- I also have a
concern about what the commercial traders are doing in the less
transparent OTC derivatives marketplace right now. Are they
placing giant short-side bets there too? Are those bets fully
reportable, or are they “non-reportable”?
- Click this Dow wedge chart now. I would call that wedging
action, rather than an actual wedge pattern, because of the lack of
definition in the upper part of the pattern. Still, the wedge-like
action is a concern.
- HSR (horizontal
support and resistance) sits at about 12,300 and at about 11,700.
I have little interest in naked-shorting the Dow. There is what I
term a maniacal obsession in the gold community with “getting the
Dow”. Somehow, the Dow is view as a person who must be
“made to pay”.
- I have great
interest in accumulating the Dow asset about every 1000 points down that
it goes on sale, and the HSR at 12,300 and 11,700 make decent first
entry points. Sadly, an obsession with naked-shorting the Dow
could define you as a dollar bug rather than as a gold
king or queen.
- Gamblers should buy
at the 12,300 area, if it happens, and investors should wait for
11,700. Operate in this crisis like Sylvester the cat, rather than
like Tweety the bird. Take from the
weak, in their moment of greatest weakness. The greater the price
sale, the stronger the buying hands are.
- If you have not made
money in the Dow by shorting it over your lifetime, you should throw in
the towel on further attempts to build dollars of wealth by shorting it
again. If you are long the stock market now, you should be adding
some strategic short positions into this enormous price strength.
- The dollar will not
beat the Dow in a fight to the finish. The Fed will adopt money
printing as official policy long before the Dow goes off the
board. The Fed will destroy those who get carried away with making
dollars by shorting the Dow.
- The gold community
is heavily invested in gold stocks, and most investors don’t have
the emotional strength to endure “another 2008”, let alone a
long series of “2008 again” events. Prepare yourself
mentally to endure much greater discomfort, or you’ll never make
it to the end of the crisis rainbow. If your personal fear levels
are beginning to overwhelm reasonable thought and action, you may need
to consider purchasing put options on either the Dow and/or the
- Click here now to view the gold chart. Gold is
entering the weak season. It is trading in the “quicksand
zone” right now. After basting about $200 higher and out of
a wedge formation a lot of weak investors got renewed interest in the
gold market. Since that “breakout occurred, the price has
stagnated. I highlighted the Stochastics
sell signal and the HSR in the 1670 area. Now the MACD indicator
has joined the “sell-side party” with a crossover sell
signal. A breakout from a large pattern like this bullish wedge is
normally followed by a pullback towards the supply line, but anything
can happen. Remain professional in your actions and don’t
waste your time trying to flip-trade your way through this crisis by
buying microscopic weakness with size. There’s nothing out
of the ordinary going on in the gold market as it enters the weak
- I’d prefer
that you view this time of year as “gold on sale” season
rather than “crash season” or “it’s all over, so
everything now!” season. Try to take a balanced view of both
the gold market and dollar markets. View a declining price of gold
as a tool to get more gold, and a rising price as a tool to get more
dollars. If you are over-concerned about a declining gold price
the simple fact is that you don’t hold enough dollars as an asset
to break the addiction to the view that a higher gold price makes you
- You get richer in
gold when you buy more ounces, and you get richer in dollars when you
buy more dollars. Staring at the
gold price as it falls won’t make you any richer. My
suggestion is to buy both dollars and gold on sale, and hold the amount
of dollars required to kill the terror that springs to life when the
price of gold declines.
- Click here now to view the GDX chart. GDX never broke
out of the wedge pattern upside. The GDX price is now approaching
HSR at $53.70. If you are starting to “flail”, then
you probably need to own more dollars as an asset. I’m a
buyer at $53.70 and at $52, if those prices happen. On the sell
side, the intense negative sentiment that has returned in the gold
markets could see GDX spike to $56 or $58 and I’ll be a very light
seller there, if it happens!