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Published : February 15th, 2012
1226 words - Reading time : 3 - 4 minutes
( 1 vote, 4/5 ) Print article
 
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  1. 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 morning. 

 

  1. 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. 

 

  1. 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. 

 

  1. 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.  

 

  1. 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.  

 

  1. 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.

 

  1. Click this stock market liquidity flows chart from www.sentimentrader.com.  The picture painted by the liquidity flows on this chart is truly frightening

 

  1. 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.

 

  1. 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. 

 

  1. 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 correction?

 

  1. 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 rise. 

 

  1. 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. 

 

  1. 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”?

 

  1. 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.

 

  1. 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”.

 

  1. 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.

 

  1. 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.

 

  1. 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.   

 

  1. 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.

 

  1. 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 GDX/GDXJ.

 

  1. 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 season.

 

  1. 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 richer. 

 

  1. 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. 

 

  1. 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!

 

Thank-you


Cheers


st

 

 

 

 

Data and Statistics for these countries : Israel | All
Gold and Silver Prices for these countries : Israel | All
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Stewart Thomson

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form, giving clarity of each point and saving valuable reading time.
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