It was one month ago, on Christmas Eve, that Zero Hedge ran over three
dozen articles on the crashing stock markets with a decidedly bearish bias to
every single one of them. Stocks put in what is now seen as an historic
bottom. With the Relative Strength Index (RSI) at 19 and change that day, it
took only two individuals and three days to have the stock markets take off
on an oversold rally of epic magnitude and ferocity, completely validating my
advice that day that "the time to be short has passed."
It now looks as if the results of the Santa Claus Rally, the First Five
Days Rule and now the January Indicator are confirming what some of us knew
back in late December—stocks have bottomed. While the financial doomsayers
were pronouncing "The End of the Great Bull Market" and that one
should "Sell everything!" before absolute destitution descended,
that was precisely the moment of maximum gloom.
As it would turn out, exactly as predicted in this publication and exactly
as witnessed in March 2009, the politico-banker cartel stepped in and once
again rescued the S&P 500, first with Stevie Mnuchin's Sunday
proclamation that he was invoking the power and fury of the Working Group on
Capital Markets (PPT), and then the January 4 Powell-Yellen-Bernanke
roundtable that spewed dove feathers across the stage. Both of these events
sent messages to the algobot cloud-readers and a mere 30 days later, the
market has tacked on over 3,000 Dow Jones points and over 315 S&P points.
And the bears are still echoing the pre-Christmas bearish mantra as if
they have been hiding in a cave since Boxing Day.
Who was it that said, "When conditions change, I change." Some
say it was John Maynard Keynes; others say it was Stormy Daniels. Whoever
said it obviously had experience in the orange juice futures pit, where going
into a crop report "short" was tantamount to four years at the
Harvard Business School. The recent tone and texture of the Federal Reserve
has been decidedly less hawkish, and the rate of deceleration in balance
sheet reduction rhetoric has been inversely correlated to the level of the
S&P 500. The more stocks rally, the more dovish the messages. Mind you,
if a company CEO were to untruthfully change guidance to juice his stock
price, he would go directly to jail. Jerome Powell shifts from the Fed being
"a long way from neutral" to "considering curtailing
reductions in the balance sheet" in one month, and he is greeted with
rock star adulation and applause. Welcome to the world of untempered
entitlements and Davos Divinity.
"Freaky Friday" has turned into "Funky Friday."
Completely untrue to its character, gold has vaulted ahead in reaction to the
cratering USD, which was reacting to this growing consensus that Powell cares
more about stocks and bonds than he does the U.S. dollar, which, of course,
is irrelevant. What is relevant is that his politico-banker bosses
do, which is far more important than anything Jerome thinks. What happens
when any Fed chairman voices disregard for the world's current reserve
currency is that the stock market pops a cork of bubbly and the gold catches
a healthy bid. However, Friday's decent $22 pop in gold had been met with
stout resistance at the $1,300 Maginot Line of cartel interventionalism,
until a late-access market surge allowed for a weekly close above the Maginot
at $1,302.40.
Reading all the blogs and emails and tweets about this, one might get the
impression that gold prices just reached all-time highs against the U.S.
dollar, but sadly, it has not. Further, for me to leverage up into the gold
futures and options and take down a large nerve-jangling swath of JNUG calls,
I need to see some additional confirmations from both silver and the mining
shares (HUI), because both are lagging badly. Silver needs to finally reclaim
$16/ounce and the HUI needs a close above 165. These were both capping points
in the December panic attack for equities, and despite the policy shifts
mentioned above, both the miners and the silver action is anemic.
To be truthful, for any move in gold to attract even the staunchest of
bulls to the party, silver and the miners actually need to lead gold
in percentage gains. This sends the message that the "big money" is
so convinced that gold is headed higher as the anchor for sentiment and
momentum, they are willing to own the other two adrenalin-filled cohabitants
of the precious metals space as added alpha generators and portfolio
enhancements.
I am working on a piece on the junior mining issues featuring Getchell
Gold Corp. (GTCH:CSE), whose inauspicious (weak) opening has been one of
the most blatant examples of administrative incompetence and regulatory
oversight that I have ever witnessed in 40 years of investing. The maddening
fact is that it had nothing to do with GTCH management. Suffice it to
say shareholders have been wronged. This dog's breakfast of procedural errors
has caused uncertainty for both current holders and prospective new buyers of
GTCH, leading to a sub-$5 million market cap for what my geologist colleagues
deem as a highly prospective land package in Nevada.
I am not going into detail now, but when you all read what actually
happened when the shares reopened for trading back on December 3, it will
resemble a collage of the Keystone Kops, the Marx Brothers, the Three Stooges
and Dumb and Dumber. You will also read why the current share price is
an aberration of what has been essentially naked shorting caused by a
technical glitch that will wind up resulting in a price recovery that could
easily verge on "violent."
As to the Nevada project, a press release from last Monday reveals a
second high-priority prospect called Star Point, a porphyry copper target
with a very impressive IP signature complimenting the Hot Springs Peak
Carlin-type target described earlier in 2018. For what it is worth, I have
been accumulating shares in GTCH under CA$0.20 and as low as CA$0.14 in an
effort to take full advantage of the confusion, and what I deem is a
"mirage of phony supply" soon to be "outed." Once these
errors are corrected, the excellent share structure and high-caliber
shareholder base will kick in, and the explosive potential of the six Nevada
properties will be finally reflected in valuation. (Again, that is if
the errors are corrected, and we aren't quite there yet, hence the CA$0.165
close.)
Thus far, the portfolio has advanced 3.17% with only two trades since the
start of the new month and new year. I bought and sold the SLV April $13
calls during the first week of the year and then bought them all back on
Friday for $0.05 per contract credit. As I tweeted out Friday morning,
"When conditions change, I change," echoing either Keynes or
Daniels, and once the Fed sent up that dovish weather balloon by way of a
Wall Street Journal op-ed piece, otherwise known as a "leak," it
became fairly clear that the Boxing Day shift in Fed rhetoric is now morphing
into official "policy."
As more and more investors in Europe and Asia and Latin America holding
vast portions of their net worth in U.S. dollar-denominated securities wake
up to the reality of a dove-driven U.S. dollar bear market, the necessity of
putting on currency hedges will accelerate and gold and silver will be just
the elixir for dollar weakness. Also, since foreign ownership of U.S. stocks
has become a more fashionable pastime for European and Asian managers, dollar
weakness will force them to rebalance away from the U.S. markets. adding to
volatility as the U.S. dollar tanks.
With the close in gold north of $1,300, this week must see the HUI and the
silver price get in gear and put on a rocket-fueled spurt soundly
outperforming gold. If we get the entire complex moving higher with silver
outperforming gold and miners outperforming metal, I see the next leg in gold
prices assaulting that monstrous $1,350-1,375 resistance that has dogged us
countless times since the new gold bull arrived in late 2015. If by chance
the price managers in Washington, New York, Tokyo, and Brussels are able to
keep their interventionalist fingers off the keyboards, the next major
resistance lies at the omnipotent $1,525 level, the April 2013 support line
that was shattered at the wee hours of the North American morning in what has
now grown to be known as the "Sunday Night Massacre."
To close it off, we are not out of the woods yet, neither in terms of
sentiment nor momentum, and you can't really assess gold's valuation unless
one gives you the currency in which it is to be assessed. The only two of the
major currencies that have yet to see all-time high gold prices remain the
North American currencies. We are a long way from the U.S. dollar top for
gold, but not so for the gold in Canadian dollars. At CA$1,740/ounce, the
gold price for Canadian producers is going to generate some serious domestic
earnings and that goes for the Aussie producers as well. For this reason,
certain non-U.S. gold miners are dirt-cheap, and they would be the first
place to park your fiat once the next leg gets under way.
Pay due homage to Chairman Powell and Screamin' Stevie Mnuchin whose
oh-so-predictable Boxing Day Shift has changed our near-term landscape and
outlook immeasurably.
[NLINSERT]
Charts courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always
consult your registered advisor to assist you with your investments. I accept
no liability for any loss arising from the use of the data contained on this
letter. Options and junior mining stocks contain a high level of risk that
may result in the loss of part or all invested capital and therefore are
suitable for experienced and professional investors and traders only. One
should be familiar with the risks involved in junior mining and options
trading and we recommend consulting a financial adviser if you feel you do
not understand the risks involved.
