This chart is a thing of beauty. A break out to new highs after 18 months of consolidation. Fortunately, as I turn on CNBS, and listen to the analysts marching on to the screen, I hear them mostly calling for Gold to be frothy, and due for a pullback. "I would buy, but only at lower levels" is a common mantra. Well, from what I see, gold has a ton of support beneath its current price, and fundamentally speaking, it looks like the Fed wants to print dollars until we are buried in them. Also, looking at gold's cyclical nature, it looks like we are just two weeks out of a weekly cycle low, and have approximately three months or more until gold is due to reach its half cycle high. So, my guess is that they may be waiting a while for those lower prices to occur. For me, the risk/reward ratio is favorable. The one caveat is if the dollar should turn around and sustain some strength. For my money, I don't expect that until we test the March 08 lows a good 5 percent down from here. By that time, gold will be much higher than it is today. I am holding my positions in GLD, GDX, and SLV.
GDX remains in an uptrend. One of the most difficult things to do as a trader is nothing. When a trend is clearly visible, that is the thing to do. Just sit still and take the ride. My only moves will be to continue to add to positions at swing reversals out of corrections.
The bonds are beginning to change their tune. Investors have been buying corporate bonds and US Treasuries consistently for six months. (In the case of Treasuries the investor has been the Federal Reserve who is running out of their self-alotted 1.2 trillion dollar booty. I suspect they will simply turn on the printing presses again if interest rates continue to rise without the support of the Fed's buying spree.) Lately, there has been increasing supply and decreasing demand. It looks like there is a decent amount of supply of LQD waiting to be sold at the 105 to 107 level. And TLT faded around 100. We are now seeing a pattern developing of lower highs and lower lows. Watching LQD and TLT, and will sell short with any strength that reverses below previous highs.
It is interesting that the highest risk bonds, Junk Bonds (JNK), and High Yield Bonds (HYG, not shown) have continued to show strong demand. In fact they are currently selling at levels not seen since the top of the market in late 2007. Apparently the appetite for risk is back. Could it be some of the 2.2 trillion dollars the Fed has printed over the past year and change has found its way to the banks? And that they are taking this money for which they are currently paying how much interest...Oh yeah, Zero! and rolling the dice with high yield intstruments like Junk Bonds? Go figure. The more things change, the more they stay the same. Another head scratcher. Sorry people, this really can't end well.
And here, finally we have the small cap index. A group of 2000 of the most risky, and also most promising companies in America. Notice how they have returned appx 85% since March. As I wrote last week, this index is enjoying a vertical rise, and is heading into massive overhead resistance. I will short this on a swing reversal with a stop above 65.00. I consider this to be a high risk trade as I'm basically betting against the power of the federal reserve to prop up asset prices. Why? Well, I know that one day commercial traders who are taking the long side of the market will eventually reverse course, go short, and trap unsuspecting retail investors who will remain long far after the top has passed. It is the game of greater fools. I suspect that the moment is coming some time between now and the New Year, and I'm willing to lose small amounts on a few poorly timed bets in order to catch the top when it finally comes so I can ride the downtrend for some meaningful gains.
Thanks for reading!
Fubsy
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