Honest Money Gold and Silver Report: Market Wrap
Week Ending 6/6/08
The stock market took a good hit today, falling almost 400 points. Perhaps after today's horrid action those that claim we are in a new bull market will rethink their position. It just isn't so.
The dollar reversed course from its recent rally, with a little help from the ECB's announcement that interest rates may be raised higher in the not too distant future. The prospect of higher rates put heavy selling pressure on the dollar.
Gold and silver blasted up on the dollar's demise, being the only real currency on earth. Oil also shot up, as did most of the other commodities. As I have repeatedly said - the commodity bull is not over.
What is over is the recent rally in the overall stock market. A new cyclical bear market within a larger secular bear market is now in place.
Conversely, the commodities are still in a cyclical bull market within a larger secular bull market, which is in need of consolidation, however.
Last week's report had several charts showing the deterioration in the stock market, so to put the same charts up again would be redundant. Suffice it to say that we are in a bear market and lower prices are coming.
Unless one wants to short the market the best strategy is to be out of most stocks. I have a large short position via Rydex Ursa, a fund that tracks the S&P to the downside.
Needless to say, the stocks I hold in my portfolio are the ones that I feel will move higher even as the overall stock market goes down, at least for the time being. All of the holdings are commodity stocks except one. The portfolio can be viewed on my website linked at the end of the report.
The chart below for MZM money supply data shows why the dollar is falling and gold is rising - the Fed is creating excess money, which debases the currency by destroying purchasing power - to the tune of -95% since 1913. MZM has increased almost 13% since 2007.
MZM MONEY SUPPLY
Gold is in a cyclical bull market within a larger secular bull market. The same holds true for commodities: they are in a cyclical bull market (that is in need of a correction) within a larger secular bull market.
Today, most commodities rallied up strongly due to the weakening dollar and the larger than expected unemployment rate; however, the reaction to the dollar and the unemployment data is only part of the big picture.
Also playing leading roles are: debt levels, derivative positions, the crack up boom and subsequent bubble in the housing market, which has now been popped; the resulting weakness in the mortgage and related markets, and on and on.
There is a litany of negative reasons for the stock market to go down. Soon credit defaults will start to occur within the consumer credit markets such as credit card payments, car loans, education loans, etc.
Credit defaults and the resulting ramifications will put increased pressure on the financial sector and related players. Look for bankruptcies to increase over the remainder of the year - both in private and commercial sectors.
All of the above, while bearish for the stock market, is bullish for gold. Gold is the only form of money that is no one's liability or debt. As the never ending problems that paper money creates continue to unwind, gold will shine brighter and brighter, a beacon in the night that defends private property rights, wealth creation and real savings - the accumulation of purchasing power.
So it has been since the days of the ancients; so it will be well into the future. Gold is honest money - paper is dishonest money; a hard lesson that is unfolding before our eyes.
Gold was up about 2% on the week - a pretty good showing, all things considered. As mentioned above, the bad unemployment rate and a falling dollar put a bid under gold and other commodities.
The move in oil smacks of short covering; and oil remains overbought. As we all know, however, markets can stay overbought longer than we can remain solvent. Nevertheless, caution is warranted - the markets are trading on pure emotion. The fundamentals have not changed over a few days time, as has price.
Gold's move up, although expected on a short term basis, does not appear to be starting its next intermediate term move. The daily chart below shows a gap up today, which may need to be filled. Volume increased and price closed above its 50 dma, both are positive and constructive signs.
ROC has turned up, but is below zero. STO is turning up. I suspect a short term rally and then a retest of the lows. If the test of the low holds - then the next significant move up can begin.
The last fan line intersects around 90, which is the next upside target. May's high of 92 may provide more significant overhead resistance. After that are the April and March highs near 94. This is as high I suspect the short term rally to go - if that far; which is still a nice move if it occurs.
Silver out performed gold for the week, closing up over 4%. All of the indicators on the chart below are turning up.
Volume expanded today on the move higher, which is most constructive.
The upper trend line is the next target - at about 176.
After that the horizontal resistance line around 182.50 offers significant resistance.
GDX Gold Miners
The GDX was up just under 1.5% for the week, which is not that strong of a showing. The gold stocks generally move 3X to physical in a strong rally.
All the indicators have turned up; however, a couple gaps remain to be filled. The upper Bollinger band provides significant overhead resistance.
The point and figure chart for GDX still shows a bearish price projection; however, both the HUI and the XAU show double top breakouts with bullish price projections.
Which one is correct - perhaps all of them? This would be in keeping with a short term move up, followed by a retest of the recent lows, and then the start of the next significant leg up.
Also, all of these indices are weighted and do not give a "pure" picture of the gold sector - they provide a very biased or weighted picture; a handful of stocks in any index account for over 40% of the price structure.
There were many gold stocks that did not perform that well today; and many that did. In my opinion the indices give a very biased view and do so for vested reasons.
I would concentrate on the charts of the stocks you own in your portfolio or your personal "index".
For the remainder of the summer - stock selection will be very important and perhaps the key to the vault.
I have positions already established and will accumulate more if the right set-up occurs, but only in those stocks whose candlestick charts look most promising, especially those that show positive divergences along with a positive point and figure chart.
For the remainder of the summer I also plan on taking profits in my trading account quickly whenever they appear, except for a few long term positions such as MVG and PLG.
In my investment account I hold positions for a longer time period than in my trading account. My largest single position is short the S&P 500. By doing this I'm pretty well hedged and can play either side of the market.
Before putting up a number of charts in the portfolio that are acting well, and some that are of interest to accumulate on the right set up, I would like to mention that the news media contradicts itself daily regarding the markets and everything else.
They are not a source of good information - they are a source of disinformation. Personally, I look at it as black is white and white is black - don't do as they say, but watch what they do - especially regarding money, power, and the election.
It has been reported that the Bilderbergs are meeting this weekend, right here in the good old U.S.A., whoever, they are.
Charts of Some Stocks Held
Good luck. Good trading. Good health, and that's a wrap.
Come visit our new website: Honest
Money Gold & Silver Report
New Book Now Available - Honest Money