Mkts Update: Pros and Cons Of Technical Analysis
Graceland Updates 4am-7am
June 21, 2011
1. Attention all gold seasonal doldrums experts: Are you a little too cocky, a little too sure?
2. The secret to building wealth in the market is maintaining a mindset of mild confusion and humility. The investor must acknowledge that anything and everything is possible, at every point in time.
3. While gold is clearly overbought on this long term monthly gold chart (note red circle annotations), I have reminded you that gold has been in this overbought technical state very frequently, for very extended periods of time, and for periods of massive price rise, for most of this bull market in gold.
4. On this chart, the gold price first went to seriously overbought RSI indicator status back in 2002, at just over $300 an ounce. Good thing you sold everything then on that RSI top out move, correct?
5. Oops, maybe not so correct. What if the conditions of June 21, 2011.... are a repeat of those of 2002? During what is arguably the greatest debt crisis in the history of the world, is it really a smart decision to play seasonal super-timer with your core positions in gold?
6. Click here now for an alternative view of that same gold monthly chart. Those addicted to making 60 predictions an hour of gold at $5000 by tomorrow morning are extremists to be ignored, but you need to understand that there are dollar extremists, too.
7. The dollar is an asset and a currency, but the fundamental underpinnings of the dollar's role as currency are weakening, while gold's function as currency is growing. Few really understand the difference between viewing gold as currency and gold as asset. That issue could become a haunting one over the next decade.
8. Learn the new language of ounces of wealth. Click here now to view the US dollar as currency pictorial analysis. The dollar is currency, but that picture speaks a thousand words about just what type of currency it is. Click here to view gold as currency. Building dollars is interesting, just as collecting Model T's is interesting. Building ounces of gold is simply a lot more interesting!
9. While anything is possible, I believe the gold market is setting up for a massive rally, and it could begin within 48 hrs.
10. Jim Sinclair is arguably the "king" of the gold community. He believes the hedge funds that are massively short gold juniors may soon find that they are forced to liquidate their huge bets at enormous losses, as a large and hostile takeover wave is initiated by senior gold companies on the juniors.
11. I'll add that any such action could produce a price surge in not just the juniors, but in the senior gold stocks, too. As institutional money managers see seniors adding reserves and production numbers, they will likely move in to buy these stocks aggressively.
12. Just because there have been many false starts and wrong calls about the long awaited gold parabola does not mean it can't happen. The timers predict it. The rich wait for it. Know the difference in the two actions, and embrace the winning one.
13. The hedge funds have done the gold community a huge favour with their massive (and perhaps illegal in many cases) short play on the gold stocks. The problem for the funds is that they have to attract a large group of gold stock sellers to exit their position profitably at low prices.
14. While the gold community struggling with low share prices, the stocks are not low enough to exit, in the minds of the hedge fund operators. That mindset could lead to heavy loss booking by the funds if the senior (and intermediate) gold producers begin a buying binge on the gold juniors. The funds need sellers, not giant buyers, so they can exit! What could be coming down the gold stock tracks is best described as a gold seniors super-train.
15. Let me repeat what I said yesterday, which is that I absolutely do not believe the view that gold junior stocks are down because institutional money managers bought bullion ETFs instead of junior gold stocks. No professional money manager buys the world's lowest risk investment, bullion, as a replacement for a planned purchase of one of the world's highest risk investments, gold juniors. That's nonsense.
16. Juniors are in the tank because of hedge fund shorting programs that are financed by the banks. The banks are on the other side of the trade and the coming takeover action by senior producers will likely make the banks profits that are "beyond obscene" in time. It won't happen in 24 hours. In the gold market, patience, not the highest gold price prediction, is what will make you richer.
17. The "alternative scenario" is not just limited to gold. Click here now to view the oil chart. Notice the huge volume bar yesterday. Over 150,000 contracts traded on an up day. Maybe price does "do the expected", and falls away from the HSR (horizontal resistance/support) blue line.
18. The rectangular price box that is defined by the blue and green HSR lines between $95 and $105 appears to be the big oil picture, but is it?
19. I say the big oil picture is a $20 a barrel sale on oil for you! I don't care what the season or the technical situation is. If an item is a quality asset and it is on sale, I'm a buyer.
20. Use technicals to tweak the amounts you buy, and for nothing else. Use fundamentals, studies of liquidity flows, and emotions to decide whether to initiate a buy or sell program itself. Charts give a feeling of empowerment to the investor, but they are not really as empowering as they appear to be.
21. Items can and do go "more on sale" than the price you pay for the item, but don't fall into the trap of thinking you can cut risk by diversifying across a zillion different investments.
22. Diversify across price entry points on a single major investment first, and spread risk capital over more investments second. Most of your wealth is built on buys being triggered at prices so low you never believed they would happen, and the action in gold stocks right now is a perfect example of that investment rubber meeting your wealth building road.
23. Click here now to view the monthly chart for GDX. Bozo the clown can see that the oscillators are rolling over into sell signals, which I've highlighted in Bozo's favourite colour, which is loss-booking red. All that chart tells me is that price currently on sale might go more on sale. Take the bird in the hand, not the pipedream in the bush. This chart does not tell you there is no sale on price now. Focus on what is, not on what might be.
24. Now, click hereto view the GDX daily chart. Yes, price has broken the January lows at $52.46. Yes, the monthly chart MACD has rolled over. Gold stocks are down 20% on average. That's a significant price sale, especially given the possibility of a buying frenzy on juniors by senior producers!
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