Fox Business, Stocks, Bonds, Gold and Oil

I am going to be on Fox Business’ Markets Now at 1:05pm today (Wednesday) discussing the stock market’s recent assault on Dow 16,000, a target I gave several times here and in the media. Now that the market is there, what’s next?

I can tell you that from my perspective, risk has increased substantially, but by no means should the bull market be over. Stocks are overdue for at least a pullback (2-8%), but probably more on the downside next year, especially if they continue to run into year-end.

Both gold and the bond market are very close to their own lines in the sand. A closing move by gold under $1250 opens the door to all kinds of bearish scenarios that frankly, I did not think would come this year. Likewise, the treasury bond market also has a line or two in the sand, but it’s farther away. All year, I have forecasted a late year bond rally, but this one is on the verge of petering sooner than expected if the recent highs cannot be exceeded. The last thing the Bernanke and the Fed and the stock market want to see is the 10 year note yield more than 3%.

Finally, crude oil is trying to find a low above $90 here. If energy cannot stabilize soon, that will usher in more negative scenarios into the $80s.

 

Another Crossroad for Gold

I haven’t written about gold in a while, probably because it’s been so darn frustrating. And if you ask my thoughts on the metal, they will vary greatly depending on the time horizon. Long, long-term, I believe the secular bull market that began in 2001 is alive, but gold is curently in a cyclical bear market that began in mid 2011 and could last until we elect a new president in 2016 or it could end in short order. It’s just too early to tell.

Looking at the chart below (click on it to enlarge), it certainly seems like the metal is trying to hammer out a base for a sustained rally. This pattern began in April and continues today. Those of you who use technical analysis and like to look for chart patterns may be inclined to call this an inverted head and shoulders bottom, which it does look like on the surface. However, Edwards & Magee beg differ in that they do not believe these kinds of patterns are valid on commodities or indices where volume isn’t a true representation like it is with a stock.

In any case, whether or not it’s a valid inverted head and shoulders or just a consolidation waiting for a spark, the bulls in gold appear to making yet another stand as long as this week’s low is not closed below. You can see the following in my notes on the chart as well as these comments.

1 – The downtrend line in dark blue is more than $100 away, which is a good rally no matter what.

2 – If and when it breaks above that line, there is a very real possibility of an additional $100+ rally.

3 – This week’s low is the lowest point on the chart after THE bottom in June.

4 – If the bears take out this week’s low selling should really accelerate.

gold

The bottom line is that the bulls have an opportunity here with a good risk/reward ratio. If they are wrong, the risk is definable.

Gold’s Bearish Pattern Trying to Change

When we last left off with the gold market (and the chart below), I offered that “Unless the metal quickly regains the $1350 level, we are most likely looking at further selling and even more record setting negative sentiment before a sustainable rally can begin.” 

 

Gold continued its collapse from the time I hit the send button at $1292 all the way down to $1179 a week later. From $1179, it rallied all the way back to $1303 this morning before Ben Bernanke testified before Congress as you can see below. 

 

In this market I usually mention possible upside and down targets. If the current rally peters out, $1150 and then $1087 are logical downside lines in the sand based on technical measures. On the flip side, there are a host of upside zones which should be watched over time, $1350, $1480 and $1540. Since my view hasn’t changed that gold remains in a secular bull market, but cyclical bear market, I do believe that all upside targets will be achieved and that the ultimate peak will be above $2000. 

Taking a view beyond the short-term, we continue to see record setting levels of negativity, surpassing those seen when gold was $250. What that means is that smart money is and has been accumulating gold on the way down as the dumb money has been selling. So the dumb money has been right and the smart money has been wrong, something that is unlikely to continue. At some point sooner than later gold is going to hammer out a major bottom and rally strongly and not stop, trapping the bears and inflicting pain.

Gold Skeptics Have Peaked but Gold Prices Haven’t

The other day I spent some time with my friends at Yahoo Finance recording several segments. Here is the one I did on why I have become more bullish on gold recently after watching the metal fall from $1900 to $1320.

http://finance.yahoo.com/blogs/breakout/gold-skeptics-peaked-gold-prices-haven-t-paul-155320270.html

Gold to $2000 and Beyond

Here is the second video I did with the folks from Yahoo! at their beautiful new studio in the city.  Anytime there are bold statements on gold, people come out of the woodwork to comment.  And I would be surprised if they aren’t at least 100 comments by the time you read this. 

One of the great myths is that gold goes up when there is inflation. I think the 1990s is the perfect example of why that isn’t true.  A better statement would have been that gold goes up anticipating inflation…

http://finance.yahoo.com/blogs/breakout/easy-money-low-rates-gold-2000-end-134943224.html

If you bought gold nine months ago at a record high and have since seen the price decline by 15% or $300 an ounce, you’re not the unluckiest investor alive, you’re just a little early.

“This is not a pullback, this is a full fledged correction,” says Paul Schatz, President of Heritage Capital in the attached video. “We’re shaking out every weak-handed holder possible.”

His case for owning gold is three-fold but also comes with the self-disclaimer that he’s “not a gold bug” that reflexively sees the precious metal as the answer to all investment questions.

First off, there’s the fundamental backdrop that the world is full of accommodating central banks right now, least of which is our own Fed. As Schatz says, “the ECB (European Central Bank) is just getting started.”

Add in super low interest rates and just enough inflation and we find ourselves facing so-called ”negative real rates of returns” and you’ve got an environment where something like gold, that protects purchasing power, should do well.

There’s also a timing and technical component to Schatz’s bullish call on bullion. As much as he thinks it would be ”nice” to see gold bottom out around $1500, he’s counting on a sharp snap-back to the previous high of $1900, that will ultimately break through psychological resistance of $2000 by the end of this year or early 2013.

“Once we exceed the old highs in the $1900s, we certainly go to $2000 and that sets the stage for the next run” he says, pondering the next high-water mark, “Is it $2200? $2300?”

“I don’t think the secular bull market in gold is over,” Schatz concludes. “I think you have years left in it.”