The Bears Are Wrong

With the French elections going the way of the Euro bulls and corporate earnings continuing to exceed expectations and the high level details of Trump’s tax plan released, the stock market had itself a nice little run on Monday, Tuesday and half of Wednesday before getting a little tired. What a difference a week makes.

The bulls made some solid ground with NASDAQ 100 and Russell 2000 seeing all-time highs and the S&P 400 only a whisker away. The Dow and the S&P 500 need one more big up day to join their siblings. It’s very important that they do not fail here. For the past month, I have written much about the market pullback that is long in time but short in price. Last week, a host of short-term indicators were flashing oversold in bull market. That was yet another opportunity to follow what I have been saying almost every week since early 2016.

Pullbacks are a buying opportunity and weakness should be bought until proven otherwise. Yet at every juncture, the bears were louder in the media giving all sorts of reasons why you shouldn’t buy and why stocks were headed for doom. Eventually, they will have their day in the sun,  but not now and not soon. The bull market remains alive and well with perhaps another quick rest period coming, but not really actionable. Don’t get caught up in the rhetoric.

Leadership is solid with semis and discretionary at new highs and banks are really trying. Transports are starting to concern me a little, but that’s from a short-term perspective, at least so far. The rest of the sectors look pretty good, especially for so late in the bull market. High yield bonds are kicking back into high gear and the NYSE A/D Line is making new highs again. The bears are wrong.

Two areas I am closely watching now are gold and energy. The metals miners failed to make a new high this month and have no declined more than 12%. Even if they are headed another 5%+ lower, there may be a quick trade in there to the upside. Energy stocks on the other hand have been decimated all year and since December. I have looked for signs of a bottom, but they flamed out very quickly. Sooner than later, there will be a very good risk/reward opportunity to buy this group. Stay tuned…

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The Streak Has Been Broken – Gold Teetering

After four straight afternoon fades in the stock market and one neutral day, the bulls FINALLY were able to overcome a gap down open and closed near the highs for the day on Friday. However, one day doesn’t change the pullback theme of the last six weeks.

Today, stocks are going to open higher with help from several deals announced along with Europe on firmer footing. AT&T buying Time Warner for $85 billion certainly is an eye opener, so much that no one is really talking about TD Ameritrade buying Scottrade and Rockwell buying B/E Aerospace. Mergers and acquisitions activity can definitely be a catalyst for the next leg higher in stocks, especially since no one has really been focused on this of late.

Back to the stock market’s behavior, I want to see multiple days of stocks closing in the upper 25% of their daily range along with at least solid internal to go along with the already good leadership in technology, transports and financials. Gold has been bouncing as I started discussing here.  However, all that’s really been happening is a clinging to the rising 200 day moving average as you can see below in pink. At the recent lows, both the 200 day moving average and an old trendline in blue seemed to contain the decline, but should gold rollover sooner than later, I don’t think we will see the same outcome.

gdx1

It’s already a busy week with M&A activity, but more than 150 S&P 500 companies will report earnings not to mention that the election is just two weeks from tomorrow. With the Dow still well above 18,000 and biotech pummeled, the market isn’t giving Donald Trump much of a chance.

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Gold & Silver Stocks Take a Pounding

Just a very quick post as I am in catch up mode from being out on Mon and Tues with the Jewish holiday as well as working on month and quarter end reconciliation and reporting for the next week.

The story of Tuesday was the collapse in gold and silver and the stocks. It was an ugly rout, but not unexpected given the somewhat bearish chart pattern below.

I wanted to point out that this 28% decline may be close to ending or at least pausing. The blue line on the chart is an old trend line that connected the April peak with the May peak and saw the June pullback end at that line. Extended out, the blue line is just below current levels for the GDX which is a basket of gold and silver mining stocks. Additionally, the pink line is the average price of the last 200 days which is a popular way to determine the long-term trend. Sometimes that acts as a ceiling or a floor.

The takeaway here is that we should be on the lookout for at a short-term look in the precious metals mining sector much sooner than later.

gdx

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Don’t Fall Asleep

Over the past few weeks I have written that stocks seem “tired” or “in need of a pullback or consolidation.” Remember, stock market digestion can occur two different ways; one by price declining 2-5% or price simply moves sideways for an extended period. Right now, it looks like we are getting the latter as the S&P 500 has essentially gone nowhere for more than two weeks.

While all this boredom was occurring, we had a weak employment report, Russia/Ukraine cease fire signed and broken and QE Europe announced by the ECB, certainly lots of news to get stocks moving in some direction if they were ready. Eventually, the market will begin to move again with some significance and I would not be at all surprised if the first move fakes out the masses.

On the sector front much has changed over the past month when I had lots of trouble finding sectors that looked appealing. Now and maybe even more so in another week, most sectors look attractive in one form or another. While banks and energy are lagging and struggling, almost all other sectors look like they want to resolve higher.

I have spoken a lot about my bullish take on long-term treasuries for most of 2014 given the continued sub par economic growth conditions. Recently, however, bonds have had their issues and may need more weakness before the next rally can take hold.

I am keenly watching gold for signs of reversal and I think the shiny metal is getting closer, but as with bonds, it needs some work on the downside before a big rally begins.

Finally, there is this little company in Cupertino CA with the same name as a popular fruit that is unveiling its 6th iPhone any minute. Will the market care?

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Bulls Hangin’ Tough

With the bearish seasonal headwinds this week, the bulls have done a nice job not giving up any ground so far. In fact, the bulls powered ahead on Tuesday and held firm on Wednesday. It certainly looks like the Dow and Nasdaq 100 want to join the S&P 500 at new highs this week. Although the S&P 400 and Russell 2000 have been laggards, they have certainly led the parade over the past week.

The real news so far this week has been in the bond and gold markets. As you know, I have been very positive on bonds since late last year, often calling myself “the only bond bull in America” or more recently, “no one”, as in “no one called this rally in bonds.”

Long dated treasuries continue to trade well and I expect some of the bears to throw in the towel now. And that’s why I am getting a little nervous being so bullish. It’s time to tighten up those stops and contemplate taking some chips off the table. With the Fed continuing the taper and the economy supposedly doing better, the bond market ain’t believin’. Something dark lies ahead.

Gold on the other hand is now falling sharply towards the sub $1200 target I have mentioned of late. Unless the shiny metal immediately reverses course, it’s going to be ugly until the metal hits bottom, probably next quarter.

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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.

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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.

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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.”

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