This will be a brief post about what appears to me to be the issue of the day - the US Dollar. I snapped this chart of the US Dollar about an hour ago, noticing it appeared poised to break out. Since this chart was made, the US Dollar has broken reather decisively through the overhead downtrend line on price and trying very hard to get up through the 200 period moving average on this 4 hour chart.
Meanwhile, a rising dollar is not good for the stock market, as this 4 hour chart of the Standard and Poors 500 Continuous Contract shows us. It appears that if a retest of the lows is going to happen, the True Strength Index (TSI) indicator will make a positive divergence with respect to price and I hope that means the downdrafts are done for a while.
And finally, this look at a 4 hour chart of GOLD, which has succeeded in making a new high today. The indicators are in negative divergence, as I presumed yesterday they would be. I will be the first to admit that in very strong momentum moves these kind of negative divergences can just get run over..... ie price ignores them and continues higher. In these cases, and I have seen it happen many times, the TSI will continue to rise but only until it just about reaches its previous high. Then price collapses. I don't know exactly why this is, but I do believe my observations to be true.
I believe that Bernacke's position seems to favor gold. He basically said that interest rates will be below inflation for an extended period of time. That is incredibly bullish for gold.
My concern about gold, however, is that it has entered an unmistakable parabolic phase. These things never last long (I looked back at all previous C-wave tops and 4 days was commonly the limit - today is Day 3). My other concern is that gold is incredibly overbought while the stock market is incredibly oversold. I think big money would infinitely prefer to pile into an oversold market than an overbought market.
At any rate, my 2X short gold ETF (DZZ) I will just hold through whatever gold does next.
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Some people have been anticipating corrections/pullbacks in gold since $1600, but it never happended. Instead, it shoot straight up to $1775. Also, Fundamentals in gold have never been better than now. I agree that nothing goes up straight forever, but, I wonder if risk is quite big with DZZ. Wouldn't it be better to wait for the pullback and go long in gold when/if that happens?
ReplyDeleteBut, you seem pretty confident that this time is the real thing. I really hope you are right. Assuming that correction happens real soon (like tomorrow), would 10% haircut be a reasonable target?
Hey John,
ReplyDeleteHow long do you think we should sit with TNA.
I know thats a tough call, but any ideas.
John,
ReplyDeleteI think that confidence has been lost in the dollar.... money from the bond market should be flowing into the stock market and into gold... no way you want to be owning flat out american dollars... IMO this should not be a trading vehicle but rather a form of wealth preservation. just a comment
When there's a Golden Bull on the cover of Time Magazine ,then will be time to sell. Who's buying gold, maybe one in a hundred investor people? 2 in a hundred? Remember when EVERY ONE bought internet stock? Remember when your bar tender was "flipping houses". We've got a ways to go, when you see the "Golden Bull" sell. Until then buy.
ReplyDeleteDennis Gartman just said a cabbie in Charlotte was buying gold. Reminds me of Bernard Baruch and the shoe shine boy. The big gold contract is now $180,000 and there is talk of increased margin requrement which could stop this train dead in it's tracks. Also I still wonder when or if some of the big hedge funds will have to sell at some point because of stock losses. Finally, to quote Jim Rogers "parabolic moves always end badly." I believe in gold long term but I see a correction to the 50 day and possibly the 100 day MA just like silver did a few months ago.
ReplyDeleteDude, I'm shorting gold tomorrow.
ReplyDeleteHey John,
ReplyDeleteDo you remember the GOLD BULL market back in the 1970's when it spent the whole decade mainly going up from about $35 to $400. And then during the last three months (November 1979, December 1979, and January 1980) GOLD DOUBLED from $400 to $850 and SILVER went from $16 to $50! Look back in history and see what happened and 30 years later it is happening again! Yes, I believe GOLD is now entering the MANIA phase which it could double or much more and SILVER could quadruple. AND YOU WILL SIT THERE AND WATCH FROM THE OUTSIDE AND MISS THE ULTIMATE PHASE OF
WHERE ALL THE MONEY IS MADE IN A VERY SHORT TIME! AND WHEN THE PUBLIC FINALLY JUMPS IN WATCH IT CLOSE. AND THEN WHEN ALL THE WORLD AND THEIR BROTHERS IS FALLING ALL OVER THEMSELVES TO BUY GOLD AND SILVER........it will be the headlines on all the news pages and TV.....SELL IT TO THEM AT MUCH HIGHER PRICES! And also that is when Junior miners went from single digits to hundreds of dollors a share!
RON in Arizona
Hey John,
ReplyDeleteI just sent you a comment why i think GOLD is just entering the MANIA phase which is where all the money is made in a short time.
And i said to look back at history during the 1970's.
I'm just wondering if you were going to show it or not, because it is a complete oposite of your opinion?
Ron from Arizona
John, your double-short is influencing your opinions of course. Yah, it's going parabolic, but it could go a lot more parabolic than it has gone. When gold mania is hot, silver mania will also be hot, and we are not there yet. With your double-short you are truly playing "catch the falling knife."
ReplyDeleteCME raised margins on Gold by 22% tonight.
ReplyDeleteJohn,
ReplyDeleteI agree with you that this parabolic move in gold has only a couple more days to go. It's in a bubble. It goes up no matter happens. Nothing else anywhere seems to be acting like gold. Money to be made here if you can guess the top anybody. M-
i believe that gold will ultimately reach $5000 or higher and silver may reach $200 -300 I simply don't think it is going to happen this week. We are due for a correction and that is all I am saying.
ReplyDeleteI do not think Gold is entering mania phase yet. Sure, gold will correct soon since it has ballooned to $1800 in a short time. On the other hand, many investors are still underinvested in Gold. They are still skeptical. But, eventually they will jump. At that time, everybody wants gold. You will see Gold investment book all over bookstore. Gold will be trading at $5000 or more. Your neighbors and friends will tell you they just bought lots of investment on Gold. That will be few years from now. Then you know it is time to sell Gold.
ReplyDeleteI agree with the last comment. The fundamentals are strong. Gold will rise in the long run. But a pullback from the parabolic overshoot is likely in the short run, soon. Only wild card, the volume of sales from the newly opened Asian exchanges. hypnohotshot.
ReplyDeleteGold prices have been very volatile. There could be a TEMPORARY drop by $100 in the price of gold. But the dollar is losing value as the Federal Reserve monetizes the debt. About 75 commodities have increased an average of 30% over the last year. To me, that's the real rate of inflation. There's no gold correction that will take even a month to recover from. All my chips are on gold.
ReplyDeleteOh ye of little faith......Gold is still cheap and must go much higher to match the old parabolic $800.
ReplyDeleteWe are not seeing flux in the price of gold; just inflation of the money supply,with a consequent fall in value. This is a rubber measuring tape.
ReplyDeleteJust wanted to say thank you for that great tip on DZZ last night I put in a market order for it and got in this morning before the market went crazy and gold dropped.
ReplyDeleteI was thinking that gold had gone straight up for too long and had to come off but you focused my thinking
Gold rises in expectation of hyper inflation'
ReplyDeleteWhy would Warren Buffett ask for higher taxes on people like him? To kill inflation and save Capitalism.
The Governments should all be consolidating and building reserves to survive the coming Greater Depression. They all need sound money, so a progressive tax on wealth with a surcharge on Gold on top might see us right.