Thursday, October 4, 2012

Thumping Thursday.

While I was right in saying that the triangle will break one way or other, I was wrong in my anticipation of the breakout direction. I expected it to break to the downside and then move up. Now it has broken to the upside and yet failed to go past /ES 1460. The importance of 1460 can be seen in the following chart of /ES.

As you can see 1460 region has been a major resistance point in the past in many occasions and with every failed attempt, it becomes stronger. It has to break that level, stay there for a while, so that resistance becomes support. Till that happens, I would consider it as a failed test of the high and the road would be down, at least in short term.

But look at /ES chart again, until and unless, it breaks down 1430, there is no reason to go short either.  It is solid support zone. This 30 points are our chop zone and so long the /ES is moving in this range, we have no interest to join the song and dance.

Immediate Action plan? If /ES goes above and stays above 1460, long the market till Nov. 10. If /ES breaks below 1430 short the market for 10 days. In between, twiddle thumb and be in cash!

In the melt up today, silver acted very strangely. While gold reached near $1800, silver barely budged over $35. When all the ducks are not in line, we cannot shoot. Even if one of them is out of line, it raises a red flag. As of now both gold and silver is extended. The RSI is overbought and cycles are not supportive. However over bought can remain overbought for a long time and just because RSI is overbought, does not mean we cannot go long here. There may be a pullback but the long term goal for Gold is around $2500-$2900 and for Silver around $50 and we may reach that goal sooner than expected.

Looking at the hourly chart of Gold, it seems that Gold may be breaking up. $1780 has been resistance for so long and it has now broken that resistance.

We need to see whether gold comes back and test that earlier resistance and whether it bounces from there. If that line holds, we can long with comfort.

The seasonality on gold shows that there is normally an October dip;
The up-move in gold price is in line with the seasonality and therefore I am somewhat cautious going long gold here. A pull back is in line with seasonality, technicality and cycle.

Silver on the other hand has not been able to break its resistance as we can see from the hourly chart.

SLW (Silver miner) broke through the resistance line and as you can see from the hourly chart, it will soon come back to test that broken resistance line.

RSI of SLW (in Hourly) is looking over bought and is turning down. It is possible that the price will pull back and only when the resistance becomes support, we can say for sure that the breakout is valid.

And Apple was red again. As you know it is an economy by itself.

All in all, not all ducks are in line yet.

There are few sectors which I think will offer to double the money quickly and Natural Gas may be one of them. Another would be short bond. But I will discuss them in the W.O.F + report on Sunday.

Back to the market romp. Bloomberg (or was it ZH) has the following on the FOMC minutes:

And yet, the market thinks it can go higher to the moon because Bernanke will print till infinity.  Or just because Mario said ECB will buy govt. bonds from the already insolvent countries. Euro and equities rose on that? WTF? Some of the countries are blowing up and hyperinflation has reached their shore. For e.g. Iran. As you heard Kyle Bass saying yesterday, inflation will reach our shore sooner than we can imagine. The Fed has a great history of foreseeing the coming problem. They saw the tech bubble, they saw the sub-prime mess. I am sure they would see inflation coming as well and would be able to manage the bond buying risk and every other possible nightmare. Sleep well folks, Uncle Ben is covering your back! By the way, Canada may be thinking to raise interest rate sooner than expected.

May be it shows that price movement is not dependent on news after all and cycles do play some part? Talking of cycles, the last cycle top was due on 7th September but it came on 14th September. Now the next cycle bottom is due on 10th October. So let us see what next week brings. Technical Analysis point of view, I do not find the markets very attractive and a pull-back is needed. But if cycle bottom and market holds up, then maybe it is a go after all. In any case I would be over allocating to PM sector.

Today I want to share what Marc has to say about Spain. Like Greece few years back, Spain is now at the front and centre of everything.  Mark has to say the following:

Note that I'm from Catalonia, that north-eastern region of Spain that seeks to become a country on its own.
The "nicest" thing in Spain is that our "leaders" speak different things to the country than to our Euro neighbours (like saying  jobless claims are improving, our banks are awesome and safe, etc to us in Spanish and then that we are screwed in English to ...). So you can look at national TV news and see everything is ok, or read about Spain "outside" and book a flight to leave the country....
Anyway, about the Euro, I'm sure it will be fixed (any alternative is far, far worse) but, as Spain is a big part of the problem the fix will come in the Spanish way: 
"Tarde, mal y arrastras", which could be translated as "Late, wrong and painfully slow". It could be a national motto just like "siesta". By Late I mean "on the very last possible minute" so any fix will be really painful.
Just, as a nice example, our former President Mr. José Luís Rodríguez Zapatero didn't acknowledge any crisis/recession until 2010-2011 (On 2008 he stated "Spain is in the Champions League of the Economy"), which means that until that point (and still today in some regions) our government was working with budgets that assumed higher revenues every year... YES, REALLY.
You get the point, we are slow fixing stuff, and any fix is temporary!

Again, please share your thoughts, your expertise, knowledge, where you see the next opportunities or threats. Let us make this a vibrant community with participation from you all, instead of just me doing the blah blah.

Now for some politics. How did you enjoy the last night’s debate? Although everyone thinks O lost this round, I think he may have done it purposely. If he would have won this debate, it would make the base very complacent. Now the base would be worried and work extra hard. The same thing happened four years back. McCain won the 1st debate and O came back strong in the last one. Voters will remember only the last debate. So there is no advantage of winning the 1st two. But it screwed the blog Ad revenue because many readers forgot to show their love.

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