Gold and Silver correction: Where are we headed and is there a historical basis for the prediction?

Due to the volatility of both Gold and Silver this week I thought I would share some charts on both precious metals. I looked at the 5 year charts of both and then a chart as to what Silver did from 1912 to 1950, which covers the Stock market crashes of 1929 and 1938/1939. These were the Great Depression years and there may be clues to tell us what we might expect now.

First the current 5 year charts on Gold and Silver:


You can see the gains both had over the past 5 years as well as the recent loss from the highs recently achieved. Silver is much more volatile than Gold and with the gains that make one thrilled to own Silver, there is the extra pain of experiencing more dramatic loses as the chart shows.

Looking at the chart below on Silver from 1912 to 1950, you can see where each stock market crash precipitated a drop in Silver prices. So when the stock market drops so do Silver prices. Looking at the Gold prices during this period will not show anything because Gold prices were managed by the Gov't as to not fluctuate and many say that is the reason why we had the Great Depression because the Federal Reserve could not print money as we were tied to the Gold Standard during those years, unlike today where the Fed can just keep printing money which resulted in the price of Gold rising dramatically and pulling Silver with it.

If the past is any indication of the future, you can expect these metals to drop as long as the stock market in turn drops. If you believe we are going down much further in the stock market, expect more losses in these metals with more of a loss from Silver than Gold. If you think we are headed back up shortly in the stock market, buy Silver more than Gold and you will gain a higher percentage on your Silver holdings, if the market does indeed go up as you expect. I am still convinced the stock market will head lower over the coming weeks and months.

Market comments for Aug. 19th, 2011: Options Expiration for August

It looks like another leg down at the open today as European markets are down 1-2% at this hour. Important day today as it is Options Expiration for August. Volume today should exceed yesterday's high volume. No other financial news here to announce this morning with the exception of J.P. Morgan's prediction lower growth of GDP in the 4th quarter of 2011 and first quarter of 2012. To quote Bloomberg news: "The U.S. economy may expand less than previously thought in the next two quarters as consumer sentiment drops and the housing market fails to gain momentum, JPMorgan Chase & Co. wrote in a report.

Gross domestic product will grow 1 percent in the fourth quarter rather than the 2.5 percent previously forecast and 0.5 percent in the first quarter of 2012 instead of 1.5 percent, Michael Feroli, JPMorgan’s chief U.S. economist in New York, said in an e-mailed note to clients today."

I have included 4 charts this morning. Three of these 3 month charts are as follows: One of the Dow, one of the S&P 500, one of the German DAX Index. The other chart is of Germany's DAX Index over a 5 year period. In this last chart I have drawn several support levels which are now possible given the recent downward trend. This chart is very similar to our Dow chart for the same period, which I did not include. But the lows happened at the same time. Our low hit 6,400 before it finally turned up again. I believe we will ultimately have to test that level on the Dow, because the economic news looking forward does not look bright for all of 2012, not only for the US but for Germany as well and much of Europe. I wish I could tell you something else, but I don't believe a different scenario will occur. Let's just get through today and see where we are. next week, but at the first signs of a further new low in the Dow or S&P, consider the probability higher for this major decline to continue for the foreseeable future.




Come back over the weekend so I can show you some charts on the Dow/Gold ratio and where Gold may be headed. And also some data on the Gold/Silver Index.

Market comments for Aug. 18th, 2011: We're headed down! (2 UPDATES)

Data released this morning on Initial Jobless Claims shows that we have gone back over 400K again to 408K. Expectations were for 400K. Last week's number of 395K was revised upwards to 399K.

Futures markets are down significantly but the Initial Jobless claims is not the issue causing it to be down over 225 points in the Dow Futures. Also this morning the CPI number for July was released and it is up +0.5%, which was a very inflationary number. Expectations were for only a +0.2%. These numbers when annualized show a very different picture. You see with only a +0.2% CPI, that at an annualized rate would give a2.4% inflation rate, but a +0.5% number, the annualized rate would be 6.0% inflation rate!

The Core CPI rate came in at expectations of +0.2%.

The German's DAX Index is down -227 points right now, or 3.7%, as its markets are open for trading. The UK's FTSE is down -2.5%, France's CAC 40 is down 2.9%. We are going to see a large sell-off in US Markets this morning!

Another factor of why stocks are down significantly worldwide are these comments made yesterday. This from Bloomberg news: "Federal Reserve Chairman Ben S. Bernanke’s pledge last week to keep interest rates near zero until mid-2013 was 'inappropriate policy at an inappropriate time,' Charles Plosser, president of the Fed Bank of Philadelphia, said yesterday in a Bloomberg Radio interview.

The comments from Plosser and Fisher put focus back on how committed the Fed is to the zero-interest rate policy ahead of Bernanke’s comments next week,” said Anders Eklof, a currency strategist at Swedbank in Stockholm. “The Fed has obviously been wrong about the economy, once last summer and then now."
Dallas Fed President Richard Fisher said the central bank shouldn’t enact policy to protect stock investors. Both officials dissented from the Fed’s Aug. 9 statement."

And lastly, here's a question for you: Where would you have made the biggest gains if you invested in Gold or Silver exactly one year ago? It's not what you expect. :) It was Silver! Silver gained over 53.8% while Gold gained 47%. Surprising isn't it!

UPDATE: 7:20am PST

Philadelphia Fed Survey data surprised investors this morning because the news was so terrible. The prior period's data came in at +3.2, while consensus was at +4.0, but the data actually came in at -30, as is shown in the chart below by Haver Analytics.


UPDATE #2: 8:45am PST

Consumer confidence in the U.S. economic outlook slumped in August to the lowest level since the recession, raising the risk that spending will dry up.
The Bloomberg Consumer Comfort Index’s monthly expectations gauge dropped to minus 34, the weakest since March 2009, from minus 22 in July. The weekly measure of current conditions was minus 48.3 for the period ended Aug. 14 compared with minus 49.1, which was the worst reading since mid-May.

Silver's value for the past 663 years charted.

I came across a chart on the price of Silver over the past 650 years from Chartsrus, which I thought would be something special to post today. It isn't every day where people see this type of chart. I have updated the chart to the current price of Silver. Enjoy it. I don't know how high Silver is going to go but clearly we are going to be at $50/ounce shortly. Whether we climb to the all time high price around the year 1980, which was at $68/ounce is anybody's guess.

Market comments for April 8th

Still think the market should be going up and is undervalued? Well this chart below and commentary should give you great pause and concern. This from Chart of the Day:

With first-quarter earnings season set to officially kick-off on Monday when Alcoa reports first-quarter earnings, today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low which brought inflation-adjusted earnings to near Great Depression lows. Since its Q1 2009 low, S&P 500 earnings have surged (up an inflation-adjusted 994%) and currently come in at a level that is greater than what occurred at the peak of the dot-com bubble and not far from its credit bubble peak. It is interesting to note that the original run up in real earnings from Great Depression lows to dot-com highs took over 67 years. The current spike has taken 20 months.

The 10 year Treasuries are now up to almost 3.60% on the day the government shutdown is expected to happen at midnight tonight. Silver has surpassed $40 and ounce and continues to go up.

The recovery is just coming along nicely as he had foreseen, says the Emperor Ben Bernanke in Star Wars

Today's post should get you to think about your investments in a way maybe you hadn't before. Do you remember the Public Service announcement which used to say, "Do you know where your kids are?" Well I ask you the same today about your investments. never has this question been more important. The market has had an extraordinary recovery in 2010 and it appears has in this first quarter of 2011. Many analysts and critics alike have professed the Bull market has returned. Could this be true? Let's take a look at the news and data coming out this first quarter and enjoy the recovery to its fullest.

Let's start with the Unemployment rate. According to the Bureau of Labor Statistics (this sounds mathematical doesn't it? ), the Unemployment rate is now at 8.9% having come down from a high of 9.8%. That is real progress, wouldn't you say? I don't think you have a PhD in Mathematics, but I think you can do a minor calculation. Here's the question, how should you calculate the Unemployment rate? Should it be calculated by counting the total labor force divided by the number of people not working? If you answered yes, you would be correct. But that is not how it is calculated. It is calculated by taking the number of people receiving unemployment benefits divided by the total labor force. So if people have run out of Unemployment benefits they are not counted as unemployed, nor are people who have given up looking for work, nor those who can only work part time as there are no full time jobs available. Interesting isn't it. It used to count anyone not working back in the 1930's and it too was reported by the Bureau of Labor Statistics. Back then the Unemployment rate was about 20-25%, depending on which month you are talking about. But that was during the Great Depression. If you use the same formula for today's calculation, it has been reported the real unemployment rate is around 18-20%, not that far from the same rate during the Great Depression. Here in the chart below is the reported Unemployment rate since 1950.

OK, let's be more optimistic and focus on some world news that would give us a sense that things are getting better. Oil prices have surged in recent weeks to over $106/barrel. Many believe it is a temporary spike. After all there are a few minor concerns in the Middle East right now. The latest concern is of Libya and Gaddafi. His people have grown tired of him, are feeling little to no hope for a better life since prices for food have soared in recent months as have prices for many goods and precious metals like Gold and Silver. Oh, and besides Libya, there were riots and the ensuing departure of several other Middle East leaders in Tunisia and Egypt who also succumbed to their uprising of the citizens call for their ouster. In recent days, riots have occurred in Bahrain, Syria, and now Jordan and it appears that instability has taken hold of the entire Middle east over rising prices and the lack of any opportunity for the citizens of these countries to have a better life for themselves. They feel hopeless. Remember the protests in Iran last year and the brutal attacks of that government by its people? More protests will happen there as the Iranians see country after country seeking to remove their leaders. And yes, even Saudi Arabia has seen protests and the government has tried to appease the people by giving workers raises and bonuses. Where do you think Oil prices are going to go? I'll bet not down!

But wait, there is good news, the recovery has been steadily improving, just look at the facts. The stock market has gone up, thanks to Fed Chairman Ben Bernanke intervening to support the stock market. How has he done this? By printing money out of thin air. Now I know this has devalued the dollar but I am told that the dollar is strong by the main authority on this matter, Treasury Sec. Tim Geithner. That should be good enough, right? Well there has been a run-up in Gold and Silver to record highs, There must be some correlation there to our currency value. The chart below shows the value of an average home in terms of ounces of Gold needed to purchase it. You will notice that this index has dropped significantly in recent years. What it means is that it takes the same number of ounces to buy your home today as it did back in 1983. That's because the value of Gold in U.S. Dollars has soared and the value of your homes has dropped. Scary, isn't it!

And all this talk about changing the U.S. Dollar from remaining as the Reserve currency of the world must be idle chatter, even though it has been discussed at the IMF (International Monetary Fund) as well as by countries like Japan, Russia, China and some Middle Eastern countries as well. Remember $0.42 of every dollar we spend is for the interest on our debt. That is unsustainable and is part of the reason there is talk of changing the status of the US. Dollar as the Reserve Currency of the world. The Chinese have stopped buying our short term debt as have the Japanese with all the problems they face now because of the Earthquake, Tsunami and now Nuclear reactor meltdowns. Our supplies from japan will significantly be impacted which will affect 2nd, 3rd and 4th quarter GDP here in the U.S. We haven't yet been impacted as the shipments to the US have only begun to stop. All electronics from there will be affected as will the auto industry as many parts are made in Japan for the US Auto manufacturers.

But wait, our recovery has been making steady progress and we are doing well, according to Fed. Chairman Ben Bernanke. Of course he says that we must reign in the debt at the appropriate time and has asked law makers (politicians) to set in place a plan to get serious to reduce the debt as it is unsustainable for the long run. But politicians and the President alike have refused to do anything meaningful to address entitlements like Medicare and Social Security or the gigantic Defense Budget Spending, so here we are as we enter election year politics. See, things are better! Fourth quarter 2010 GDP was reported yesterday to be 3.1%, revised up from the previous estimate of 2.8%. That was 6 months ago and they still are playing with the numbers to show us we did good last year. Let's look at the chart below of GDP since 1950 and see how we are doing now.

As I look at this chart on GDP, I am not impressed. It is clear that during the Bush years, and especially the latter years of his Administration, we were not expanding and we haven't been doing that well for a very long time.

Last but not least, I thought I would show the chart of the Dow focusing again on the volume of this latest rise. You will see in the chart below that this week had prices rising with an unconvinced investor as the volume dropped sharply this week. So much for the bullish case. When prices rise and volume drops this is definitely a bearish sign that the market is about to turn down sharply and that the Bull is tired. So much for Bernanke's manipulation of the market. He has made it much worse. But in the end, the Emperor loses if you remember your Star Wars stories. FAIR WARNING!!!

Market commentary for the week ahead

The stock market ended Friday with the largest point loss in quite a long while for the Dow, giving up 166 points and closing at the 11,823 level. It broke below its 9 day and touched its 18 day Moving average. Volume Friday was the highest day in the week on the selloff. We hadn't had a gain or loss of this many points since Dec. 1st when the market made a big leg up.

The S&P 500 ended the week at 1276 with an amazing 23 point drop on Friday as well. It did break below the 9 day MA as well as the 18 day MA. The Nasdaq closed down to 2686 for a whopping 68 point loss for the day.It broke below not only the 9 day MA, the 18 day MA, the 27 day MA, but touched the 36 day MA at the close. It too had the highest volume day of the week in the selloff.

It seems to me that we should have a bounce on Monday but the trend down will continue, as the charts show the formation of a small slanted "W" pattern is forming for all these indexes and the final pieces are being put into place for the slow downward trend that will have most shaking their heads in disbelief. I have placed all 3 charts below. I have also added the 30 year chart of the Dow to show that this downward leg and slanted "W" pattern is part of a much larger "W" pattern, which is also slanted down. Yes, we are headed down and there is nothing Bernanke can do to stop it when it gets going. From yesterday's posts and the day before you can see where Gold started this decline phase. It is all part of a larger cycle about to show its ugly face to all. To this end I purchased ZSL as Silver is headed for a larger precipitous decline and will make the decline in gold look like a cake walk.

What's up with Silver?

The SIlver ETF, symbol SLV, is at a critical juncture. It is very close to its support level and 200 day MA as well as below its 50 day MA. I have posted 2 charts of SLV, one is a 6 month chart and the other is a 3 year chart. I have drawn support levels and importantly on the 3 year chart it is about to break below the uptrend line, even though today it was up slightly. I believe as the market goes lower so will Silver. Silver is not Gold and that is important and while they track over time, when SLV starts to decline, it declines much more rapidly than Gold. Therefore my play here is to buy the ETF Ultra short of Silver, symbol ZSL as it is a double the movement of Silver and in the opposite direction. If Silver goes up 1%, ZSL goes down 2% and if Silver goes down 1%, ZSL goes up 2%. This is something worth watching and tracking into the Fall.

Market outlook for July 20th: Rainy with Clouds

Well after the bell yesterday, IBM reported its earnings as did Texas Instruments. Both disappointed on top line Revenue expectations and that has set the stage for today's market action. Futures are down and Europe is down this morning. Also out this morning was Housing Starts and Building Permits. The news there was mixed. Housing starts came in at 549K for June compared to an expectation of 575K, which was worse than expected, and Building Permits came in at 586K compared to the expectation of 572K, which was better news than expected. That rallied the Futures a bit so they weren't as negative before the news came out Dow Futures were down about 100 before the Housing data, but after the data they came in at down only 75. However, currently the Dow Futures have slipped back down 93.

Expect today to show another leg down on this slowly unwinding market. I will post Updates here during the day today. So if you have read this once be sure to come back and see the Updates and commentary.

Also, news on Goldman Sachs missing expectations on their numbers also is causing some market turmoil. It is clear that the top line Revenue Growth is not there and the only way companies are making their earnings is but cutting costs. It isn't going to get better any time soon according to Pimco's Mohamed El-Erian, CEO and Co CIO who was on CNBC this morning.

I will also post today something on Silver and ZSL and that there is about to be a significant break below key supports on Silver and that this can be payed by buying ZSL or adding to previous positions. Look for tha post later this morning.

UPDATE: 9:45am PST

AS you can see from the above chart we started down about 125 for the Dow but have steadily risen up in spite of the news. Well the Dow formed a "W" pattern with the slant pointing down. We therefore should go lower from below the lowest leg of the "W" pattern. That would take us to Dow down over 100 again today.

Stock market outlook: Protecting your Assets

As shown above, the 2 year Dow chart shows that we have made lower lows now 3 times as signified by the Blue lines. Also shown is the recent "W" pattern which is signified by the Red line. Notice that it is slanting down. This means that most likely we are in for another lower low, which should easily go below the 3rd Blue line. This pattern of lower lows and lower highs should continue through the Fall and into 2011 with the economy facing the real prospect of Deflation and no job growth.

What to do, what to do in the face of these problems? I can't tell you what to do, but I can tell you what I am doing. I am paying attention to all the data I can and look at my own assets daily as to where they are and how best I can take advantage of the knowledge I have acquired and the analysis I have done. For example, Treasury two-year note yields fell to a record low as reports showed that consumer confidence plunged to the lowest level in a year and retail sales declined, heightening concern the economic recovery is stalling. These all are consistent with a stalled economy and increasing the risk to us.

Yields on 10-year notes traded near a 14-month low this week after minutes of the Federal Reserve’s June meeting showed policy makers noted that risks to the recovery increased. Housing starts and sales of existing homes declined last month, reports next week are forecast to show. So in face of this information it is almost impossible for the stock market to go up. It will go down. So being long and staying in stocks is foolish, unless you are considerably hedged to the down side. I have sold many of my stock positions but have several still that I know will not drop much with a market retreat and will have a minimum effect on my total portfolio. I have shares the ETF Ultra Short of the Russell 2000 Index, symbol TZA. This is a Triple play, meaning that for every 1% the Russell 2000 goes down, TZA goes up 3%. I also have TZA Option Calls for October and for March. I have traded these twice so far and the shares I currently own are all from the profit I already have made so there is no chance to even lose my original investment. If these rise significantly, as I expect they will, I can more than double my investment in them.

I also own shares of the Banking Index ETF Ultra Short, symbol FAZ. These I expect to also rise in value. I have also purchased some other Put Options on stocks I know will drop with the market drop. I also own ZSL, which is an ETF Ultra Short on Silver. So I am a very defensive mode at this time and plan to become even more defensive going forward. Much will depend on the rate of deceleration of market Indexes. This is unfolding at a slow rate currently but the pace will increase sharply one of these days in the next month. pay attention to your portfolio. Talk to your Financial Advisor regularly if you are worried. Make sure you can sleep well at night as things are going to be very scary. The Fall is coming faster than you think and you remember what the markets do in September and October. TAKING ACTION THEN WILL BE TOO LATE.

Complete market analysis from 6 months to 30 years

To help others see how trends are formed, I will use the same analysis method that I used yesterday on the Dow Intraday Charts. I used these charts to predict the trend to follow. Let's look back at various timeframes, from as little as 6 months, to as long as 30 years. This context should help others understand why I have been sounding the alarm to be cautious now, as we are about to witness a crisis of confidence unparalleled in our generation. But let's not get too much ahead of ourselves. I will start with a 6 month chart of the Dow as the Index for comparison. First the chart, then the discussion will follow each chart. Look for the "W" patterns underlined in Red and notice the slant of the red line and what trend followed immediately after the last leg of the "W" pattern.

As you can see above for each "W" pattern, a Red Line under the 2 bottom points identifies the "W". It shows the direction of the trend to follow. In this case for the 6 month chart, the last "W" pattern formed shows we are indeed going to go down much lower after the next leg goes up. This is based on the steepness of the last pattern. So now at least short term, we know we are going down lower after the next leg goes up. I will show you in a different chart that the next leg up should go to about Dow 10.500 to 10,600 max.

Above is a 1 year chart of the Dow, where I have drawn several red lines at the "W" patterns, showing the slant and following trend. You will notice that there was a slant down of the pattern in the February timeframe, followed by a small drop after that. Then the pattern reversed, and the Dow continued its uptrend until the beginning of May.

This 5 year chart of the Dow above, shows that the Dow had 2 "W" patterns pointing down, and that it was headed lower, which resulted in the lows of March 2009. However, after that, a reversal drove the market back up to the highs in April 2010. Not much you didn't know here, but it is revealing to see that the charts showed where we were headed in advance .

And last, but more importantly than all the rest of the charts, this Dow 30 year chart shows where we are headed, and it is lower! The second leg of the "W" pattern was at 6,440, if you remember those lows. It was a very scary time. This chart indicates we are headed lower than that. And if you have been reading my earlier posts, you know many indicators have been sounding alarm bells for a while. I refer specifically to the 30 year chart posted on May 7th (based upon Elliott Wave Theory and Fibonacci numbers), and to the previous warnings on April 10th and April 14th (using Put to Call ratio data and VIX (Volatility) Index data.) It was only in April that the crescendo got so loud that it would be foolish to ignore it .

I hope I have given you a sound basis for believing what is about to happen. The last thing in the world I want to say is "I told you so!" So please evaluate this and plan for the future. Most of you reading this work very hard to make money; you need to work just as hard to keep what those long hours have produced. One last word: The market is set to recover a bit in the following days and maybe weeks, as we go back up to 10,600 or so. This is about where the drop down should begin.

So you have more time to regain some of the losses these past few weeks, and to prepare yourself for surviving the crash. Cash is a real good place to keep your sales of stocks until things get better. I do not believe Gold is going to be the currency of choice. People aren't going to bring their Gold to the grocery store to buy milk and bread. Nor will they use Silver to do that.

Currency will still be around and even more precious, as many will have lost plenty of it, and will be selling whatever they can to raise cash. That is why prices will drop in everything, as they did in the last big housing drop. Cash will be King, as they said during the Great Depression. Those who had it survived. This world market drop will cause businesses to cut more costs, and that means people. So the unemployment rate will surely rise again. Here is one last chart to show the Global nature of this impending crash. I have a chart below of the Nikkei 225 Index. It shows their index is also heading below 7,000. The Nikkei closed on Friday below 10,000 to 9,774, down 246 points, and it hit an intraday low of 9696.

Good luck to all who read this. I love to hear from you, so if you have a comment, please leave it. Let me know if this is useful, interesting and/or educational. Oh, and don't forget to take my Mini Poll survey on the right side of this page. Thanks in advance!

Market outlook: Correction ahead amid turbulence during Greek debt crisis

I had a close friend ask me my opinion of the markets last night. I gave it to him but thought I would use the opportunity and show a chart on my Blog. In the 5 year chart above of the Nikkei 225 versus the Dow, you will notice that the Dow appears ahead of itself compared to the Nikkei. The Dow has been behind the Dow for the past 3 out of 5 years but recently has gotten ahead of itself and risen too rapidly.

The Euro has hit an 11 month low on concern that the Greek debt crisis may not get resolved in time, as Germany shows concerns about the issue. Germany is showing reluctance to subsidizing emergency loans for Greece and this may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for Greece.

The Dow did hit 11,000 yesterday and looks as though it has petered out. The Volume for the past week is lower than it has been recently. When Volume is low and price increases, that is a bearish sign. However, I have been saying that since the Dow climbed back to 10,600 and here we are at near 11,000. As long as the government plays will the addition of more money into the economy through a variety of measures by the Fed and the Treasury, predictions are going to be impossible with any merit. As I have said many times before, the game is rigged and it is rigged more now than at any time in my lifetime.I continue to be cautious. Painfully, I still own my short positions even while I retain stocks and have benefited the ride up of the market with my long positions. This week I bought more shares of ZSL (a Silver ETF Ultra Short) at $3.78, as Silver climbed over $18/ounce again. ZSL correspondingly hit a new 52 week low of $3.65. As you can see from the 10 year Silver chart, we are at a high price for Silver comparing 10 years of data and I do believe this is a good reason for me to own ZSL, as we are bound to correct again back to $12-$13/ounce in my opinion. Time will tell. Stay tuned.

Dow and markets in for more trouble (Update)

As you can clearly see from the chart, the Dow is staying below its 3 year downtrend line, shown in red. This week's failed auction in Portugal to raise money was the catalyst for world markets selling off. It is a very fragile situation and this coming weeks auction on Wednesday should reveal more weakness in markets, unless someone steps into the breach and buys.

There has been concern shown in news articles that the Euro itself may fail. There are at least 4 Countries with the problem of high debt and a high % of their GDP allocated to paying it off. The US is not as bad as some of these countries but we aren't the best either.

In the meantime, be ready for another leg down in markets as more nervousness takes hold. This will cause the Vix to rise up again while Gold and Silver will take another drop.

I still have my ETF Shorts, TZA, FAZ and my Silver ETF Ultra Short, ZSL.

UPDATE 9:00AM

One thing I forgot but thought was important to add and that was that the Total Put to Call ratio on Friday closed at 1.21 which is the highest it has been since October. The rebound during the day from the 165 drop in the Dow most likely came because of this technical Buy signal. It may be good only or a day or two of trading but I think we are headed lower. Listen to the video of Noriel Roubini on Bloomberg.com to hear his most recent comments on the world financial crisis facing the EU.

Shorting Silver still a good trade

Today I have posted the chart on ZSL, the ETF Ultra Short on Silver. As you can see this has gained almost 50% from $4.00/share price where I have purchased it. It looks as though it is still headed higher but if you won this, consider selling it on the next big surge and buying it back cheaper afterwards. Actual Silver is now at $15.08/ounce and I expect it to go down to $13 to $14/ounce. Gold currently is at $1058/ounce and will break below $1000 in my view for the short term. But longer term Gold will rise and set new highs as inflation concerns drive the world economy. As with any trade, timing is everything.

The Dow is now comfortably below 10,000 and currently at 9963 and has decisively moved below the 3 year resistance trend line seen on the previous post. It looks like the market overall is headed lower as well as volume to the downside has been strong these past 10 days.

Miscellaneous tidbits

I wanted to update my Blog readers in the face of a very quiet news time right now. Yesterday I bout additional shares of the ETF Ultra Short on Silver, symbol ZSL. I got the shares for $4.07/share. When the speculation on Gold and Silver abates, and the prices in those metals drop, I want to make a nice profit. Since Silver usually drops much more than Silver, I figured that was the better play.

Over the next 30-45 days the market direction will become much clearer with the Earnings season for last quarter being reported for the history books. The real question to ask yourself is this. Will the improvements in earnings this year really be enough to justify these high prices for stocks or will a correction finally happen? Unemployment isn't really going to get better anytime soon so when the Unemployment rate for December is announced tomorrow don't be surprised.

This month is going to be cold for many of us, but we know that it too will eventually end and warmer days will be ahead. Stay warm!

Is Shorting Silver still a good idea?

I thought I would update my recent postings with Silver and using its ETF Ultra Short, symbol ZSL. I have shown above the most recent 6 month chart on ZSL and also the 6 month chart on the price of Silver. I got into this trade at $4.24/share and later bought more at $4.54. Current price as of the close of Friday was $4.78/share. You can see from the chart of ZSL that it is now over its 50 day Moving Average line.

In the 10 year chart below of Silver, you can see that the normal price point for Silver is much lower. That in part is the reason I am using ZSL as a trade, because I believe Silver will go back to a more normal range of $12=$13/ounce, compared to where it is now around $17/ounce.


I think this is still a good trade and in the coming weeks of January and February, it will prove profitable. I said in earlier posts I see an unsure market until earnings come out in the beginning of February and coincidentally I see the action the Fed will take to start to allow the economy to make it on its own, causing a drop in Silver in the short term. However long term I see both Gold and Silver increasing in value. This trade is good for only 3 months I suspect.

Gold or Silver? Long or Short?

I thought that since there has been much made recently of the move of Gold this past 6 months to a year, that I would comment on it as a current market play. And, I can't talk about Gold without talking about Silver because over the past 5-10 years, when Gold moves up, Silver moves up at a faster rate, and if Gold moves down, Silver moves down at a faster rate. So as far as I am concerned, the play when considering either as a stock play, Silver is the one to consider.

Let's start by looking at the 1 year chart of both precious metals below. The first chart is the 1 year Gold chart. It had a low of $815 and a high of about $1225/ounce for a gain of $410 from the low or 50.3% for Gold.


The second chart is the 1 year Silver chart. It had a low of $10.50 and a high of about $19.50/ounce for a gain of $9 from the low or 85.7% for Silver. You getting my drift here and why I have always written here that Silver is the play overall when considering the greatest gains during times of significant movement in price? Hope so!


Ok, now let's take a broader look at both metals on a 5 year chart for each. The first chart is the 5 year Gold chart. It had a low of $400 and a high of about $1225/ounce for a gain of $825 from the low or 206% for Gold.


The second chart is the 5 year Silver chart. It had a low of $6.50 and a high of about $20.90/ounce for a gain of $14.40 from the low or 222% for Silver. When comparing both precious metals now for both periods, it is clear that over the longer haul, Silver still outpaces the gains in Gold as a trade and particularly over the past year, while Gold has gotten all the attention, Silver was the trade play to make for the move up. You still with me? Ok, now to the final point of this post.


This last chart shows an ETF Ultra Short of Silver, symbol ZSL for the past year. You will notice it has had the inverse move of Silver to the downside. It had a high of $23.75 and a low of $3.66 for a loss of 84.6%. I bought the Ultra Short ETF, ZSL, because I expect that Silver is going to drop again and settle back to a more normal level and that the gains in this should far outpace any other investment. The reason is that if it goes back to where it was a year ago, you do the math. I just bought it at $4.24/share and if it goes back to its former 1 year high of $23.75, that's a gain of $19.51 or 460%. Now you get it! Even if it goes only half way back to where Silver drops back to only half of its price move, say around $13-$14/ounce, it is a huge percentage gain for this investment trade. Many say inflation is on the horizon. I say not for quite a while and this play will be over before that happens in my humble opinion. We still have some deflation out there. I think it's a no brainer.

And if you look carefully at the last 5 data points of ZSL on the 2 month chart below, you will notice it is headed up and the volume is strong. I think the case to consider this as an ETF stock to trade is strong. The three trend lines, the 9 day Moving average line as well as the 18 and 27 day resistance lines, have all fallen. We closed also above the 50 day Moving average line on Friday. Have I built a strong enough case fpr you yet to consider this?


Remember, I do not now your own financial situation and can't advise anyone as to what to do as you are responsible for your own investments and I am not a licensed financial advisor. I'm just someone trying to stimulate your thinking about your investments. But I would certainly talk this over with your own personal financial advisor and get some expert advice. Ok, I have given the obligatory cautionary note. The rest is up to you to check out.

Consider being a Follower of this Blog by clicking on the word "Follower" at the top of this page just above the WETHEPEOPLE title. Wishing you more prosperity and good health in the New Year.

Premarket July 24th, 2009

I believe we are still in the 7,800 to 9,300 range in the market and will have that major pullback I have been waiting for in the Fall. I expect the market to go down and retest the lows sometime by Options expiration in October. My reasoning is that business is not good anywhere and that any surprise profits are coming from cutting costs, not an increase in revenues. Unemployment is still rising and without that abating it's hard to see a true recovery taking place. While traveling in remote areas of upstate NY between Buffalo and the lower tier near Amish country, my wife and I saw many homes and farms for sale, one after another. The only place having any customers was WalMart and Dollar General, where everything is a dollar.

In the chart below from Chart of the Day, it shows expectations of the lowest earnings for companies since before 1929. That is not good at all.



And yes we will be in a period of inflation where whatever money we have will be worth far less 10 years from now, than we can today. Owning hard assets is the only protection against inflation, as cash will be worthless. So owning property, income generating property, Gold, Silver and anything that will appreciate as inflation increases, is the play for the future.

May 30th Stock market report: Week's summary and the week ahead

It was another painful week for Shorts, including yours truly. But we are now back where we were on May 18th when the Dow closed at 8,504 and the S&P 500 closed at 910. Yesterday the Dow closed at 8,500 and the S&P 500 closed at 919. The Nasdaq has done better as it closed on May 18th at 1732 and yesterday closed at 1,774, for a 2.4% gain. My ETF Triple Short play, TZA back on May 18th closed at $26.65 while yesterday it closed at $24.84, or a 6.8% loss, even though it reached a high yesterday of $26.63. A close friend of mine has been going along for this ride and has SDS. His SDS on May 18th closed at $57.76 and yesterday closed at $55.81, about a $2/share drop or 3.5%. Sorry friend! With these ETF's they can explode in a more volatile market, but we have not had the volatility, in either direction, for that explosion.

The VIX Index, which measures Volatility, closed yesterday at 28.92. This is well below the highs of the upper 30's to the 50's this Index showed back in April. The Put to Call ratio closed the week at 0.77 and so that measure also is pretty stable as well.

The only thing worthy of notice was yesterdays last hour of trading. The Dow was at 8,400 an hour before the close but then accelerated to its peak at the close of 8,504. Looking at the charts for companies like IBM, symbol IBM, McDonald's Corp, symbol MCD, Wells Fargo Bank, symbol WFC, Bank of America, symbol BAC, and lastly Ford Motor, symbol F, all had huge purchases in the last 15 minutes before the close. I suggest you look at your stocks on a minute by minute basis for 2 days and look at the spike in the last few minutes. To me this spike looked like a climax, and I use the word here deliberately to signify change in trend. Even the VIX dropped precipitously in the last 30 minutes. Therefore, I believe we are at a key turning point for the market. I have put several of these charts at the beginning of this post so you can see what I am referring to. The charts are 2 days of time and one minute intervals for the selected stocks mentioned above. Notice Volume spikes as well corresponding price spikes in the last few minutes.

If we reached a climax yesterday, then something is going to be different next week. I can not say whether the markets will decisively move down or up at this point, because there are no "tells" out there that I watch giving me the necessary direction but here are some facts. Gold closed yesterday up $19/ounce to $979. (I said watch Gold and said it was going past $955 when it was $869.) Oil has climbed back to $64/barrel. Silver has climbed to $15.75/ounce. Either the economy is getting better or inflation worries are here big time. Silver is up 75% since its low of $9/ounce in November. Gold is up 35% since that same time. If this turns out to be a major Bull rally, I will concede I was wrong to go Short with TZA. However, I could be just as right and the market is set to go down from here. The old adage "Sell in May" became a noted slogan for a reason. That reason may come to fruition.

My major emphasis has been to preserve capital on this site for the past few months. I said the rally was for real back when it turned up and I stated at that time many will not believe it. Well, for the past few weeks it has stalled between the low of 8,200 on the Dow and 8,600. I expect we will have a breakout now from Friday's action in the last 1/2 hour. Remember for every purchase yesterday there was a seller. They got the price they wanted for those sales as the tick went up but the buyers could be on the wrong side of that trade. Besides does anyone really believe that Consumers are going to be spending even if Consumer Confidence rose in May to 68.7 from 65.1 in April? To me the bigger news was that Chicago Purchasing Manages index went down from 40.1 in April to 34.9 in May. Time will tell. Stay tuned.

Tomorrow is the end of the month of May so if you have not yet voted during May in my Mini Poll of how long the recession will last please do. But please no double voting.

Market Outlook for May 28, 2009

Futures point up this morning as Durable Goods Orders showed a 1.9% gain for April. But March numbers were revised down 2.1%. All 3 Indexes show small moves up this morning and are not something that can be counted on for the day. While Weekly Jobless Claims were reported down this morning to 623,000 for the past week. But Continuing Claims reached a new high at 6.79 Million.

Still there is a lack of clarity as to what the strategy is for the Government regarding trying to keep mortgages available with cheap interest rates but the Treasuries for 2 year and 10 year duration seemed to suggest rates will be rising, which would seem to thwart the Fed's plans to keep Mortgage Interest rates low. The Bond market is getting nervous and hence the big swing down yesterday.

Oil is up again to $63/barell. Gold hovers around $955/ounce as Silver has moved over $15/ounce. European markets are all down this morning as well.

As we travel through the no mans land of 8,200 to 8,600 on the Dow waiting for a clear direction, none seems to be showing itself. But pressing the markets continues to be the decline in the 200 Day Moving average daily for all 3 Indexes, the Dow, Nasdaq and the S&P 500. If I were to guess, and we all know that's all it is, I believe the market will be down again today but not by more than 100 on the Dow. We are going to stay in this tight range until some news breaks to drive these markets decisively. That could take the whole summer, I'm sorry to say. Or there could be something Internationally which triggers the drop.