Weekly update
Here are the latest Blees COT ratings released on 8/29/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position:
S&P 500 Index: 58
S&P E-mini: 55
Dow Industrials: 50
Nasdaq 100: 39
Nasdaq 100 Mini: 21
Gold: 22
Silver: 59
Crude Oil: 37
Copper: 27
Corn: 98
Soybeans: 59
Sugar: 26
Wheat: 96
Cattle: 51
Hogs: 88
U.S. Dollar: 88
Cocoa: 48
Natural Gas: 92
A note that Elliotwave International has put out multiple alerts that say the conditions of the current bear market rally have been met. This is not to say we might see some upward thrusts, but the elements are in place for Wave (3) – the nasty one to be at hand at any time.
However there are still a lot of bullish factors that may yet push the markets higher in the short term. Basically as posted before – we are keeping an eye on key levels for the metals and the markets and will enter positions once we feel there is a significant reversal.
Weekly update…
Here are the latest Blees COT ratings released on 8/21/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position:
S&P 500 Index: 57
S&P E-mini: 48
Dow Industrials: 44
Nasdaq 100: 43
Nasdaq 100 Mini: 11
Gold: 26
Silver: 61
Crude Oil: 53
Copper: 24
Corn: 91
Soybeans: 56
Sugar: 21
Wheat: 100
Cattle: 49
Hogs: 79
U.S. Dollar: 84
Cocoa: 57
Natural Gas: 88
We haven’t been posting lots of charts lately because we are waiting for some significant changes to the current trend that are worthy of a post.
Right now we are still in a Wave 2 up rally that may continue for a while longer. However we dont recommend adding new money since the bulk of the upside gains have already been in place.
Gold is still waffling back and forth in a trading range, and we are going to watch it over the next few weeks because at some point it will have to either break up or break down. It gold goes over 972 then we looking at the up trend scenario for the short term.
The seasonal factors for gold should be positive, since September is typically a strong month. The COT numbers are still week, so we want to see a major move and then review the COT numbers which will give us a clue where the big money is hedging.
Natural gas is continuing to perk up. While we hold a position in UNG, there may be issues down the road as the CTFC cracks down on speculators and non-commercial positions. This would cause the ETF’s not to be an efficient method to track a commodity. In this case, stocks would be an option but would more likely ebb and flow with the stock market.
So at this point we’ll wait and see until a decisive move occurs.
Reaction – phase 1
We monitor both sides of the aile because we feel it’s important to do so to maintain a balanced approach. Last week Elliotwave International warned of a pullback in gold, which we got today. (which of course jived with the poor COT numbers). The same goes for the general market as a whiff of fear hit the markets again which resulted in a nice sell off. Consequently the VIX spiked up. For a frame of reference, we look to a reading below 20 to assume it’s safe to go long (for 401k, long long term investors). So a reading above the cloud, VIX below 20 would be ideal.
This from a posting at 321 Gold – courtesy of the Aden Sisters:
‘Since then, a C rise has begun. It’s been quietly forming a coil and gold looks ready to take off. Gold’s been rising this past month and it’s strong above $935. It reached a nine week high and it would be very strong above $985. A super strong C rise would be underway above $1004, the record high.
Keep in mind, C rises tend to be the best rise in the pattern. By hitting a new record high, gold would confirm that the bull market is entering an even stronger phase and it could then rise to near $1200. It would also confirm that the 8 year low indeed happened last November.
Since November, gold’s been posting higher lows which is also positive action. For now, if gold stays clearly above the July 8 low at $909, it’ll be reinforcing its strong uptrend since November and all systems will continue to be go!’
In order for the above scenario to be the more likely, we need to see Gold break above 975. If the bearish scenario is more likely, then gold must close below 925, and preferably 905. The trading range is steadily decreasing so a break one way or another is expected. But Gold is swinging in both directions with big moves lately, so we’ll know pretty soon what our outlook is.
Inversely, we’ll keep an eye on the dollar as well. 79.40 is a key level that must be broken, and once we get a thrust over 80 we know the dollar is on the up. Conversely, this would result in lower gold prices, and more than likely lower stock prices for not only all the indexes, but the miners as well.
Oil has pulled back as expected – and we should expect it to get pushed down to 60 at least, and 55 if the downtrend continues.
Once we get set up for a new major move we’ll post the charts and assess what moves to make.
Weekend update
Here are the latest Blees COT ratings released on 8/14/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position:
S&P 500 Index: 53
S&P E-mini: 53
Dow Industrials: 44
Nasdaq 100: 50
Nasdaq 100 Mini: 0
Gold: 16
Silver: 62
Crude Oil: 41
Copper: 46
Corn: 87
Soybeans: 42
Sugar: 24
Wheat: 100
Cattle: 45
Hogs: 76
U.S. Dollar: 93
Cocoa: 57
Natural Gas: 72
The COT ratings indicate weakness in Gold, and continued strength (although not as much) in the dollar. We have stayed on the sidelines while we see how things develop. We will be entering a point of resolution soon for gold, as the September is traditionally the strongest period of time. We will continue to monitor the 975 area, for a decisive close above it will negate the bearish outlook at least for the time being. This would mostly coincide with a dollar breakdown, which may be forming a bottom, or ready to break down again.
The general market may undergo a correction, but there also exists a high probability for it to continue higher. We have already met the low end of the initial price targets, but some price targets go up to 11,500 for the dow, 1100 for the S&P. Therefore there may be room for some short term opportunities should we get a nice sized correction.
We’ll go over charts when we feel there has been a decisive move in either direction, or an important trend change. Right now we are just going to stand pat and stay pretty much in cash until we can identify a nice entry point.
Who is right?
One of the things we aim to provide is data from opposing viewpoints. In fact, that is how this service started because we followed what we thought was the correct mode of thought but were caught withdata and commentary that only followed that mode of thought.
This is why we recommend not to follow just ONE newsletter, ONE or TWO web sites that complement each other without any contrary opinion. Thus it reinforces a trend if you are correct – making the investor seem smarter then he or she actually is. On the flip side, anything that goes against opinion is basically ‘ a blip’, temporary, ‘manipulated’ etc. Interestingly, when we looked back last year during the height of the gold, commodity frenzy, there were no warnings other than we may be overbought. And none of the commentators fessed up and said they were wrong afterwards.
In this case, take this commentary from Sunshine profits:
“Since the USD Index is generally considered the key driving force for gold prices, the fact that gold is not declining fully and proportionally to the dollar’s upswing, is positive for the entire precious metals sector. It means that the market doesn’t believe the bounce in the USD Index is anything more than a temporary blip. People seem to believe that the dollar’s trajectory is similar that of a hammer dropped from the Empire State Building. They are not willing to sell gold if they think the USD’s rise is short-lived. Since the attitude towards gold is positive, this positive sentiment can only increase if the USD moves lower. The good news is that gold would likely move higher with much greater force than the corresponding decline in the dollar.”
This of course doesn’t mention the COT figures or the fact that sentiment for both gold is very high, and for the dollar very low – which often herald major reversals.
Here is a quote that is a little more realistic:
“The little guy can only prosper by aligning himself as best as possible with Big Money forces. It is very difficult to actually front run Big Money, because they are always at the start of the line – it can be achieved at times, but there is an element of luck involved.”
Don’t believe for an instant that Big Money wont use the charts to fool the technicians that so clearly see the Dollar going lower and gold going higher. There is something wrong if it’s that easy.
From the deflationist standpoint – if there was really massive inflation ahead of us, gold would already be above 1,000. If this obvious inflation is imminent, then why hasn’t it happened? Or can it be because the smaller markets of precious metals are much more subject to big swings, and thus easier fleecing from small investors.
The other issue to take into consideration is in order for inflation to run rampant, we need the money actually to circulate into the economy. Until now, the massive amounts of money created are being used to shore up the finances of banks so they can remain solvent. They are certainly not being used to generate new loans. The commercial real estate sector is just now starting to crumble, and a wave of Alt-A mortages will be reset shortly.
So therefore we can anticipate more debt destruction, debt that is denominated in dollars. Like last year, when these dollars are destroyed, the dollar actually rises in a perverse reaction. If the major bottom of the dollar is indeed at hand, then we may see a protracted rise in the dollar, which at some point will precipitate Wave (C) of the market crash to all time lows.
However there is enough optimism and headlines declaring the end of the recession is nigh that we may have another upward burst of the markets before reality sets in. The Wall Street Journal did mention that, in any recovery the consumer is the first to begin the recovery. Yet the consumer is still working off massive, record debt. With rising unemployment, well – you get the picture. Has the consumer built up enough savings to spur a real recovery? The answer is no.
Finally – will the recovery actually be a recovery in the normal sense. We feel that it will not be, but will be the begin a massive paradigm shift. The supercycle top was in 2000, and the resultant reversals were staved off in 2001 by the Fed’s loose money policy which allowed the real estate sector to inflate. Now with near zero percent interest rates – and the economy not responding in kind, we are no longer able to control the business cycle. Therefore we can expect at the very least a very long, slow drawn out “recovery” which will herald massive societal changes.
COT NUMBERS
Here are the latest Blees COT ratings released on 8/07/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position:
S&P 500 Index: 48
S&P E-mini: 71
Dow Industrials: 44
Nasdaq 100: 42
Nasdaq 100 Mini: 0
Gold: 13
Silver: 68
Crude Oil: 37
Copper: 47
Corn: 88
Soybeans: 49
Sugar: 8
Wheat: 89
Cattle: 22
Hogs: 82
U.S. Dollar: 100
Cocoa: 56
Natural Gas: 78
Comments: After last weeks bigger numbers, the COT gold numbers have dropped significantly, and getting close to their maximum bearish 0 rating. The dollar, on the other hand has been at 100 consistently for the past few weeks.
So from the gold perspective, we should see seasonal weakness, a selloff and rising COT numbers to support the bullish stance. Gold must breach 980 and stay above to negate the negative outlook. Silver looks less bearish on the COT, but the main problem with silver is that it’s previous high is much further away than gold. Realistically can silver get even close to 21?
Natural Gas has been meandering in the COT for a while, and while we don’t see any big price moves to the downside.
Weekend update
We’ll be posting COT numbers as soon as we get them (in the AM on Monday) to see how the previous weeks gold prices have changed in light move up.
We may be adjusting our portfolio (which is almost all cash) in anticipation of several events that may take place:
1 – Dollar may be forming a bottom. Therefore we may go long the dollar during this next phase. This of course should be negative for gold and commodities. However, Gold can go up along with the dollar as it has done in the past. A side note – we’ve been seeing many ’sell your gold commercials’ – note, not buying gold, but taking jewelry and getting cash. In this instance the focus is on getting money, not for investing.
2 – Stock market – time to go short. We will limit the use of leveraged ETF’s, especially those on the short side because of time decay factors. Even if your bet is correct, but your timing is wrong, you may get wiped out by the time decay if your bet is bearish and the index trends up.
A great article on this problem:
http://blog.quantumfading.com/2009/06/25/leveraged-etfs-and-compounding/
The timing of the short will be done by candlestick analysis. We currently are looking at some sort of brief correction and perhaps another final thrust up before wave (C).But we would like to identify the reversal when it happens and implement our plans.
3 – Gold is something to watch as September is traditionally a strong season for gold. On one hand if the market reverses then the gold stocks will get hammered. If gold reverses then the stocks will get hammered. Gold needs to breach the 980 level in order for us to get bullish. If it does rise over 980 along with the stock market, certainly close stops will need to be put in place.
Nearly all of the indexes we track have risen with this summer rally. Therefore when the correction comes, we anticipate this to be the same on the downside. What we want is a determination that we are near the end of Wave 2. Certainly a good time to stay in cash.
More to post this week as we try to hone in on the turning points in front of us.
Adjusting the trend
We’ve been observing increasing amounts of gold bull calls, be it Marketwatch articles or Glenn Beck Advertisements to buy gold. This in conjunction with the record number of dollar bears, max COT dollar levels – all point to a potential sign that we are about to embark on a major an unexpected trend change.
We at Stock toolworks are not adamently inflationists or deflationists. We take the arguments given from both side and adjust our trading strategy based on the evidence. Thus far we are leaning, at least for the time being in the deflation camp should the dollar bounce that is forming becomes reality. As in the movie ‘Battle of the Bulge’ when confronted with evidence of a possible surprise German offensive ‘ When 10 people say your drunk you better sit down’
If inflation is the true threat, then Gold will react past 980 (that will be the warning) and once it exceeds it’s 1038 high from March 08, we know that the inflation scenario is the one winning. However if Gold goes below it’s key support level (we’ll label anything below the cloud (850-820) that deflation is the force to be reckoned with.
The key player will be the dollar which is currently a ’snail on the edge of a knife’.
The current chart shows indeed that the dollar has been dropping fast since April. Now it is beneath the clouds in a bearish situation. At this point, we have not seen the bottoming action indicative of turning point – yet. For the inflation scenario to really take root, we must see the dollar drop all the way back down to 70 and below. It has a bit of a way to go, however a maximum COT value of 100 does not imply this will continue much longer.
Rally continues
We are still waiting for a pullback to this extended Rally in order to enter in some positions. Basically we are nearing key short term limits in all the markets.
Here are the latest Blees COT ratings released on 7/31/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position:
S&P 500 Index: 51
S&P E-mini: 62
Dow Industrials: 44
Nasdaq 100: 47
Nasdaq 100 Mini: 3
Gold: 73
Silver: 74
Crude Oil: 58
Copper: 58
Corn: 94
Soybeans: 64
Sugar: 14
Wheat: 97
Cattle: 21
Hogs: 81
U.S. Dollar: 100
Cocoa: 57
Natural Gas: 79
The gold number jumped up considerably, which bears watching. What concerns us is the dollar number. We are looking for the dollar to possibly bottom soon. Gold continues to rise as well, which puts us in a conundrum.
Dollar loses = market, gold rises
Dollar rises = market, gold falls
This is the formula we’ve been witnessing lately. Keep an eye on the dollar.
