World Of Wallstreet

Silver Chart Is Short-Term Ugly

The silver chart is plenty short-term ugly having:

• Broken down through the 50 day moving average.
• Broken down through the last fibonacci targeting a sub-12$ price.
• Broken down through a head and shoulder neckline targeting a 10$ price. 

In addition, the whole deflation idea is kicking back in.

I expect I'll be lightening up on silver holdings on Monday and probably going short something (copper, S&P, banking stocks) to hedge the rest of my Jr gold miners.

MontyHigh

Denali Guide: Watch Volume And Breadth [Mud On The Tires, Boots On The Ground]

[Editor's Note: World Of Wallstreet welcomes another bit of technical analysis education from DenaliGuide. Today we learn about the importance of volume and market breadth (fraction of stocks following a price movement) as confirmation of price trends.]

Mud on the tires, Boots on the ground, Friday, July 3, 2009

Well Mr. Nasty [Editor's Note: see the NASI chart] didn’t like the bouncing Advances and Declines, unable to approach, let alone [top] the two peaks, one the 2nd week of May, and then the 2nd week of June. Roughly speaking, the S & P price level, is approximately coincident with the Peaks in Mr. Nasty.
Insert [ MR. NASTY chart]

Typically in price waves, often the 2nd wave is the the more extreme of the two, relative to price. That means the 2nd peak is Higher in advances, and Lower in declines. Again, the S & P 500 has lived up to this pattern.

Tips, hints, clues. All work. BUT, to fail to consider the evidence right before our eyes, will considerably hinder our attempts to SEE.

Looking at the Wilshire [ $WLSH] you see a steep decline of the 200 DMA,and its upward cross of the 50 DMA. Some would attempt to call this a “GOLDEN CROSS”, but classically it is not so defined. CLASSICALLY, a Golden Cross of the 50 DMA above a 200 DMA, is when the DMA is trending upward and positively inclined.

The cross you see here [ Insert WLSH chart] is that of a temporary BLIVIT CROSSING, like the Wandering Figure 8’s we see when trend is NOT DEFINED. Further observed, since a BULL Market creates an UPWARDS sloping 200 DMA, we define this as something OTHER than a Bull Market.. Define that as you may, I call it dangerous ground, thin ice.

INVESTOPEDIA [ I like their stuff] says: Investopedia explains Golden Cross
As long-term indicators carry more weight, the Golden Cross indicates a bull market on the horizon and is reinforced by high trading volumes. Additionally, the long-term moving average becomes the new support level in the rising market.

Look carefully at the trading volumes on any exchange during this time period and generally you see a pattern of lower UP-Volume on this rally, than on the rally that led to the previously established peak. VOLUME DOES NOT SUPPORT THE “Continued Rally” Thesis. Without a consistent pick-up in volume to bid for stocks to support the rally, THEREfore, IMO, this is a Bear Market Rally, not supported by volume. VOLUME speaks Volumes. Again, MY Opinion Only, given the financial shenanigans we have witnessed in the last two years, I suggest that the rally we see here, trying to suck in as much money as possible, as a total rear guard action to hold the door open to the escape of PREFERRED capital, before these market levels are breeched to the downside.

Considering what has transpired in the last two years and the continuing trend to the transfer of wealth throughout the world, it would not surprise me that extreme measures are being taken to combat the drain of funds out of established patterns. Therefore, while it’s a bit edgy, in a public place, to suggest that certain groups get preferential treatment, that is what I am saying. The rest of us will have to fend for ourselves.

It is said that the Summation Index [ Mr. Nasty if you use the NASD] shows the flow of funds in and out of the markets , as a matter of observation, I agree.

Basically, Price can lead you merry chase, but BREADTH and VOLUME will confirm both price and each other. Failing the classic interaction of those three, the premise is false. BREADTH & VOLUME, consistently, over time, no matter how you slice them, are the most reliable confirming indicators I have observed.. Given that, I will try to include some charts for you to access in links, so you can check your conclusions against the Volume and Breadth Indicators.

Far as I am concerned, Breadth and Volume are the Boots on the Ground and the Mud on the Tires, they are the real thing.

DenaliGuide

Best Of The Web: "Battle Lines", Mark Van Der Sluys... Matt Taibbi's "Great American Bubble Machhine"

Mark Van Der Sluys (never heard of him before) gives (click here) an excellent overview of what the US (and its bankster allies) strategy is and what the Chinese, Russians and their allies strategy is. The most important insight is that the US (and banksters) controlling the financial markets and in position to cause and exploit market volatility. So, I'm going to expect continued volatility and figure out how to profit from it.

MontyHigh, www.worldofwallstreet.us

P.S., If you haven't read Matt Taibbi's "The Great American Bubble Machine" Rolling Stone article about the role of Goldman Sachs as chief of the Banksters, here's a link to the story (click here). By the way, I heard Michael Savage (far right talk-show host) giving parts of this article nearly verbatim. That's really something having a hard-right talk-show host quoting a hard-left magazine's article.

Here's the quote that got me really angry: "In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity." This kind of political corruption has got to be stopped.

Gold Takedowns: Non-Farm Payrolls

Today was the day that non-farm payrolls (monthly unemployment) numbers came out. The Cartel always (at least to my recollection) finds a way to keep gold from going up on non-farm payrolls day. Can't have herd psychology thinking gold is a safe place to be when something scary (like losing your job) comes up.

I woke up at 1:30AM today and saw gold right at that $940 resistance and went short a contract, I exited at the end of the first green 5 minute candle after the numbers came out (8:30AM).

The bollinger band strategy, adjusted to be as follows, had two opportunities to make money today. The second (with adjustments) would have more than covered the smallish loss from the first. Here's the revised strategy.

Ma Bol Takedown - Everything on 5-minute candle closes except where noted.

• Setup - wait until gold has popped above critical resistance, the kind that the cartel fights (in this case $940.
• Enter Short - when the price drops from above the 24-bar moving average to below the 24, 2 bollinger band in 25 minutes (5 candles) or less.
• Exit - on the close of the first green candle.
• Exit - after making at least $1.50 when half of the maximum profits are gone. 

Once I accumulate enough experience eyeballing these charts I will probably put my programming skills to work and methodically backtest them.

MontyHigh

Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 51%

Here's the scoop on the Labor Department's weekly initial jobs claims report:

• Associated Press Headline And Lead: "Initial and continuing jobless claims fall in US... The tally of newly laid-off workers filing for unemployment insurance in the U.S. dropped last week, the government said Thursday, a sign job cuts are easing."
• Labor Department News Release: click here. 
• Key Numbers: The advance number of actual initial claims under state programs, unadjusted, totaled 556,863 in the week ending June 27, a decrease of 11,689 from the previous week. There were 368,544 initial claims in the comparable week in 2008. NOTE: In 2006, when the economy was good (remember "Stronger For Longer?"), this number was 276,508.
• My Spreadsheet (click Download 20090702yoy)

Here's my uneducated interpretation - Not much new here. A little better than last week. In 2006, when the economy was good (remember Stronger For Longer?), this number was 276,508. I would think we'd have to see the initial jobless claims under 350,000 before we could say they economy had bottomed as far as unemployment was concerned. That's about where we were a year ago as the unemployment rate was starting to rise. 

Here's a chart of the initial jobless claims since I started gathering them.

 

MontyHigh, www.worldofwallstreet.com

Gold Junior Producing / Near Producer Mid-Year Update

This post provides a mid-year update of my take on Jr producing and near-producing gold mining stocks.

The tables below are based on my forecasts for the companies for 2010 assuming $800 / oz gold. In this edition I provide a Price to  EBTDA(Earnings Before Taxes, Depreciation and Amortization) ratio column. I hope to increase my fundamental analysis powers over the next 6 months to be able to include an EBDA column including expected taxes. NOTE: If the price to operating income column is the same as the Price to EBTDA column then I have not yet truly calculated the Price to EBTDA column. I intend to complete filling this column in as Q2 results are announced.

I'll provide updates on individual companies as they appear in tables.

Here's my list of reference gold miners. These are miners which, ideally, are steady producers in the 100 to 300K oz/year range. For this update, I had to remove Western Goldfields which I replaced with its buyer, New Gold (NGD). I'm looking for another reference miner because NGD and AGI.TO seem overpriced to me.

Here's my current favorites list (no particular order).

Here's the latest on my favorites:

• Castle Gold (CSG.V), which has executing according to plan, has announced that it is in the final stage of getting takeover / merger bids from three bidders and "plans to make a final decision no later than July 10, 2009.". Seems like an easy trade would be to buy on the next down gold day and sell on July 8 or 9. I expect they probably will sell the company for a 30% gain, but who knows.
• GORO.OB continues to move towards initial production but has not gotten that final permit. They did just sell more shares (diluting themselves) to Hochshield at $US 4.00 / share. I expected this and they now appear to be finally cashed up to get into production. They are my favorite stocks, because they have excellent rocks, competent share-holder friendly management and promise significant dividend payouts, but I have to admit they never hit their schedule milestones.
• Troy Resources (TRY.TO) is not as cheap by the metrics as some others. Its still a favorite because they are stockholder friendly and pay dividends and are very competent and execute on their plans. The recent news is still under the radar, but politically they look well set to get permitted on their next mine in Argentina and to get it in production even faster than they had previously hoped for.

Here's the list of other Gold producers / near-producer miners I'm holding. I've been adding to these positions.

Here's the latest on these:

• DMM.TO - no news here. Still has excellent rocks, competent management and is very undervalued except for political risk, which Otto Rock of Inca Kola News assures me is overly priced into the stock. I found DMM.TO and Troy Resources through Otto and think his news letter is well worth the price if you are interested in Jr mining stocks. His edge is being on the ground, fluent and really understanding what's going on in Latin America. I think its a real edge.
• OGC.TO - The most undervalued gold producer I know of assuming gold can stay above $800 and nothing really crazy happens in the currency markets to the New Zealand dollar.
• CGA.TO - Bought a little the other day because the price just seemed too low. Not much and I don't know how long I'll hold it.

Here's the other gold producers / near producers that I'm watching closely and considering whether to buy. For one reason or another I'm not holding.

New to the list are:

• Semafo (SMF.TO) - I sold my Semafo because the chart looked like it was breaking down under $2.00 and I promised myself I would use technical analysis to avoid big losses and to retain profits. It immediately shot back up. Its a very admirable company, but not quite as undervalued as some others. Its also reasonably liquid and tracks the price of gold well, so I will probably use it to trade in and out as I gain / lose confidence in gold.
• Apollo Gold (AGT, APG.TO) - This is a board favorite over on the Investor's Hub Junior mining board. They are opening a new mine in Canada. Seems pretty well undervalued. I'm not sure why I never bought, perhaps because I don't want to run with the herd.

Hope you find this helpful. Please leave comments.

MontyHigh, www.worldofwallstreet.us

NOTE: Stocks covered: Alamos Gold Corp, New Gold Corp, Minefinders, Castle Gold Corp, Gold Resource Corp, Troy Resources, Dynasty Metals And Mining Corp, Oceana Gold Corp, CGA Mining, Semafo, B2 Gold Corp, Apollo Gold Corp, Capital Gold Corp, La Mancha Resources, New Guinea Gold Corp.

Gold Takedowns: Push Below Resistance

Yesterday we had two clear rounds of take downs. The first begins at 2:25 AM (London open time) taking gold from above its resistance bollinger band to below its support bollinger bad at 3:15AM. Compared to the previous takedown we see a move from above the moving average to below the support bollinger band in 10 minutes. An entry here would have lost a little if the exit was the first green candle.


The second takedown started shortly after the New York open. We see a move from above the moving average to below the support bollinger band in 15 minutes (8:10 to 8:25). This gives a short enter at roughly 939 with an exit on the first green candle of 935.50 for a $3.50 gain. The take down resumes with a clearly lower low of around 931 at 10:10. I don't know how to trade these second pushes down.

So, our tentative take trading system is as follows:

Ma Bol Takedown - Everything on 5-minute candle closes.

• Setup - wait until gold has popped above critical resistance, the kind that the cartel fights (in this case $940.
• Enter Short - when the price drops from above the 24-bar moving average to below the 24, 2 bollinger band in 15 minutes (3 candles) or less.
• Exit - on the close of the first green candle.

I'll be watching this to see if it "works".

MontyHigh, www.worldofwallstreet.us

Off Topic: For My Nephew And Wife - Four Graphs And A Spreadsheet

My nephew, age 28, and wife are getting their careers straightened and want to get on with their lives. He's got a new job about an hour's drive away in Northern Virginia and they need to move closer to the job. They are renting a real hole right now. They think now is a good time for them to buy a house.

Based on my watching the investing scene, I strongly disagree. This article covers the information I expect to give them tomorrow night them that will allow them to make a better informed decision. I'm not familiar with the details of their finances (pay, savings, etc.).

Please feel free to leave a comment here for them if you have something to add, especially if you can say anything about the experience of recent home buyers in Northern Virginia. 

USA House Prices

The graph that follows provides a graph of USA house prices that goes back to the late 90s. Housing is an illiquid market (meaning it costs a lot to buy and sell and it is hard to find a buyer if you are a seller) and these kind of markets trend strongly. That means if prices are rising, you can expect them to continue to rise and if prices are falling you can expect them to continue to fall. This is especially true of house prices going back a century. You can see this clearly in the graph below in that prices rose every year from 1992 through 2006. That's a 14 year trend. We are now three years into a down trend with no signs that the down trend is ending. This means we can expect to see house prices continue to fall.

The graph also provides a RED, BOLD long term trend line. This line shows that house prices were rising reasonably steadily throughout the 1990s at around the inflation rate (as they have generally done for around a century). Beginning in 1998, house prices started rising much faster than the long term trend (unnaturally fast). In investing parlance, the price went "parabolic". House prices were in a bubble that popped in 2006.

Its pretty clear from prior history with bubbles, that house prices can be expected to continue falling back to their original trend and will probably (as was the case with high tech stocks with the tech bubble) over shoot and fall far below the trend. So, we have good reason to believe that house prices will continue to fall another 10% (to approximately year 2000 house prices) and can be expected to very probably fall another 20 to 30%.

Long Term USA House Prices

Here's the "just updated" Case-Shiller 100 year home price chart. The main point I see is just how "unnatural" the recent housing bubble was.

Washington DC Metropolitan Area House Prices

Here's the graph for the Washington DC area.

This graph shows that:

1. House prices in the Washington DC area were even more in a bubble than the rest of the country (and will presumably have further to fall).
2. Despite the fact that the Washington DC area is insulated from the economic downturn by all those secure cushy government jobs and the cushy, secure jobs of the corporate wonks that support the government, area house prices are falling hard with absolutely no sign of a change of trend.
3. CONCLUSION: House prices in the Washington DC area can be expected fall at least back to 2000 prices (another 30%) and could easily fall below trend (40%, 50% or 60%).

Mortgage Resets

The graph below shows the number of adjustable rate mortgages that have recently reset or are about to reset. The first wave of those resets (sub prime mortgages) are what triggered the recent wave of housing foreclosures. These were loans given to people with no money down and with bad credit. When they reset, their monthly payments rose and these "home owners" could no longer afford the houses and they were (mostly) foreclosed.

The graph above shows that right now there is a relative lull in mortgage resets. This is the case even while house prices continue to plummet. It shows that in September the mortgage resets start ramping up. Of particular interest in the ramp up of Option Adjustable Rate mortgages and Alt-A mortgages. Here's the low-down on these:

• Option Adjustable Mortgages - these are mortgages that were given to buyers with no money down where they could pick a very low "teaser rate" for the first few years. While on this teaser rate, the principle of the mortgage actually increased. Meanwhile housing prices have fallen. All of the holders of these mortgages are underwater, which means they owe more on the house (much more) than the house is worth. The plan was for the price of the house to rise and before the reset came, the homeowner would refinance into a better mortgage. These mortgages, after they reset, have much higher interest rates than a regular mortgage would have had. The bottom line is that these homeowners are stuck with these after reset interest rates and most of these homes are going into foreclosure (triggering further house price declines).
  
• Alt-A Mortgages - these mortgages were given without documentation (with no proof of employment) with zero money down. All of these mortgages are also underwater and will probably be foreclosed on.

The bottom line is that there is very strong, clear evidence that another large wave of home foreclosures is coming that will very, very probably drive home prices down further. This will continue until mid 2012. So, we have another, independent, method that points strongly to another three years of falling house prices.
 

A Spreadsheet For The Next Three Years

The spreadsheet below (for the XLS click Download 20090629nephewhousebuy) is a very simple model of the expect profit / loss of buying a house of the approximate value that my nephew is considering buying given various outlooks for house prices over the next 3 years. 

There seems to be a pretty strong case for renting versus buying just on the bare economics.

Now, in the case of my nephew its may come down to trusting experts. So, what kind of expert do you want to trust? Someone who is part of the real-estate industry that benefits from folks buying houses? Someone who has a "this has worked for the last 50 years not counting the last 2 years" perspective? Or... someone who was right about the housing crisis that just occurred.

Click Download 20090606gsrdentonhousing for a segment of the Gold Seek Radio Chris Waltzek interviews Harry S. Dent who did correctly predict the housing downturn. That was a really, really useful interview and I recommend it highly.

What do you think? Will my nephew buy this argument? Should he?

MontyHigh, www.worldofwallstreet.us

China confirms 235,000 T copper bought; stops for now

From today's Thomson Reuters Metals Insider (click here).

"COPPER:

China confirms 235,000 T copper bought; stops for now

29.06.2009 05:26 AM

by Reuters News

* China's SRB bought 235,000 T copper - Caijing quotes NDRC

* Also 30 T indium, 5,000 T titanium, 590,000 T aluminium, 159,000 T zinc

* Beijing confirms halting stockpile drive as prices surge

* NDRC surprised that middlemen, not industry, biggest winner

By Polly Yam

HONG KONG, June 29 (Reuters) - China has stopped buying metal for government stockpiles after prices surged and middlemen cashed in on an initiative meant to support domestic in... read more"

Seems important. Seems like China was stockpiling copper both because it was cheap and because it helped avoid crashing their smelting industry. If the stock piling is over, the price could come down quite a bit. I guess I'll look for an opportunity to go short a copper contract sometime soon and see what happens.

MontyHigh, www.worldofwallstreet.com

Gold Takedown: Push Below Resistance

I'm going to start recording screen captures of gold "takedowns" on this blog. A "takedown" is a sudden move down that seems to be attributable to the gold cartel. I'll be keeping them for my own record to see if anything is tradeable. I don't know whether useful trading patterns will be found. I would prefer to find trading patterns which fight the cartel by going long, but I'll take what I can get.

Takedown presumed reason: Its monday and time to push gold below $940 support / resistance. Unemployment coming out this week (on Thursday).

Enter Short: 24 bar moving average crossing that crosses or touches the lower bollinger band.
Exit: First green bar.

MontyHigh, www.worldofwallstreet.us