The Crash Market Stock
Posted by Silberman, Dec 1 2007, 01:29 AM
Market to Fed: Don’t fight the tape!
Well seasoned traders know that for any trade to work, to work big, that trade needs to be in synch with primary trend of the market.
Now clearly the Fed is a not for profit enterprise but their well healed trading houses should have know better. For months we have witnessed an expanding money supply and for months we have seen a strong bid come into the markets at the most opportune times. But regardless of all the stimulus and props, the markets have spoken loud and clear as the Dow closed below its August lows. Reasserting the traders principal that it is never wise to fight the tape. For all the Feds machinations and rate cuts it seems we may still be on the verge of a bear market.
To be honest, we thought the Fed would be able to inject enough liquidity to keep the markets levitated. We thought this Bull Run in Gold Stocks would coincide with further strength in the stock market. But as the Dow broke below its August lows today (and Gold stocks remained above their August lows) it seems this was not to be. We are left asking the question:
Will Gold Stocks eventually fall with the Stock Market or will we see a divergence as in 2000 - 2002?
![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/chart1_yields_nycomp_hu-759186.JPG)
Chart 1- Yield Curve widening; NY Composite falling (green) ; HUI rising (pink)
It is important to remind ourselves that Gold’s biggest catalyst is a loss of confidence in the financial system.
A proxy for confidence in financial market terms is the yield curve. When the yield curve widens (the red chart is rising) it signifies a response to slowing economic activity. That is, the Fed reduces short-term interest rates versus long-term rates in order to encourage borrowing short and investing long. This happens during periods of slowing eco growth such as now.
Another proxy for confidence is obviously the stock market itself. The green line is the New York Composite index which by no coincidence is starting to fall as the yield curve widens (much as it did in the 2000 – 2002 blue rectangle).
It was under these same conditions that the HUI (pink line) first took off in late 2000 rising over 300%.
The [false] notion that Gold Stocks are high Beta plays on the stock market arose in 2003 and again in 2005 when both markets rallied together under a deluge of liquidity. In our opinion, the difference between today and then is that earnings growth in the NY Composite index will be hampered by credit and consumer problems, whilst Gold Stocks will be emerging from a 1 year consolidation and likely to offer far better value.
That is, whilst the New York Stock Exchange remains on the edge, we think Gold Stocks will surge as the primary beneficiaries of fresh liquidity.
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks and small caps listed in the US, Canada and Australia.
Please visit my website for a free trial to my newsletter.
Click here: http://blog.goldandoilstocks.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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Gold Stock Quotes - a contrarians delight
Posted by Silberman, Nov 21 2007, 05:55 AM
You gotta love it!
CNBC broadcasts to the world that Golds rally is long in the tooth and now over.
Market Vane's bullish consensus for Gold is above 90% and by all accounts predicting this rally cannot last much longer.
A lot of very good newsletter writers advocate scaling back on Gold Stocks and a large number of gold-bugs are calling for a large correction.
So what do the Gold Stocks think of all of this?
Not much!
Its a routine correction in an uptrend:![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/hui_moving_higher-780221.JPG)
<b>Chart 1: HUI bouncing off its lower trend line - upward momentum still intact</b>
The HUI had been rallying strongly off its August lows and a rest was in order. In our last subscriber newsletter we highlighted the fact that the MACD and RSI had failed to confirm the new price high and a correction would soon begin. We also noted that that this would be a short sharp affair as our targets (mentioned below) had not yet been achieved.
This is classic Bull market action. Once the bull has the bit between its teeth it will do everything possible to shut investors out. A short sharp correction is just what the Dr ordered. It has the effect of working off an overbought condition without allowing investors to climb onboard. No, investors must continue to chase prices higher as this bull will not allow anyone on its back right now.
Update on Short-term Targets
We originally calculated the magnitude of this current wave by inference from the previous wave. That is (402 – 285) / 285 = 41% - multiply by the golden fib 0.618 = 25.4% which is the magnitude of this wave. Extend from the previous top for an approximate target of 500. Since we didn't get there we estimated that this movement had further to go on the upside. Whilst not an exact science, we feel that there is now another 90 - 100 points in the HUI before a larger correction sets in.
As we've been telling subscribers, the anatomy of a Gold Stock bull market is that large caps move first and the small caps join the party later – sometimes up to 2 months later. We feel the time has come for the small caps to now perform and that's where investors' focus should be.
Happy trading!
p.s. We are still sticking with our target of 750 within 1 year as detailed in My Webpage
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks and small caps listed in the US, Canada and Australia.
Please visit my website for a free trial to my newsletter.
Click here: My Webpage
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis
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HUI Whisper Targets
Posted by Silberman, Nov 7 2007, 06:52 AM
Shhhhhh!
Don’t look now but the Amex Gold Bugs Index has blown through resistance at 401 (the May 2006 high) and made a run to 430 before falling back to the current 419. Based on the lack of excitement and publicity our guess is more to come.![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/hui_1yr-774875.JPG)
<b>Chart 1: HUI break out</b>
Now mind you, a move to new highs is never a fait a compli that a breakout is at hand. Heaven knows we have endured many false breakouts over the years.
There are a few technical analysis tools one can use to determine if a breakout is for real. The most popular is a daily close 3% above the breakout level (414 in our case which has been achieved). The other is 3 consecutive daily closes above the breakout level (done). In effect, both indicators are a means of gaining confidence either through price or time.
Incidentally, we find it difficult to buy breakouts for this very reason. We never know if they are for real. We prefer to bottom pick oversold stocks – but that’s just our style.
Since the probabilities now favor this breakout being the real deal, lets indulge ourselves and calculate a few potential targets.
<b>How high will the HUI go?</b>
Based on our Fibonacci extensions we expect 750 within 6 months to a year. How do we arrive at that?
We take the magnitude of the previous wave up (165 to 401 which is a 143% move). We multiply that by the Fibonacci ratio of 0.618 to arrive at a potential wave magnitude of 88%. We then extend the top of the last wave (401) by 88% to get 750.
We say 6 months to a year because all preceding up waves have been around that duration.
Now let’s get really speculative!
<b>How about a long term target Greg?</b>![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/HUI_long-764348.JPG)
<b>Chart 2: HUI bull market</b>
A technical difficulty in projecting a long-term target (based on the existing wave structure) is that it is not clear when Major Wave 1 ended and Wave 2 began.
For example, did the 2-year correction between 2004 and 2005 represent the end of wave 1 or did the top in May 2006 represent the end?
Our feeling (and it is just that) is that the entire period from 2004 to now represents a rolling correction and the end of major wave 1. We base this on the fact that these correction periods were longer than the intermediate corrections in 2001 – 2004. That is, the money presses were churning at a consistently high rate between 2004 and now and the yield curve was flattening over the period. As opposed to now when the yield curve is widening again.
That said, we calculate our target by taking the magnitude of Wave 1 as 401 minus 35 or 1000%. Multiply by the Fibonacci ratio 0.618 and we arrive at a projection for this wave of 646%
Great Greg! So how about the target?
Wait for it!
We think 3,000 is achievable by the end of 2009 (401 x (1+6.46)). That will mean several stocks rising 5x or greater.
<b>Now we all know why we’re here!</b>
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
<a href="mailto:greg@goldandoilstocks.com" target="_blank">greg@goldandoilstocks.com</a>
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks and small caps listed in the US, Canada and Australia.
<b>Please visit my website for a free trial to my newsletter.</b>
Click here: <a href="http://blog.goldandoilstocks.com" target="_blank">http://blog.goldandoilstocks.com</a>
<i>This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.</i>
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Using Commodity Prices as an Inflation Calculator
Posted by Silberman, Oct 17 2007, 01:46 AM
Using Commodity Prices as an Inflation Calculator
Consumer Price Inflation has finally arrived and Gold will have its day in the sun yet.
Whilst the credit crunch seems to have abated, it wasn’t long ago that financial institutions were getting bailed out every other day.
Let’s see, we had Countrywide Financial, German IKB and UK based Northern Rock.
And the rumours. Oh the rumours. Let’s see, there was rumours of liquidity problems at Barclays Bank, Alliance & Leicester and Australian Adelaide Bank and on and on…
Central Bankers the world over predictably come to the aid of ailing financial institutions by providing loan guarantees, emergency funding and rate cuts in an attempt to keep credit markets operational
The message ofcourse has not been lost on Gold.
When central bankers open their check books for all to come and borrow, to borrow with abandon, the message the market receives is clear. Nobody will be left to fail, central banks will print as much money as it takes to ensure this. Predictably, Gold will continue to rise as the bailouts stack up.
Loose monetary policy is going to unleash devastating price inflation and will further underpin this bull market in Gold.![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/10yrtreas-767004.JPG)
Chart 1 - 10-yr Note Yield bouncing off 50 month moving average
Bonds are challenging their 50 month moving average and long-term uptrend. Probabilities favour higher yields going forward.
Talking about inflation, what better way to gauge Consumer Price inflation than by looking at food prices? Just take a look at this chart of Corn going back to 1972!![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/corn-751992.JPG)
Chart 2 - 35 year Corn - 400c is tough resistance
400 – 420c has been incredibly strong resistance going back as far as 1973!
With the continued strength in Current Oil Prices it seems likely that Corn will finally breakout of this consolidation and unleash a fire storm of price inflation.
This will push long-term rates sharply higher along with Gold as the safe haven investment of choice!
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks.
Please visit my website for a free trial to my newsletter.
Click here: http://blog.goldandoilstocks.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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Oil Stocks versus Current Oil Prices Revisited
Posted by Silberman, Sep 30 2007, 02:26 AM
The ratio of Oil Stocks to Current Oil Prices has been a good predictor of short-term stock market performance. What message does it have in store for us now?
This market has something for everyone.
If you’re a Bull, then there is ample reason to believe stocks will soon be blasting higher. If the sub-prime disaster cannot pull stocks much lower than what will?
If you’re a bear, you would be considering the recent volatility as an opening salvo in an ongoing Bear arket.
So which is it?
Bull, Bear or perhaps neither but a prolonged range bound market to frustrate everyone.
In July we published an article called Oil Stocks lagging Current Crude Oil Prices where we explained that the ratio of Oil Stocks to Crude Oil was a useful gauge for the future direction of the stock market. The rationale being that Big Oil Companies are major components of the S&P500 and the Dow Industrials. And as such their movements are more in synch with Large Caps than with changes to the price of Crude Oil.![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/stock_crude_ratio-772351.JPG)
Chart 1 Oil Stocks: Crude Oil ratio as a predictor of the Dow Industrials
This hypothesis has worked well so far. When we last highlighted this ratio in August it had broken support (lower green line) but the stock market had yet to sell-off (blue line) but it subsequently did.
Current interpretation: The subsequent rebound in the ratio (after breaking support) is typical technical action. After a breakdown, price usually comes back to test prior support which is now resistance. Whether this is the case here or whether the break was a fake out remains to be seen. If indeed the break is real then the ratio will retreat to around 15.5 and the Stock Market will follow lower. In other words, the Bears will have the day!
The only thing that troubles us about the above analysis is that both Oil and Oil Stocks look so damn bullish:![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/Oil_index_hs-717264.JPG)
Chart 2 - Oil Stocks and Crude Oil breaking out of Reverse H&S formation
Both Crude Oil (blue line) and Oil Stocks have recently broken out of their basing patterns and it is difficult to conceive of the market falling apart whilst Oil Stocks charge ahead (even if they do lag Crude).
Interestingly enough, Crude has broken above its old July high but Oil Stocks have not. Thus ensuring the ratio (bottom of chart in red) will continue to move lower and casting doubts over the sustainability of the current stock market rally.
As we said, this market has something for everyone right now!
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks.
Please visit my website for a free trial to my newsletter.
Click here: http://blog.goldandoilstocks.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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Gold Stock Market Quote says BUY!
Posted by Silberman, Sep 17 2007, 12:32 PM
The sell-off in August is but a distant memory. Gold stocks reversed sharply higher in September culminating in a 6.6% 1-day gain. Is there anyway to cope with this volatility?
The vicious sell off in August is but a distant memory. Weak hands panicked and sold out as the HUI capitulated to long-term support at 280. It was ugly but it did the job.
Then, unencumbered by speculators looking to make a quick killing, the HUI reversed sharply higher in September culminating (so far) in a 1-day gain of 6.6%.
So how is the average investor supposed to cope with this extreme volatility?
We try hard to formulate risk management techniques that prevent us from selling into these fire sale panics. One approach we have adopted is to remain focused on the long-term by shutting out today’s gold price machinations. That’s why we keep a copy of this chart close at hand:![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/yield-curve-excites-708531.JPG)
Chart 1 - Gold Stock Price does well when Yield curve widens
It’s a bit of a complicated chart so let’s break it down:
The main chart shows the ratio of 5 year bond yields versus 30 year bond yields. This in effect is the yield curve which shows how long-dated bonds perform versus short-dated bonds. A rising chart means that the yield curve is widening which is a monetary response to slowing economic growth. Short term rates decline relative to long term rates in order to entice people to borrow short and invest long, stimulating economic activity.
The Green line represents the New York Composite Index, a market value-weighted index that is made up of all of the NYSE stocks.
The lower chart represents our friend the Amex Gold Bugs Index (pink line).
Current Interpretation:
The main driver behind an extended move in Gold and Gold Stocks is a marked increase in the money supply. This is usually predicated by a widening yield curve. To that end, the current situation looks remarkably similar to 2000 – 2002 (blue rectangle).
The yield curve has recently blasted above resistance and broken out to the upside (as it did in 2000/02). As explained in Prime interest rates and the market value of Gold, the yield curve is destined to widen even further.
It’s not by coincidence that the New York Composite index (green line) has turned down (as it did in 2000/02) in response to growth fears.
Now for the exciting part:-
It was these exact conditions back in 2000 that kicked off the exhilarating 2 year run in Gold Stocks. Most major Gold stocks rose over 500% and some juniors even more. Much more!
We are getting ever closer to that time when the market will begin discounting the above bullish fundamentals and Gold Stocks, unencumbered by weak hands, will take off higher.
Nobody said it was going to be easy!
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks.
Please visit my website for a free trial to my newsletter.
Click here: http://blog.goldandoilstocks.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
Natural Gas Future Prices and Alternative Energy S
Posted by Silberman, Sep 3 2007, 09:48 AM
Natural Gas future prices are on track for a seasonal low in September. As a result, Natural Gas Investments look set to be the next energy cab off the rank.
Our recent articles on the energy markets have generated lots of feedback.
In Oil Stocks lagging Current Crude Oil Prices we concluded that we were about to see a weaker stock market – which was the case.
In Uranium Mining Stocks grossly under perform Oil Stocks we tackled the issue of why Uranium stocks were severely lagging Oil Stocks.
But it doesn’t end there!
The energy markets are a conglomeration of different energy sources whose fortunes have been severely mixed.
We dealt with the Uranium craze in the above article but take a look at the US sanctioned Ethanol madness:
![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/Pacific-Ethanol-721064.JPG)
Chart 1 - Ethanol madness
Pacific Ethanol rose over 400% between October and April and then fell off a cliff (along with Ethanol prices).
Pacific looks like it is trying hard to find a bottom at $12.
Coal was also the go to man early on in the energy cycle:
![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/coal-index-788594.JPG)
Chart 2 - vicious correction in the DJ Coal Index
Around the same time as Ethanol was doing its thing, Coal prices mounted their own surge higher. And as with Ethanol, May proved to be Coals nemesis as the index lost over HALF its value in the preceding correction.
It looks (to us) like the Coal index formed a bottom at 225 – 250.
And the best for last – Natural Gas. First let’s take a look at the commodity itself:![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/natural-gas-742440.JPG)
Chart 3 - Natural Gas Prices got clobbered from $15 to $4.53 - looks like a seasonal bottom
Natural Gas had a spectacular run-up in 04 and 05 but that ended abruptly in 2006 as the price CRASHED from $15/mmbtu to $4.35 in September 2007. That’s a fall of 71% which culminated in the multi-billion Dollar collapse of hedge fund Amaranth.
Before we move on to look at a chart of a Natural Gas Producer, note how the price consistently bottoms in August / September (2003, 2004 and 2006). In fact Natural Gas has a seasonal tendency to make its lows around this time -- there is no reason to suspect this year will be different.
The collapse of Natural Gas prices did no favours for the stocks of Natural Gas Producers. Take a look at this swan dive by Daylight Resources Trust:![[Image Not Displayed]](http://blog.goldandoilstocks.com/uploaded_images/daylight-resources-777944.JPG)
Chart 4 - Swan Dive Daylight Resources
Daylight Resources is predominantly a Natural Gas Canadian Energy trust. Canadian Energy Trusts are producers that distribute all of their income to unit holders. Based on the recent price rout, Daylight now yields an incredible 23%.
The recent swan dive is as a result of:
1. The crash in the price of Natural Gas
2. Spiralling production costs (common to all producers)
3. An unfavourable tax amendment to the treatment of Energy Trust distributions (effective 2011).
With so much bad news priced into a sector and with the price of natural gas at a probable turning point, Energy Trusts such as Daylight may be the gift of the century. You are effectively being paid 23% per annum whilst you wait for capital appreciation to kick in (assuming it will eventually kick in).
Yip, markets can become completely irrational.
More commentary and stock picks follow for subscribers…
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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks.
Please visit my website for a free trial to my newsletter.
Click here: http://blog.goldandoilstocks.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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