The VRTrader.com VR Silver Newsletter - Monday 7/31/2006
"Tools for the High Performance Trader"
Copyright ©2006, All rights reserved.
LEIBOVIT FILES | by Mark Leibovit
Monday, July 31, 2006
Economic Data/Events July 31-August 4:
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MONDAY, July 31:
Chicago PMI for July (10 am ET)
Treasury auctions 3 & 6-month bills (1 pm ET)
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TUESDAY, August 1:
Personal Income & Spending for June (8:30 am ET)
Weekly Chain Store Sales (8:55 am ET)
ISM Index for July (10 am ET)
Construction Spending for June (10 am ET)
Auto Sales for July
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WEDNESDAY, August 2:
Treasury announces 3, 10 & 30-year auctions (9 am ET)
EIA Petroleum Status Report (10:30 am ET)
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THURSDAY, August 3:
Weekly Initial Jobless Claims (8:30 am ET)
Factory Orders for June (10 am ET)
ISM Services Index for July (10 am ET)
Chain Store Sales for July (12 pm ET)
Weekly Money Supply (4:30 pm ET)
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FRIDAY, August 4:
Employment Report for July (8:30 am ET)
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'A Crash Course in Uranium'
This past week's rally was economically driven. The latest Fed survey of economicconditions around the country underlined the inflationary impact of higher energy costs,while a number of regions reported a decline in the overall rate of growth in theireconomies. Signs of a growing economic slowdown boosted hopes for an end to interest ratehikes in August. In addition,, second quarter GDP showed that the economy grew 2.5%vs.consensus of 3.0%. It's perverse! Economic slowdowns are generally viewed negatively byWall Street EXCEPT now when it suggests that future interest rate hikes might be suspendedAND PERHAPS Bernanke may ultimately be forced to lower interest rates! Talk aboutdiscounting the future!
Indexes are now up five days in a row and we're overbought. In addition, the S&Pran smack dab into resistance at 1280 where we can draw some healthy downtrend lines. Yes,volume was positive Friday, 401(k) funds start coming in today and, yes, we can blow rightthrough resistance, but at least a little pullback here would be normal, i.e., 5 to 10S&P points. Of course, the worst case says the rally should end today or tomorrow andwe're headed south once again. Three things to watch: A weak dollar helps stocks, strongfeelings that Bernanke will not raise interest rates is another, and a cease-fire in theMideast would be the third though the stock market generally likes war, so long as no oneis tossing around nuclear weapons.
Perhaps we're too much the contrarian, but one great 'bull trap' (i.e., buyers getcaught in a false move) would be to see stocks remain strong during August (or even partof September) much as occurred back in 1987 (perhaps even new token highs in some indexessuch as the Dow Industrials) and then 'they' pull the rug from out underneath themarketplace in late September and October. With the Plunge Protection Team out there andCongressional elections in November, we're likely not to see as much of washout astechnical and cyclical indicators suggest possible, but we normally get a decentretracement.
Stepping back and looking at the 'double-bottom' formation in the S&P and DowIndustrials, a subject we've discussed herein numerous times, there is a strongpossibility that the 'Four-Year Cycle' low has already formed and all we would see inOctober would be a correction from a higher level or a retest of recent lows. With 'bluechips' rallying, names such as AT&T, GM, MRK, the market is taking on thecharacteristics of the 1960s which is ultimately a big positive. Overall, we're lookingfor a positive 2007 and were hoping for a substantial correction into the fall to takeadvantage of bargain basement prices. If the lows are already in place, the sale mayalready be over. For us, caution is heightened until October, but we will still try andcatch a piece of the action if given a comfortable entry point.
Aggressive traders would be looking to get short today or tomorrow for at least a minorretracement. Should internals flip flop negative and volume increase to the downside,watch out below!
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We've read that the Bush administration and Congress are about to give the go ahead for ahuge uranium trade deal with India. The rationale behind this policy shift is extendingour hand of friendship with the world's most populous democracy, helping the fight againstglobal warming (why aren't we doing it here in the U.S.?) and helping create more U.S.jobs. Apparently, there is a critical shortage in India and we can help save the day. Aswe've told you over the past couple of years the price of uranium has skyrocketed from $16per pound to $48.50 (and climbing). Traded as low as $7 back in 2000. On a percentagebasis this gain is greater than any other commodity we know about. We've also just readthat the Navajo Nation (up the road from us here in Phoenix) which is a major supplier ofuranium in the Cold War, has just announced it will ban uranium mining on its lands. We'vealso read that 15,000 new mining claims have been filed in the last year in Wyoming, Utahand Colorado as compared to the 100 claims filed in total over the last decade. A realshortage situation is now unfolding which will drive uranium shares and the price ofuranium much higher.
Here's your science lesson for today: Yellowcake!
Yellowcake is the product of the uranium extraction (milling) process; early productionmethods resulted in a bright yellow compound, hence the name yellowcake. The material is amixture of uranium oxides that can vary in proportion and in color from yellow to orangeto dark green (blackish) depending at which temperature the material was dried (level ofhydration and impurities). Higher drying temperatures produce a darker, less solublematerial. Yellowcake is commonly referred to as U3O8 and is assayed as pounds U3O8equivalent. This fine powder is packaged in drums and sent to a conversion plant thatproduces uranium hexafluoride (UF6) as the next step in the manufacture of nuclear fuel.
It is estimated that over 170 million pounds of yellowcake will be needed to operatethe current 441 nuclear reactors in operation around the world today, but only 100 millionpounds may be mined. In other words, there may be 175 reactors with no fuel that riskclosure. Add to that the fact that China and India have approved plans or broken ground on49 more reactors. In addition, we've read that Japan has just mandated a new reactorprogram. That could be another 20 reactors. The U.S. which sorely needs new reactors toreplace the need for fossil fuels, to help eliminate the need for the internal combustionengine and to clean the environment has done virtually nothing in this arena. This, too,folks will change.
Now you know why we're loaded up with uranium shares.
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Greenspan himself admits, "In the absence of the gold standard, there is no way toprotect savings from confiscation through inflation. There is no safe store ofvalue."
"If you want to know where interest rates are going, watch gold", said AlanGreenspan.
Consider the current "record high" crude oil price of $77.95 is only $36.25in 1981 dollars, when oil peaked at $38.34. Gold, at $630, is only $299 in 1980 dollars,when gold peaked at $850.
Gold held its 200 day moving average when it traded down to $550 back on June 14 andhas subsequently recovered to $664 (now trading at $631). Short-term indicators arepointing higher, but we're uncertain whether there is enough 'energy' in this market totake it back to $664 or certainly the big $730 high posted on May 12 at this time. We'relight in our commitment to gold at this time thinking there may another buying opportunityat lower prices between now and fall, so stay tuned. Long-term positions, however, shouldnot be disturbed. Indeed, this is a long-term play and those of you who have followed ourcommentary since 2001 know that we've had our share of ups and downs along the bumpy roadhigher. We've speculated that 'time cycles' carrying out to 2014 or a big longer for anultimate push to the 'big targets', that is, $2000 to $5000 per ounce. The thinking hereis that the greatest upward acceleration occurs toward the end of a cycle. The inverse istrue for down cycles. If, indeed we're in a 15 to 20 year up cycle which began in 1999,this logic should hold.
Also, in closing, don't forget that this is a highly manipulated market. Besides thenormal influence of central banks (which has historically been negative) we have the addedingredient of our own Federal Reserve and U.S. Treasury. There were 'hints' in thedepositions in the Blanchard/American Barrick lawsuit that, yes, we (American Barrick)manipulated gold prices and, yes, we were 'told' to do so by 'a higher authority'. Scarystuff.
GG - Goldcorp Inc 26.84
COMPANY PROFILE:
WHY WE LIKE IT: We still like the golds here and GG looks to be putting in ahead and shoulders bottom. It is currently sitting right on its 200 day EMA.
Goldcorp, Inc. engages in the acquisition, exploration, development, and operation ofprecious metal properties in the Americas and Australia. It engages in mining and sellinggold, silver, and copper. The company's operating properties consist of the Red Lake Minein Canada; the Alumbrera gold/copper mine in Argentina; the Luismin gold/silver mines inMexico; the Amapari gold mine in Brazil; the Peak gold mine in Australia; and the Wharfgold mine in the United States. Goldcorp also has interests in the Campbell mine andVirginia Gold mines in Canada; the Porcupine and Musselwhite joint ventures in Canada; a50% interest in the La Coipa gold/silver mine in Chile; and a 40% interest in the PuebloViejo development project in the Dominican Republic. Goldcorp primary develops the RedLake mine located in Ontario, Canada; the Los Filos gold project in Guerrero state,Mexico; and the Eleonore gold project in Quebec, Canada. In addition, the company, throughits subsidiary, Silver Wheaton Corp., engages in silver mining. Goldcorp was founded in1954 and is headquartered in Vancouver, Canada.
POTENTIAL TRIGGER: Buy long at market with risk back to 24.07. Looking for 36.
Suggestions? Comments? on the newsletter service. We would like to hear from each andeveryone of our subscribers. Our email is mark@vrsurvey.com.
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