Yesterday’s trade recommendations scored two dead-center bullseyes, each calling a rally top within a single tick. In Gold, we were looking for the June Comex contract to leap sharply to 910.30. When the dust had settled, the futures had traded as high as 910.40, the peak of an $18 rally. Although the high fell just shy of the 911.90 print needed to refresh the bullish trend, it seemed a foregone conclusion the futures would get there, and soon, since they were maintaining altitude in after-hours trading following a weak pullback from the intraday peak. Comex Junes were an opportune short sale for day traders glued to the 910.30 target; now, however, if they continue rising to at least 911.90 as we expect, bears had better run for cover. A more detailed forecast appears in tonight’s touts section, so check it out.
June Crude’s rally proved equally felicitous, since it peaked just a penny below a Hidden Pivot target we’d flagged at 49.93. The analysis had included a detailed trading strategy, given as follows: “June Crude appears to be making a turn from a so-far low at 46.72. The rally projects to 49.93… [so] you can get short at 49.91 with a stop-loss as tight as 11 cents. Switch to a 15-cent trailing stop on a pullback to 49.58, and use 49.30 as a minimum objective.“ In the actual event, after hitting the 49.93 target, crude sold off sharply to 48.52, yielding a maximum theoretical profit on the trade of around $1,400 per contract. In practice, a single contract tied rigidly to a trailing stop would have produced a gain closer to around $300.
Frankenstein’s EEG
Now, with Friday Follies coming up, we hesitate to second-guess the broad averages, since they have been describing the kind of price patterns this week one might expect to find on Frankenstein’s EEG tape. Indeed, the stock market’s price action of late has been about as close an analog as we could conceive of for the brain waves of a deranged, quasi-human monster. That said, we could see the E-Mini S&P futures falling to 809.75 today if sellers dominate. That would be equivalent to a 300-point loss in the Dow Industrials. Caveat emptor!
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Gold appears to be transitioning from it’s secondary use as a SHTF investment into its traditional role as a hedge against inflation.
Things were getting scary, people didn’t know where to turn. Cash is getting trashed, equities are getting disembowled. Where to turn? How about a little nostalgia?? Lets turn to our long lost buddy the “yellow metal”.
Now things are better, but are they? The equities market looks renewed, but something doesn’t feel right. There’s alot of shenanigans going on out there with mark to model, and quantitative easing, that little voice in investors’ heads is saying “let’s round out our investments with a l’il gold just in case…”
Gold is benefiting from deflationary fears of armageddon and the inflationary ghosts of the Weimar republic making two negatives equal a positive for the price of gold.
Don’t underestimate this rally in equities, there’s some real force propelling it. You may get a little retracement pull back, but this bull’s got some steam behind it, don’t get trampled. If you’re a bull right now, you’re gonna look like Nostradamus for a while and be treated like Nosferatu when sanity takes over again.
Speaking of fears of Armageddon, are you following this story about the Swine Flu outbreak in Mexico?
If it is a pandemic you might be wise to stock up on all the things you like. And do it quickly. Other than wide-scale immunizations, about the only immediate solution Governments have at their disposal to thwart pandemics is ….border closures. And that means reductions in trucking and cross border trade. Restrictions on travel overseas, and god forbid , airport closures. Not good.
Cam
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Thanks for the heads-up, Cam. I agree that it’s wise to take small precautions now rather than impossible ones later. RA
No problem Rick,
I see Janet Napolitano has just declared a public health emergency, the Mexican government is closing schools and public gatherings are being discouraged. The stadium in Mexico city was hardly attended on fears of transmission and we have leapt from a small story to a major event. So much so that Homeland Security and the Centers for Disease Control CDC) are promising daily briefings.
I think we can expect widespread hoarding of food and supplies people see as necessary to their welfare if this story starts to grow legs and takes off. We are already being told that a vaccine could take 6 to 8 months to be manufactured in quantities sufficient to meet the needs of emergency service personal, the military, police services and government. The general population could be at risk for a much longer period of time. I think we need to be concerned more from the perspective of the “risk perception” than the risk of illness itself at this stage. But as we know from markets, risk is perception on some days.
Now we are being told the illness is widespread across North America. It has been found it 8 states and one Canadian province. It is geographically widespread throughout Mexico. The early reports suggested it was killing as many as 5% of the people it infected (900 infections, upwards of 60 deaths). Those are the kinds of numbers that will cause parents to keep their children home from school and away from other children. But this is of course only the first reaction of the public. This kind of an event really has the potential to take the wind out of the economy, (any wind that was left anyway).
While we don’t want to panic but it would be prudent to take some basic steps to stock up on goods that might be needed if this develops into something more sinister, just in the event that we are forced to spend more time at home and separate from other people. The vulnerability of our society of course is that we live in such large clusters, in urbanized environments and cities. It is difficult to isolate ourselves from one another. Features like central heating and central air conditioning in apartment building and high-rises means that even if you do stay home for your own protection that you are still at risk of illness if your neighbors have it. Yikes.
But from an investing perspective, I wonder if this might not be that trigger that brings on an inflationary spike in food, rural housing, medications etc. Or will this just deflate the hell out the parts of the economy that have managed up until now to have thwarted the big trend.
Gee, I wonder what Monday will bring.
Cam
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