Friday, July 2, 2010

I cannot recall ever having seen a selloff obliterate Hidden Pivot supports as easily as yesterday's landslide did. I'd proffered 1212.80 target as a place to "back up the truck" because it was an exceptionally clear and compelling target.  In the actual event, the futures took a brief, $7 bounce from two ticks above that number...and that was it.  The fact that the rally died after just a few bars warned of the carnage yet to come.  The selling was best explained by Dan Norcini at Jim Sinclair's web site. He  saw it as an unwind of gold/euro hedges.  The euro soared yesterday, apparently buoyed by the idiotic notion-of-the-day -- that perhaps Europe's financial situation is not so bad as was thought earlier ("earlier," meaning, perhaps, the day before).  This is nonsense, since Europe is in the same deflationary bog as the U.S., irrespective of whether they take "austerity" to heart or instead choose to run the printing presses at full steam.  Equally nonsensical was the idea that gold was due for a thrashing just because of a (presumably fleeting) blip in sentiment favoring the euro. In fact, Gold has been rising -- and will continue to rise, once the hysteria we witnessed yesterday subsides -- simply because the entire global financial system is being kept (barely) afloat by lies, hubris and an epidemic of delusions.  Ditto for the dollar and U.S. Treasurys -- possibly the worst excuse for "safety" that an investment world gone insane could conceive of.  We'll give Dan Norcini the last word, since his assessment seems dead-on: "Gold is not going to lose its safe haven status because we experience a day of trade unwinding on a large scale. When the focus shifts back to the woes involving the health of the US currency, gold’s fortunes will revive and it will begin moving higher." Concerning the technical picture, there is no question that yesterday's slide

Hysterical short-covering in the euro yesterday is said to have been the cause of yesterday's plunge in commodities, including gold and silver, and the drubbing of the dollar.  The jury is still out on the rally's staying power, however, since it failed to generate a bullish impulse leg on the daily chart (see inset).  That could change as early as today with a push touching 1.2685 -- about 1% above yesterday's high.

Blame seasonality for the fact that sellers were unable to put stocks down for the count yesterday.  Weakness remains the underlying theme, however, since DaBoyz were once again unable to rally the Dow back to unchanged even though volume was relatively light.  The 992.50 target we've been using remains as compelling as ever, but our joy-ride will still be subject to a possible short-squeeze rally today to as high as 1061.00, the midpoint sibling of 992.50.  I wouldn't suggest shorting there mechanically if the opportunity arrives, but it shouldn't be too difficult to find camouflage on the first 'abc' downtrend following a print at or near 1161.00.

[This commentary from Rich Cash drew such a heavy response that we are re-publishing it today so that it can enjoy wider readership and a second round of debate in the Rick's Picks forum.  It is the second of two radical proposals we have aired for dealing with debt. In the first, Ben Rositas, a frequent contributor to the Rick’s Picks forum, argued for the redistribution of America’s gold bullion to households and to all who are owed.  In the essay below, Cash, another forum regular and blogger, broaches the idea of a return to Biblical Jubilee, or something like it. Although we’ll concede that neither idea is even remotely feasible politically, consider the alternative: a debt deflation that locks the economy into a grinding Depression for the next twenty years. RA ] Here’s Rich, with a message of (debt) forgiveness in his heart – and a plan: “One Friday in the San Francisco Financial District after work, a group of movers and shakers got together at Harrington’s Pub for a liar’s dice game that rocked their foundations and changed their lives.  There was such intense play, they ran out of Federal Reserve Notes. They played with cigarettes, matches and pieces of paper IOUs until stakes reached trillions. They worked in an industry where the credit of their word was their bond, yet the stakes of the game became so high, they agreed to forgive each other’s IOUs so they could live to work and play again. Leviticus 25 “In the Jubilee Year of Leviticus 25, those enslaved because of debts are freed, lands lost because of debt are returned, and community torn by inequality is restored. U2’s Bono invested a lot of time with the Jubilee2000 organization and World Economic Forum, arguing the best way to promote the development of poor countries