Just a Bear Rally?

Now that was impressive! An earthquake, of all things, shakes the Big Apple yesterday as it hasn’t been shaken since 9/11, and Wall Street never even breaks stride. Early reports suggested that some denizens of the Bowery were fearful the city might be under attack again.  They may have breathed a sigh or relief, however, when it became clear that the tremor was “only” a magnitude 5.8 earthquake, not a suitcase nuke. Before the Virginia-centered quake hit shortly after 2 p.m., a strong rally was already in progress from the night before, propelled by who-knows-what.  The temblor had no discernible on the markets, but it rattled big cities up and down the Middle Atlantic coast.  Breaking news pushed Hurricane Irene temporarily off the front page even as the mounting storm, with sustained winds above 90 mph, threatened to wreak havoc on the East Coast this weekend. Traders were unfazed by it all, however, and by day’s end the buying spree had become a runaway freight train, sending the Dow up 322 points. The mania steepened in the final hour, sellers evidently having realized that resistance was futile. 

At the same time, Gold and Silver were getting pummeled, as so often occurs when the stock market behaves as though all were right with the world.  December Gold came off its overnight high by $93, hitting a low of $1819 in the late afternoon, while September Silver was off a whopping $2.78, or a little more than six percent.   As the Great Recession tightens its grip, we look forward to a resumption shortly of the buying in bullion and the continuation of the stock market’s penitent decline. Even so, we are forced to acknowledge that there is nothing in the technical picture that would preclude a very strong bounce here – to new highs, even. We said as much in a Hidden Pivot analysis of the Dow Industrials disseminated to subscribers on Monday:  “The summer’s powerful selloff is still merely corrective on the monthly chart.  I mention this not because I think the market is likely to come roaring back to new highs, but to remind you that we must always interpret the signs disinterestedly.  If we do so here, it forces us to acknowledge that the second phase of the Mother of All Markets, begun a little more than a year ago, exceeded the required “internal” and “external” peaks to create a bullish A-B leg of monthly-chart degree. Although it has recently given way to a less powerful bearish one suggestive of a ‘duel,’ this dynamic, strictly speaking, implies that the bulls still hold a slight edge.”

Heavy Insider Buying

Cutting to the chase, the charts could be interpreted as saying the so-far 2147-point selloff in the Dow Industrials since July 21 is just a normal, healthy correction in a still-breathing bull market. We should note as well that our astute colleague Steven Jon Kaplan, The True Contrarian, has been acquiring stocks aggressively of late, in part because of insider buying that he says has reached “incredible extremes.”  It sounds surreal to us that stocks would be embarking on a major bull leg just as the economy is beginning to weaken noticeably.  Stranger things have happened, though, especially in the lunatic world of stocks and bonds, and so we can only resolve to be more diligent than ever in reading the technical runes with cold objectivity.  If you want to closely follow our analysis, which is updated round-the-clock, consider taking a free trial subscription to Rick’s Picks. It will give you access not only to timely analysis and detailed trading recommendations, but to a 24/7 chat room that draws savvy traders from around the world.

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  • PA August 25, 2011, 4:49 pm

    Robert, very good points indeed. I should tell you I turned bullish on gold in 2000. These past two weeks I have reduced exposure substantially since it went so pabolic (in linear graph terms). If you have visited the FOFOA pages you will see some other arguments over the superiority of physical over stocks. Yes, storage is a problem and every gov’t has the “right” to steal it from citizens. Gold in the ground is also easy to confiscate, although it is easier to store! I will watch your trade with ineterst and I wish you success. Personally I am going to wait for a larger correction

  • mava August 25, 2011, 6:21 am

    Yeah, sorry for interruption, – dog needed a run around and so did I.

    So, yes, allow me to point out that the rich in power are not owning gold stock. No need to. It is inferior to a money press. This puts gold stock owners at what exactly percentage versus the poor? Even smaller than the percentage of so-called rich versus the poor.

    What this means is that it is not going to require anything extraordinary to take their gold mines away.

    Seriously, let us imagine Obama puts it so that “these ultra-fat rich gold mine stockholders owning all the gold that the country needs”, and say he does it at the time when dollar had crashed and everyone struggles to even get some food.

    At that point, how secure would be the ownership of gold stock?

    Your other argument is that it would make no sense economically. Of course, I agree. But, this is a logical argument, sober argument of a thinking person. This is not how world works.

    The poor are not going to care, and for Obama… let me put it this way: does a thief care that say a capital does much more good in a hand of a person who knows how to use it productively? Nope. Why would Obama? For him it would make perfect sense. Take over gold mines – have some real money at your disposal – reduce the pain short term.

    In 1917, what sense economically did it make to nationalize the economy of Russia? Same just went for Venezuela. Australia? This people do not care about economy. It helps them personally short term, and that is all that counts, – logic of a thief.

    • Robert August 26, 2011, 8:26 pm

      There are only three kinds of poor people:

      1) The hopeful who only seek the opportunity to apply what resources they do have in order to make themselves un-poor. (this was me circa 1977)

      2) The hopeless who have succombed to the idea that since they are poor, they must forever be poor.

      3) The lazy who would simply rather beg borrow or steal then apply themselves.

      Now, you will notice that these 3 conditions do not describe ONLY poor people- they actually describe ALL people, regardless of social status.

      So, when our mental midget President says he wants to eliminate poverty, he is speaking from a position of myopia, or of outright ignorance, because the real enemies of personal acheivement and societal bliss are greed, sloth, and envy.

      Poverty’s got nothing to do with it.

  • mava August 25, 2011, 2:51 am

    Robert,

    Awesome post. I am actually very very bullish gold. I am laughing at Bill Handel’s “gold has no intrinsic value” daily ( they play this red propaganda on 640am here in Kali, between “the idiot” Bill and “the expert” (stock pusher) Chris Paine. And I am still waiting for the expert to mention that dollar has no intrinsic value (unless one is willing to go so un-hygenic in the restroom), and that the gold does have intrinsic value, and that is that it can only be made within a star*.

    No luck so far, but, like I said, that is a regular red propaganda. I am sure the expert Chris knows the value of gold, and so does Bill as he is a business owner and makes easy money every time FED inflates.

  • Andrea August 25, 2011, 2:11 am

    The previously undetected fault under Virginia has
    already been named.

    It’s Bush’s Fault.

  • Robert August 25, 2011, 12:19 am

    Mava-

    Nationalizing miners is a common fear I hear often (ranks right up there with fear of the black-suited goons knocking door to door to take away your Krugerrands). Here’s my take:

    Nationalizing (confiscating) public mining companies would accomplish nothing except:

    1) pissing off shareholders
    2) pissing off company employees

    now, I agree that in such a scenario, shareholders would be ignored, but you can’t ignore the miners. Without the qualified skilled labor to extract and refine the gold, ownership of the dirt is irrelevent, and the political backlash would be a pretty large risk to take…

    Look, even with all the zaniness in Washington these days, the US is still not Venezuela.

    Consider that the state of Utah just made Gold and Silver legal tender- so how could the Feds compel a Utah citizen or company to surrender their Gold without compelling everyone else to surrender their Federal Reserve Notes?

    So, I therefore believe that the government path to reset (if such a reset were to actually occur) would only take one of two paths:

    1) Explicit re-valuation- One day we wake up and the Fed/Treasury have marked their Gold assets at a price that more effectively offsets the liability side of the balance sheet.

    2) Implicit re-valuation- The Fed merely creates the dollars to purchase Gold out of the open market (much the same way they do with Treasuries).

    Option 2 is certainly the most likely to me, but this is the Fed’s “nuclear option” that would only occur when the day comes that the Fed is effectively the only willing purchaser left absorbing all US Treasury securities.

    But back to the HUI- consider reality for a moment:

    Their “products” are selling in the open market at prices that are 3x-4x the cost of production. This can only break one of two ways:

    1) The price of the product collapses (which is what it seems everyone in the equity market is betting on)

    2) The prices remain elevated, and the miners keep generating record profits, and actually start doing something with all that cash, like dividends, share buybacks, or massive increases in M&A activity.

    So, if you are bullish gold, yet fear the HUI, then you need to seek out your inner contrarian and decide whether short Gold, or long HUI is the correct path to enrichment.

    I have exposed my point of view- I am bullish Gold (as money), so I must therefore trust my capital with the people who produce money.

    If you are bearish Gold, then you must trust your capital to the people who print paper.

    If you tell yourself “Gold has no intrinsic value” enough times, then you WILL begin to believe it…. but that will still not make the point an irrefutable truth.

    Printed paper has no intrinsic value either; except that every Christmas millions of people wrap it around articles of Gold to present to their loved ones.

    The paper gets discarded- the Gold becomes timeless.

    • John Jay August 25, 2011, 1:33 am

      Robert,
      We are through the looking glass now, so I would not be surprised to see the US government do anything.
      Remember the GM bond holders? Did they not get left in the lurch in favor of the union workers, in violation of centuries of contract law? Under the terms of the Patriot Act, I believe they can clean out your safe deposit box at the bank, with no court order, and the bank is forbidden to tell you who did the dirty deed. The English authorities did just that, cleaned out thousands of safe deposit boxes by declaring the contents to the proceeds of criminal activity. With no trial, court order, or anything else.
      The PA is over a thousand pages long, and has by passed the Constitution with the approval of Congress. Now we have a “Super Congress” of 12 guys that will very likely forward pre packaged bills from lobbyists, unread, for the up or down vote. It is supposed to be strictly budget related, but mission creep is always lurking about. Look at AfPakIraq for a good example of Mission Creep, and Libya is in the on deck circle. Let’s see if we interfere with Chavez getting his gold repatriated, I will be surprised if that gets done without a hitch. Anything is possible in the Twilight Zone we live in now. The words “Terrorist” and “Enemy of the State” are one and the same now.

    • Robert August 25, 2011, 5:09 am

      JJ-

      All very good points, but I for one am not yet willing to cede my right to life, liberty, and the pursuit of happiness, nor do I believe that the Federal government has reached the point that it is ready to name its Nero just yet.

      The GM deal is not done yet- not by a long shot. The class action suit that is coming will be adequately funded to go all the way to the Supreme Court if necessary.

      Consider that the most powerful governments throughout history have all fallen just as they seemed to reach the crest of their omnipotence. In America, the people still have the power to determine the fate of their Government. Every stupid law can be repealed in time.

      You think the congressional elections of 2010 were interesting? just wait until 2012. I don’t think anyone in Congress is anticipating that the “Super 12” might just find themselves on the chopping block as well…

  • mava August 24, 2011, 10:40 pm

    Robert,

    Nice, I like your caged animal analogue. So, if HUI is 999, then where would POG be? I hope you’re right. That would be spectacular.

    Personally, I afraid to bet on HUI, because at this point we are not arbitraging the government errors anymore, I think, we are holding out for reset. I think it is granted that before reset, the government will nationalize all mines, and so will all other countries. Some will do it as if mines were theirs, like Venezuela, but most will simply say that they have played with paper for so long, that now they are incapable of surviving as national entities unless they take all the nation’s gold. Basically, they will say: “Sorry, we know it is wrong, but we have to do it”.

  • Rantly McTirade August 24, 2011, 9:37 pm

    Just stay with your successful system for day/swing tading. Your long term views bounce around like bipolar.

    • Rick Ackerman August 25, 2011, 12:52 am

      Might I suggest that you subscribe to Rick’s Picks instead of trying to psychoanalyze me on the basis of what you read on the marquee?

  • Militant August 24, 2011, 9:20 pm

    When the market tanks, will commodity stocks follow like 2008?

  • Robert August 24, 2011, 9:03 pm

    Sorry, 10 transactions at 100 per ….typo

  • PA August 24, 2011, 8:09 pm

    edir: GLD will hit 157 at least

    • Robert August 24, 2011, 9:02 pm

      I concur that 157 GLD is certainly possible, but I will wager that the HUI will not confirm such a move in bullion.

      The PM shares are in strong hands. The volitility is 100% due to HFT- just look at the bid/ask spreads on any PM miner- the whole sector is schizonphrenic.

      I placed an buy order for 1000 shares of a $2 explorer this morning, and it took 20 transactions to fill at 100 shares per… this is simply not normal.

      24 tons left the GLD repository yesterday due to share redemptions for physical bars. While this action nearly always triggers a massive sell-off, the fact is that redemptions in GLD and SLV are BULLISH for the long terms trends in the metals spot markets…

      This week in Gold is no different than May2011, and no different than Feb2011, and no different than Jan2010, and no different than Apr2009, and no different than Oct2008…

      Friday is options expiry on the Sept contract (which traded 93,000 contracts in silver today)

      I will be a bullion buyer on Friday, and since Monday is a holiday in London- I will add on any weekness on Monday.

  • PA August 24, 2011, 8:08 pm

    Yes I’m sure. Funds are still over-loaded long. Sellers do not have to be short sellers. You will get killed on the HUI long; GLD is in only the second day of a 7-9 day rout, and it will easily see GLD. I think it goes even lower than that over time

  • Robert August 24, 2011, 6:25 pm

    Ho- hum…

    The volitility tells me that the markets are slaves to nothing but emotion right now. No one is investing or trading on what the data is telling them- they are trading and investing based on what they hear, and what they WANT to see happen.

    “No one is short anyway”

    – Are you sure about that? Where would all this volitility be coming from if there were not willing buyers AND sellers on every trade?

    I’m about ready to go all-in on the HUI. The frantic whip sawing of the mining shares is like a caged animal that really wants out- I’m calling it: HUI 999 before April 31, 2012.

  • PA August 24, 2011, 4:36 pm

    I disagree. We have had a huge change of character in the market. Rallies don’t last, shorts aren’t really threatened. No one is short anyway. This is like April 2009, but the mirror opposite. Look at the SPX, it has formed a HUGE top since 1999.

  • Rich August 24, 2011, 3:19 pm

    With Ten Year Treasuries the lowest since WWII, and loss of faith in Euro Paper, is it possible we may see a flight from the death of debt to the rebirth of American equities?

    http://www.multpl.com/interest-rate/

  • gary leibowitz August 24, 2011, 3:13 pm

    Was lucky enough to catch this move down. Put half my winnings with SPX call options at the open yesterday.

    Classic set-up for a rally. Should range between 1230 and 1255 on the SPX for a high. The move, if a bear rally, should last only a few weeks. I expect the SPX will hit around 1000 after that. Not sure whether we grind our way from there.

    The dollar held up very nicely during these violent times. It looks like Gold is in the a terminal stages of a bloww-off but on that score I have been way off. I still expect Gold to retrace to 800-900 an ounce.

    Once the street realizes that another QE3 will not inflate our way out of this mess deflation would already show its ugly head. Global deflation looks like a given. Debt saturation is too much to recover from.

    The silly notion that the FED is all powerful and can always prevent deflation from taking hold will be hard to break. Once the evidence is in there will be a dozens of books explaining this new paradigm.

    I would make all my future bets with the notion that deflation will hit hard and long.

    • C.C. August 24, 2011, 6:23 pm

      Gary –

      ‘The $dollar held up very nicely’…?

      The inability to break out of a .73 – .76 channel since March is considered ‘nicely’…? I would suggest more like ‘planned’ to orderly pay down debts over time in worth-less $$$ perhaps…

      Hedge a few of your future bets with an escape-from-New-York plan, because any ‘hard’ deflation is going to mean social unrest and government control the likes of which you might consider better suited to a science-fiction dystopian outcome. Not that it won’t come anyway down the line, but not before the government-financial complex has employed the remainder of the tools in their kit to destroy the currency.

      The Fed understands this. The politicians understand this. And quite surprisingly – although not obviously spoken of out in the open, many people instinctively understand this as well.

      The people who Don’t understand or comprehend the real-world dynamics of a ‘hard’ deflation at this current point in American history, are the ones who falsely believe that through all of the chaos and government control that a hard deflation would bring, certain ‘norms’ will remain for Them.

      If you really believe that we can suffer through a ‘hard’ deflation in our current socio-political state, then I’ll meet you out there in the field (or a safe house) with some spare .22’s in a year or two – max.

    • gary leibowitz August 24, 2011, 8:40 pm

      The dollar has held during the worse equities drop in 2 years. Not going anywhere but not breaking down. I would suggest this is a consolidation in which to rally from. The dollar must be viewed against other currencies.

      Deflation is not something the FED ever wants to see. I am saying it is something that is out of their control. The debt load is just too great to overcome. In fact it was exactly their policy of micro-managing interest rates and the printing press that got us to this point of no return. The only way we recover from here is thru a hard bout of deflation. In fact it should be one of the hardest and longest we have had in a century or more. The world banks are in deep trouble. Consumers have negaitve equity value in homes at an astonishing rate. The name of the current political game is called “austerity measures”. There is no will to continue to spend us out of this mess.

      Deflation is a given. Stated this over 7 years ago and will stick to it untill we see results counter to this.

  • John Jay August 24, 2011, 2:14 pm

    Greek 2 year bonds are yielding 40%?
    They must be real shaky if our Ponzi 2 year yields .22%.
    It’s all relative I guess.

  • Benjamin August 24, 2011, 1:22 pm

    “Before the Virginia-centered quake hit shortly after 2 p.m., a strong rally was already in progress from the night before, propelled by who-knows-what.”

    A puzzler, indeed. But then I was reminded of the “clumsy fingers” incident that sent the Dow tumbling something like 1,000 points. I can’t even remember when that happened, exactly, but I do remember your article about it, Rick. It was a computer-driven “panic attack”.

    So, maybe this rally is the same thing, only in the opposite direction. And really, what would the alternative be to not borrowing more “free” money to goose things a bit? I can only see much “bloodshed” down that other road, from parties that would just as soon suck blood than lose any!

    Anyway, I headed over to my favorite science blogs, to read about the quake. Seems Paul Krugman registered higher on the idiocy scale, though. But I did get a kick out of some of the comments…

    http://wattsupwiththat.com/2011/08/23/5-8-earthquake-in-virginia/

    “All that debt in DC is weighing heavily on that fault line.”

    “Felt what?” — Mike in Houston

    “DC should be evacuated for several weeks as a precaution against aftershocks”

    “I’d rather that we simply quarantine [DC] as a precaution against politicians”

    “And I thought the only fault line in that part of the country was, “somebody else’s fault!”

    “I’ve felt that Washington, D.C. has been operating on shaky ground for a long time. Now we know!”

  • TKO August 24, 2011, 3:46 am

    With commodities under recessionary pressures, and the entire interest rate spectrum paying close to zero, stocks remain the only game in town—outside of the precious metals of course. Dow 14,000 by January.
    Now if the eurozone can’t get their act together and the banks really freeze up over there, this pie in the sky predection is off the table. Then we might see Ricks old bete noire Goldman Sachs (off one third in a month) slide right down to his target in the 30 range and let him escape his Times Square rendezvous!

    • Rick Ackerman August 24, 2011, 7:12 am

      Hey, I love the Big Apple too much to pass up the opportunity. Wait till you see the hula girls who were going to join me!

  • Terry SS August 24, 2011, 1:59 am

    So what about that rumored margin hike in Comex gold?

    • Rich August 24, 2011, 3:11 pm

      cf Shanghai…

    • rich August 25, 2011, 12:14 am

      Also CME/COMEX…

  • Rich August 24, 2011, 1:13 am

    Big4 back on the NDX, NIK, SPX, RUT buy side…