April 2012

Coy action in recent days prompted me to take another look, since I'd offered two downside targets for a possible turnaround, one of them somewhat lower.  As  you can see, a third at 441.66, hitherto undiscerned, has provided a technical rationale for the so-far weak consolidation that appears to be taking shape. But weakness is its problem, since an encounter with a Hidden Pivot support so remote from obvious structural supports should have engendered more of a bounce.  I am therefore skeptical, but we'll give this vehicle the benefit of the doubt for the moment nonetheless, since bullion itself looks like it's got the energy for an uptrending push in the days ahead.

The gratuitous slop that was yesterday's price action should put us off trading this vehicle today, although rogue operators could be forgiven for taking a stab near 1371.25, a midpoint support that is "out there" just enough to be moderately enticing for bottom-fishing. Specifically, you should switch to the 5-minute chart if the futures breach yesterday's  1371.75 low; then, look to board the first uptrending abc pattern that occurs thereafter. _______ UPDATE (11:34 a.m. EDT):  The futures bounced weakly from three ticks beneath the midpoint, but without generating any bullish impulse legs on the lesser charts. This effectively telegraphed the weakness that followed and which continues at this moment. Presumably, it points to a potentially tradable low at 1359.75, the 'D' sibling of 1371.25.

May Silver appears to be consolidating just above the 31.750 midpoint pivot of the pattern shown, implying it is staging for a fresh thrust to 32.190, its 'D' sibling.  The best potential opportunity for getting long via camouflage lies with the tiny 'external' peak at 32.010 recorded Sunday night on the way down.  A B-C pullback from just above it could set up the trade.

Gold was steaming toward a 1659.20 rally target early Tuesday morning, with a shot at 1663.70 over the very near term if any higher.  These are relatively minor Hidden Pivots, but not so minor that they should not evince at least a wobble.  However, an easy push past the second number would portend a likely test of last week's highs near 1680.00.  There were no compelling markers for a "camouflage" entry, so getting aboard at this stage will have to be catch-as-catch-can.

A story last week in the Wall Street Journal provided a fascinating glimpse into the world of high-speed, or “algo,” trading.  Who knew there was something called a “Hide Not Slide” order lurking in the murky shadows of  electronic trading?  Although this particular type of transaction might be difficult for the layman to understand, suffice it to say that it electronically hides or exposes bids and offers as needed with the skill of a three-card Monte hustler. The regulators supposedly are looking into algo trading because they suspect it might enable some traders to take unfair advantage of others. That would be putting it charitably – so much so that it is predictable that the SEC will detect a stench wherever they poke their noses, since it'll be like sniffing out political corruption in Chicago during the Roaring Twenties. In the meantime, the Journal’s report on the probe in its early stages turned up stories that verged on the lurid, including one about a firm that advertised itself as a haven for big investors worried about getting picked off by algo traders. Turns out the firm, Pipeline Trading Systems, had an algo operation of its own called Milstream. More than being merely suspicious about the way today’s electronic markets work is the BBC’s Max Keiser, a world-class muckraker who can smell financial scat a mile away.  In an interview we did with Max on Monday that will be linked here later this week, the discussion concerned some of the ways in which technological wizardry has helped tilt the playing field in favor of the trading world’s “one percent” elite. It may also turn out to have destabilized the markets so that a global flash crash is possible. We said as much in a recent commentary, and that is what drew

(We are indebted to our good friend Jonathan Auerbach for the following, a fine summary of global investment opportunities from his colleague Mike Churchill.  Jonathan notes that "Mike in round numbers has outperformed the S&P by 50% over the past 5 years," and that his firm's current strategies resonate with those of Auerbach & Grayson. RA) Over the past seven years I have done significantly better in emerging markets than in developed markets (i.e. commodity stocks). There is less intellectual competition in emerging markets so an investor is more likely to be rewarded for his work on individual stocks. Moreover,emerging markets lend themselves much better to supply-side top-down analysis. That's partly because there are so many emerging markets and EM policymakers often make "big" moves that can be seen a mile away. One can always find at least one country that meets the necessary criteria and has attractive valuations. This year Pakistan and Japan (which I now consider an honorary emerging market) are among the most appealing places. In years past the fund has gone heavily into Turkey, Sri Lanka and Brazil. Pakistan now tops the list in terms of having the best combination of low P/E and high GDP growth in nominal US$, followed by Vietnam, Argentina (avoid-more later), Egypt, Russia, Ukraine, Sri Lanka, Thailand, Turkey, and Serbia. Best growth/value combinations:  A big part of the appeal of Japan and Pakistan is that many companies in these countries are throwing off tons of cash. You wouldn't normally think of Japan as a cheap market, but it is. This Japan call is reminiscent of the commodity call 10 years ago: Nobody is on the theme, nobody covers the stocks, the Nikkei is emerging from a 20-year bear market, stocks are super cheap and there is a macro tailwind. Japan now

DaBoyz were holding index futures in a very tight range Sunday night, trying to determine whether the opening bell is likely to bring a second wave of panic selling.  I've tailored my advice for our long position in the Mini-S&Ps accordingly.  There are also actionable plays in Gold and Silver, the latter with a three-tick initial stop-loss in lieu of camouflage.

I've suggested using the uptrend to get long via camouflage in June Gold, but because Silver's trajectory looks harder to leverage, I'll recommend bottom-fishing two contracts at the 31.665 midpoint support shown. (Note: This could change if 'C' goes higher.)  A three-tick stop-loss would keep theoretical risk close to our allowable limit on entry of $70 per contract, and while this might be cutting it too close, a 'camo' entry here would not be able to do much better. _______ UPDATE (12:33 a.m. EDT):  Sellers ignored the support, stopping out our position for a loss of $75 per contract. The easy move through 'p' telegraphed the weakness that was to follow.

It's speculatively bullish that last week's low failed by $4 to reach a clear downside target at 1608.80, but the rally would need to hit 1720.10 (!)  before we could bank on the intermediate term (i.e., 3-5 weeks). In the meantime, June Gold has taken a promising leap Sunday night in response to Friday's dour employment news. The rally has already triggered the 1642.40 entry signal for a leg to as high as 1659.20 over the very near-term. However,  it won't be until the 1648.00 midpoint resistance has been surpassed that the target will become an odds-on bet.  Note that there is a small window to get long via camouflage on the hourly chart, predicated on a B-C pullback following an apparent double top at 1649.50. From our perspective, it wouldn't be a double top at all, but rather a legitimate, bullish impulse leg.