Paper Gold Expiry Blues

With all that’s going on in the world these days, ranging from the continued politicization of the oil spill (catastrophe) in the Gulf of Mexico to the possibility of war in the Persian Gulf, it should be no wonder gold is rising and hitting new highs. And that’s exactly what gold was doing up until yesterday, hitting new highs, and is set to continue in this regard moving forward after a correction. The big question is just how significant is this correction to be the first wave of what is likely Primary Degree Wave C (minimally) needing to be corrected at some point. We will do our best to answer this question for you below, an explanation rooted in paper gold technicals and the plight of the dollar. As you can see in the attached the dollar turned higher yesterday with swooning stocks, which is a deflation signal in that such a move signifies deleveraging. And please, make no mistake about it, another round of severe deleveraging is coming this fall, however the dollar is likely not finished a corrective a - b - c sequence lower first, a sequence that should take us into July before is all over. This means that at a minimum gold should put in a double top before the larger degree correction discussed above unfolds. (See Figure 1 below.)

Turning to paper gold dynamics for a minute now, as you can see in the attached here, Comex futures expiry should not be a factor this time around with virtually no open interest in the July series, however this will not be the case next month. The options expiry this coming Thursday should contain prices under $1250 minimally however, and possibly drag gold prices back down towards the large round number at $1200 under the right conditions as well considering both have an open interest of some 3,000 to 4,000 contracts at these strikes. In fact the price action yesterday is suggestive $1200 will not hold either, however it’s no matter, as prices should rebound post Comex options expiry this Thursday, and after the Fed Meeting today and tomorrow. (i.e. the Fedsters like to take gold down prior to their FOMC meetings to give the impression they are still in control.) Now this might not be the case next month with the August series having some 8,000 calls at each one of these respective strikes (which we will be watching into next month for even more participation), however this is a month away, and if the dollar is to sell off one more time into July, gold should do well into the first part of the month. (One can checkout Comex options open interest figures at the link attached here.)

Continuing on our paper gold market theme, for those who don’t know, the vast majority of loose headed gamblers and hedgers within the trading community use Comex gold options to bet / hedge on future outcomes, which in the case of both gold and silver is naturally for higher prices by the majority. So, put / call ratios for Comex gold and silver contracts are always very low. And of course the bankers know all this. So with an implicit guarantee from the Fed (the international banking cartel), the banking syndicate, led by JP Morgan, shorts gold and silver in the futures market because they know when it comes to options expiry time they will be able to knock prices back down as they chase the loose-headed speculators mentioned above out of their expensive contracts, expensive at least when they bought them. Selling these expensive contracts to bullish speculators is how the banking cartel (don’t forget about Goldman Sachs, et al) partially finances throwing copious volumes of futures contracts at the bulls at options expiry, where the idea is to get gold and silver to close below heavy open interest strike prices, with the larger round numbers usually attracting the most attention. It was the CFTC hearing where Andrew Maguire broke the story of similar market rigging activities in London that has finally brought deserved attention to cartel fraud in this regard.

Of course what’s even more absurd it’s truly amazing that the same people get their heads caved in at options expiry every month (which is the definition of an idiot in repeating a negative behavior), but it’s true. This is also why gold is not much closer to its real inflation adjusted price, so I wish these guys would cut it out. They maybe too dumb to buy the actual metals, but at least stop screwing it up for everybody else please. If it wasn’t for you guys, then we wouldn’t need to worry whether the gold chart below would see more bullish signatures traced out in stead of these repeated raping incidents by a self-serving banking cartel that think they are untouchable. Just look at the way they have the politicians handling the Gulf disaster. Instead of bringing in competent help to close this thing in to protect the ecology / economy, to this day BP is being allowed to attempt to harness Deep Horizon no matter what the cost for the benefit of bankers and bureaucrats spread from Washington to London. (See Figure 1)

To reiterate, Comex options expiry is approaching this Thursday, which has had a history of materially affecting price, almost always in a negative manner. This, combined with typical Fed Meeting related selling yesterday accounts for the key reversal day(s) witnessed in gold (and silver), where more selling should be anticipated, especially coming off a record paper futures contract threshold. And of course there are all the other reasons mentioned above, and more (think deflation scare) that could see prices enter a more profound correction at anytime, so short-term considerations such as those discussed above should be taken with a grain of salt. (i.e. if the dollar puts in a ‘flat’ correction), yesterday could have been the highs for 1 of C. In this regard it should be noted speculators are being chased out of their euro short positions at a record clip, which could impair rally efforts moving forward considerably

Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. As you will find, our recently reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented ‘key’ information concerning the markets we cover.

And if you are interested in finding out more about how our advisory service would have kept you on the right side of the equity and precious metals markets these past years, please take some time to review a publicly available and extensive archive located here, where you will find our track record speaks for itself.

Naturally if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute “forward-looking statements” with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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Bonds, Dollar, SP500 & Gold Have Changed Direction - Are You Ready?

There have been some major trend changes recently and it looks as though more investments are about to follow. The real question though is… Are You Ready To Take Advantage Of It?

It has been an exciting ride to say the least with the equities and metals bull market and the plummeting dollar. But it looks as though their time is up, or at least for a few weeks. Traders and investors will slowly pull money off the table to lock in gains or cut losses and re-evaluate the overall market condition before stepping back up to the plate and taking another swing.

Below are a few charts showing some possible money making trade ideas in the weeks ahead.

TBT 20+ Treasury Note Inverse Fund

This fund moves inverse to the price of the 20yr T.N’s also known as bonds. Looking at the chart you can see the recent reversal which took place. We had a great entry point shortly after this reversal took place using my low risk setup strategy.

Falling bond prices are considered to have a negative impact on equities because it implies that interest rates may start rising which means more investors will pull money out of stocks and put that money into a safe interest earning investment. You will typically see bonds change direction before equities. That being said the chart below is an inverse fund, so when this bond fund goes up, it means actually indicates bond yields are falling. I will admit these inverse funds really throw my brain for a loop at time… I prefer the good old days, buying long and selling short… so simple and clean…

UUP - US Dollar Index Fund

This fund moves with the dollar and allows equities traders to take advantage of currency trading. This chart below shows a possible trend reversal for the dollar. If the dollar continues to rally then it’s also a good sign that interest rates could be rising in the near future and it also means more downward pressure on equities.

SDS - Inverse SP500 Index Fund

These bear funds make it possible for traders and investors to profit from a falling market using a regular buy and sell strategy. They can also be traded in retirement accounts making them a golden investment for those willing to play a falling market.

This chart moves the same as the SP500 index only flipped. As the SP500 falls this fund rallies.

The strategy we just used to play the recent rally is the same strategy we will use during a bear market, but instead of trading the SPY, we are trading this fund.

It is important to note that while bull market rallies tend to drag out; bear markets typically have faster movements. Fear is much more powerful than greed which is why the stock market drops quicker than it goes up.

GLD - Gold Exchange Traded Fund

Gold also looks to be topping and could actually be starting to form a Head & Shoulders reversal pattern.

Mid-Week Trend Trading Conclusion:

In short, understanding inter-market analysis is crucial for traders/investors to know. Not understanding how they affect one other can be very costly in the long run. Remember that volatility and volume rise together at the end of a trend. You can view the recent volatility index (VIX) to see its price action also. Volatility changes also make for great low risk options trades if options are your thing. Focus on trading with the trend, bounces in a down trend are typically muted or trade sideways making is very difficult to make money buying in a falling stock market.

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Investing in the Paris Basin Shale Oil Play

10x Bigger than the Bakken

The Paris Basin shale oil play in France has the potential to be ten times the size of the Bakken play in North America, and some high profile exploration is beginning soon.

Estimates range from just a few to many tens of billions of barrels of oil in the Paris Basin. Much like the North American shale plays, these formations have been drilled through many times - there are over 1000 wells drilled into the Basin - so exploration risk is low. It’s completion risk - how to best unlock the oil from the rock - that is the main risk.

So there is a lot of data, which makes exploration much less risky. It also means that local residents are used to having oil wells drilled in the region - unlike New York State .

The Oil and Gas Investments Bulletin focuses on the junior and intermediate oil and gas sector with a completely independent voice. I have found a Bakken oil producer with years of low risk growth in front of it, and if natural gas prices move up, it potentially has one of the largest and lowest cost plays in North America - and most investors have NEVER heard of it! CLICK HERE TO ACCESS YOUR FREE SPECIAL SUMMER STOCK REPORT FROM OIL AND GAS INVESTMENTS!

Activity by explorers in this part of France has been growing, and is now hitting a fever pitch. A huge land race is underway, with applications for more than 1.6 million acres pending approval for several companies, including Toreador Resources (TRGL-NASD) in the US, Vermillion Energy (VET.UN-TSX) and Realm Energy (RLM-TSXv) in Canada.

Exploration - real drilling - in the Paris Basin will ramp up this fall. Toreador Resources Corporation is the purest play. In May they announced an exploration deal with Hess Corporation (HES-NYSE) that could be worth as much as $265 million for 50% of Toreador’s 600,000 acres in the play. They spud their first well into the play in Q4 2010. It will be one of the most watched wells in the world.

Canada’s Vermilion Energy has also acquired acreage in the play and begun exploration activities. Vermilion is already recognized as France’s largest oil producer.

Craig Steinke, Executive Chairman for Realm Energy, says “The Paris Basin is arguably the most exciting shale play in Europe right now. We expect to acquire a good-sized position in this play.”

As I wrote about earlier, many of the European shale gas plays are being bought up by the majors, there are intermediate and junior producers in the game, which should keep news flow on the play steady for retail investors.

When this happened in North America, there was huge wealth creation as the juniors and intermediates were small enough that their stocks could benefit from a productive land position.

Like the big North American shale oil plays that enriched investors, the Paris Basin has big reserve potential, good existing well data, and a local population that’s familiar with drilling.

Hopefully, history will repeat itself.

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Fiscal Discipline and Unintended Consequences

It’s no secret Ron Paul is expected to chair the Monetary Policy Subcommittee starting next year, and that he intends to properly audit the Fed and US gold reserves as initial steps in attempting to return America to some degree of fiscal discipline. Because there can be little doubt an expanding bureaucracy has hit the limit in terms of what the system can take, which is why you will never see the Fed voluntarily abandon QE2. And this is especially true because of the deflation (of everything from currency to population) peak oil guarantees, not to mention other unintended consequences increasing fiscal restraint would bring. The bottom line here is the bureaucracy will continue to monetize the debt on an increasing basis until the system implodes on itself, which will be the result of uncontrollable rising interest rates and gold prices, which according to Mark Lundeen should be considerably higher.

Impossible? It could be argued it’s already happening, where this week for example, despite a generous POMO schedule this week bonds are falling anyway due to the reporting of uncontrollable price increases and increasing sovereign credit concerns that will surely not disappear anytime soon. So please, don’t be confused by all the propaganda, no matter what the bureaucracy leaders tell you, money printing and monetization practices will remain relentless, although we may get a taste of austerity not many will like as we move into next summer as Mr. Paul does his damdest to fix the world, which will of course prove dangerous to our fiat currency economies at the time. Crashing stock and bond markets in North America will certainly make ‘austerity’ a four letter word as process unfolds, however there is no guarantee another bloated fiat currency system would emerge on the other side of an unwinding, making ‘debt’ an actual four letter word people (creditors) will undoubtedly be paying closer attention to under such circumstances.

In the meantime however, prices have not been falling to support the bureaucracy’s phony inflation reports, so with the retail trade ‘all in’ (to stocks) as reflected in US index open interest put / call ratios, explained here last week, it’s time for a short-term correction. At least that’s what it better be, or the equity complex will be in real trouble a bit early from a cyclical perspective, where we are anticipating a terminal high in stocks during the first quarter of next year, as per the count and patterning presented in the charts below. First we have the long-term Super-Cycle Grid that shows although more room exists for gains, we are entering a cyclical (time-line) turning point.

The second chart zooms in on the lower degree waves to look for clues in the most probable count, etc., displayed below, which in my view would confirm the rising and high probability of an important top being put in place sometime in the first quarter of next year, or shortly afterwards. What we have unfolding here is a typical zigzag, which is a five-wave sequence separated by a corrective three-wave sequence, followed by another five-wave sequence, which you can see has yet to unfold. I have studied the count here for some time and see no other alternative; especially given the big picture where we are expecting a test of the 2009 lows eventually (the larger degree a - b - c sequence in red), so none will be provided.

And as you may know, I also expect the same patterning and timing from gold (and silver) running into next year based on historical precedent (the last big top was in February), where although the cycle might run longer this time because of the higher degree (Grand Super-Cycle?) of the present move, still, some degree of top can be expected at this time, and I can tell you why. Why then? Because our buddy, Ron Paul, will likely be successful in getting enough people who matter pushed over into the Fed audit / austerity camp by then, which will be bad news for the aggregate bubble economy. And again, even if he is ultimately not successful in this regard, he will be making enough noise when he is first appointed chair to get people taking him seriously, which at a minimum will push prudent traders into defensive postures, which means lightening up on equities, precious metals, and anything else associated with the inflation trade.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute “forward-looking statements” with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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Mid-Week Dollar, Gold & SP500 Trend Trading

It has been a roller coaster week thus far as stocks and precious metals plunged on heavy selling volume on the back of a rising dollar, only to make a strong rebound Wednesday. While there has been significant intraday price movement, it was no surprise to us as we have been anticipating this pullback since discussing it in my Sunday Gold Newsletter.

Let’s take a quick look at the charts…

US Dollar Daily Trading Chart

The past couple weeks the dollar has traded in a choppy fashion, and last week I mentioned to subscribers to keep any new positions small. The dollar looked ready to make a bounce and if it reverses we will see stocks and commodities correct rather sharply.

Last week we trimmed some profits on our gold and SP500 trading positions in anticipation of a rising dollar/lower equity and metals prices. The dollar is currently in a down trend so we are still trading with the trend, but the next couple sessions could potentially change that.

As you can see on the chart a similar pattern to what we saw during the May/June top earlier this year has now formed in reverse this month. It’s a simple pattern I call a drop-n-wash. It is like dropping a knife - you panic, then take action (move foot, then wash the kife). That is typically how the market reacts to this type of price pattern after an extended trend has taking place for a long period of time.

The dollar made an obvious breakdown which the entire world witnessed, causing traders who recently went long to panic and sell their positions. Those who like to short the dollar would have taken a short position, only to see the market reverse and head straight back up again. This pattern has yet to confirm, but through the use of the shorter time frame charts (5 Min, 10 Min, 30 Min), I have a feeling the dollar may continue to rise. However, until the dollar shows considerable strength I am still playing the long equities / long gold side of the equation.

SPY - SP500 ETF Trading Fund

The SP500 made a nice move up last week and we trimmed our position back to lock in more gains as I anticipated this pullback and possible gap fill. As you can see on the chart the moving averages are all heading up and that’s the direction we are still focusing on playing (buying dips).

The morning dip on Wednesday the market sentiment started to shift to become extremely bearish on the short term time frame (10 minute charts). If the market drops down to fill the rest of that gap, I have a feeling the majority of traders will panic out of their position giving us an extreme sentiment buy signal. Also a gap fill will bring the price down to the key moving averages which will act as a support level. I will notify members to add more to my SP500 long position if that happens.

GLD - Gold ETF Trading Fund

Gold has much of the same story as the SP500 but with a couple twists. Gold has huge global demand from banks, investors and traders adding more buying power to this investment than stocks right now. We could see gold hold up above its gap that formed last week. That being said, a pullback to the key moving averages would not only act as a major support level but also fill the gap. We currently have our long positions, but trimmed some profits near the highs and are sitting tight letting the market work it’s self out.

My trading partner J.W. Jones posted a great gold play yesterday which had a nice payout already. Read about his gold options trade here.

Mid-Week ETF Trading Conclusion:

In short, the focus should be kept on trading with the underlying trends until a trend change has been confirmed. So that means short the dollar, long equities, metals and oil.

That being said, because things are starting to look unstable it is crucial to trade smaller position sizes during times of uncertainty like this. Anticipating major market tops is very difficult and generally costly play, just ask everyone who has been trying to pick a top for the past 2 months… Anticipate trend changes, but don’t trade them until the price/volume action confirms the new trend.

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