Friday, September 13, 2013

Friday Chartapalooza -- Gold, Dollar, and Anti-Gold

I'm preparing for my trip to Nevada, which starts on Saturday. I'm visiting 5 miners in 7 days, and I'll be driving all over the state. If you hear about some Florida hick who got jacked by a bunch of post-apocalyptic road warriors in the Nevada desert, that's probably me. Still, preparation is half the job, and so I'm making sure I have everything I need.

Also, I got a link from IncakolaNews -- and thank you very much for that. I mean, it's nice to get a link from an analyst I respect. So, I guess I better put up some charts. Here are some updated charts of gold, as well as some new charts of what you might want to be watching -- seven charts in all.

First, the biggie -- gold.  This is only updated through last night's close, because that's how rolls on commodities. Still, it's obvious that gold got hit with an ugly stick yesterday ...

You can see that gold was channeling higher, but it clearly broke down yesterday.  Next support is at 1275, but it's not especially strong support.  RSI, a measure of momentum on the bottom of the chart, has dropped below the 50 line, giving us a moderate "sell" signal.

To say that gold is not following its usual plan in September -- usually one of its strongest months -- is an understatement. And this is happening while something else very curious is happening. I'm talking about the relationship between gold and the US dollar ...

Usually gold and the US dollar move in opposite directions. More recently, though, they are both moving kin the same direction -- down. This is a classic "risk-on" trade. In other words, credit less-apocalyptic news out of Syria, credit whatever you want, but investors are less scared, and so they are willing to take money out of "safe" investments like gold and the dollar, and put them in more "risky" investments.

But what could that be, you ask?  I'm so glad you asked ...

Just look at the Nasdaq Composite. It recently broke out of a range, and set a new high yesterday.  Add in the fact that the Nasdaq has rallied more than 17% in the past 5 months. 

So put yourself in the Gucci loafers of a momentum investor.  Ask yourself: Where do I want to invest? In go-go Nasdaq stocks or sad-sack gold miners?  If you're honest with yourself, you know what those momentum investors are saying.

That makes the Nasdaq the anti-gold. I'll show you another "anti-gold" in just a bit.

Now, does this mean I hate gold miners? No! I think there's extraordinary value in select mining stocks, and that value is going to become even better.

Considering that I just got word that my new Oxford Club resource newsletter isn't going to launch until late November, this is actually a good turn of events for me.  Heck, in the most selfish part of my dark little heart, I kinda hope that gold and miners sell off right until the day before my publication launches. That will only make select mining stocks even better bargains.

Why? Because the long-term fundamental forces in precious metals -- including rising mining costs, growing demand from the emerging middle class in Asia, and other forces -- are still in place. If anything, those forces will probably grow stronger, making these bargains even more incredible, as short-term sentiment drives weak hands to fold.

Now, speaking of the miners, let's look at an updated chart of the Market Vectors Gold Miners ETF (GDX), a basket of the biggest diggers in the industry.

Oh, this is painful.  You can see that the GDX has plainly fallen below support. And what used to be support now appears to be overhead resistance. We'll have to see how it closes out the day and the week (especially the week), but it looks like miners as a group have more work to do on the downside.

Where might that bottom be? Maybe the August low, maybe the June low.  Since the chart failed last time, let's wait for the gold miners to tell us where they want to bottom.

Now, let's look at how various groups are performing over the past two weeks ...

Dang, it's been a tough month for gold.  Bonds also suck wind, and the US dollar is dragging. Oil, despite its recent breakout, is still only average. The euro drifts along, barely positive. The big outperformer? Stocks, at least as measured by the SPY (S&P 500).

Over the past couple weeks, I've shown you other outperformers, including oil industry stocks and solar stocks.  Now, let's take a look at another "anti-gold" ...

You can see that Anheuser-Busch InBev (BUD) is trending higher.  It looks ready to tackle that August high. Bears tried to sell off the stock yesterday and couldn't budge it, even on high volume.

This is happening despite the fact that BUD disappointed on second-quarter earnings, with earnings per share of $0.93 versus estimates of $1.03.  Something's up with this stock.

Now, it could be the full-year outlook. Analysts expect BUD to earn $4.82 per share on revenue of $44 billion. This would represent a growth of 5.9% and 10.6%, respectively, compared to 2012. BUD is trading at just 12 times trailing earnings, 17 times forward earnings, and it even sports a 2% dividend yield.

A bet on BUD is a bullish bet on the U.S. economy. Sure, it's a global stock -- more than 200 brands of beers, and it holds the No. 1 or No. 2 market position in 19 countries. But it also holds more than 4% of the US market, and an improving US economy will boost BUD's sales.

Or maybe it's just all the miners crying in their beer, eh? 

There are other ways to play a rotation out of gold and the dollar and into stocks. This is just one of them. This is not an official recommendation; do your own due diligence, and do whatever is best for your own portfolio.

Other things I think look good right now are online jewelry seller Blue Nile (NILE) and October sugar.  NILE is a bet on falling gold prices -- all those sparkly gems are set in gold and silver, and as the price of precious metals fall, NILE's prices DO NOT go down, and its profit margins widen. I've made the case for brick-and-mortar jewelers in the past, and that worked out quite well.

Looking at a chart, you can see that NILE has traded in a range for months. However, it looks ready to test the top of that range, and potentially break out.  Meanwhile, the indicator on the bottom, NILE divided by the GLD, shows that as gold gets cheaper, NILE goes higher.  So if we expect gold weakness for at least the next few weeks, that could be a good time to be long NILE indeed.

Again, do your own due diligence. I'm not your investment advisor.

As for sugar, well, there are bunch of fundamentals on that one.  Not least of which is that India has had a great monsoon season, and the Indian government is putting its boot on the neck of gold sales, AND Indians are sugar-crazy (India is already the world's biggest sugar consumer).  If they can't buy gold, Indian farmers will probably indulge another way.  Just something to think about.

Meanwhile, on a per-capita basis, the U.S., Brazil, Argentina, Australia and Mexico consume more than double the world average of sugar.  So let's not go pointing fingers at people in India.

Could I show you more charts? Hell, yes. But I have a lot more work to do before I hit the road for Nevada.  So, take care and have a great weekend. My posting will probably be light next week, but I may have some video updates from the road as well. Stay tuned.

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