Try Not to Have Armageddon Without Me

I'm flying today.

Argentina was declared in default by S&P last night after failing to reach an agreement with creditors. As a result, I hear the market looks ready to fall on its face. And gold is down. And Exxon is down despite an earnings beat.  Heck, even though crude oil builds fell more than expected, oil prices are down. Next will be zombies and other signs of the apocalypse I guess.

All this, despite the fact that the Fed maintained its doveish bias. Go figs, as the ancient Greeks would say. Right before they drank a cup of hemlock.

Anyway, I'll be back online later. Try not to have too much fun without me.

Who Could Have Seen that Coming in the Gold Miners?

Gold miners sold off hard this morning, as the market waited for the statement from the Fed's Open Market Committee (FOMC).

Guess what happened when the statement came out?

Gee, that was hard to see coming, eh?  All that bad news being priced in, when the Fed telegraphs what it's going to do from a mile away, and they gave no hint of bad news. And guess what. There was no bad news!

Yeah, we'll have to wait and see how the day ends. But so far, feeling pretty good about the gold miner positions.

Now, I need to figure out why energy is getting hit with a 2x4 between the eyes. Shrinking margins or building supply. What's your guess?

What If Goldman Sachs Is Right? Charts of TLT, TBT, SJB

The FOMC meets today, and tomorrow it will issue a statement that will be closely scrutinized by the market. Traders are looking for any hints that the Fed will start raising rates, or at least that significant members of the Fed are dissenting from the current easy money policy.

Goldman Sachs has already cast its vote. It put equities on a "hold" last week, fearing that rising bond yields will cause a sell-off in stocks.

As an aside, a hawkish Fed would almost certainly weigh on gold prices in the short term, until and unless people realized that the Fed was worried about inflation, in which case gold would probably go higher again. And there are other forces that can push gold around as well.

Anyway -- back to Goldman Sachs, stocks and bonds.

Goldman Sachs is right in that at some point, bond yields will have to go up and bond prices will have to go down. I don't know if that point is now. Certainly, 20-year-Treasuries, as tracked by the TLT, are in a strong uptrend. Here's a weekly chart ...

(Updated chart)
You can see the TLT made a double-bottom last year and is heading higher. Goldman Sachs seems to think this rally is over.  Are they right?

I can tell you that a simple P&F chart gives a target of 144 on the TLT.  So, you can believe Goldman Sachs, a chart, or your own lying eyes.

But if you DO think Goldman Sachs is right -- that the Fed is going to start raising rates -- then it is likely you think that bond prices will tank, bond yields will go up, and stock prices will step onto the Slip 'n' Slide of Doom as well. At least for a while.

In that case, the obvious thing many traders might do is get some insurance by purchasing the TBT, the INVERSE 20-year Treasury fund ...

(Updated chart)

That looks as bearish as the TLT looks bullish. But again, it's a bet on Goldman Sachs' powers of prognostication.

But let me give you another idea.

Another way to play it would be the SJB, or ProShares Short Junk Bond ETF.

You know junk bonds. The Screaming Mimis, the drama queens of the bond world. If anybody is going to crack under pressure, it's junk bonds. Let's look at a chart of the SJB ...

(Updated chart)

It sure looks like the SJB is testing that downtrend. It looks like it wants to break that downtrend and head higher. Then again, looks can be deceiving, and "every sunken ship has a chart."

I think tomorrow's FOMC meeting could be crucial for the bond funds. 

But we'll see. Good luck and good trades.

Chart of the Day: The US Dollar

Here's the chart of the day -- the US Dollar, as tracked by the Powershares DB US Dollar Index Bullish Fund (UUP) ...

(Updated chart)

Let's check back on this one later this week, as the US Dollar looks poised for a breakout. You can see that it is testing overhead resistance, and the volume on the up days is larger than the down days.  RSI, a short-term momentum indicator, has given a weekly buy signal.

What's happening with the dollar? The official view, to quote Reuters ...

A string of recent strong economic data has increased speculation that the Fed will hike interest rates sooner than expected.
The U.S. dollar hovered near six-month highs against a basket of major currencies early on Monday, holding on to solid gains made last week.

To that, I'd add that geopolitical troubles and a potential worsening of Europe's slowdown are also making the dollar attractive. Despite the wailings of the Weeping Wandas on Wall Street, the U.S. is still outperforming other major economies. The U.S. economy is expected to expand 1.7% this year (That's a Reuters consensus estimate, I've seen other estimates that are higher), while Eurozone countries are expected to trudge along at 1% growth.

We'll see how the market reacts to jobs data later this week, as well as Fed comments on interest rates. Now, won't this be bad for gold? Potentially. But while gold and the dollar often move in opposite directions, they CAN move in the same direction under the right circumstances. And I think we're in those circumstances now. But we'll see.

Summer Reading: SciFi Classics

This summer, I'm reading classic Sci-fi, naturally. Like Bester's "The Stars My Destination."

If you're looking for books you haven't read but should, consider the old classics that you can now find on Kindle for dirt-cheap.

Other lists of great works ...

Millenium SF Masterworks

David Pringle's Science Fiction: The 100 Best Novels

Top 100 SciFi Books

NPR's Top 100 Science-Fiction, Fantasy Books

Not all the books on these lists are my favorites, but most are very good. Some are outstanding. There are some noticeable absences -- just try to find James Blish's Cities in Flight near the top of any of these lists. But that's part of the fun -- finding a treasure that others have ignored.

Junior Gold Miners -- It's on Like Donkey Kong

On Thursday, I recommended that Gold & Resource Trader subscribers buy the Market Vectors Junior Gold Miners ETF (GDXJ).

My reasons were:

• The GDXJ has a track record over the past 5 years of doing well in July and very well in August.
• By entering on Thursday, subscribers were able to get in at or even below the price at which GDXJ began July.
• Tremendous negative sentiment on gold and miners, especially among the major banks.
• Good fundamentals for a bunch of stocks in the index.

(link to chart)

This entry was a bit tricky. I wanted to get this issue out after the morning rush, when I expected gold and miners would be sold.

Yet at the same time, we were grabbing gains on two other (non-gold) positions. And the market was weak. So I was praying to the market gods (and cruel fate) that those other two positions wouldn't tank while we pushed back the issue to get a (hopefully) better entry on GDXJ.

Those two other positions actually did well Thursday morning. So we were able to exit them at good prices, and enter GDXJ at a good price as well.

We track an entry of 40.88 on the GDXJ. Not the low of the day, but low enough to end the day positively. 

And GDXJ rallied even more on Friday, closing above the 20-day moving average.

Now, I can't predict what the market will do next week. Maybe gold and miners will tank. But I believe we're on the right side of the market here. 

And what do I think happens next? I already told you that.

Of course there is risk. If you're doing this on your own, I hope you do your due diligence before you buy anything.

And may Fortune smile on us. Often, the best thing is to be lucky.

3 Lessons from the Castle in the Clouds

The following paragraphs were edited out of my "Castle in the Clouds" story on InvestmentU.com today. I'm thinking the story was cut down because I'm a long-winded sort. Anyway, I think these points are important. Maybe you'll agree. Have a great Friday and a wonderful weekend.

3 Lessons From the Castle in the Clouds

The saga of Thomas Plant is a good ol’ American rags-to-riches … to rags … story. But we can draw a few lessons from it.

1.   Dare to Try Anything. When Thomas Plant struck out on his own, he didn’t know what he was going to do. He tried many different careers before he settled on making shoes.

2.   Hard Work Isn’t Enough – Be Innovative. There were many, many shoe factories in late 1800s New England. Thomas set himself apart by thinking outside the shoebox and finding new ways to do things.

3.   Guard Your Fortune. Making money is one thing. Keeping it is another. Thomas thought he could keep making money without getting expert advice. And that gambit cost him his fortune.

 

There is a lot to admire about Thomas Plant. Sure, he built a fortune, then lost it. But he left a legacy in the Castle in the Clouds that you and your children can still enjoy today. Just make sure that your kids learn the financial lessons as well.

Gold Dips Below $1,300 -- Chart and Analysis

Gold has dipped below $1,300 this morning. The reason is that news is out that China’s gold consumption had fallen more than 19% year-on-year to 569.45 metric tonnes.

Investors bought fewer bars and coins, offsetting higher demand for gold jewelry. Sales of gold bars and coins fell 62.1% and 44.3% respectively, while jewelry sales rose 11% to 426.17 tonnes. Industrial consumption rose 11.3%.

At the same time, China's total gold production in the first six months of 2014 reached 211.1 metric tonnes, up 9.47% from a year ago.

On the other hand, if you know gold’s seasonal trends, is this dip frightening or a buying opportunity?

Now, just because gold usually goes up in the next few months doesn’t mean that it has to. Sure, gold could go lower.

But consider that gold imports into India surged 65% year over year in June, despite the fact that India’s government hasn’t eased its tariffs on gold imports. China isn’t the only game in town.

Plus if, you think we’ve seen the last of geopolitical worries, I think you have another thing coming.

Buy gold and miners ... or don't. You always have to do what you're comfortable with. But it's a truism of the market that the best time to buy is when others are selling.

Good luck out there today, and good trades.

The Charts That Makes OPEC Nervous

Bloomberg offers this chart ...



Bloomberg reports: "last year was the first since 1993 that the value of OPEC’s total crude exports didn’t track the direction of global gross domestic product. The bottom panel shows how the group supplying about 40 percent of the world’s oil fetched lower average prices and also shipped fewer barrels year on year."

In fact, production among OPEC’s 12 members fell 2.5% to average 31.6 million barrels a day last year.

Meanwhile, how about US oil production? Take a gander at the latest EIA chart...

The upward slope since 2008 is pretty impressive. And yes, fracking is driving this boom.

We're producing more oil all the time. Next year, U.S. crude oil production is likely to hit its highest level since 1972. U.S. oil production has jumped from 5.0 million barrels per day in 2008 to 7.4 million last year and is expected to average 8.5 million this year and 9.3 million next year, according to the EIA.

As for exports,  last year, the U.S. exported 43.8 million barrels of oil, double the rate of 2012, and up nearly tenfold since 2003.

To compound OPEC's problems, Iraq's output is only expected to hold steady next year. I guess things could be worse with the civil war they have going on.

Junior Gold Miners Chart

I'm at a conference, and busy. Here's a chart to keep in mind.

Monday Morning Reads -- Energy, Agriculture, and the Gold Chart of the Day

Here are some reads to start your Monday

Energy

US crude production has increased to 8.51 million barrels a day, the highest level since 1986. Nonetheless,  big speculators closed out nearly $6 billion worth of bullish bets in U.S. crude oil markets in the week to July 15. So is the oil boom in its waning stages? I don't think so, but it may be due for a rest. Reuters says hedge funds are "capitulating" to growing signs of a surplus of immediately available oil."

Something that might change U.S. oil output: California officials have ordered an emergency shut-down of 11 oil and gas waste injection sites and a review more than 100 others in the state's drought-wracked Central Valley. This is drought-related. See agriculture below.

Agriculture

As the song says, "It never rains in California, but girl, don't they warn ya."

In more scientific terms: "The 2014 drought is responsible for the greatest absolute reduction to water availability for agriculture ever seen"

Earnings and Markets

73% of S&P companies have beat revenue estimates thus far, a new record high. This week, nearly 30% of the S&P are reporting earnings and 40% of the Dow-30.

Here is the latest bullish case for the markets:

The fundamentals we focus on remain the lack of any return on cash and generally low market and economic volatility. Incoming economic data and surveys are raising our confidence that global and US growth is set to rebound to a 3% handle in H2, after a dismal and unexplained weak H1. 

Also, we just saw the best jobless claims report in 7 years.

Deficit? What deficit?

On the other hand, one of the most profitable companies in tech just laid off 18,000 people for no good reason.

Gold

Here's the gold chart of the day

Farmers in India seem to be catching gold fever again. We'll see how this impacts the gold market down the road.

The Freakin' Plane

One of the things that bothered me over the weekend was why that Malaysian airliner was flying over a war zone.  It turns out airlines fly over regions torn by war all the time for a very simple reason: To save money. In fact, there are airlines flying regular routes over Afghanistan and other war zones regularly right now. I don't think that will make the relatives of the Malaysian flight feel any better. Nor will it help the relatives of the next flight to go down because an airline decided to save a few bucks.

Another Interesting Chart -- the Smart Money Index

Here's another interesting chart to ponder over the weekend.

The smart money index (SMI) or smart money flow index is a technical analysis indicator demonstrating investors' sentiment. The index was invented d by money manager Don Hays, and is based on intra-day price patterns.

The main idea is that the majority of traders (who are emotional and news-driven) overreact at the beginning of the trading day because of the overnight news and economic data. There is also a lot of buying on market orders and short covering at the opening. Smart, experienced investors start trading closer to the end of the day having the opportunity to evaluate market performance.

What this indicator is telling us is that the smart money is turning more bullish.

To be sure, there are as many indicators for the market as there are leaves on a large tree. Some work sometimes, others work other times. And many, many smart people have been telling us that now is the time to get bearish.

But I've often heard the phrase "watch what the big money does, not what it says." 

Maybe that applies here.

Anyway, something to consider over this summer weekend.

3 Charts for Friday: Dow, Banks & Global Temps

Quote for the Day

"When nations, by mutual consent, decide to ignore the commandment 'Thou shall not kill', it is very difficult for the military leaders to restrict the killing to just the right people" -- Rear Admiral Daniel Gallery

Chart #1: Brutal week for the markets

 

This is strictly technical analysis, so take it for what it's worth. As the old saying goes, "every sunken ship has a chart." But Martin Pring offers more analysis on the Dow vs other indices that you can read here.

Chart #2: ... And Not a Single One Has Gone to Jail

This chart posted without additional comment because if you don't think the big banks being able to buy their way out of this is a problem, then nothing else will convince you.

Chart #3: And the Japanese Are In on the Vast Conspiracy, Too!

I know a very smart fellow who is convinced that the world's academics are all part of a vast conspiracy about climate change. No chart will convince him otherwise; it only shows that others are "in on it."

Precious Metals Update

Finally, do I have comment on gold today? After its big move yesterday?

I'm not going to go into much more depth than I did in my articles published earlier this week on gold and silver.

I will add this: To be sure, gold had already bounced over $1,300 yesterday before the downing of the Malaysian airliner sent the metals higher (and stocks lower). Such short-term jet fuel should be just that -- short-term. I believe there are longer-term forces at play, including changing investor sentiment, and a general feeling that the Fed is behind the curve on inflation.

But we'll see. Remember, there is more support at lower levels, and no reason that couldn't be tested as part of a short-term pullback, Malaysian airliners not withstanding.

And my consolations to anyone who lost someone on the plane. Why was it flying over a war zone, anyway? So many unanswered questions, and even if we get answers, what comfort will "answers" be to those left grieving?

Have a great weekend. Hug those dear to you, and keep them close. Remember, it can all change in a bloody instant.

Gold, Silver and Thor!

Quote for the Day

"Only the mediocre are always at their best." — Jean Giraudoux 

My Latest Article on Gold
Gold's Sell-Off: Should You Buy It?
Some folks are asking: Is the gold bull run over? Is it time to sell?

The answer is, “It depends on what kind of time frame you have.” If your only time frame is short term, sure, sell. If your time frame is anything but short term, this pullback should be a great buying opportunity in both gold and silver. I’ll show you why, and where you might consider picking up gold or gold mining stocks again.

Read the rest HERE.

My Latest Article on Silver
Why You Should Invest in Silver Now

The big banks have smashed gold and silver lower this week, and after that shellacking, you'd have to be crazy to buy precious metals, right?

Yeah. Crazy like a fox.

If you're smart, you're going to put on your big-boy pants and buy silver right now.

Here's a chart from the story.

Read the rest of the story HERE.

My View on Marvel's Announcement that Thor Is Now a Woman

See the announcement HERE.

My view: This is a bad idea. A) it's lazy and B) it shows disrespect for the fans.

Here me out before you think I'm a raging sexist.

First, I know why Marvel is doing this rather than launching a new female character. It is tough to generate the same level of interest/buy-in for a brand-new character than for an already-popular one.

However, that said, LAZY! Thor's defining characteristic is his masculinity. Taking a character that is masculine at his core and recasting as a female simply to generate an audience from the get-go is just plain lazy.

Now, as for disrespecting the fans: The fans can take something new. Hell, they're eager for something new IF IT IS DONE WELL.

If Marvel wants to stick with Norse mythology, there are plenty of Norse Goddesses to choose from. Loki in the Norse mythology has a daughter named Hel. She is the goddess of the dead. Interesting mythological factoid: "Although the gods looked upon her with loathing, Hel had more power than Odin." Ah, so hated AND powerful. Can you see the story possibilities there?

Or take Loki -- Loki changes sexes, so there's no problem playing Loki as a woman. Or a transgendered woman if they wanted to go that route. Hell, Loki even turned into a female horse and gave birth, though I don't expect Marvel to go that far. 

And Loki has all sorts of conflicts, good/bad stuff going on, including a sibling rivalry with Thor, that makes a female Loki perfect for a modern-age character. Loki IS chaos, and will help you or hurt you depending on her mood and/or the situation. Loki does come through in the clutch a number of times.

CONCLUSION: The much smarter move would be to recast Loki as female, and use all the potential that hasn't been explored in that character.

Charts on Gold, The Drought, and the Bulls and da Bears

Quote of the Day

"A bubble is a bull market in which you don't have a position." -- @EddyElfenbein

The Quiet Water Crisis in California
For First Time, California Gets Ready For Mandatory Water Restrictions
Californians have been looking to the sky all year for signs of rain, and in January Gov. Jerry Brown declared a drought emergency and asked for voluntary cuts by residents of 20 percent. A board survey recently found that statewide water use had declined by just five percent since then.























Do you think this just affects California? California grows an amazing amount of the food that ends up on America's dinner table. Look for higher prices everywhere.

Da Bears!
The ratio of bullish to bearish investment advisers tracked by Investors Intelligence is higher now than it was at the time of the 2007 and 2000 peaks.

(updated chart)

However, this is not the harbinger of imminent doom some would have you believe. The fact is, the highest level of bullish-to-bearish sentiment in the last 30 years occurred prior to the 1987 crash -- but early in 1986, well before the eventual market peak.

Gold & Silver
The sharp pullback yesterday came about due to a number of forces converging. But for whatever reasons, someone with big pockets went in and sold gold in the futures market at the open like there was no tomorrow.

That said, $1,300 wasn't violated. It still could be, as there is deeper support further below.

(Chart updates at end of day)

More reasons to remain bullish: Traders continue to add long positions, as tracked by activity in the ETFs -- though a lot were probably stopped out yesterday. The inflation bid is still in play and seems to be getting stronger. 

And then there's seasonality. As I mention in an upcoming article for FreeMarketCafe.com's Daily Grind: 

According to a study by Canada’s Globe & Mail, from July 12 through October 9 gold bullion has gained an average of 3.63% during the past 29 years. That may not sound like a lot, but it outperforms the S&P 500 over the same time frame by 4.98%.
The gold trade has been particularly profitable in recent history, gaining in 14 of the past 17 years for an average return of 5.44%.

So, gold has a lot of things going for it. Interestingly, silver has more going for it, though that's grist for another article. If you have the stones to buy the pullback, pick your targets and potential entries.

Have a good Tuesday.