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.