World Of Wallstreet

Gold: What Next After A 4% Or Bigger One-Day Hit

What to do after a day like today? Well, dump the GLD historical data from Yahoo into a spreadsheet and see if there are any parallels. The chart and table that follow show all days with a 4% or larger drop.

Here's some observations:

• Blue Squares In Chart - every one of them, at least for a moment, had a point where the price was higher than the close of the one-day hit day sometime in the next 5 days. I don't consider this to be tradeable because I wouldn't know where to place the stop.
• Orange Diamonds In Chart (and Column J) - every one of them except one had a low that was lower than the close in the next five days. I used this to exit my short-term trading positions this evening.
• 2008 Crash - a bunch of these were associated with the 2008 crash. I don't think we are in such a crash so I discount those data points.
• Yellow Triangles And Table Average 5 Days Later (rows 16 and 17) - a little lower than today. So, there isn't a need to panic out of longer-term positions. The worst of the yellow triangles (except 2008 crash triangles) was "only" down another 3.9%.
• Another 3.5% Lower Than Today's Close (that would be $1632) - Every such non-2008 panic case, if bought this far further down from Today's close, results in a gain at the end of the 5-day window (that is, next Wed). I expect I'll be buying for a short-term trade if we get at least 3% more downward movement. 
• Feb 27, 2007 - by far the most similar day to today, both in time of year (to the day almost), and the RSI and general chart pattern (see below). It continued to fall another 4.3% (targeting $1617 for this year) and then quickly recovered everything and then some.

This scatter chart has the size of the one-day-drop as the X-axis and the percentage price change from the one-day-drop close over the next five days on the Y-axis.

Here's the table summarizing each big one-day-drop event.

Here's the current gold price chart:

Here's the 2007 gold price chart. Check out the end of February and what follows. This is the event most similar to today's event:

Here's the spreadsheet in .ods format: Download 20120229gld

MontyHigh, www.worldofwallstreet.us

US Dollar Right At Head-And-Shoulders Support

Thhe US Dollar is right at head-and-shoulders support:

Technically, if the pattern completes we are talking about several weeks more (at least) of the "inflation on" trade. That's:

• Another 120$/oz (7%) higher for gold targeting $1900/oz. 
• Another 4$/oz (11%) higher for silver targeting 39$/oz
• Another 6% higher for the S&P 500 (not shown)
• Another 7% higher for copper (not shown)
• Another 10% higher for $WTIC crude oil (not shown)

if they react to the dollar's fall the they did from the top of the head to the neckline. If that pattern holds then silver is just about the best "inflation" trade there is. I don't have much, but I expect I'll crank that up (and dump my inflation trade "jig is up" hedge: S&P 500 puts) if the dollar closes with a 77 handle.

MontyHigh, www.worldofwallstreet.us

For Debbi:

Download ZMcCaffrey002

Off Topic: Age, Wealth And Dick's Sporting Goods

Now that I can buy anything I want, there's nothing I want. Its not just Dick's.

MontyHigh, www.worldofwallstreet.us

P.S., Hat tip to my son for rec'ing this song. Its rare, but occasionally it fits.

Off-Topic Best Of The Podcasts: Here's What I've Liked Lately

I don't know if these are tradeable, but I found them entertaining:

Nice bit of conspiracy theory regarding the media and big pharmaceuticals: KMO and the C-Realm Podcast, 297: The Temple of Biological Mysticism. I don't think I buy the whole anti-modern medicine thinking.

Turd Ferguson interviews Gozolo Lira. The beginning is about the Europe Debt situation but things get interesting when talk of war with Iran gets going.

MontyHigh, www.worldofwallstreet.us

Download ZMcCaffrey001

Post-Crash S&P500 Overbought Comparables

Today we find the daily RSI for the S&P 500 being overbought (above 70 and then not falling below 60) for a month. What's the likelihood for a correction and how big might that correction be? The chart below looks at all of the comparable situations since the 2008 crash.

There are three such comparable situations. The gray boxes over the comparable situations are of the same width as how far we have gotten through the current situation. What happens beyond (rightward) of the gray boxes shows what happened in the comparable situations beyond where we are now in the current situation.

The three situations are as follows:

• March 2010 - the S&P 500 continued to advance about a couple weeks further and around 3.5% higher and then went into the "flash crash" correction with an good initial bottom 14% down from the high about a month further out. If memory serves, emotions were quite high up until the flash crash. THIS SEEMS LIKE A GOOD POSSIBLE PATTERN FOR THE CURRENT SITUATION.
• October 2010 - the S&P 500 barely achieved a post-crash high false break-out and then corrected around 4.5%. By the way, comparable situations in Dec 2004 and Oct 2006 are somewhat similar to this one. In the current situation we just exceeded the July high and are almost to the post-crash high. THIS SEEMS LIKE A GOOD POSSIBLE PATTERN FOR THE CURRENT SITUATION.
• December 2010 - the S&P 500 continued from the post-October 2010 correction and hesitated around the equivalent of where we are now now and then continued up another 5 weeks and another 5% higher prior to  correcting 7% from the high to below the equivalent of where we are now a month later. THIS SEEMS LIKE A DEFINITE POSSIBILITY FOR THE CURRENT SITUATION IF THE RISK-ON TRADE STAYS ON.

I'm currently protecting my January gains in gold mining stocks with a S&P 500 put options position. I expect I'll hold that position and exit using one of the following criteria:

• STOP LOSS - no correction for at least 6 weeks. If this occurs none of the prior three situations parallels the current one.
• STOP LOSS - no correction and another 6% S&P 500 rise to $1443.If this occurs none of the prior three situations parallels the current one.
• EXPECTED EXIT - a correction begins without a sustained $1370 breakout and the correction falls at least 4%. If this occurs the Oct 2010 comparable pattern is being followed.
• EXPECTED EXIT - a correction begins after a $1370 sustained breakout and the correction falls at least 6%. If this occurs either the Mar 2010 or the Dec 2010 comparable pattern is being followed.

We'll see what happens.

MontyHigh, www.worldofwallstreet.us

For Debbi:

Download 00TenStupid00

Download ZMcCaffrey001

Waxing And Waning: A Review Of Subscription Investing Services

I thought it might be of use to you to hear which subscription investing services seem of value to me and why. Please take a moment and leave me (and your fellows) a recommendation for a service you find valuable and why its valuable. I'm particularly looking for a service which does asset class allocation based macro-economic fundamentals (e.g. leading economic indicators). I'm also looking for an energy sector (Peak Oil) stock-picking service.

Here, in order of greatest interest first, are the subscription investing services I am subscribed to or have recently subscribed to:

Highly Rely Upon:

• Stockcharts.com - pretty valuable way of doing technical analysis and maintaining dozens of charts. Not very expensive.
• Stewart Thomson's GracelandUpdates.com - very nice daily service with a strong viewpoint on how to invest called the pyramid generator (steadily buy into real assets as they decline to successively lower points of support, sell lightly as they rise to successively higher points of resistance). Comes with a daily commentary written in a darkly funny voice and pretty cool video of charts with voice-over. This is the service I am most learning from now. Not very expensive.
• Bob Hoye's Institutional Advisor - a written weekly commentary giving Bob's market outlook which is mainly based on the idea that we are going thru a repeat of the 1870s and 1930s great depressions. That part is entertaining and seemingly insightful, but is not directly actionable. The way you make money is from the work of Bob's partner, Ross Clark. His analysis of individual situations (e.g. gold, crude oil, S&P500) comes out intermittently and is based on his historic parallels method of technical analysis. Ross' work is the inspiration for the best work I've put on this blog. I carefully consider a trade based on each of Ross's reports. Quite expensive, but worth at least 1% of portfolio value, I think.
• John Doody's Gold Stock Analyst Top Ten - I subscribed to this simply as a low-effort way of stock-picking gold miners. I'm using this simply to replace my GDX holdings with a portfolio containing a subset of Doody's top-ten. Its too early to tell whether this subscription will really make me money.

Still Follow Closely:

• Gary Biiwii's Notes From The Rabbit Hole - a weekly commentary that uses technical analysis (with a lot of ratio charts) to create a macro view of the overall markets and individual markets. Often ends up with a summary of "I'm not sure what's going on". I think I've learned a lot from Gary, but I do not closely follow his individual calls. However, if I'd paid more attention to him last year I would have had a much better year because he correctly perceived that Gold was way, way overbought last August and I didn't. So, I'm still hanging around learning.
• Otto Rock's Inca Kola News (IKN) - excellent micro-market cap Latin America mining stock picking. Most of his picks are too small for me to trade now, but his top pick of Rio Alta Mining (RIO.V) made way more money for me last year than the subscription cost or time spent reading it. If I wasn't still playing high-tech with my day job, I'd be doing a lot more of this kind of stock picking.

Still Follow:

• Bill Murphy's LeMetropole Cafe - provides a daily summary and commentary on the precious metals markets from the GATA conspiracy viewpoint. My best short-term trading setup was inspired by his commentary. Murphy is a perma-bull, so you won't get any trading signals from him. I have trouble finding ways to backtest and trade his "They Always Hit The Metals When...". The main value that I get from his posts is the ability to quickly scan (and dig into) the set of precious-metals related headlines.

 Discontinuing When Subscription Expires:

• James Dines The Dines Letter - have learned some significant things from Mr. Dines, but have never made any money with his news letter. I should have made money on his Rare Earths call, but somehow missed the boat. His most lasting contribution that I have gleaned is his insight that investing must be based on four factors: Fundamentals, Technicals, Mass Psychology and Personal Psychology.
• Metal Augmentor - I subscribed to this as another mining stock picking service, but never found the time to make use of the service. 

Recently Discontinued Services:

• John Williams Shadowstats - I think John Williams is making a valuable contribution with his review and analysis of government economic statistics, but after subscribing to his service I failed to find a way to utilize it to make investing decisions.

Not So Recently Discontinued Services:

• David Morgan Silver-Investor - I was a subscriber during the 2008 panic. He did not provide a way of dodging that situation. His silver stock picks took huge down moves during that episode. 
• Ted Butler - Never got enough value as far as using his material to make money trading to continue the subscrption.

Hope you found this useful. Please take a moment and leave me a rec for something I should try.

MontyHigh, www.worldofwallstreet.us

 

Off Topic: The Latest With Monty

You haven't seen much posting from me lately. I haven't had much to say lately and have not been concentrating much on the investing world:

• Just bought a house and moved in.
• Lots of wheeling and dealing with contractors to get the old house ready to sell.
• The high-tech product I'm developing at my day-job is taking a lot of time and mental energy.
• I had quite a nice January investing and I've more than enough money so my emphasis is more on preserving prior gains rather than making the next killing. 
• Overall things are quite good, thank the Lord.

Hope you are doing well yourself,

MontyHigh, www.worldofwallstreet.us

Gold Correction Historical Parallels

As you can see in the above chart, we've got a little correction started with the price of gold. In this posts and I'm going to look at similar corrections where a similar correction has:

• The RSI rising above 70 from below 50 where it was above 70 for less than 2 weeks without revisiting 60.
• The RSI falling to at least 60.

I'm looking for similar cases and seeing what happens to the RSI. Does it fall below 50 or rise back above 70? I'm calling either of those outcomes the RSI destination. What happens to the price in terms of percent fall from the top to the destination. Here's my results.

Looks like its a high probability of a continued correction until at least RSI 50 which isn't that far away. I expect, I'm going to reduce my long exposure as soon as I post this and will reevaluate when the RSI hits either 50 or 70.

MontyHigh, www.worldofwallstreet.us

 

Elgin Mining (ELG.V) Buyout Of Gold Ore Resouces (GOZ.TO)

Elgin Mining (ELG.V) made an offer to buy out Gold Ore Resources (GOZ.TO) in an all stock transaction nominally at a premium of 66% to GOZ.TO's recent closing price. As of 9:40AM GOZ.TO is trading up 25% relative to yesterday's closing price.

Here's my take on the situation:

• GOZ.TO is a small (44K oz/year), high-cost gold producer with a mine in Sweden that is making a lot of money at current gold prices, but which has no growth prospects. 
• ELG.V is a mine reopener of a high-grade mine in the middle of nowhere (see any towns, roads, cities anywhere near the mine in the map below?) in the Northwest Territories of Canada. The mine closed in 2005 due to low gold prices. They have at least one big-name executive (founder of Kinross Gold is the Chairman).
• I hate mine reopeners as I lost a tonne of money in 2007 on base metal mine reopeners. The mines look like money makers at current metal prices and then they are un-economic and "go to zero" when the price declines.
• But, I remain bullish on the price of gold.

I've decided to sell all my GOZ.TO even though it looks on the surface like the mine reopener will work. Here's why it looks like the mine reopener will work:

• The cash cost of that ELG.V mine has got to be entirely driven by the price of fuel since there are no roads. Transporting fuel and equipment and people, etc. in and out has got to be the primary cost driver for that remote mine.
• So, whether that mine reopener remains profitable depends primarily on the ratio of the price of gold to the price of fuel (see chart below).
• The price of gold relative to oil now is approximately twice what is was in 2005 and is trending higher and has been consistently higher ever since 2009. This seems very promising.
• As long as this remains the case the mine reopener will probably "work",

However, in the light of my reasoned conclusion that Peak Oil is "real" and "significant", I just don't want to touch anything that completely depends on the price of oil staying low relative to any other thing including gold. I don't like high-cash cost gold producers that use diesel either for power generation or for open-pit mining.  I'M OUT.

MontyHigh, www.worldofwallstreet.us

P.S., I kind of suspected GOZ.TO was a value-trap when I bought. There wasn't any kind of catalyst for revaluing the company. They had:

• No growth prospects, no chance of increasing production above that 100K oz/year level that seems to cause gold miners to get a decent valuation.
• No commitment to returning profits to stockholders with either share buy-backs or with dividends.

Next time I buy into a gold-miner value play there has got to be an exit strategy.