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There’s an old saying. “What goes
around comes around.” Well today President Obama held a quick press
conference and announced that the “Gang of Six” had presented him
a compromise plan that he felt everyone could agree on. The market
immediately spiked up on the news and gold and its baby brother silver did
exactly what I thought it would do. It sold off. So what goes around comes
around – just usually not that fast.
Gold and
silver have both had an extraordinary run and they were showing signs of
running out of steam. A pull back like this is both an expected and healthy
event in the bull market they have just experienced. If this is the pullback
I have been predicting we will see gold move to the 150 day moving average at
around $141.00 and silver will pull back to $34.00 - $35.00. If it is the
correction I’ve been predicting we’ll know about it soon. As at
the end of April both gold and silver were trading on “irrational
exuberance” and they both encountered a stunning sell off. I conclude
that the only difference today was the impetus that both metals received from
President Obama’s announcement.
I
by no means want to imply that the gold and silver trades are finished, far
from it. At times like this when a commodity like gold has experienced a parabolic
run and broken the psychologically important $1600.00 level it is natural for
institutional investors to take their profits and run for greener pastures
like pork belly futures of frozen concentrated orange juice. Indeed from a
contrarian point of view I see this as a very bullish indication for both
gold and silver. This would lead me to believe that the precious metals
trades are still engulfed by an underlying feeling of skittishness and could
possibly continue to sell off. The would be very good news for my readers
because I advised them to take their profits on GLD at $156.00. I reminded my
readers of the teachings of Bernard Baruch who would rather sell a holding
and watch it run up another twenty percent than watch it crater and lose all
of his hard earned profits.
I also
advised my readers to sell SLV yesterday. As I have been writing, I was still
puzzled by SLV. I still had a nagging feeling that the faint of heart
investors had not been sufficiently punished and I felt SLV would go back and
test support at $32.50. Yesterday, I advised my readers and I sold out of my
half position in SLV at 39.46. I must admit I questioned myself but as Gerald
Loeb taught us, you can know everything about fundamental analysis and
everything about technical analysis but in the end it’s the man who can
tell which way the wind is blowing that will be successful. I trusted my
instincts and sold the SLV. However to test my thesis, as an insurance policy
I kept my position in PSLV and watched it close down 5% on the day.
While we
enjoyed a strong market yesterday with the DOW closing up 202 points I am not
buying into it for one minute. In fact I used it as an opportunity to build
some cash. Yesterday Apple (AAPL) reported earnings and hit a grand slam home
run. It closed at $377 and was trading over $400.00 in the after markets.
This leads me to conclude that we may see yet another up day tomorrow and if
we do I will be there selling into strength. The reason is that when the dust
settles from these earnings reports I believe the market is going to sell off
and I will have ample dry powder to put to work. These earnings reports are
going to make it very difficult for Dr. Bernanke to make a case for another
round of quantitative easing. I conclude that he will have to go in through
the back door. We’ll call it stealth QE.
Let’s
not forget that while the global corporations are hitting the ball out of the
park the middle class common man is still nagged by the debt crisis in
Europe, extremely high unemployment, sagging home prices, the nagging
suspicion that another round of quantitative easing is just around the corner
and the sad fact that despite what president Obama says until the partisan
bickering is ended and some compromise is formalized we will continue to have
the possible catastrophic possibility of default continue to hang over us
like a dark cloud.
Please
see the enclosed charts on GLD and SLV below.
Gold could
not hold the psychologically important $1600.00 level. If it continues to
sell off, I will be a buyer at $144.00 and look for a test of the 150 day
moving average at 141.50.
Silver
could not stay above resistance at $38.50. If it continues to sell off I will
be a buyer at the $35.00 level and look for a retest of the $32.50 level.
In
conclusion tomorrow will be a very interesting day. Apple hit a Home Run and
knocked the ball out of the park with their earnings reports. If the plan
that President Obama announced yesterday does not completely implode, I
conclude that Apple's earnings report will have the same effect on the
markets as IBM's stellar report had. I see the market opening up higher
again. If this happens gold and silver will continue to sell off. If gold and
silver continue to sell off, I will look for a bounce at the levels mentioned
above to buy back in. This trade may have to reset itself before it moves
higher. However, have no fears. It is not a question of if they will both go
higher; it is a question of when.
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