Technical Analysis Blog

This book is aptly subtitled “The Battle Against Sound Money As Seen From A Swiss Perspective”. Gold Wars serves as a chronicle of history from a rather unique and eye-opening perspective. The author, Ferdinand Lips, begins by discussing the history of civilization and the use of gold as money. One of the key points that the author makes is that almost every great society began their decline when gold money was thrown by the wayside. Lips does a good job of correlating the deviation from sound money (gold) and the downfall of great societies.

Here is fame.org’s description of the book:

“Gold Wars deals with gold’s history, the gold rushes and the abandonment of gold-as-money under the modern welfare/warfare state. It shows how governments, fearing the affinity of free people for gold, fight it, thereby helping to destroy whole countries along with the gold mining industry. The book highlights the betrayal of gold-rich Switzerland. The author condemns gold “hedging,” gold market manipulation by governments and bullion banks, fiat money and debt. He concludes that only a gold standard can return an ailing world economy to its full potential, reduce unemployment, help restore law and order, and help to secure peace and freedom for mankind.”

The book is a priceless chronicle of history through the eyes of a sound-money advocate. Although it was written in 2001, there are important lessons that one can apply to our current financial situation. For example, the author explains the scam known as the International Monetary Fund (IMF) and their fanciful Special Drawing Rights (SDR’s). He also explains how the excuse of selling IMF gold to benefit the poorest nations on earth is really a way of keeping them in perpetual debt. The author builds a logical case against the IMF and goes on to say that the IMF sells gold to suppress the price (of gold) and generate cash for loans to poor countries. These countries happen to be gold producers, and as such, they are consequentially hurt by the inability to realize higher prices on their chief export (gold). As you read through the pages you will find yourself wondering why we allowed the banking cartels to thrive. You will ask yourself why this book isn’t required reading in schools, and you will find yourself scrambling to buy gold. This book sheds light on the necessity of sound money. It drives home the lesson that “gold is nobody’s liability,” and if you have ever considered buying gold, this book is for you.

http://www.fame.org/goldwars.htm

I was looking at gold charts on kitco.com today when I noticed something rather interesting, and in my opinion, rather bullish. Kitco has a neat little multi-timeframe chart grid that gives a great snapshot of the gold market from 30 days all the way up to the last 10 years. There is no better way to invest/trade successfully than to utilize a top-down approach. In this case, we start with the 1o year chart and notice a long term uptrend (+1 point). Next, we move on to the 5 year chart…uptrend (+1). Onward and upward to the 1 year chart…uptrend (+1).  Six month chart…uptrend (+1) Drill down a bit more into the 60 day chart…no surprise here, uptrend (+1)…same goes for the 30 day chart (+1).

Gold Prices From 30 days to 10 years

We now have six uptrends across varying timeframes ranging from 10 years to 30 days. If you’re a daytrader, the trend is your friend. If you’re a swing trader, the trend is your friend. If you’re an investor, the trend is your friend. Make no mistake about it folks, the gold uptrend is long and strong. Some might ask “but what about the potential double-top evident in the five and ten year charts?” My response to that question is as follows: If you are too scared to jump in here, and think we’re going lower, wait for support at $700.00 conversely, if you have balls of steel and think we’re headed for the most disgusting bout of inflation the United States has ever seen, you jump in balls deep and buy gold.

Disclosure: Long Gold for the long term

2009 1 oz. Chinese Silver Panda

Investing in precious metals can be a rewarding experience. I started my collection of silver with five each of the following 1 oz. coins: American Eagle, Canadian Maple Leaf, and Austrian Philharmonics. When I received the coins in the mail I was amazed at the beauty of both the artwork on the coins and the overall feeling of owning a tangible store of value. Granted, this is not a massive silver investment, but it’s a beginning. Shortly after acquiring my first coins, I started looking at the other varieties of coins available. The mainstream coins that I purchased just did not seem to have the extra value that I was looking for. This is when I stumbled upon the elusive panda.

Pictured to the right is the Chinese Silver Panda. In my opinion, the 2009 mintage is by far the most exemplary of all the panda coins and their high resale value is easily warranted. For example, a 1 oz. American Eagle silver bullion coin sells for roughly $18.00 retail in today’s market. A similar weight panda coin sells for $28.00 There is quite a premium for the panda coins, and I believe that the artwork and craftsmanship truly justify the higher initial cost. The silver panda coins generally sell for twice the spot-price of silver on the retail market due to their highly collectible artwork which changes every year. The 2009 mintage of 600,000 1 oz. coins is already sold out at the mint and they are not producing more of this design. Whatever you find at a dealer is all that exists on the open market.

Based upon my research, here is why I believe the 2009 Silver Panda coins are a fantastic investment:

• The mintage is sold out and they were just released in January of 2009.
• As time goes on, panda coins appreciate in value regardless of the price of silver due to the ever changing artwork.
• The level of detail and craftsmanship is superb on these coins
• The artwork for the 2009 coin is magnificent.

According to the manufacturer of the panda coins, China Gold Coin Incorporation, which is owned by the People’s Bank of China, a lot of work went into creating the panda artwork:

“In order to portray giant panda’s black and white colors and their playfulness, Chinese coin designers and minting specialist made great efforts in the innovation of panda coin’s design. Depending on their excellent artistic talents and skills, a special patternmaking technique was invented, which perfectly displayed the giant panda’s characteristics. As the essential colors of giant panda,black and white colors were especially difficult to cast in metal.

Gold and silver has only one color respectively. Casting two colors in one metal became very difficult. Through repeated studies, experts found that the plane of gold and silver pieces reflect different light which form different colors. Given a treatment that makes the plane as smooth as a mirror, one angle of the plane reflects strong lights which becomes golden color; another angle reflects drawn lights which becomes a darker color. Skillfully use the reflection effect to form the “white” color and the “black” color, experts invented the reflection minting technique. This technique can depict giant pandas black eyes, legs, and ears distinctly.

The special artistic effect of black and white vividly depicts giant panda’s characteristics, and give panda coins a high artistic value. Later, experts invented a technique that makes a more vivid depiction of giant panda’s black and white colors with a greater stereoscopic effect by sandblasting the shady side of reliefs. With this technique, people found a new artistic effect that later helped to form a new technical standard of panda coin’s production. Novel in design, advanced in minting art, special in theme, exquisite in lines, double functioned both as a investment tool and a commemoration,panda coins have developed a school of their own, and enjoy a worldwide popularity among coin-funs and collectors.”

I currently own a small collection of various Chinese Panda coins in 1 oz., 5 oz., and 1 kilo sizes. The 5 oz. and 1 kilo coins are proofs and thus command a higher market value. The mintages of the proofs are generally much smaller (10,000 and 4,000 respectively). I plan on holding these coins for quite some time and hopefully selling them off for substantial gains in the future (if I even decide to sell them). My time horizon on an investment like this is 3-5 years at the absolute minimum.

Gold Chart 04/28/2009

I have been interested in purchasing physical gold bullion, however I cannot justify the price of roughly $970-1000 for an American Eagle 1oz coin just quite yet. The price seems ridiculous and because of this, I started looking at the 3-year gold price chart, and I noticed something interesting. We’re in quite a precarious position here. For all intents and purposes, the price of gold has roughly doubled in the last 3 years from a low of $550 in June of 2006 to a high of $1000 in March of 2008 and 2009 respectively. This is an impressive gain and it wasn’t an easy battle either.

In 2006/2007 we saw a very pronounced isosceles triangle form as price action went from $700 to $550 then up and down and all around until it finally broke out in September 2007. Now fast-forward to March/April 2008. The price of gold has peaked out at a cool $1000.00 an ounce (Major Unconfirmed Resistance). Now the descent begins. The price seesaws all the way down to the $720 level by December (Major Confirmed Support). In roughly three months after the decline, the price of gold skyrockets back up to $1000 and subsequently hits (and confirms) the major resistance which exists at that price level.

So here we are, it’s the end of April 2009 and where is gold supposed to go? It’s currently dicking around at $893 per ounce which is pretty close to the 200-day moving average of $874 an ounce. If you’re a bull, you see a developing inverse head-and-shoulders pattern with a neckline at $850 per ounce. If you’re a bear, you see something reminiscent of a double-top coupled with a broadening wedge sort-of-thing. Hell, I don’t even think there’s a name for it but it’s potentially dangerous.

If you are a bull, you want to see gold hit $850 an ounce and then proceed to rebound up to $1000 before bouncing around in that channel for a while and then proceeding to sharply break out above the $1000 resistance. Once the rocket takes off, there’s no telling where it could go, but the sky is the limit. Conversely, if you’re a bear, you want to see gold test, and fail at $850. If this happens, gold should rapidly approach major support at $720 per ounce before settling down a bit.

So here I am, wanting to buy a gold eagle with the intentions of starting a collection of gold bullion merely because I want to, but I just can’t quite decide if I’m a bull or a bear yet. If I decide to be a bull, I want to buy bullion at or near the $850 level. If I’m a bear, I’ll wait until we confirm support again around $725.00

This is a bear-market rally and I’d like to tell you why I feel it’s worth shorting the Dow Industrials. In my opinion, this is a big fat sucker’s rally. Going long in this market, at this point in time requires balls of steel and a declaration of insanity. There’s just too many red flags in the charts. Take a look at this first chart. Pay close attention to the PPO fast-line which has recently crossed over to the underside of the slow line. This is the first warning sign.  The slow line also looks like it is turning south and if that’s the case we have a nice leg down ahead of us.

The second thing that makes me want to short the Dow 30 is the rounding-top style chart pattern that is starting to unfold before our eyes. The rally is starting to get overextended and is equivalent to the effects of gravity on a rocket losing thrust. Third on the list is the Money Flow. I don’t think the money will continue to pour into the market much longer since stocks are quite overbought as a whole.

If you think about it, most stocks have seen astronomical gains in the last 2 months, and the overall fundamentally craptastic story hasn’t changed. The criminal bankers falsified their earnings recently and quite frankly, I’m surprised there weren’t riots over the kind of theft in broad daylight that we saw. The situation today is no better than it was in February before the rally. Markets are still dislocated, liquidity is dried up across the board. To me, this rally is irrational.

Dow Daily Chart

I would also like to include another chart in my analysis. This chart is focused more for the long term, but it gives a nice picture of exactly where we stand in the grand scheme of things. This is the chart that scares me.

Dow Point and Figure

This, my hope-indulgent friends, is a point-and-figure chart. These charts are all about price. No fancypants technical indicators here, no voodoo black-magic oscillators there. Just good old fashioned price patterns.

Let’s start at ‘09…right about the time Obama came into power. The dow tanks from 9000 => 8000 in a glorious freefall. People stopped, thought about the nonsense for a bit, then tanked it some more…all the way down to 7000 by the beginning of March. The absolute bottom (as we currently know of it) rests at about 6450 on the Dow.

This brings us to the present, and the discussion of “where are we going?” We’ve made progress. We’ve retraced 50% of our losses from the bottom. Fibonacci patterns are in full effect. The market is at an inflection point and it can really go either way, but the market usually follows the path of least resistance, and last time I checked, gravity doesn’t make us float, does it? Say we make a recovery, where are we going? Probably up to around 8450 or so.

Now, let’s just say we don’t make a recovery any time soon (I think this is a much more likely scenario). Where could the Dow go? Stockcharts says 7400 and I say that’s plausible. It’s slightly above the 50% retracement level and also it’s roughly at support on that major market U-turn. Worst case scenario is that we go to lower…much lower, but then again, the market can only go to zero before we have nowhere to go! In all seriousness, however, I believe we could easily see 7600 without much hesitation. All it takes is a few bankruptcies (GM anyone?) and the liquidation of some assets to depress prices.

One more thing that concerns me in the P&F chart is the volume. Look at the buy volume (it’s black) and pay attention to how it is decreasing. Sell in May anyone? Also, look at the sell volume (in red) throughout this whole rally. It has been rock-solid and consistent. People have been selling into this rally and they’ve been doing it with strength and with consistency. Tread carefully and trade cautiously. The market will eat you alive if you’re not paying close attention.

It’s been a long time since i’ve blogged about anything. I’ve been so fed up with the criminal banker shenanigans lately that I just stopped giving a shit about the market. I’ll tell you what though…there’s still opportunity and currently I see it in one of my favorite trading vehicles: UNG (the natural gas ETF).

The price of natural gas has been beaten down like a redheaded-stepchild who just came home from school with a bad report card. If you take a look at this chart you can see that Natural Gas has been sold off for the last 9 months. That’s a pretty strong trend and I think it’s time for a turnaround. I like the curve in price we’re seeing. It’s showing me that the rate of decline is decreasing. Seems like your typical exhaustion pattern.

UNG April 2009

Look at the technical indicators:

• CCI at -101 (oversold/at support)
• MACD nearly -5 (oversold)
• Stochastics at almost 9 (oversold) 

Here’s the thing. This is not a short-term chart. This is roughly a two-year chart we’re looking at. Give yourself some time. Inventories are at record highs, industrial production is at record lows, we’re in a depression. Oh well, who gives a shit. The fact of the matter is that natural gas is cheap as shit and there’s value to be found in buying it now and selling it during hurricane season (August).

Sure sure, you’re probably thinking to yourself “what a heartless scumbag! He’s looking to capitalize on the potential misfortune of others for his own personal financial beneft.” Let me tell you something, you’re totally right. Trading is immoral.

In the interest of disclosure and transparency, I would like to let you know that I am currently holding an out-of-the-money call option for October 2009 expiration.

According to Theodore Baker:

 

…the Bank Participation Report data show that one or two U.S. banks (JPMorgan) make up 96% of the entire commercial net short position in COMEX silver futures. Not the 4 largest traders, as in gold, but the one or two largest traders. And we know it is a U.S. bank or banks. That should have your head spinning. The big U.S. banks have masterminded the financial disaster impacting us all, and should be barred from trading of any sort. Yet one or two of them hold the entire commercial net short position in COMEX silver futures.

The next time the CFTC tries to tell you that concentration isn’t the only issue proving manipulation, you should laugh in their face. One U.S bank, JPMorgan, holds perhaps the entire commercial net short position in COMEX silver and that’s not proof of manipulation? What is? To claim they are legitimately hedged is a joke. All the world’s silver hedging must go through one U.S. bank? Get serious.

 

I find it amazing that one bank can be short the entire silver market. It will be interesting to see what happens in the weeks and months ahead as the Silver chart unfolds. I’m currently rather bullish on silver and I think we’re in for a proverbial shit-storm of inflation in the coming months. As of today I’m currently long multiple contracts of SLV options with a January 2010 expiry date across various strike prices.