Forget the charts for today. The dollar is over bought. The VIX and PCR are heading toward market non-bullish. The massive doses of fear and angst are snapping back from an extreme toward hopefulness. Commodities are broken, giving hope of price relief to the beleaguered public.
It is important, if you read this blog with any regularity to remember that I have been - and remain - bearish on commodities. Especially oil. If you are not on board with that, not much else written here will make sense. I am bullish gold and bearish commodities. That is and has been the play. I was uncomfortable every step of the way as gold rose strongly like a commodity. But with the events of last summer (notably the rising yield curve and the associated high profile systemic failures that followed) I adopted a tact of less trading (you do not want to know what I had been paying yearly in commissions) with the idea that you do not want to get too cute and trade yourself out of a bull market - and since last summer I have felt gold's time was at hand in the big picture.
One thing that never goes out of style (for me) however is risk management, so I always kept a significant cash level because I learned a long time ago that there is not much worse than sitting through a week like this one without being able to take a gut check, trust your core beliefs and then take advantage. Well, that's what I did. Since my crazy target on HUI allows (but doesn't mean it will necessarily get to) for 260's, I have another chunk of free cash in waiting but I tell you I would much rather not end up using it, at least not down there. Because if I am buying HUI 265 I am doing so while questioning the secular bull market. Given the 'Huey must make a higher low than last August's 285' parameter, that would have to be a day of panic to end all panics and fast reversal back above 285. Fundamentals would play a key role in decision making there.
Now, all that said what I believe is happening is what will prove to be a major buying opportunity. You only buy the declines or in the case of this week, utter puke festivals in this sector. I am looking for the banks to top out soon, the dollar to top out soon (short term at least), the yield curve to resume climbing, and the stock market to pull in a few hopefuls before its next leg down. I am looking for gold to hold the 840's but allowing down to the low 800's (monthly chart w/ EMA 18). The thing is, if this is what I - and those folks who just bought through BullionVault - think it is, it will shake out to be an epic buying opportunity. I am one of those that thinks the Fed is not done dropping rates and as Deflation Scare '08 proceeds into the fall, I bet that becomes evident. You see, the Fed's gig is up if inflation expectations get out of control because they tell us how concerned they are about inflation. Well, the latest bubble from Greenspan's massive inflation campaign, oil has been shot out of the sky like a clay pigeon and the public - while still all over yesterday's story of high consumer prices - will eventually get on board the 'hey, the worst is over for inflation' story.
Gold will perform and/or outperform when the Fed actually begins promoting the next rise in asset prices through current inflationary policy. But dat ain't gonna happen under a cloud of rising inflation expectations. Meanwhile, with every decline (relative to gold) in oil and other industrial commodities, the gold miners say "thank you very much"; both for their bottom lines and for a more astute investor base that realizes this is about money, not rising commodity prices.
Well, those are my general thoughts on this; opportunity, the likes of which comes around only rarely. But you must realize that I could simply be a bag holder with a blog. These are times of personal research, due diligence and decision making. Good luck.
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