A Few Comments About Gold

Gold's recent price performance has been very strong.

There are, however, quite a few indicators that, from a historical perspective, seem to disconfirm Gold's current price, which as I write this is $1101 for the December futures contract.

One of the factors that seems to be speaking against Gold is the lagging performance of the HUI Index. As I wrote in the June 16 blog post:

"One measure that I follow is the ratio of HUI (an index of gold stocks) to that of the physical metal itself. One theory, perhaps the predominant one, is that the gold stocks should move, or at least verify, the price movements of the physical gold itself. Looking at the weekly chart (seen below) over the last 10 years seems to indicate that although gold has been relatively buoyant over the last year, the gold stocks, as seen by the HUI Index, have lagged since early 2008. One interpretation of this is that the gold stocks are not confirming the move in gold, meaning that gold may soon head down..."

Although Gold has continued to head up, as one can see in the chart below, the HUI:Gold ratio continues to lag and is at subdued (relative to the last ten years') levels:



Chart Courtesy of StockCharts.com

I find the lagging performance of the Gold stocks, as seen by the HUI Index, to be very conspicuous. This is especially so given the current investment environment where investors have shown they are even willing to aggressively bid up prices for securities that possess the most dubious of fundamental value.

In my opinion, predicting Gold's price has always been difficult. There are a variety of reasons for this, including the fact that the markets for both physical Gold and Gold stocks are relatively small. It doesn't take large investment inflows, or outflows, to move the price significantly.

Of course, Gold can be viewed as the ultimate "safe haven" security. Placing a value on this "safe haven" aspect is very difficult. Could Gold's current price be reflecting a significant "safe haven" premium? In effect, could the current strong performance of Gold somehow be a precursor of (more) economic problems? The answer to both of these questions can certainly be "yes." However, if so, it would be odd to have Gold rising strongly at the same time low quality paper assets have been rising strongly as well. From a long-term historical perspective, usually Gold's "safe haven" qualities are most highly valued when "paper" assets are suffering.

Gold's price action should be interesting going forward...



SPX at 1093.69 as this post is written

Two Unemployment Charts

The following chart is from the CalculatedRISK blog of November 8 http://www.calculatedriskblog.com/2009/11/summary-and-look-ahead.html

I like this chart as it presents a relative depiction of Post WWII recession job losses. As one can see, our current period of economic weakness's job losses are outsized both in duration and severity:

(click on images to enlarge charts)



Here is a long-term view of the official stated Unemployment Rate. This chart is from the St. Louis Federal Reserve site. I find this chart interesting for many reasons. As one can see, our current official Unemployment Rate (U3) is second only to that of the early 80's. Also, one can see that although large spikes up in the Unemployment Rate are relatively common, in prior periods the spikes up were (relatively) quickly followed by a quick retreat:



I have written frequently about the Unemployment situation. These blog posts can be found under the "Unemployment" Category. For those interested, here are a couple of the latest posts:

http://economicgreenfield.blogspot.com/2009/10/another-note-on-unemployment-statistics.html

http://economicgreenfield.blogspot.com/2009/10/note-about-unemployment-statistics.html

Furthermore, I wrote a blog series titled "Why Aren't Companies Hiring?"


SPX at 1079.79 as this post is written

Danger In The Markets? Part V

This is the last blog post (Part V of V) in this "Danger In The Markets?" blog series.

I would like to end this blog series with another look at the daily 1-year S&P500 chart. This chart depicts a Rising Wedge from the March lows. As well, I have indicated a potential H&S (Head and Shoulders) pattern in red. For those unaware, both of these patterns are bearish. I believe more in the Rising Wedge than the H&S, as it is more established. Additionally, the VIX can be found along the bottom of the chart:



Chart Courtesy of StockCharts.com

One will note that in yesterday's post (Part IV) there was a daily S&P500 chart that showed a Rising Wedge pattern as well. The difference in appearance between that chart and the one above is that the bottom trendline is drawn differently - the chart above incorporates the early October low. Regardless, should this Rising Wedge pattern be validated through future price action, conventional Technical Analysis methods would "measure" a resulting price far below the March low of 666.

As I have mentioned repeatedly on the blog (and these commentaries can be found under the "Stock Market" and "Investor" categories) I strongly believe the rally from the March low of 666 is a Bear Market Rally. The implications of this belief, should it prove accurate, are profound both from a financial markets perspective as well as an economic one.

As I have stated previously, I do hope that my analysis and conclusions as to where the markets and economy are heading are incorrect, and that we are on the path to true Sustainable Prosperity. However, I am firmly convinced from both an economic and markets perspective that we face an array of difficult problems in our economic future and resolving them will likely prove most vexing.

It should be noted that, as mentioned repeatedly on this blog, my views are very contrarian in nature. As such, they are quite at odds with those held by the vast majority of economic and financial professionals who are firmly convinced that we are currently experiencing a recovery with little or no risk of further economic damage...



SPX at 1066.63 as this post is written

Danger In The Markets? Part IV

The charts seen in this post are from Maurice Walker, http://thechartpatterntrader.com. First, a daily 1-year chart of the S&P500. The large broadening pattern (in blue) is notable, as is the smaller one, as seen by the dotted line.




chart provided by http://thechartpatterntrader.com

Chart Courtesy of StockCharts.com

Here is a weekly chart of the S&P500. Notable here is the downtrend line (in black) from the October 2007 highs that seems to be serving as resistance. Also, the MACD and Full Stochastics seem to be reflecting weakness.



chart provided by http://thechartpatterntrader.com

Chart Courtesy of StockCharts.com

Next is a weekly chart of the QQQQ. Again, as with the S&P500 chart above, the downtrend line (in black) from the October 2007 highs that seems to be serving as resistance. Also, the MACD and Full Stochastics seem to be reflecting weakness. As well, the RSI is declining:




chart provided by http://thechartpatterntrader.com

Chart Courtesy of StockCharts.com


Now onto Part V...



SPX at 1046.50 as this post is written

Danger In The Markets? Part III

Moving on to the stock market. First, a 1-year daily chart of the S&P500. Although at first glance, the advance from the March lows doesn't appear too suspect, two aspects are notable. One can see that currently the price has dipped below the 50 day moving average (line seen in blue -the red line is the 200 day moving average) for only the second time since the rally began in March; and second, the MACD indicator along the bottom seems at best lethargic; at worst, it is a significant divergence from the advancing price:



Chart Courtesy of StockCharts.com

Next, here is a daily chart from ~ mid '07 of the NYSE Summation Index. I have put in the S&P500 as an overlay in green, with the NYSE Summation Index's MACD at the bottom of the chart. What I continue to find interesting here is the negative MACD divergence as indicated on the chart, as seen by the blue trendlines:



Chart Courtesy of StockCharts.com

Next is a 10-year daily chart of the VIX. The level of 20 (as seen by the blue horizontal line) on the VIX seems to be a good demarcation of stress. I originally made this observation on September 16, and note how the 20 level seems to have subsequently acted as support.

The VIX has been above this 20 level continuously since early September of 2008:



Chart Courtesy of StockCharts.com


Now on to Part IV...


SPX at 1045.41 as this post is written

Danger In The Markets? Part II

Before displaying some charts of the stock market, I would like to post a couple of the Japanese Yen. My comment of September 14 is relevant today:

"Additionally, is it not odd, on an “all things considered” basis, that the Japanese Yen is rising at what appears to be an increasing rate? This rise commenced in mid-2007, as seen below:"

Here is the 5-year daily chart of the Japanese Yen:



Chart Courtesy of StockCharts.com

Here is the 1-year daily chart. As one can see, there may be a Cup and Handle chart pattern forming from early 2009:



Chart Courtesy of Stockcharts.com

Now onto Part III...



SPX at 1040.14 as this post is written

Danger In The Markets? Part I

This series of blog posts represents a periodic Technical Analysis of the markets. My last series of posts (5 parts) of this nature was titled "Peril In The Markets?" and started September 13. At the conclusion of that series of posts, I wrote this September 17 blog post summarizing my thoughts.

Although a stock market crash did not occur in September or October, as I thought likely given the overall situation, my overall assessment of the markets (and the economic situation) is that the level of risk has increased. There continues to be an extreme degree of peril embedded in the financial markets - as well as the economy in general. In my opinion, from these price levels this peril can only be resolved via a crash of possibly extreme magnitude.

Before displaying some charts, I would like to make a couple of disclaimers. First, an extensive overview of all of my Technical Analysis observations would be very lengthy, and it would also infringe upon some facets I consider to be proprietary. As such, I will limit my observations, but I think most people will still get a clear overview of my thoughts. Second, I am aware that many people don’t believe in Technical Analysis. Even though I use Technical Analysis extensively, I will readily admit it is not infallible. As readers of this blog are aware, the majority of my focus is on fundamental aspects of the markets and the economic situation.

Now, on to Part II and some charts...


SPX at 1036.19 as this post is written

"Cash For Clunkers" : Incremental Sales Analysis

My last post about "Cash For Clunkers" was on October 8.

On Thursday, there was an interesting story on CNNMoney.com concerning a sales analysis of the Cash For Clunkers program. It can be found at this link:

http://money.cnn.com/2009/10/28/autos/clunkers_analysis/?postversion=2009102910

Here are some excerpts that are particularly notable:

"A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com."

and later in the article:

"The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales."

and later in the article:

"In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program.

Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, Edmunds.com projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.

Edmunds.com's estimate of the ultimate sales increase generally matches what industry experts had thought, said George Pipas, a sales analyst with Ford Motor Co (F, Fortune 500)."



SPX at 1036.19 as this post is written