.................Will he, or won't he ?
....well, today is "D Day" and Greenspan holds the Trump Card for Goldbugs.
Will he play it, or won't he ?
... that's the $64 Question.
A Massive Money shift has just occured in which the Hot, Momenteum Money from Hedge Funds has just made a significant bet that the Fed will pause, if not cease hiking Interest Rates and that the Relief & Rebuilding Package for Hurricaine Katriana's aftermath - has written the obit for the US Dollar and that - has launched Gold.
Given the $200 Billion Dollar Price Tag bandied about...
not an unreasonable bet on the surface, certainly understanable and a play right out of the "anticiapte" versus "react" playbook.
However, those questions raise a few others...the first being - what "if" the Fed isn't done - hiking rates ?
The second - why has the US Dollar refused to cooperate ?
Now don't get me wrong... I like it when Gold "anticipates" and when the stocks lead the metal and when Gold the Metal leads currencys and other commodities... BUT ~ that leadership must always be checked against 2 significant factors:
1. Is the move fundamentally endorsed via either the metal, or the stocks (which ever of the 2 one is trading) being cheap relative to the other - ie: the HUI:Gold ratio, or Price Relative to other related issues.
2. Is their either a strong technical, or for me personally; preferably, a strong fundamental endorsement of the move in Gold and/or Goldstocks in either the US Dollar, the inflation #'s, Geopolitical Events, or in the broad Financial Markets.
That the US Dollar is not endorsing this move of late AND that the HUI Goldstocks are NOT cheap relative GOLD... is the primary reason that I am a continued seller into strength here ...and how now exited my entire position in Gold stocks.
Another factor for me; is the question I always ask myself whenever I sell and take profits within a sector that has renewed strong sentiment and has attracted the momentum players.
That Question is a very simple one and often the single most important Question Traders can ask themselves - if (and only - "if") they are capable of separating themselves from popular delusions and the madness of crowds (vbg):
The Question a Trader must always continually be asking himself is whether a particular sector, or commodity remains the best Trade relative Risk:Reward... has the Crowd rushing in - left and abandoned another sector, or commodity that in the wake of the Gold Rush - has become an undervalued Redheaded Step Child ?
...this has been another reason I have exited Gold - because I have found one rather obvious "Redheaded StepChild" and one - not so obvious.
Goldbugs have been rather celebratory here of late... if not downright euphoric.
...been there - done that.
We all like to celebrate our Victories and do a little Billy White Shoes Johnson TD Dance in the End Zone every now & then and there's nothing wrong with that.
But, it's always good to take a peak at the scoreboard and do a "check" on both the Score and the time remaining on the gameclock... to make sure we really have a longerterm reason to be celebrating...
So, here's a quick "reality check" peak at the Scoreboard for Goldstocks:
stockcharts.com[d,a]daclynay[d20030919,20050919][pf][iut]&pref=G
...now how's that for a Rollercoaster ride ?!?!?!
Given that Chart it's not a stretch to realize that the vast majority of these celebratory cries of joy from the Goldbugs are not in reality "cries of joy" - but, rather ones of RELIEF !
The reality for Life as a Goldbug over the last 2 years is that the HUI & Goldstocks are still 10 points under their 2004 high and 20 points under the 2003 high.
2 years of a violent, rocky ride.
2 years of not just DEAD MONEY - but, of a NET LOSS for the Buy & Hold on Crowd and much worse for what in reality is always the largest group within any market sector - those that get overly emotional & bullish and buy at tops - only to get overly bearish and puke at the bottoms.
Obviously, also a very significant opportunity of VOLATILITY for Traders mindfull of Risk:Reward and who have carefully picked where & when to do their battles (more on that later - along with the study on Sentiment that I've promised to get posted...).
Katrina changed things.
3 very simple, but very true words.
But, with one Caveat..... "for now"
I do not think that Traders should forget what the TREND was prior to Katrina... because the vast majority of so-called MARKET EVENTS - often soon get completely discounted and the underlying major TREND often reverts to it's original direction once all the dust has cleared.
So, what was the Trend ?
Here was the Trend leading right up to Katrina:
stockcharts.com[d,a]daolynay[d20050816,20050830][pf][iut]&pref=G
NOT a pretty picture - the HUI was in the midst of a violent contraction... cratering 20 Index Points in just 10 TRADING DAYS !
Violent corrections and "V-Bottom" breakouts are part & parcel fo the Gold Sector.
...always have been - always will be... all you have to do, is to take a look at that 2 Year HUI Chart above.
Prior to Katrina; we had the Fed hiking Interest Rates, The US Dollar stable, the Gold & Oil sector seeing profit taking and the Homebuilders and Energy Sensitive Sectors selling off as well as the Financials - relative to a flattening Yield Curve.
We have just seen the rapid unwinding of much of that trade and the cooresponding market reaction.
2 Questions always arise out of such shifts:
1. How much of the move was a short-squeeze ?
2. How much of the move was Hot-Momentum Money ?
One helluva lot of money has just been bet on 2 things:
1. That the Fed will pause here and/or is done raising Interest Rates.
2. That the eventual Bailout Package for Hurricaine Katrina will bloat US Deficits AND that the Market reaction to it - will write the Obit for the US Dollar.
Imho... 2 very, very HIGH RISK - Low/Medium Reward Bets.
...NOT the varietal that attracts the ole' Sliderster to any significant degree.
In Gold... here's a picture worth a Thousand Words:
stockcharts.com[w,a]daclynay[d20050101,20050921][pb50!b200!d20,2!f][iut!uc20!ub14!lp14,3,3!lk14!ll14!lya7,14,28][J59242857,Y]&listNum=2
BIG MONEY is consistantly made by doing 2 things.
1. LEVERAGING THE BOTTOMS
2. Never being caught loaded, or levered anywhere near the Tops.
That Chart above and it's indicators will assure you of both.
The most profitable part of my trade on this recent move in the HUI & Goldstocks was first & foremost related to having NOT already been loaded in Goldstocks.
Those Goldbugs that were... didn't have enough firepower to take advantage of the complete and total washout and capitulation that we saw in the Goldstocks in late April and early May.
Goldbugs endured a near 100 Point HUI Death March from the December Highs to the May lows... and they do NOT like being reminded of that fact (vbg).
I went from a minimum core holding position in goldstocks to a 65% Total Portfolio weighting, but most importantly (and profitably) - with a 15% Total Portfolio Weighting - to Call Options; which were 23% of my Total Gold holdings.
The vast majority of those "call options" were May, June, July options relative to the "V-Bottom" Call that I made - that was not unexpectedly also met with naysaying and the nattering of naybobs when I made it.
...THAT Trade was one of the most Leveraged Bets I've ever made and became the SINGLE MOST PROFITABLE Short-Term SECTOR Trade I have EVER made - period.
GLG, MDG & GG ran $2, $3, $4 in that +40 Point HUI "V-Bottom" Rally in just 20 days... that few, if any other Goldbugs were endorsing at the time.
Out of the Money Calls - became 2,3,4-baggers.
23% of my Gold Holdings were time limited and by the original structuring of the Trade - I was a forced (ohhh twist my arm (vbg) seller of those "calls".
In Mature Cycles - the single most valuable lesson that I have learned - is to always SELL EARLY.
In volatile sectors - you always have to.
Blink, or hesitate... and those 20 to 40 point downdrafts take much, if not all of your gains away quicker than you know what hit you...and you don't need to listen to me - just look at that 2 Year Chart of the HUI !
Nailing Exits at Tops - is the ultimate FOOLS GAME.
Nailing and Leveraging BOTTOMS - is the True Traders Game.
Greenspan is soon going to either make, or break one helluva lot of Traders Hearts here today.
...another lesson that I have learned over time - is to step aside and patiently wait for "discrepancies between Price and Risk to develop in the aftermath of the coming reaction... or, to sort thru the dust and find one of those "Redheaded StepChildren" that the Market has forgotten, or ignored and seize that value - on much better Risk:Reward metrics.
Mo-later.... as I've been trying to resist a final Rant on the Insanity of this proposed Katrina Rebuilding package...
Oh, PS:
... re: those Redheaded StepChildren ?
How about Palladium & Silver for starters (vbg).
One door closes and another always opens - often with greater returns and much better Risk:Reward Opps.
The Oil Permabulls poo-poo'd and nay-say'd my Leap from Black to Yellow Gold in late 2000 - just as the Gold Permabulls are doing today.
Here's how that trade played out vis a vis Oil:
finance.yahoo.com
later,
$lider` |
