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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (51429)	5/17/2006 5:51:33 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Interesting posts by Heinz compiled by ILD Date: Wed May 17 2006 17:02 trotsky (miracle needed) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the probability is high that this isn't a routine pullback anymore but rather the beginning of a bigger correction. when gold and gold stocks diverge so violently, that has NEVER been a good sign, and this time is unlikely to be different. of course nothing is ever certain, but the probabilities don't favor the bullish case for the medium term anymore imo. obviously this won't change the long term bullish case. Todd made a striking comment recently about 1974 - when gold rose from $150 to $200, the gold stocks stopped rising with it, as they were being distributed. it appears the very same thing just happened during the rise from $580 to $720. what would the 'miracle' look like? a turnaround during which sentiment stays roughly as bearish as it is NOW , accompanied by strongly bullish money flows would certainly change my mind. attempts to bottom-fish in recent days have obviously come to naught - the selling has been pretty relentless. the most strikingly positive thing i currently see is the fact that sentiment is so bearish, but obviously that becomes less and less of a factor the more negative the price action looks ( only when sentiment runs COUNTER to the prevailing trend is it really supportive, save for the extremes often seen at turning points ) . it is in this context also a bit strange that sentiment never became as lopsidedly bullish as one would have expected at $700 gold ( rather the opposite ) . presumably that will happen in the next up-phase. this is also one thing that keeps bothering me - i knew very well that $720 would be strong resistance, and said so here. however, i'm surprised that this top has been called by so many - it was one of the most widely recognized short term tops ever, and it is highly unusual for those to be called by a majority of advisors - but that is what has ( apparently ) happened. in addition to the above, the broader market is obviously in a spot of trouble. we have a contagion situation on our hands here - first, the Middle Eastern stock markets collapsed ( and i mean COLLAPSED - it's the only adequate term, unless 'annihilated' grabs you better ) , then the Icelandic Krona and the Kiwi started to swoon, and then many other emerging market currencies and stocks suddenly took a bath ( fairly recently ) . now the contagion has reached us. it remains to be seen how serious it becomes of course, and it is possible that gold could eventually decouple from the mayhem. if the market crashes here ( the probability is always low, but right now it's higher than normal - although crashes are myths as everybody surely knows ) , the gold stocks will get taken down regardless of what gold itself is doing. one last word regarding the technical picture - it's not yet a 'total loss' - the XAU stopped its descent roughly at the 100-dma, which has held the last big correction in Feb-March in check. so a reversal right HERE may still repair the situation. also, gold stocks sure are cheap IF gold itself stays more or less where it is. the XAU/gold ratio is similar to what one normally encounters close to bear market lows, not bull market tops. all in all a very unusual situation actually. since most gold bugs are also stock market bears, they will likely be protected somewhat with their collections of puts on indices and selected shares that they bought as crash insurance. as a corollary to the small probability of a crash, options to insure against one have up until recently been dirt cheap - in fact, with the VIX a hair above 15, they STILL are. it certainly makes sense to always keep a core position in items that are in a secular bull market regardless of the occasional corrections and one's short term opinions, in order to make sure one participates in the inevitable upside. however, it also makes sense to vary the size of the positions according to the perceived risks, and occasionally pay a little for insurance when unrelated risks look like they could spill over. such 'unrelated' risk has been evident since the ME stock market crash earlier this year. anyway, one hopes the situation doesn't get out of hand, but hope alone isn't going to cut it. Date: Wed May 17 2006 14:33 trotsky (it looks like) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved all the markets that rose together are now also falling together. unfortunately gold stocks are less liquid than most other market sectors, and are thus falling even faster. my guess is that the recent plunge in emerging markets currencies has set an avalanche in motion - the funds that lost their behinds in those plays are forced to liquidate positions across the board. in short, it looks like things are getting out of hand. where's the 'PPT'? Date: Wed May 17 2006 11:03 trotsky (France's finance minister) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved bemoans the strong Euro - and proposes currency manipulation to rein it in, naturally. so much for politicians and markets...markets can be free, as long as the market action fits their agenda. Date: Wed May 17 2006 11:01 trotsky (@sentiment) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved another $5 million flowed out of the Rydex pm fund yesterday - which has now given back $25 million of the altogether $40m. that have flowed in since the 2005 low. as far as Rydex traders are concerned, there is a total lack of conviction. $700 gold has failed to turn them bullish.