Does the 2011-13 decline in miners that culminated with the mid-April crash
(using a 2-year chart of GDX):
not resemble the "Distribution Markdown" half of the Wykcoff Market
Cycle?:
Who's Wyckoff and why should we listen to him?
Here's my take. The miners have had their crash. Looking
beyond short-term volatility, which is likely to be high, you might say we're
sitting at a 'generational low' for GDX/GDXJ.
The key word is 'might.' Let's say gold holds at
>1000 for the next 20 years, and furthermore that the ratio of miners:gold
(XAU:GLD) reverts to the mean. In that case, today's prices will have been a
generational low.
http://stockcharts.com/h-sc/ui?c=$xau:$gold,uu%5Bh,a%5Ddaclynay%5Bdf%5D%5Bpb200!b50!f%5D%5Bilk14!la12,26,9%5D
We've seen plenty of reversals in fortune in the markets. Over the next 6-12 months, it's easy to see how Hussman (who is now at 20% exposure to gold/miners after buying into the crash), Paulson and Vengerov come from behind to move up in the Indy 500 rankings.
http://seekingalpha.com/article/1378651-gold-and-silver-speculator-long-positions-wiped-out?source=yahoo
ReplyDeleteThe article points out there may be a ton of trapped shorts:
'Typically commercial banks manipulate prices on low volume to set the price and then trade at the newly set price in volume. The recent crash in gold and silver began after hours on a Friday, and was hit further by large sell orders Sunday night to take out the well known technical support lines of both metals. Most small retail investors were probably not even contacted by their futures broker. By the time they checked their account the next Monday Morning, either their protective stop orders were triggered or the margin clerk forcefully closed their position. The snowball effect in margin calls and stop loss orders was great enough to last several days.
'None of this is surprising. However, we were quite surprised to see that net short positions of commercial traders rose substantially during this period. Typically they would be expected to cover their short positions at lower prices, mopping up the losses of retail investors.
'This reveals several important changes to the gold and silver markets:
1) It took an enormous number of short positions added to move the market even on a weekend.
2) The gambit failed, as they were not able to cover these positions in volume after the dump. Nevertheless, as we have been expecting for several years, the commercial traders will be net long before the metals make new highs. But if they can't cover at lower prices, they will begin
covering at higher prices as we saw when silver rose from $20 fall 2010 to $50 in spring 2011.
'We suspect that the failure of the gold gambit is largely due to the unexpected surge in global demand for physical metal. Premiums on bullion products are higher than they were during the 2008 crash, with even junk silver selling at $5-$6 over the paper spot price. This is unprecedented.'
There's a new book coming out on the Wyckoff view ...
ReplyDeleteTrades About to Happen: A Modern Adaptation of the Wyckoff Method (Wiley Trading) by David H. Weis and Alexander Elder (Apr 29, 2013)
Weis is also featured in Chap 11 of Elder's Entries & Exits
Holy Cow!!! The 6-year low in the net long futures position in the "nonreportable" category for silver was 4400 in May 2012 and for gold it was 11700 in December 2008. The above article points out (and I verified it in the latest CTFC report) that as of April 23, the net long futures position in the "nonreportable" category for silver was 2100 contracts and for gold it was ... only 100 contracts! THIS IS WILD! On April 16, there were 4900 net long contracts for silver and 13000 for gold. So despite the price of gold, silver, and miners moving up between April 16 and April 23, traders were selling their remaining positions. This sets up a MAJOR wall of worry for this sector and a MAJOR chasing of the price.
ReplyDeleteIn a preparation for a MAJOR rally, I am spacing out my sell limit orders on the 500 contracts of October $2.5 AUMN calls I purchased at $0.10 last week a little more: 50 contracts at $0.10 increments between $0.20 and $1.10.
Thanks for the verification, David.
DeleteThose of you with Netflix, check out 'Top of the Lake.'
ReplyDeleteOK, so what are we doing about it other than David spreading out his sell orders. Buying any weakness in GDXJ?
ReplyDeleteAKAM - +27% this past week.
ReplyDeleteGold - Looks to me like commercials have been covering their net short position all year as gold has traded down, and took advantage of the recent sell-off to cover about 25k contracts. They're still net short ~100k.
ReplyDeletePerhaps the next move coincides with the debt ceiling raise-up?
Hussman - Does this guy have any credibility?
ReplyDeleteHe's it the other end of the bar with David.
DeleteThe guy runs a "growth" fund and he's long gold and short equities, I question his credibility.
DeleteSure, gold will probably run to 1525, which is where it begins it's next waterfall event as shorts pile on and longs look for exits. Funny thing is, the big moves always seem to come when we're all sleeping and volume is thin.
Debt Ceiling raise likely isn't going to have the same response this time around, what are the chances of that? I guess gold is at $1525 the day before.
I guess I don't get the infatuation with PM's, it doesn't provide a reference for me anymore, it seems disconnected from explicable thesis.
ReplyDeleteThe generational low in Gold was at $260, back in 2001.
ReplyDeleteMaybe gold is good for another leg up, but even my really hard core gold bull friend is just looking for 1 more rally - now it is a gigantic one up into the $5,000 - $10,000 or higher range, but even he thinks that will be it for gold this cycle.
If you still want to trade PM's, I still think it is very high risk as stats like David quoted are all bull-market stats and indicators like that probably won't work if the gold bull is done.
If you look at a long term chart (eg. http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx), the current market certainly doesn't look dissimilar to the top in 1980.
Plus fundamentals don't really support a new bull market with the huge investments which have been made in mines over the last number of years, unlike in the late 1970's when there had been decades of underinvestment in mines. If you are a gold bull here, I think you have to be betting on a monetary policy screwing up / hyperinflation scenario, which is always a long shot.
Plus, the reality is that there really are a lot easier places to make money now than PM's. Maybe it's worth keeping a small portion in gold as "insurance" as the finanical planners recommend, but there are lot of stocks going up now, with better fundamentals and better valuations than gold.
DeleteFor example, not as exciting as PM's, but KBW Insurance Index up 20% YTD, with many stocks still at good valuations, improving business fundamentals, good yields.
DeleteIt really says something quite positive for the dollar when the FED experiences such difficulty trying to weaken the currency. The market doesn't seem to care, as long as the US meets it's debt obligations which it always will be able to, simply by printing currency.
DeleteThat's where Europe ran into trouble, nobody wanted their debt not b/c they were printing "massively", but b/c they refuse to and have chosen default instead.
VMW - Lookin' pretty good to me, support seems to be holding.
ReplyDeleteI like PKX too, except there's little reason to believe commodities won't remain under pressure.
Did we figure out any cloud/tab revenue?
DeleteOf course not, otherwise you wouldn't be able to buy it with an PE less than 200
DeleteAnalyst says this:
Delete"VMware Inc (VMW)
Our PO of $106 is based on 1.4x PEG and 20% growth applied to CY14e pf EPS
of $3.78. The PEG of 1.4x is based on the average of the comp group of high
growth license based companies. Our comfort level in VMW technology
leadership and market opportunity remains high.
Risks to achieving our price objective are: Microsoft Hyper-V could pressure
prices and margins, Oracle VM, if it gains broad adoption, could similarly put
pressure on prices and margins, risks of economy slowing and IT spending
contraction, potential slowing in server refresh cycle and license impact, potential
impact of 12 core Nehalem on sever unit demand, inability to hire, train, and
retain talented development, sales and marketing professionals, potential
management turnover, and control by EMC which owns 86% of VMware stock.
Business transition to a recurring revenue (maintenance and support) model
could limit upside to valuation multiples."
CTXS - Have you looked at this one, know much about it? I admit to not knowing, do you know something I don't? Don't be shy, feel free to share.
DeleteMy guess is Nahalem is a serious threat, expanding hardware may provide more bang for the buck than virtualization.
DeleteNATI - I've got a stink bid on this one now, like I should've had all along, just above the 52wk low.
ReplyDeleteNotional Wyckoff view from 61p8 …
ReplyDeletePeter Ghostine @PeterGhostine 1m
Breadth looks fine so far. But things could change quickly in a matter of days.
http://charts.61point8.com/20130428-SPX-Wyckoff.png
LPI - Looks like this one might rally into earnings?
ReplyDeleteBIDU - At least there's a chance this one forms a bull flag, but I'd much rather own a stock that can hold onto some gains and produce a return.
ReplyDeleteInternet stocks pretty much suck (there are a few exceptions) most of the time, since the dot.gone bubble burst......
As part of my moving up market-cap and down-risk this year, I bought some Amdocs (DOX) today. They provide billing software to the large telco's (AT&T is their biggest customer). Valuation is reasonable at 15 P/E, 11 forward P/E, plus they started paying a dividend in the last few years for 1.5% yield and have lots of cash too. So it's not super cheap like I like to buy, but it is less risky than a lot of stocks too.
ReplyDeleteThese guys have a lock on this business and it would almost be impossible for the large telco's to move them out and they are now getting business in the emerging markets as these companies become more sophisticated. It is too complex software for an SAP or Oracle to build on their own. I wouldn't be surprised if SAP or Oracle bought them though.
PBR - Can the move be trusted? I have doubts.
ReplyDeleteAAPL - Whatever happened to the cellphone glut?
ReplyDeleteSource not to be named.
ReplyDeleteWhen that time comes we can guarantee this: we shall
miss the bottom of the gold/shares relationship by
months… perhaps by many months… but since the
relationship has been souring for more than five years, if
we miss the bottom by five months we will have done
yeoman’s work in the interim. Oh, and when we do
eventually turn bullish of gold shares relative to gold we
shall turn bullish of Barrick, or of Newmont, or of
AngloAshanti, or GoldCorp, or Kinross or Harmony et al.
We will avoid, like the plague, the smaller, junior miners,
which are always and everywhere holes in the ground
into which to pour capital, never to see it again except on
very, very, very rare occasions. We trust we are clear.
Gartman....or is it Cartman?
Deletegman, bingo
DeleteBOAT - Bring On Another Thousand. A hole in the water in which to throw your money.
DeleteBitcoin? Oh please.....
From CP: "I guess I don't get the infatuation with PM's, it doesn't provide a reference for me anymore, it seems disconnected from explicable thesis."
ReplyDeleteBB: "Plus, the reality is that there really are a lot easier places to make money now than PM's. Maybe it's worth keeping a small portion in gold as "insurance" as the finanical planners recommend, but there are lot of stocks going up now, with better fundamentals and better valuations than gold."
Folks, we should always keep the context in mind. The current context for PMs is that many sentiment indicators are at ALL TIME lows, the price has been going down steeply for many months and then had an outright crash, and THEN the price has been making higher lows and higher highs for more than a week now. If ever there is a setup for a MAJOR rally, then this is it. AUMN, for example, is already up 27% in 10 days. Once gold/silver run back up to their previous 2-year support levels, the risk/reward ratio will stop being that fantastic. But so far it is fantastic.
Seeing how GLD and SLV are likely today to make new post-crash highs on a closing basis, I raised my buy limit order on PNPFF and bought 7K more shares at $0.42 (in addition to the 2K shares that I was able to buy at $0.40).
"price has been going down steeply for many months and then had an outright crash"
DeleteI look at the chart and see what looks like a recurring theme(down, down, down, crash, bounce, down, down, down, crash, bounce) until proven otherwise. I hope you make a ton of money but honestly, I gotta call it the way I see it. Silver is still 2x pre-crisis price?
The charts of gold/silver/miners look a lot like any other multi year bull market that ended...i'd expect a rally possibly a good deal and longer higher, but this bull market sure looks over to me.
Deletei could absolutely be wrong but the entire sector never got me interested. i need to understand the fundamentals and i just never have found an accurate way to determine the price of gold and silver. too many unknowns / variables.
Deletei do like Buffett's take on it, though.
Exiting RYPMX at the close. (I placed the order this morning due to the early 1545 close.)
ReplyDeleteWhen AUMN dropped below $1.60 but gold/silver have already stopped falling, I decided to rush in and load up on call options ASAP. At that point I had cash only in my Fidelity account, and I paid $225 in commissions to buy those contracts (I bought them in bulk). If I'll be selling then in bunches for 50 contracts, Fidelity will charge me $45 for each bunch, for a total of $450, which is way too much.
ReplyDeleteSo I decided to transfer them to Optionshouse, so as to sell them with a much smaller commission. Hopefully, AUMN will rise rather then fall over the next two weeks while my options will be in a transfer process and I won't be able to trade them. Based on all previous local bottoms in PMs, a rebound rally lasted at least one month, so I think I have time...
GASS - Lower trend line still hanging in there.
ReplyDeleteCORN - Pretty big move.
ReplyDeletebad news out of MBI after hours.
ReplyDeleteI noticed AGO closed red as well. Isn't MBI one of Ackman's babies?
Delete"Justice Bransten said there are “sufficient facts in dispute” about the loans to preclude a ruling in MBIA’s favor at this point in the litigation, which began in 2008. "
HLF is green in AH, NUAN is kicking butt, IEP might need to consolidate, I'd like to see the gap up close.
CECO chart looks awesome.
ReplyDeleteThe stats don't seem to justify the low share price, no overwhelming debt(best I can tell) what's going on?
Delete$29,000 loss per employee isn't sustainable, temporary phenomenon?
DeleteSWC reported, the world still uses palladium in catalytic converters.
ReplyDeleteMJNA - This one took a big hit today, anybody following the Mary Jane story anymore, or just salivating over gold?
ReplyDelete