Stock and Precious Metals Markets: 'Head Fake' or 'Earth Quake'?

The S&P 500 is above the "shaky" 950 level, and Mr. Nasdaq cut through the 1900 level like a hot drill-bit through a butter ceiling of resistance.

Gold defied the $940 resistance level and almost closed as high as $950 on Monday. With Crude Oil easily clearing the $64-a-barrel level, silver took its cue as both an industrial and precious metal and bounced up 2% in one day closing at $13.62 an ounce.

Is this the proverbial "head fake" by the manipulating specialists who want to sucker us into a market top, or has the ground opened up revealing chasms of hidden market fortunes and wealth? As John Stossel used to say on 20-20, "Give Me A Break". But is this the "break" that produces profits or shatters the thigh bones?

If you read my other articles and instablogs you know I'm a "Black Swan" kind of investor, and that I've paid dearly in the past for believing that "the trend is always my friend".

I'd love to ride the market elevators up to the next level, and I'm currently about 80% into cash because I'd rather be buying when everyone else is selling in a panic.

Monday I wrote my colleague Alex Green a bit of a testimonial for following a suggestion he made back in March 2009, one of those times when the "earth-was-quaking" with fear and trepidation. Here's what I wrote to him:

Back on March 5, 2009 I purchased shares of Republic Services (NYSE:RSG) for $17.70-per-share on your recommendation in The Insider Alert. With today's price of $26.40 I have close to a 50% profit in less than four-and-a-half months.

With the dividend that RSG has been paying, my yield-to-cost has been a delightful 4.3% on an annualized basis. Needless to say I'm very happy. This is one of many times I have profitted greatly from your insights and alerts.

I did the same thing with Sygenta AG (NYSE:SYT) back in March when I bought it at around $37 a share. It shot up to $50.62 on June 11th and because I had a 14% trailing stop loss I was eventually stopped-out around $44.

These are the kind of buying opportunities I'm usually looking for, and I've learned to control my greed (and to a lesser extent my fear) by waiting patiently for the "discount bargain days" that come along sooner or later.

Nobody gets it right most of the time. But if we cut our losers (like I did recently by buying UNG too soon) and let our winners runs (with appropriate stop losses) like I'm currently doing with stocks like Cisco Systems (Nasdaq:CSCO) which I purchased on March 16th, 2009 at an average price of $15.52 and closed Monday at $21.15, you are more likely to make money in markets like these.

When it comes to gold and silver, which I believe to be very manipulated markets, silver continues to be the winner. It was up over 6% last week and after Monday's gains silver has had a good run.

I like what the Casey Research people reported this past weekend and here’s what The Hightower Report had to say about the action in gold and silver:

The bull camp will praise the gold market’s capacity to hold up around this week's highs for most of the session today (Friday).

The bear camp will suggest that the bull camp should have made more hay out of the scheduled data flow and the corporate earnings news.

However, while the scheduled data flow as much better than expected, the corporate earnings news did have some troubling components. It was also clear that a stronger Dollar and weaker equity prices took some of the positive macroeconomic psychology out of the trade on Friday morning.

The bulls might suggest that renewed terrorism threats could support gold, but the bear camp will quickly suggest that terrorism news on Friday morning supported the Dollar and that in turn crimped the action in the gold market.

The silver market was clearly lifted by an improved macroeconomic outlook in the wake of the US Housing starts and permits data. It is also likely that a firm bid in the energy complex allowed silver and copper prices some added bullishness. Like the gold market, it is possible that silver was at least partially restrained by the combination of a higher Dollar and weaker US equity prices.

So use your good judgement, and if you are somewhat inclined to believe we are nearer a market top in both stocks and gold, you might think about putting in a "stink bid" to buy the "Shorting the S&P 500" ETF (symbol SH) and the PowerShares DB Gold Double Short ETN (DZZ) at prices that makes sense to you.

What I've done is purchased 50 cents worth of DZZ for every dollar's worth of GLD that I own. I find it hard to believe that there won't be any more precious metals corrections between now and November.

The same goes for the stock markets. They may surprise us to the upside in the short-run, but what inches its way higher can fall like a lead balloon so fast it makes your wallet shake and your drawers quake...If you know what I mean.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: I currently own RSG, CSCO, GLD and DZZ

Comments

[Jordan Lindsey:]

Easy money Marc, I am on the same side of the trade as you.

Jul 21 10:08 AM

[basehitz:]

With the SPX on the verge of an upside breakout, bulls are throwing everything at this. What I do during earnings season is read hundreds of earnings reports. I examine “analysts” have an agenda. So on 7/20, when GS raised their 2009 target for the S&P 500 to 1060, I wondered what happened to their earlier quote.

From mid-June:
"Goldman CEO Lloyd Blankfein, a week and a half ago, stated that this is not a recovery, the recession will be ‘long and protracted’, and any recovery would be ’shallow’. Astute traders snickered that Goldman now had to be short."
www.investmentpostcard.../

But yesterday this was ignored and the whole market upgraded just as it was challenging a new high. What happened to “this is not a recovery” Lloyd?

After all the garbage Da Boyz and their marketing arm Tout TV have put out, it’s hard to believe investors keep buying the “better than expected”, when results as measured by revenue are weak. Eventually they’re going to run out of people to fire to beat lowered consensus EPS.

And while the cliff diving has subsided, the underlying problems of our economy haven’t improved. Over-leveraged consumer, state govts strapped, energy dependence, endless govt borrowing, and continuing employment erosion with weak prospects of REAL recovery since much of our productive job base has been exported. (Financial engineering doesn’t count.)

My theory is the collaborative efforts of Da Boyz, in concert with their marketing arm (Tout TV) are trying to suck in as much new money to prop up a fading rally. The lack of volume betrays their true lack of conviction. And what they really think is what Blankfein was quoted as saying in June. I suspect that quote was not meant for public consumption. Fortunately a blogger picked up on it, cause Tout TV sure isn’t going to tell us.

Jul 21 10:14 AM

[ScroogeMcduck:]

I like the miners with gold above 900 their earnings are gonna be pretty good. Check out FCX they beat by .69

Jul 21 10:44 AM

[GMiki1:]

I'm with Jim Rogers who said he wouldn't short anything in this market. The uncertainties are large. Looking at gold, yes, it may correct again--zigzag up--or not. One trigger and it might go parabolic.

I was just watching the House questioning Bernanke. These folks running our country don't seem to know a whole lot, do they? Scary.

Jul 21 11:22 AM

[H. T. Love:]

On Jul 21 10:14 AM basehitz wrote:

><snip>

> My theory is the collaborative efforts of Da Boyz, in concert with
> their marketing arm (Tout TV) are trying to suck in as much new money
> to prop up a fading rally. The lack of volume betrays their true
> lack of conviction. And what they really think is what Blankfein
> was quoted as saying in June. I suspect that quote was not meant
> for public consumption. Fortunately a blogger picked up on it, cause
> Tout TV sure isn’t going to tell us.

Well, CNBC aired it. Regardless, I'm of exactly the same mind as you. From everything I've read so far GS is famous for pumping and and then shorting when the market responds to the pump.

And the market can turn on a dime with volume so weak (as I mentioned here seekingalpha.com/autho...):

"Only the ones left that have balls and/or no common sense - the rest are steers. Feb 10 SPY volume 536.2M trades, trending down fairly consistently since then to Friday's volume of 138.6M (even considering expirations, "sell in may go away", pretty sorry, huh?). I checked stockcharts.com to confirm it is reliably tracking $SPX volume.

From nyxdata.com/nyseda...

we see that June NYSE volume is the lowest monthly total since Jan. '09".

Now, since GS has the biggest dime in the market, I've no doubt that they *will* turn it on that dime. Yesterday, even with all the "beats" on earnings, almost every report was substantially lower top-line revenue. The SPY volume rose to 164.15 trades, still anemic.

Since there is probably not much (any?) cost-cutting that can be done, any future profits improvement will need to come from top-line improvement. At this time, even the most optimistic are not calling for economic improvement before 4th qtr (earliest) or 1st qtr '10.

So I can only guess that GS expects a rise just because they call for it and they are planning there shorts if they can get the market participants to bite.

HardToLove

Jul 21 11:29 AM

[nmelendez:]

All commodities are going higher. However, Gold is a limited commodity so demand will outstrip supply in the long run. I have more faith in gold and copper than any other metals. My other bet is in REE.

Jul 21 11:32 AM

[DONE_SONZ:]

Gold can go up in either circumstance.It has proved it again this time around.Markets crashed,gold went up.Markets go up,so does gold.It would just be a shifting of gears for gold.Inflation or debt default.Take your pick.

Jul 21 12:12 PM

[basehitz:]

HT - thanks for filling in the details.

Jul 21 01:09 PM

[ktchnsnk:]

"What I've done is purchased 50 cents worth of DZZ for every dollar's worth of GLD that I own. I find it hard to believe that there won't be any more precious metals corrections between now and November."

so if the POG goes UP, you're left at a net gain of zero?

Jul 22 06:34 AM

[Beach Bubba:]

My "Fear" is kicking the ass of my"Greed" in the PM arena.

I can neither take profit, hedge nor buy into this confusing market.... I trust that the PMs will be bullish in the longrun, so I just have quit trading them. It is sometimes better to read a good book than pound the keys looking for a deal...(IMHO)

Jul 22 09:52 AM

[Marc Courtenay:]

Thanks once again for your helpful comment Basehitz. I read every comment that all of you post and I almost always learn something from each one. Please keep your comments and insights coming, and let me know what kind of articles are most useful to you. Regards to you all.


On Jul 21 10:14 AM basehitz wrote:

> With the SPX on the verge of an upside breakout, bulls are throwing
> everything at this. What I do during earnings season is read hundreds
> of earnings reports. I examine “analysts” have an agenda. So on 7/20,
> when GS raised their 2009 target for the S&amp;P 500 to 1060, I wondered
> what happened to their earlier quote.
>
> From mid-June:
> "Goldman CEO Lloyd Blankfein, a week and a half ago, stated that
> this is not a recovery, the recession will be ‘long and protracted’,
> and any recovery would be ’shallow’. Astute traders snickered that
> Goldman now had to be short."
> www.investmentpostcard.../
>
>
> But yesterday this was ignored and the whole market upgraded just
> as it was challenging a new high. What happened to “this is not a
> recovery” Lloyd?
>
> After all the garbage Da Boyz and their marketing arm Tout TV have
> put out, it’s hard to believe investors keep buying the “better than
> expected”, when results as measured by revenue are weak. Eventually
> they’re going to run out of people to fire to beat lowered consensus
> EPS.
>
> And while the cliff diving has subsided, the underlying problems
> of our economy haven’t improved. Over-leveraged consumer, state govts
> strapped, energy dependence, endless govt borrowing, and continuing
> employment erosion with weak prospects of REAL recovery since much
> of our productive job base has been exported. (Financial engineering
> doesn’t count.)
>
> My theory is the collaborative efforts of Da Boyz, in concert with
> their marketing arm (Tout TV) are trying to suck in as much new money
> to prop up a fading rally. The lack of volume betrays their true
> lack of conviction. And what they really think is what Blankfein
> was quoted as saying in June. I suspect that quote was not meant
> for public consumption. Fortunately a blogger picked up on it, cause
> Tout TV sure isn’t going to tell us.

Jul 22 10:26 AM

[Marc Courtenay:]

Yes, that is correct for now. However, I'm staying "long and unhedged" with my silver, so if gold takes off I believe I'll do as good if not better with silver.


On Jul 22 06:34 AM ktchnsnk wrote:

> "What I've done is purchased 50 cents worth of DZZ for every dollar's
> worth of GLD that I own. I find it hard to believe that there won't
> be any more precious metals corrections between now and November."
>
>
> so if the POG goes UP, you're left at a net gain of zero?

Jul 22 10:30 AM