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written on 7-24-12 "the treasury bubble (TLT) is in danger of popping." http://seekingalpha.com/a/g0eb Aug 15, 2012
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http://seekingalpha.com/a/5mfc UXG and Mneaf.ob merge Jun 14, 2011
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http://seekingalpha.com/a/5mfc UXG and MAI.TO Merge Jun 14, 2011
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Shorting Stocks Explained: 50 Day Crossing 200 Day Moving Average Signals Major Market Drop
These past few days as the market indices broke through the head and shoulders neckline, I have had a barrage of emails asking if it was too late to buy inverse etf’s after my original short sell recommendation on June 21st 2010 .
My response to many readers is that if it is apparent to everyone to short that is the time to cover. It is dangerous to short when stocks are going into new lows as often time there are powerful dead cat bounces where covering takes place.
No one knows how to sell at the top or buy at the bottom. The only person who knows that is a liar. Often at tops every chart looks bullish, earnings are fantastic and every newsletter writer is bullish with new price objectives. Similarly at market bottoms charts look awful, stocks are experiencing losses and every newsletter writer is telling you to run for the hills. Be aware of the obvious because when it is evident to everyone that is when you have to be contrary to the market crowd.
Last week everyone was buying puts and shorting the market when it was an obvious head and shoulders pattern with a very bearish declining neckline. The slope of the neckline determines the bearishness of the pattern. It is important not to short when it is obvious and breaks the neckline. I look at key areas to short on counter rallies. Price volume action is very poor and I expect a few more days as it rallies to the resistance trendline and 50 day moving averages for additional short sale points.
The goal of a trader is to find key areas of support to buy when the stock is moving up and specific points of resistance to sell short. Markets don’t top or bottom in a day. Often there are several signals to show that a market trend is changing. During those times there are often major counter trend rallies to shakeout the weak or inexperienced short traders who bought as the index dropped into new lows.
The cross of the 50 day and 200 day is called the cross of death for a reason quite often there is a major break to the downside over the next few weeks.
This past week as many analysts and publishers recommended to go short as the index broke the neckline of the head and shoulders pattern. I disagreed. I would definitely not recommend shorting into new lows but shorting at the end of a counter trend rally or where there is overhead supply where many investors want to get out.
If you are looking for possible points to go short stay tuned over the next few days as I will be sending out an alert to free subscribers.
Disclosure: No stocks short at the moment.
Relative Strength Signals Confirm Breakout in U.S. Gold (UXG)
El Gallo’s story is continuing to impress the mining community. U.S. Gold has invested a lot of capital into drilling El Gallo this year and believe that by 2013 they can be producing up to 10,000,000 ounces of silver a year plus 35,000 ounces of gold. This drilling program has been extremely successful. They have expanded the mineralization and are now showing a potential to connect different zones to have one large shallow open pit mine. In two weeks the initial resource estimate will be published which should add momentum to this gold and silver growth story.
UXG’s shares have significantly outperformed mining stocks and gold bullion this year. Since our initial recommendation from last May, UXG is up close to a 100%.
Even though UXG at the moment has little institutional sponsorship other than the CEO himself, I believe the investment community is coming to realize that the company has an impressive growth story. That has been highlighted technically over the past 12 months. You are welcome to view archived posts where I have shown the incredible strength these past 6 months.
Since investing in the mining sector since 2001 I have found relative strength to be a key indicator of where capital is flowing. It is easy to identify which companies are experiencing increasing demand compared to a benchmark. Since I consider myself a miner of mining stocks, I spend hours researching the mining companies which have the greatest ability to outperform gold bullion and the mining sector. Even in a great precious metals bull market one can underperform if not aware of how to use technical analysis and relative strength.
This chart shows the relative strength of UXG to the gold and silver index. Clearly the breakout to new 52 week highs is confirmed by its bullish strength. The longer the outperformance of price and the confirmed breakout leads me to believe its growth story going forward.
Using relative strength one can evaluate if this recent breakout in UXG is sustainable. The chart above shows a major breakout for UXG confirmed by relative strength. I believe that this stock can significantly outperform the sector over the next few years as did Goldcorp did from 2001-2005 while Mr. Mcewen was CEO.
Over the past 6 months UXG has significantly outperformed Mcewen’s former company Goldcorp. While Goldcorp is up less than 15%, UXG is up close to a 100%. This further emphasizes how important it is to use relative strength to really profit in precious metals bull market.
Price volume action is excellent highlighted by the big volume breakouts. I believe UXG is a great long term growth story. New investors who want to get in should wait for a pullback as it is short term overbought.
Disclosure: Long UXG
U.S. Economy Breaking Down, Attempts To Prevent Deflation Failing
The United States is facing a crisis of a rising dollar and a recession where basic industries over the past several months have experienced a nasty decline. This condition is a concern for policy makers as the federal stimulus appears to be wearing off. The economy seems to be slowing and cash, treasuries, silver and gold appear to be the area of strength.
One bellweather blue chip Alcoa is down over 25% the past 6 months.
In January after breaking into new 52 week highs Alcoa experienced a nasty reversal and has been in a 6 month downtrend. Meanwhile, the U.S. dollar is rallying as well as gold and silver. This is a major deflationary sign.
Yesterday’s move to disconnect the yuan to the dollar was a mutual decision for both governments to stem the global deflationary crisis by devaluing the dollar. The U.S. government has done everything they can to prevent a deflation by keeping interest rates at all time lows, buying back treasuries to keep mortgage rates low and a massive federal stimulus. Now this latest move is another attempt to use China to decouple its currency, devaluing the dollar.
Although yesterday’s attempt appeared to be bullish as every media outlet believed that this would help global economic growth and the U.S. Economy, the market showed that government intervention can not subdue nature’s law of supply and demand.
The reality is years of bad debt and easy money need to work its way through the system. Eventually the markets and forces of supply and demand will reach equilibrium. Now investors are protecting their wealth by moving into gold and silver and I have done the same.
Economically sensitive equities and basic materials need to be avoided. It is an important time to preserve wealth by being in gold and silver during this next downturn.
Gold appears to be making a very bullish crossover pattern on its relative strength chart compared to the S&P 500 index. Each time it has made this pattern over the past 3 years with both moving averages pointing upwards has been very lucrative to gold investors.
The transportation averages had a nasty reversal today to further prove that movement of goods is under pressure. Transportation is the clue to see if economic recovery is continuing. Today’s reversal is evidence of weakness and further proof that businesses and individuals are holding onto their cash.
Today showed strong resistance and failure at the 50 day. This is an extremely bearish pattern. We must be defensive.
Disclosure: Long Silver and Gold