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Thursday, December 8, 2016

Competetive revaluation

Remember when every central bank was cutting interest rates and while currencies stayed flat against each other, Gold rose? I remember that being labelled as competitive devaluation. 
I think the opposite might happen for some time, at least until real rates fall. 

For real rates to fall, inflation must rise faster than nominal rates.
For inflation to rise, energy costs, which are a very big driver of inflation, must rise.
Hence Gold cannot go up, unless oil rises substantially.

See what I did there? 

80 comments:

  1. @Doug. I've been watching NUGT and GLD price action for the last hour or so this morning. I'm still on the sidelines, but may take a small position in NUGT eventually. I'm expecting price volatility within the trading range of the last few days. Any position I take will have a very short leash and be traded, most likely, intra-day. Good luck.

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  2. It is due for a big move and the chart suggests down. If gold can't get going, 1025 this month still wouldn't surprise me so a short leash seems appropriate.
    I pick up the paper this morning and X is front page about potential job recall, no timeline though. Then I turn on tv and they are pumping RIO. Quite the amazing run. I was thinking a little pullback or consolidation and they could rotate to gold miners short term but who knows.

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    1. I still like the daily GLD chart for a short term move up to resistance, but certainly the overall trend is down and the bottom could fall out again at anytime.
      I was stalking NUGT pre-market as it moved down to 8.4, but didn't pull the trigger. Went to go fire up my wood stove and looks like I missed a nice little pop. We'll see what action the volume brings in this morning.

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  3. Upper band on the monthly mini is 2256ish
    We haven't really traded significantly above that since this bull started @ the 666 level

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    Replies
    1. Right. That's why I ventured into a small short yesterday. Even if we have a quick impulsive move above 2250 SPX, I'm expecting some near-term retracement.

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    2. Did I correctly garner that you have a blog? If so, a link would be nice. Thanks.

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    3. Yes but I haven't been active on it for a couple years. I used look at thousand of charts a night and do patterns and trend lines and post a bunch. I don't study it as hard now. I should but it is time consuming.

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  4. Looks like bearish action in biotech. I'm guessing more downside today.

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  5. Replies
    1. What's your target? Maybe around 6.6?

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    2. I was just going for a quick dime but someone beat me with their order. Watching for now.

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  6. Thanks, that looks interesting. I'm like a deer in the headlights at the moment.

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  7. Replies
    1. This is a tiny position, just to get the feel here.

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    2. Minus my $1 commission in each direction. I did not like the price action.

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    3. Yeah, it's acting whimpy. Really needs to hold 6.32
      You only pay $1 commissions?

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    4. It was a very small 200 share trade, since I like to get to 'know' anything I trade in size. $1/200 shares at IB.

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    5. $10 in and $10 out at aAmeritrade. Share size doesn't matter.
      HCHC has been my horse. SPXU is more of a hedge to help me hold some of this junk in overbought market.

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    6. I have two trading platforms. Interactive Brokers for trades generally up to a 1000 shares per transaction. Sink or Swim/TDAmeritrade at $5 unlimited size for larger size trading and Charting.

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    7. I'm not sure about your account size, but if you have any clout, you need to speak to your TDA rep. I had my commission lowered to $5.

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    8. Really, I have been with them a long time and didn't know that. They use to call and leave messages but I never returned the calls. I didn't know trade price was negotiated. I was trading six different accounts but now down to 3

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    9. Everything's negotiable, as they say. If they want your business (what they really want are your assets) and there are cheaper options, they will deal.

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  8. Russell short not looking good.

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    1. Now down over 3% and sinking. I may have to start trading against this position or cut my losses and re-position. This is an example of the need for risk management. My position size is relatively small because it is in a 3x. I have given back about half of yesterdays day trading profits so far. I probably should have used a less leveraged product for staying power.

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    2. I am also a firm believer in discipline to

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  9. Doug, I asked for a trade price of $7 any share size. I rarely trade, so there's no reason to decrease it for me.

    Multiple houses were willing to do it anyway, so I don't even think frequency of trading matters.

    I think IB charges according to share size, so it was the best deal I found if you trade a lot, but maybe not so great for buy and hold. If you ever want to take margin though, IB's rates are so low, it's basically free money.

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    Replies
    1. IB charges $1/200sh and yes, it's all about $ under management.

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    2. Thanks AJ for info.
      I stay away from margin myself. I have managed to never blow an account.
      I have a margin account and worry about making a trading error in it.
      I see the steel stocks reversed.

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  10. For now, my working model is that gold and oil may both stay relatively range bound for a while.

    I'm not sure that gold will double bottom or hit a lower low again. For now, I don't think so. But I also don't think gold will do much exciting on the upside either.

    So I agree that it's fine to stay away from gold for a while, because gold didn't break out along with bond shorts, dollar, and other commodities, when it had the perfect chance to do so.

    So even if gold rises over the next several months, I'm not sure there's much to get excited about.

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  11. Once again, financials, basic materials and overall market look strong, but biotech looks weak.

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  12. I Haven't found anything I want to trade today, so I've been spending some time analyzing things.
    I noticed a lot of put buying going on today. Of course they are relatively cheap now. This could just be adding fuel to the fire. I'm guessing the near term corrective action, if any, will be relatively mild. Even if we do get a more sustained correction in the next few months, there is massive support just above 2100 SPX.
    Secular bull market?

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    Replies
    1. Secular bull seems strange with these valuations but I am bullish for the foreseeable future.
      One thing that is very bullish is that the consumer has deleveraged during this cycle....which is why this cycle is so weak....but that is a lot of fuel for 5% plus GDP growth.

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    2. When you say deleveraging, are you reffering to lower debt levels?
      How are you defining this cycle (what period)?

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    3. Yes. Total Debt of households adjusted for population and inflation peaked in 2008-2009 and is down 40% since then.
      Debt service ratio peaked in 2008 and is down 25% since then.

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    4. Okay, that's the definition and period I assumed you were using.
      My feeling is that this has been forced on society has a whole since the imploding of the credit bubble. Not because of more responsibility, better financial management, etc.. I am quite confident as regulations are eased and the lending industry becomes more generous (euphemism), the average irresponsible nitwit will have enough debt to bury themselves.
      The bigger problem maybe stagnating wages, despite growing GDP.

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    5. Wages are taking off too.
      YOY growth in wages was the highest since 2007.

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    6. I assumed that was very correlated to policy changes like increased minimum wages and not necessarily a longer term macro economic trend. we'll see how things go under this new administration. If it does turn out to be a trend it will strongly impact inflation.

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  13. Since I made the call on Dumbmoneytracker.....OIH uip 28%. GDX down 30%. 58% outperformance in 4 months. All without a subscription fee. If I used 3X funds like Gary...that would be a almost 175% return in 4 months. So when that dumbfuck talks about 53%...one should put some context on it.

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    Replies
    1. Really no need to advertise. It's quite obvious, to anyone with a clue, that you are more intelligent and sophisticated than Gary. That's not exactly a high bar.

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    2. Unfortunately not everyone seemingly has a clue. The fact that the guy is in business for so long suggests that my work is not done.

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    3. Not everyone has a clue? Understatement of the week.

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  14. fwiw
    Like Max, I am a bit bored and took a look at dxy.
    Monthly ihs target is 104.6 and recent break up out of flattop pattern is 109.1

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    Replies
    1. es mini upside target to 2444. We are about mid channel as I have it drawn.

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    2. Don't you mean HS not IHS?
      I was thinking possibly between 102.5 and 103.5, although it's not a very well defined HS.

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    3. That coincides nicely with the 13 year consolidation we broke up out of in 2013

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    4. Max
      I was looking at bigger picture on dxy
      Neckline drawn from 11/1/05 to 3/1/09 highs and breakout was 9/2014
      I Think the hs you refer to is a flat top broad pattern that started 3/1/15 and broke up last month.

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    5. aj
      head and should and inverse head and shoulder

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    6. Okay, my lack of reading comprehension, I missed the 'monthly'.

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  15. Just saw EUR/USD chart. Damn! I missed the spike this morning. Should have put limit orders. Only 1.4th position left but still. That is a big miss.

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    Replies
    1. Yeah, that sucks. Been there, done that. At least your still in the money.

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    2. Barely......... on my last quarter. Grrr!!!!!! I hate when that happens. Still surprised how low it has gone.

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  16. Closed up today thanks to my horse.
    Nice reversal in biotech. Could be somewhat explosive but remains to be seen. Still a gap in ibb below.
    Held on to txmd..Potential pennant if these lows hold but volume isn't right for it.
    No surprises in SnP.
    Somewhat negative stick for CLF again.

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    Replies
    1. I was counting on that gap fill in IBB from the market consolidation I've been expecting for a long setup using LABU. I hate to chase things.

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    2. I have lower trendline at 262 for tomorrow. I may try a long if it gets near there as an objective stop for me is just below the last two days lows.
      Somewhat inside looking days the past two, can be explosive, combined with the 20 days of downward drift= big move coming. I have seen this pattern get crushed if it fails but usually if its after a fall.

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    3. I might join you, again with the caveat that things look conducive in the morning.

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    4. I am thinking Es up in the morning and then some profit taking late in the day.
      Biotech maybe down in the morning and then rally when market gets weak. Will see.
      Nugt, the little puker that it is, has support at 7.2 tomorrow and needs to close above 8.95 to show any strength.

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    5. I like that scenario. If it plays out, I may take both those trades. I'd play NUGT, if it holds support, just for the range. Hell that's over 20%. I'd be using LABU for the long side in bioteh which also can move like a rocket.

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  17. Here's some food for thought Duck. Regarding Today's original blog post and our brief interchange on wage growth, oil price is certainly a driver of inflation and US trade balance, which both affect the dollar and gold. Another possibly bigger factor with respect to inflation is wage growth. I'm not sure what to expect in the way of Trump's actual policy actions. His message seems to change with his audience and mood. If in fact he turns out to be this isolationist, made in America president I keep hearing about, that could, given the right circumstances, create significant wage pressure. This, again holding other things constant, would create substantial inflation. This would be regardless of whether oil breaks out of the 35-75 range I'm expecting for the intermediate term. Just conjecture of course.

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    Replies
    1. You stole my thunder there. I was thinking a lot of the same things.The only thing I would add is that is that unemployment is already 1t 4.7% so at this point if Trump gets all nationalistic the wage growth is going to hit 5%.

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    2. This comment has been removed by the author.

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    3. No doubt, a surge in CPI with contained interest rates could be very bullish for PMs. The difference between speculation and actionable trading setups is the present situation though. On the other side, think about all those who have clung to gold investments as it has steadily sunk for over five years, whole most other assets have soared. The opportunity cost is staggering.

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    4. Peter,
      Gold has no direct relationship with the long end of the curve, it does so with real interest rates. If the long end of the curve rises enough to compensate investors for inflation, gold could hit the low end of the Gold oil ratio. Remember 2008 before the crisis? Long end at about 5%...CPIT at 3%. Real interest rates at 2%? OIl at $140 and Gold at $900 for one of the lowest Gold oil ratios of 6.5.

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    5. This comment has been removed by the author.

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    6. Not sure you guys are actually disagreeing.

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  18. The impulsive move up in the market shows no sign of letup yet this morning.
    Calm before the storm or another tough day for the crybearies?

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  19. The setup for day trading NUGT in it's low 7's to high 8's range is looking somewhat fruitful this morning.
    I'd like to see a stab down below 8 for a possible long entry.

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  20. Doug, what are you thinking about biotechs this morning?

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  21. I think bio is gonna go up, I don't think I will get the pullback I wanted.
    I think gold is going down to 1151 today
    I think the SnP is going to continue its rally and hammer the crybearies

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  22. Thanks Doug. I tend to agree, although I would not be surprised to see a reversal in the SPX sometime later today.

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    Replies
    1. That makes sense. Vxx still bid up this morning. I would rather the boi's pulled back first. Seems like the trample stocks goi up when market goes back down.

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  23. Depending on how you format your charts, $DXY has either broken above it's down trend or is at the top of it's recent range. If it breaks above, the next resistance, as pointed out by Doug yesterday, is just below 105 with a potential longer term target of 120.

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  24. Magnetation, another bankrupt ore company up here finds buyer for assets and seeking approval.
    I don't think they could make it before on low ore prices
    Just another sign that things seem to be turning back up.

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  25. Long auph 2.85. Bio stock.
    Next stop looks like 2.5 area if this doesn't hold.

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