Friday's action was very good. The market leaders were leading and ST momentum has now turned in favor of the bulls. Is a run for the highs now comming? Bulls have their chance right here but I reiterate that I don't believe the market is ready to break out in a big way just yet and I still think a lower low lies ahead somewhere or at the least, a retest of the 995 level.
I sensed that that a lot of dumb money bears loaded up on shorts/puts to hold over the weekned in the hopes of some post labour day sell-off so we could very well see a continuation of gains for at least the early part of the comming week. I'm still waiting for that time when bears are so affraid to go short that they wouldn't even dare trying to hold over the weekend. We are not at that point whatsoever.
A large factor in determining my outlook depends on the actions of other traders/investors both in the short and long term, and then acting in a contrary manner. The short term has been quite frustating at times because lately they have been flip floping like crazy which causes me in turn to flip flop as well. Never before have I seen the market so ruthlessly whipsaw traders into an oblivion like the way it's beeing doing it this year. Many traders got wiped out this year....just destroyed.
The flip floping from traders continues. I mentioned recently how rydex bull traders didn't get scared on the dip we saw on Monday, which had bearish implications but for once they were right! Now, the rydex bulls have sold into the bounce on Friday.
Will they be right again? If so the market will drop, if not the market will continue to rally. If these rydex guys get it right again mabey I should look at them as smart money instead of dumb money! Nahh..I don't think so. Every dog has it day.....losers sometimes win, winners sometime lose.
The bottom line is that this is a rather edgeless tape right now in the short term. It wouldn't suprise me to see the markets squeeze the bears early on in the week before falling back later in the week....keep on eye on tech and emerging markets for tells.
I've been preparing a list of speculative Canadian junior mining stocks to take advantage of what could be a break out in the price of gold and commodoties in general. I dipped my toes already in some of them and plan to add more this comming week.
Here's the way I see the price of gold playing out. Either we blow right past $1000 and go straight to $1100-1150 or we see a marginal breakout to about $1030-1040 and then shoot back down below $1000 briefy to rinse out the technical buyers who are automatically going to buy when gold breaks out above $1000. Either way I think a sustained breakout is immanent before the end of the year. I know I panned gold about a couple months ago but it was mainly due to the "armagedon premium" in the price that I felt was no longer justified. I now believe gold is rising due to the dollar devaluation thesis I pointed out and another reason could be the declining role that the US $ is having as the world's reserve currency and perhaps gold's assending role in this respect. We've heard rumblings for the past couple of years about how foreign nations, especially China, want to diversify out of their US dollar reserve holdings in favor of a basket of currencies and hard assets.
Again, I don't really care about the why, I'm just concerned about the where as in where is the price going to head. My main reason for warming up to gold here is the market action. It just feels like the price wants to break out and the chart pattern supports this and although there's been a lot of talk about gold, I don't see a lot of people jumping in with both feet just yet. I'll be watching the $985 level as a line in the sand as I mentioned before. It touched exactly that level on Friday intraday before closing at about $995.
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