Weekend Ramblings

Well, Friday was about as much of a non-event day as you will ever see. GDP was right in line with expectations. The highlight of this week is the QE announcement on Wednesday and the chatter out there is whether the market is going to sell on the news. I think an upside breakout is coming but before that it wouldn't surprise me to see a little head fake move to the downside first. I'm just guessing here.


I said in my previous post that money based indicators are not confirming the "too much bullishness" message of AAII sentiment. I've been harping for weeks about the top picking exploits of the permabear trading community which is preventing a correction. Admittedly this is anecdotal; however, the Rydex ratio provides hard evidence that the market timing community has not been chasing this rally much. At ST and IT tops of the past, they typically do indeed chase the market.

I posted this same chart in mid September when the SPX was 50 points lower. The Rydex cf ratio is just about the same as it was back then...it's only marginally lower. Look at how stubborn they have been. The market is one more good rally away from challenging the YTD highs and these guys are nowhere close to being as bullish as they were back at the April high or even August high. There's 2 ways to look at this. 1) The market is not done going up 2) Any correction from here will be rather shallow UNLESS these Rydex traders aggressively buy on the dip which typically doesn't happen.


Looking for the top has become an obsession out there and I've been sucked into it as well. I probably waste too much time talking about it because the stocks I currently own have been fairly non-correlated with the market. I've done quite well with them overall since taking positions a couple months ago....too bad they weren't full positions though. One thing I'm noticing is that small cap Canadian oil service companies that have ties to horizontal drilling have been showing great charts making new 52 week highs on no news. I own 2 of them right now tec.to and psv.to. tec is very ST overbought and I will be looking lighten up on Monday. A couple of other ones out there I'm looking into are esn.to and wzl.to. All of these companies are going to release earnings reports within 2 weeks. These companies are still fairly cheap, have great charts and a positive trend in fundamentals....they are in the sweet spot. These stocks are thinly traded however and are not for the faint of heart but I gotta tell you, I love these small cap stocks not only because they can move so explosively but because I find they move more predictably. You start to develop a "feel" for them. I also believe that since these stocks aren't included in any ETFs, they tend to be less correlated with the market and it's this detachment that allows the charts patterns and market action to be more reliable i.e. subject to less whipsaws and head fakes.

Happy Halloween everyone!

Interesting junctior

Well, here we are now the day before 3rd quarter GDP is released. About a couple months ago I mentioned how I read about some firm that was predicting 3rd quarter GDP to be negative. We're going to see now if they are right. Expectations are for 3rd qtr GDP to be 2%. This is a potential market moving event. The market has been consolidating for about a week which means a breakout or breakdown is imminent. Taking a look at the NASDAQ which has been the market leader, a breakout looks more likely. Yes, I'm aware that today, AAII sentiment is showing the highest level of bullishness since the bull market began but what people are actually doing with their money is quite different and that counts more. AAII sentiment has been showing bulls outnumbering bears by a significant margin for 7 weeks straight now and that hasn't stopped the market going higher fueled by chronic top picking and put buying during what has turned out to be a phenomenal earnings season. At the end of the day it's always about earnings. Look, we're going to get a correction soon but the market is acting like it wants to go higher still and there's still room for money based measures of sentiment to reach "excessive bullishness" like AAII sentiment has.

Long term wise, there's no shortage of deep rooted pessimism for this market. Aside from your average trader who has a permabear bias, the general public and the media still has a recession mentality. This strongly suggests the bull market is nowhere close to being over. I've said here before that the best long term contrarian signal you can get is when the general public and media feels one way about the economy while the stock market is heading strongly in the opposite direction.....it doesn't get any better than that. The premise of the recently released movie Wall Street 2 is based on the collapse of 2008. The first Wall Street was filmed just before the stock market crash of 1987. That movie was based upon the boom times on Wall Street with the famous line "greed is good". I recently downloaded the latest Arcade fire album The Suburbs (which I like) released this summer. In the song Half Life 2 one of the lyrics is

When we watched the markets crash
The promises we made were torn

You might be thinking "so what?" Well, I'm telling you, something this subtle and seemingly insignificant is really quite significant. Anytime popular culture makes mention of the stock market like this, you just have to fade them, especially when the market itself is already going the other way big time.

What about the trading/ investing community? The popular opinion is that the recovery is simply a house of cards due to government intervention and that it's just a matter of time before it all falls apart. Everyone hates the fed. The unanimous consensus by far is that QE will not help the economy. The hatred towards TARP and other government programs was just the same and guess what? The government has actually made good money with some of these programs. Yes, not everything they did was profitable but overall they did a lot better than what most people expected.

The bottom line is that from a sentiment and fundamental perspective conditions are still very good for the bull market in the long term...in the short term, conditions suggest we are in red lining somewhat but there's still room for further marginal gains before we get this "correction" and I don't mean to sound piggish but I think we are going to see higher highs still. If we don't I won't be that suprised but neither will everyone else...and that's been the problem for the bears!

I love Mondays

I often see comments from my friends on facebook about how they hate Mondays. To them, the work week is like doing jail time and Friday couldn't come soon enough. I'm sure most people in the working world feel the same. Me, I love the work week especially Mondays because I'm looking forward to another 5 days of playing the stock market. Few people in this world get to do for a living what they really enjoy. I feel privileged in being able to do so...but never complacent. I know better than that and as I said last week don't expect authorities to get complacent either. Bernanke recently said that regulators are already looking into this mortgage "fraudclosure" issue very seriously.


As far as the market goes, sorry to sound like a broken record but I still see a lot of top watching. Bears are getting all excited about this "shooting star" formation in the chart just like they got excited about the death cross, head and shoulder pattern, Hindenburg omen and countless other bear traps. But I'm starting to notice the permabear ilk is turning sour towards Pretchter and Elliot waves. A contrary indicator you say? Perhaps in the short term but longer term I expect to see the retail ilk to one day despise permabears the same way the retail ilk of 2002 despised permabulls. Bears like Roubini and Whitney are still held in high regard even though they've been on the wrong side of this roaring bull run since March 2009. Back in 2000 bullish gurus like Abby Cohen were held in the same regard but she stayed bullish although the tech led bear market to the point where the retail ilk would ridicule her.

When we do get this "correction" I don't think it's going to be anything close to the flash crash simply because it is so anticipated. On a bigger picture view of things, conditions are still favorable for the bull market. Bull markets end and bear markets begin when optimism is high i.e. both "pro" and retail investors having been pouring money into the stock market and monetary conditions are tight. Neither of these 2 things is in place today. In fact, it's the opposite which suggests that pullbacks and corrections are all you can expect to see to the downside and higher highs ultimately lie ahead. I find it hard to believe that the bull market can end without any significant retail participation on the long side and when I see so many people losing big money on the short side anytime the market has a big run like this one.

It's important to keep the big picture in mind because big money is made riding big trends and it's so much easier making money going with the big trend then against it. In Reminiscences of a Stock Operator Livermore talked about a man he met at his brokerage house nick named "Partridge". He was an older man who wasn't very active in the market compared to the typical trader there. One day Partridge took a tip from another trader to buy a certain stock. The stock did well and then the tipster advised Partridge to sell so that he can buy back later on the pullback but he refused. He simply responded "well, this is a bull market you know!” The tipster didn't get it, he thought Partridge was crazy. Partridge told him "when you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford". Partridge learned the importance of staying with the primary bullish trend not worrying about corrections because it's not worth trying to save a few dollars from timing a correction compared to the risk of losing out on big gains that the bull market will likely deliver. That sounds a lot like buy and hold doesn't it? It is and in bull markets that what you should do

This doesn't mean you should never trade in a bull market (there's often exceptions to rules) but...and I've said this before.....you will have hard time beating a buy and hold strategy in a bull market. Eventually you will trade yourself out of it and watch from the sidelines as prices soar without you. It seems to me though; that the problem a lot traders have had with this bull market is far larger than selling out of profitable longs too soon....they are seldom going long to begin with!

Yet another short squeeze!

Just like last week, top pickers have been piling into puts as if the market was flash crashing. The put/call ratio opened up at a sky high 1.34 this morning and the most recent reading at 11:30 stands at 1.15 which is still quite stubbornly high in the face of market strength.

Sorry bears a watched pot does not boil.

So, is this the begining of the long awaited correction?

Alright, so the market sold off on the news from Apple and then there was this news that Bank of America may have to buy back mortgages they sold via their countrywide financial subsidiary. China also unexpectedly raised rates by 25bps, the first time since 2007. First of all, is it all that surprising that Apple sold off on the news given its run up? Sure, there's some hindsight bias here but just take a look at that chart.

I've been hearing more and more chatter these days about concerns that banks who issued MBS might have to buy them back at original values because they misrepesented them to investors. The Bank of America news today shows that this is now becoming a front and center story. Is this going to be the trigger for a correction? It could very well be. But just like with PIGS, it's probably something that won't derail the bull market because it will likely be dealt with swiftly. You have to always keep in mind this....the authorities are no longer going to be complacent about things like this after the debacle of 2008. I said the same thing regarding PIIGS. I am by no means an expert on this mortgage issue at hand here but just like with PIIGS my instincts tell me this is not a bull market killer even though it could trigger a correction.

The market has been climbing the wall of worry since back in early 2009. Here's the list of worries which never came to fruition....at least not yet! I'm sure I'm missing a few

1. Commercial real estate collapse (spring 2009)
2. Head and shoulders pattern (summer 2009)
3. PIIGS (spring/summer 2010)
4. Double dip recession (summer 2010)
5. Hindenburg omen (summer 20010)
6. MBS misrepresentation/fraud? (fall 2010?)

I still get the feeling though that even if the MBS issues or any other concern for that matter, is going to trigger the correction, we aren't just going to roll over immediately from here. A more likely scenario would be a topping phase that lasts at least 1 week with still a decent chance for 1200. The reason I feel this way is that I still get the sense that too many people are still eagerly anticipating this correction...hell, just look at the title of my post!  We'll just see how this plays out. My best guess for tomorrow is a more downside initially followed by a recovery of some sorts by the close.

Top picking and other stuff

When this rally first started in September I wasn't so sure that the market was ready to break out of the consolidation phase that it has been in since the summer. The bearish sentiment at the time was certainly high enough to warrant a good bounce which I had noted, but the gap and run nature of the initial advance made me skeptical as to its sustainability because it smacked of panic short covering which once exhausted often leads to full retracement....that was pretty much what was going on the entire summer with any rally attempts. But as the rally continued I started noticing some different behavior and I adjusted to a bullish stance. Instead of dumb money shorts capitulating and weak longs getting sucked in as what was happing all summer, the opposite happened. A lot of shorts stayed put or doubled down while potential weak longs mostly sat on their hands. As a result this market has been fueled by one short squeeze on top of another. As I alluded to with my "Just" post 2 weeks ago, these jokers have been their own worst enemy. They were looking for the sucker to unload on but it turns out they were suckers all along with their group think.


Given that most of the rally has been done via strength in the morning, there's a very good chance that we will see at least 1 decent correction before the year is over...probably sooner rather than later. Despite how impressive this rally has been it's not the foundation for sustainability because history also shows that emotionally led advances (whereby most of gains have occurred in the morning - a symptom of short covering and/or weak longs chasing) aren't sustainable, despite how impressive and prolonged they appear to be. Once most of the bag holding, top picker bears have gone broke or give up, which typically coincides with weak longs rushing in, all it takes is a flimsy excuse to spring the trap door to the downside which is usually fast and furious wiping out gains that took weeks to make in just a few days. The flash crash was an extreme example of this. More "normal" examples were the mini-corrections we saw last year in July, and October. This rally has been unique because as I've pointed out, the top pickers have been especially stubborn and relentless this time around thus constantly pushing forward the day of "reckoning" ahead. These bag holders blame manipulation, computer trading, and here's a new one...POMO, for their demise. But I believe the real reason is themselves thanks to their weak top picking exploits. Here's how these idiots pick tops: "Short at 1130, stop at 1140", "long QQQQ Sept puts" and when those go bust "long QQQQ October puts" And they keep doing this over and over until they are wiped out forced to cover. Then they wonder who's doing the buying!

Picking tops using tight stops and front month options is such a loser play. When picking a top you need to give yourself a lot of wiggle room because odds are high you will be early. You therefore need to make yourself a strong holder. The best way to do this is use longer dated options. Give yourself plenty of time and only commit a limited amount of capital such that you can afford to lose 100% on the trade and still not be crippled by it if you get it wrong. By using options instead of shorting or bear etfs you don't have to worry about getting stopped out by force at the worst possible time.

The allure of getting rich quick by betting big, doubling/tripling down on losing positions and betting the other way after a stock has made a big move are probably the most popular and costly mistakes people make and they are often done at the same time! You know I'm against picking tops and bottoms but there are exceptions and if you're going to do it, you gotta do is smartly like how I pointed out. Give yourself time and don't bet big initially so you can be a strong holder able to withstand an adverse move. Once you are in a position of gain and thus the market is confirming that you're right, and then you are in a position to press your bet more by adding to it. When the initial position shows a loss, don't average down because that's rewarding, which is at least for the time being, a wrong decision. This is an important part of my philosophy to trading/investing which is basically start small with any idea and only add when in position of a gain. Resist the temptation of picking tops and bottoms is another thing I go by. There are exceptions to this rule but they are rare. You would do yourself a huge favor if you simply never allowed yourself to pick tops or bottoms no matter how tempting. The majority of my profitable plays were buying stocks that were trending higher (in a non parabolic way) not too far off from their 52 week high. If you can find fundamentally cheap stocks that are showing this behavior (typically in out of favor sectors) then you have a "sweet spot" situation where both fundamentals and price momentum are on your side. Huge gains can be made in such situations with minimal risk. If you happened to get caught with a bad entry point odds are you will eventually get bailed out by the positive fundamental trend in place.

In this game you need to have convictions and be right about them to make money and stay right to make big money (i.e. don't take profits too soon) but often times you don't get rewarded right away i.e., your position may show a loss initially and it so it requires you to have courage and patience to be eventually be proven right. At the same time you need to be disciplined such that you reduce the adverse impact of taking losses i.e. being wrong. These two things run contrary to each other yet they must be both incorporated otherwise you won't succeed in the long run. I believe my philosophy of trading/investing is the best way to combine conviction with discipline. It's by no means a bullet proof strategy but aside from trading on illegal insider information or being able to see the future, there's is no such a thing.

More on gold

In my previous post regarding gold I basically concluded that longer term, gold is to have a major setback if not crash into a new bear market. I also said to beware betting against gold too soon because the mania phase can be quite dramatic and the price is still making fresh new all time highs which in my experience is a powerful bullish signal. So, even if you think that's it just a matter of time before the party is over, when something makes all time highs it's saying that you are either flat out wrong or early, either of which will have the same result to your bottom line if you bet against it.

I think it's quite likely the gold bull market will end in parabolic fashion similar to how previous bubbles and crashes end. But as I said before, something that is going parabolic can simply go even more parabolic. So, how can you get a sense in quantitative terms when the parabola will exhaust itself? One way of doing so is to look at previous bubbles and crashes and determine the range of how severe the parabolas got before they exhausted themselves. To do this, I take a look at how far above or below the asset was trading relative to its 200 DMA when it peaked/bottomed.

Let's look at 2 recent bubbles and 1 panic - the tech bubble of 2000, the oil bubble of 2008 and the panic of equities in 2008.

Tech bubble peak: 46% above 200DMA

Oil bubble peak: 34% above 200DMA

SPX bottom in March 2009: 33% below 200DMA

SPX bottom in November 2008: 37% below 200 DMA (I included this date because this was the point where the market was the most stretched below the 200 DMA even though it wasn't the final bottom).

So, you can see that once you get above the 30% threshold, the end of the road for the mania/panic is near. At the very least you can expect to see a major counter trend move. If you bought a long term out of the money option against the trend at this point and held, 6-12 months later you would have done very well even though you would have suffered initially.

So where are we with gold right now? Despite this rocket move it's only about 15% above its 200DMA. If gold was to hit the minimal 30% threshold that was observed with the termination of previous bubbles/panics, based on the current 200 DMA of gold, that gives you a target of $1545...and that's just a minimum target! Can gold get this high before it's over? I don't see why not based upon how crazy things got with other bubbles/panics. Of course that assumes the gold bull market will end with a blow-off/bubble move. It's possible that it could end rather quietly but I doubt that's going to be the case especially with such an emotionally driven asset like gold.

I should also note that the last 3 major corrections for gold (ranging from 15-30%) occured May 2006, March 2008 and December 2009. At those times, gold was 33%, 24% and 23% respectively above the 200 DMA. Therefore, even if you think only a significant correction is overdue like a lot of the pundits on TV say, it would still be premature to think so given that gold is only 15% above the 200DMA. Minor dips are certainly possible but odds suggest that's about all you can expect...for now.

To play devil's advocate to my previous post on gold from a sentiment perspective, yes there is excitement for gold but it can certainly get giddier (is that even a word?) Many of the loser traders I track for instance aren't long gold and the euphoria in general towards gold isn't as much as it was with the tech bubble.

All of the above suggests that although gold may be in its final few innings it isn't likely to be over just yet and with gold hitting a fresh all time all today, the bull market for gold is still firmly in place and higher prices still lie ahead. This is lucrative time for traders.

Everyone in the world waiting for that correction

Some bizarre action today. As a resulted of this morning's weak market open, the first intraday reading of the total put/call ratio at 10:00 was a stratospheric 1.89. Such a high reading would normally be associated with full fledged panics like in September 2008. In fact all through the bear market of 2008, the put/call ratio never closed higher than 1.52 for the day! I believe however, that Tuesday's initial sky high reading could be largely attributed to options expiration this Friday and thus doesn't have as much contrarain bullish implications as it would seem...but it's still bullish. With everyone and their grandmother still worried about a "correction", a lot of fund managers and speculators probably loaded up on cheap October puts this morning thinking that the correction would finally come. But as per the motto of this blog, when there are a lot of people leaning on one side of the market, especially when it's against the trend, Mr. Market will make fools of them and that's exactly what happened. By the time the market closed the put/call ratio settled down to 1.15 which is still quite high. The equity only put/call ratio however was quite low at 0.54. I don't think I've ever seen such a massive divergence like this. The divergence was the result of massive index put buying.


It's quite clear to me that so many people bulls and bears alike are looking over their shoulder for that "correction" that just has to happen. This iss a situation that reminds me a lot of late summer of 2009 and the correction didn't come until it created maximum bear frustration and when it did come it wasn't anything too serious unlike the flash crash.

With the market hitting yet another rally high today and closing near the best level of the day, once again it suggests the rally is not over. Unlike in early August when I noticed that the lemmings from all walks of life where embracing the long side, thus making the market vulnerable, this time around the lemmings have been fighting this rally tooth and nail refusing to give up on underwater bearish bets because I'm sure they feel that the moment they give up the market will tank. Well, that's probably true, but until enough of these clowns actually do give up, they are going to keep seeing red in their accounts.

My best guess is that sometime next week or the week after we will finally get the "correction". I doubt it will be a serious one though because that LT wall of worry that I've been taking about for over a year is stronger than ever. I can still sense the deep rooted chronic pessimism out there. You can tell because the average trader is frustrated as the market has been going higher. Instead of seeing people bragging about how much money they've been making I see the opposite. Hissy fits and account blow ups. Remember I told you about that guy who bet large in Oct 49 QQQQ puts? Well, he confirmed himself he's got 3 more day until most of his nest egg gets blown up unless the market takes a big nose dive. I have zero sympathy for anyone who risks a big chunck of their life savings trying to pick a top using front month options. What a fucking doorknob. I do feel sorry for his wife though.

What a bizarre world this has become when you see so many people hating it when the market goes up. Go to the yahoo message SPY message board or market watch and you'll see what I mean. And how many times now have I documented someone losing their life savings by betting against the market? What a bunch of bitter, miserable, sorry SOBs so many people have become....can't say I feel the least bit sorry for them when they lose. It's this deep rooted hatred and pessimism from such losers of trading and probably in life too, which keeps makes me long term optimistic.

Thoughts on gold

I've been meaning to talk about gold for a while. About a year ago I discussed how I was noticing some long term bearish signals but I felt that it was too early to bet against gold just yet on a LT basis. I think this time around we are near the end game for this gold bull market that began in 2001....I'd say it ends anytime between now and April 2011.

I could write pages and pages about my thoughts on gold discussing all the finer details about what's affecting it, but I'm going to keep this post focused on the US dollar because that's ultimately what is driving gold. So then, why is it that I feel we are close to the point where gold is ready to head down in a big way? How can I even consider such an idiotic possibility you say, in the face of an ever declining dollar underpinned by 0% interest rates, massive deficit spending, and the fed read to "print money" via another round of QE? Well, first of all you have to realize that at every major long term top or bottom for any asset, the fundamentals appear to be at their best or worst respectively. That's just the way a major top or bottom gets made. It's also at this point where everyone who ever wanted to buy (sell) has already done so or is waiting to get in (out) on the next pullback (rally). Once you reach that point, there's really no other way to go but in the opposite direction...all it takes is a catalyst. I think we are in the stage of the gold bull market whereby thanks to QE and other factors that are considered dollar negative, everyone is absolutely convinced that gold will only go higher from here longer term and the only downside risk is ST in nature because gold is "overbought". I can hear those people who have been watching on the sidelines say "that's it...I'm not going to miss out on this anymore. I'm in on the next dip". Sentiment wise, this is the type of condition you see at major turning points.

I think there's little disagreement that the main reason gold has run up to present level is because of pessimism towards the dollar. It definitely can't be attributed to traditional consumption of gold for jewelry and industrial applications because annual demand for those purposes is actually lower now than it was 10 years ago! So, let's look at what the US $ and gold have done since they respectively peaked and bottomed in 2001. I want to first focus on a particular date, March 2008 because this is when the dollar traded at its lowest level to date (bear with me you'll see my point). In March 2008, the dollar (as measured by the trade weighted basket, ticker USD) had dropped about 45% from its peak. Mathematically, since gold is priced in dollars, the drop in the dollar alone justified gold to rise 90% from its low which equates to about $500....for the sake of convenience let's call this $500 figure the intrinsic value of gold. But what actually happened in March of 2008? Gold was at $1000 - 2 times this intrinsic value. Therefore, it would appear that gold was overvalued by 100% in March of 2008. Calm down gold bugs, I'm not done. Given the multi-year downtrend in the dollar that has been in place, it would be fair to assign some sort of a fear premium to this intrinsic price of gold, accounting for the possibility of future dollar weakness similar to how options have a time/volatility premium. So then, what exactly would be a reasonable premium? I'm not so sure, but a 100% premium to the intrinsic price seemed kind of rich don't you think?

Now, let's take a look at the present situation. Despite its recent slide, the dollar is still 10% higher from its lowest point in March 2008. Logically, you would expect that gold would be modestly lower or about the same from the $1000 level but instead it's higher by 35%!

Let's take a step back now. From its peak in 2001 the dollar has dropped 36% yet gold has risen about 400% from that same point! That doesn't seem justified does it? The intrinsic value of gold based upon the drop of the dollar that has taken place puts it at about $465 and here we are at $1350! Again, a premium to this intrinsic value is warranted but at $1350 the premium itself is now almost double the intrinsic price!

Now look, I realize the above analysis is simplistic and you could probably poke a few holes in it but there's no doubt to me it shows the negativity towards the dollar implied by the price of gold is far greater than at any time during this gold bull market. When you get a situation where the fundamentals for a particular asset are good for a long time, momentum and herd behavior can cause people to bid up the price regardless of what the price already implies about how good the fundamentals are. So long as these favorable fundamentals are in still intact the price keeps going higher and higher until you get a priced to perfection situation. This is what is going on with gold. Sure, the dollar has been weak for 10 years but it hasn't been as terrible as the gold price implies. The US dollar is actually slightly higher than it was 2.5 years ago yet gold is massively higher. To me there's no denying this smacks of irrational pessimism towards the dollar and therefore irrational exuberance towards gold.

In the late stages of a bull market or bubble you tend to hear any kind of justification supporting the high price. With gold you are seeing this happen with the "gold will do well in deflation or inflation" argument. What a crock of shit that is. We saw what happened to gold when there was a deflationary scare in the late 2008 (please don't tell me about how gold did well in the 1930s. Prior to the 30's the price of gold was fixed and suppressed for years and then once it was allowed to be traded freely in the early 30's it went up). The reality is that gold has big bull markets as result of secular US dollar weakness and/or run-away inflation. We haven't seen the latter during this gold bull market. Gold bugs say hyper inflation is coming but they've been saying that for a decade and instead we flirted with deflation a couple of times and nothing even close to hyper inflation.

I have a hard time believing that the price of gold over and above what's justified by dollar weakness is due to an anticipation of hyper-inflation. I realize markets can be forward looking but history shows this is typically 6-12 months into the future. We passed that deadline a long time ago with gold.

That's enough talk about fundamentals. I know there are other fundamental issues I didn't touch upon but as I said before, I could ramble on for pages and pages and so I just wanted to discuss what I felt were the main issues. Let's now talk about sentiment.... my favorite thing. You know the motto of this blog. You can analyze fundamentals to death and justify whatever fair price you want but the bottom line is when you get to the point where most people who were considering to buy have already bought or are waiting to buy on the next dip you are at the point when the market is about to make fools out of them in a big way. It's always tough to pinpoint this moment but you know you are close when dumb money retail investors are piling in while smart money insiders are rushing out or short.

In the summer I got plenty inquiries about gold from unsophisticated retail investor acquaintances (to put it very nicely). I said to them that I believed gold could have one more good run in it but then I'd be very careful after that. Well, here we are with gold having its good run. The fact that retail investors appeared to be so interested in gold and yet it did not have immediate contrarian implications suggests to me that gold is in final phase of its bull run. The final phase of any bull or bear market run tends to coincide when late to the party retail investors are stampeding in or out of it respectively. This behavior typically lasts for I'd say 4-12 months. In the final phase of a bull run, you tend to see a parabolic move in the asset and for a while, the retail investor is correct, but when the tide turned they see their paper gains lost and more. Therefore, great profits can be made actually going alongside the retail investor during the blow-off phase of a bull or bear market...you just got to get out in time. At the same time, anyone playing the role of the "intelligent" contrarian betting the other way gets ran over for being too early.

Gold is being talked about day in day out on BNN. When they ask different guests what they think about gold the response is the same every single time “gold is overbought here but I'm still bullish longer term. It needs to pullback before you should buy". This is exactly the same thing I heard when oil was at $130 in the summer of 2008. Of course, oil bulls got their correction....and more. So, even the so called "pros" on TV are convinced gold can only go up longer term. Funny how most of these same "pros" were scoffing at gold in 2001 when it made its first bull market advance. I remember quite clearly on CNBC one of these clowns saying "gold is only good for trading it's not good for a long term investment". Now after a 10 year 400% bull market with gold at $1300+ everyone on TV says they are bullish long term. lol! Thank God for these schmucks. Take a look at the long term chart in gold. Can you say parabolic?

The tricky thing is about parabolic charts is that they get even more parabolic! But when something is going parabolic it's just a matter of when not if the crash will come.


Just prior to the bull market in gold in 2001, one of the things I remember gold bugs frequently pointing out a lot as a bullish indicator was the commitment of traders report which showed that commercial futures traders, a.k.a the smart money insiders were significantly net long gold futures. Funny how you don't hear a peep from the gold bugs about the conditions in the futures market right now. Commercial traders are presently massively net short gold futures...at a record in fact, and they have been heavily net short for the past 1.5 years. This is huge negative for gold longer term from smart money commercial traders.

The final nail in the coffin is my father. He doesn't follow markets whatsoever and just today he talked to me about how he can buy gold and silver. I asked him why. He said because he heard it being talked about in some financial program on the radio. He said gold can never go down. The last time I heard my father talking like this was with US real estate a few months before it peaked in 2005. Needless to say my father is a dumb money indicator....probably one of the dumbest! Don't tell him I said this! lol!

It's clear to me that from a fundamental and sentiment perspective the evidence is strongly supporting that it's just a matter of weeks or months before the gold bull market takes a massive dive perhaps leading to a long term bear market. But with gold still hitting fresh all time highs contrarians be warned betting against gold too early. Markets can go higher than you think possible especially if there is a blow-off/mania phase. Given that gold made fresh all time high last week, odds suggest higher prices still lie ahead before it's all over and that means more opportunities on the long side with gold stocks...you just have to be very careful at this point keeping one foot out of the door if you want to play along. I myself have cashed out last week on a nice little move on one my small cap plays aag.v which happens to be a gold exploration company.

You see, just because I'm LT bearish on gold doesn't mean I won't try to take advantage of any long opportunities in the ST. If market action suggests gold wants to go higher and do a blow-off top, then fine by be...I will try to ride it up. Just because I don't think such a move higher is sustainable in the LT doesn't mean I should stand in its way going short and then throw hissy fits and argue with tape like these idiot, loser permabears on equities do after losing money.

You know I'm against picking tops and bottoms but there are are rare times when it's warranted. Such is the case when few people are doing it, the risk/reward is so high and the reversal you're expecting would occur violently causing you to miss out on a big portion of the gains if you wait for the turn. I believe this will be the case with gold. When I feel the time is right, I intend to buy long term OTM puts on GLD starting with 5-10% of my capital willing to accept a complete loss if I’m wrong. This would allow me to be a strong holder if I'm early. And if I end up doing this play and it doesn't work out, you won't see me cry and whine about manipulation like the losers I see out there. I'll take it like a man and accept full responsibility.

Just

You do it to yourself, you do
and that's what really hurts
You do it to yourself, just you
you and no-one else
You do it to yourself
You do it to yourself

This is the chorus of the song Just by Radiohead (cool song and video too). It's my response to the permabears and top pickers who keep banging their heads on the wall wondering why the market won't go down in a meaningful way while blaming manipulation, the fed or whatever...anyone but them. They fail to realize that their serial top picking and stubbornness has been adding fuel to this torrid rally.

Anytime we get a rally like this I notice some of the permabears saying they promise to be more "flexible" next time, playing both sides of the market. What a fucking crock of shit. As I said before, this is like the abusive, alcoholic spouse who says he promises to get sober and never lay a hand on his wife again and then of course he repeats the cycle of abuse and promises over and over. I've seen these losers make the same "I promise to be more flexible" rant before and all it takes is a 10-15 point drop in the market for them to go back to permabearing. Other losers who run bearishly slanted blogs have claimed to have been flexible all along, scolding their followers for having a bearish bias. That's a side splitter let me tell you. Who the fuck are these idiots kidding?! lol! The permabear blogs have become a circus act. I've been following a couple of bag holders for amusement and sentiment purposes. One clown happens to be bag holding quite a bit of Oct 49 puts on the QQQQ. While his account is getting smoked he's been making jokes and social conversation with other losers. Great...just pretend everything's going to be OK and make jokes while you lose your ass day in and day out. What a loser and it’s an example of the lack of capitulation from bears.

Well now, let's get to the market. Another new rally high day today with the market closing right at the HOD which yet again suggests this rally still isn’t over. That ISM number today laid some serious smack down on bear bag holders clinging for dear life praying for the data to show any sign of the elusive double dip. I bet quite of few of them had their hopes up for that number to be sub 50.

Bottom line: The song remains the same. Until we see more people embrace this rally instead of fighting it, calling top after top anytime the market drops 5 points, the path of least resistance remains up and the only downside we'll probably get are modest pullbacks.

And speaking of crocks of shit, it appears that the email notification widget I added to my site doesn't work so I took it down. So much for technology.