NFTRH Web Log

New Site Location: biiwii.com

2013-03-11T15:53:00.001-04:00

Dear RSS readers and anyone else who may not have made the jump...

Our posting is now happening at the main site http://www.biiwii.com

The site is bigger and better than ever before. Hope to see you there!

New Blog Home -- Biiwii.com

2012-11-20T16:32:00.002-05:00

Dear RSS and Email readers...

All content is now being posted at http://www.biiwii.com, where the blog is integrated as the main website page. Hope to see you there!

http://www.biiwii.com

Reminder... Join us at Biiwii.com

2012-10-26T11:42:00.004-04:00

Just a reminder for RSS and email readers...

Active content is ongoing at http://www.biiwii.com, which is the new home for the blog and website combination.

See you there... November's going to be interesting!

Please Vist Biiwii.com...

2012-09-27T18:59:00.003-04:00

Our new blogging home is http://www.biiwii.com

Bookmark it and see you there!

NOTE: For email and RSS subscribers, you can sign up for these services at the new blog as well.

New Article Posted @ Biiwii.com

2012-09-18T07:17:00.005-04:00

It's All Out the Window Now

Check it out at biiwii.com. Don't forget to bookmark and RSS readers, make to subscribe there!

http://www.biiwii.com

It's QE (and inflation) all the way baby...

2012-09-13T18:25:00.005-04:00

And now the fun begins, because we can manage without the good cop/bad cop routine. The good cops won out. Was there any doubt? Well yeh, but Bernanke has gone all in to risk being judged by history as the great inflator - the one who blew the big gasket.

Anyway, this is to remind RSS subscribers and anyone else who may still be kicking around that regular commentary is now taking place here: http://www.biiwii.com

Hope to see you there!

More Details on the New Blog...

2012-09-05T19:02:00.005-04:00

For RSS subscribers, you can go here http://www.biiwii.com and hit the 'Subscribe in a reader' button and you'll be up and running.

Also, for email subscribers, there is a form on the new site. Just pop in your mail and you're good to go.

Both items are easy to find at the top right side bar.

See you there at biiwii.com

Format Change for blog and biiwii.com... please read

2012-09-05T13:37:00.004-04:00

Hi folks, if I have seemed a little intermittent and/or distracted (can that come through on a blog??) it is because I have been setting up the main website on Wordpress so that the blog will act as the front page at http://www.biiwii.com

Now, it is all going to be a one-stop shop so to speak at biiwii.com. So please visit and bookmark http://www.biiwii.com, where I will be working out a few snags and fine tuning over the next week, but will mostly be posting there and trying to get comfortable.

I have not done so recently but I want to THANK YOU for your readership and look forward to seeing you at the new site!

Base Metals Making a Move

2012-09-05T09:58:00.000-04:00

Here is the laggard, the industrial metals index making a move off a bottoming pattern. Are the base metals seeing QE3 or just taking a hopeful bounce? That's an important question for the BM's along with most everything else.

With yesterday's ISM report, we can surmise that any extended upside is due to the cult of QE and not any real fundamentals currently in the economy.

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Checking in on Old Friend the SLW-RGLD Ratio

2012-09-04T14:34:00.002-04:00

Individually, these quality precious metals companies have been doing terrific lately. In ratio, bulls want to see Silver Wheaton continue to gain vs. Royal Gold.

SLW-RGLD is at an important juncture, yes? No party indicated just yet.

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ISM at a Glance

2012-09-04T11:58:00.001-04:00

A few notables are circled...

Click thumbnail for larger view

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Gold & Silver CoTs

2012-09-04T10:53:00.001-04:00

Apologies, I accidentally deleted the CoT post from Friday. It shows a rapidly changing situation in the structure as commercials get aggressively short and large specs get longer and longer.

Not usually considered a good thing for gold and silver bulls. The message is to keep in mind that precious metals sentiment is getting over bullish at the same time as that in the broad markets and risk of reaction is rising.

It will be interesting to see if there was much short covering last week and post 'nanke.

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Bernanke Plays it Perfectly

2012-09-04T08:42:00.000-04:00

Excerpted from NFTRH 202:

Bernanke Plays it Perfectly

From last week’s opening segment:

“Another way to look at it is that the market’s fate appears to rest with the jawbone of the man about to speak at Jackson Hole on Friday.”

From last week’s closing ‘Wrap Up’ segment:

“I think the theme now is that if you are a trader and if you have profits it is a logical time to take some or all of them.”

We know that the decelerating economic backdrop (with inflation measures in check) is supportive of a Fed going unconventionally dovish in unleashing QE style policy if it so chooses. We also know that the political backdrop is not supportive, with Republicans sounding off about a gold standard and a soon to be former Fed chief.

Ben Bernanke walked a middle ground on Friday, giving the market – especially the precious metals segment of it – enough of what it wanted to hear without actually having to announce a policy move. The implication is that bullish price activity can continue and if it doesn’t – especially if markets decline along side a more acutely decelerating economy, the Fed stands ready, willing and able to attempt to inflate the system.

The Fed chief is stuck between a rock (poor economy and thus, a poor jobs picture) and a hard place (Republicans ready to lynch him if an announcement of unconventional and market-moving policy is made). He chose to remain consistent as the Fed is on guard to do what it has always defaulted to; print money if needed to attempt to devalue the currency in the name of economic growth.

Election Cycle

We are only two months from the election so it is time to start looking past it and that may be what Bernanke is doing. Though the doomsayer websites (and emailers) would have us squatting in our homes with shotguns out the front windows at the ready for attacks by everyone from dispossessed former McMansion owners to government death squads, the market – and the world – not only refused to end this summer, they have been grinding onward and are well-intact.

Two months sounds like child’s play after what we have been through since the Euro crisis first exploded well over a year ago. Still, this newsletter continues to highlight the rising risk profile, although Bernanke’s skillful walk of the fine line and the market’s reaction on Friday force me to wonder if that was it; if that was the correction prior to the 1460 target on the S&P 500.

The US Presidential election year cycle highlights three potentials. Once again we review the chart courtesy of Ned Davis Research.

Friday’s post-Bernanke action implies the market seems to think that Barrack Obama will hold the White House. When the incumbent party is to win, there is an August rise into an accelerated rise (top example). We have been operating under the middle example, which is the average of all election years, to be on the safe side. In that scenario, we prepare for the routine yet notable correction of the middle example as well as the severe correction and potential bear market that could follow the bottom example, when the incumbent party loses the Presidency.

To review where we have been, the blue box highlights the time period when market risk was low – as pervasive bearishness gripped most ~~casino patrons~~ market players – and a bullish risk vs. reward stance was appropriate. A bottom was ground out into June and per the three examples (green box), it has been all bull all the time during a process of sucking the frightened players back in. We are evidently still in that process, judging by the immediate market reaction after the nimble Fed chief spoke on Friday.

However, the green box can carry a few days into September. Since the US market will not open until the 4th, we are basically there. This week could be the pivot to an interim correction per the average cycle, a harsh correction or worse, or in the event of an incumbent victory, a continuation and upward acceleration. This paints the coming one or two weeks as very important, don’t you think?

Of course this is just election cycle analysis, which by no means has to continue working well with the current market situation. I am not a gambler, but don’t they have a saying about riding a hot hand? The Presidential cycle has been taken seriously by this letter writer since May and that helped keep the analysis on the right side over a very difficult summer. What more can you ask from an indicator? We’ll continue to respect it.

Back on Fed Watch

One continues to wonder if QE will even be necessary any time soon. Sure, the current US financial system – along with those of so many other nations – is technically insolvent and is locked into a regimen of periodic and officially sponsored inflationary policy in order to service a massive debt load and continue to function normally; with “normally” defined as “kicking the can down the road as long as possible, but doomed to an ugly demise at the hands of a real and undeniable deflationary unwinding or an increasingly intense inflationary panic.”

So never mind the talk about the Fed standing ready to aid the economy as if it just needs another boost to finally get the sucker humming again. The economy is broken because it has been locked into a recurring nightmare of inflation onDemand ever since Alan Greenspan began using such policy in an ever more intense manner against the bear market of 2000-2002. He initiated a massive credit bubble that is still being dealt with today, only with government debt having replaced free market debt as the major driver.

The full text of Bernanke’s Jackson Hole speech is available at MarketWatch: http://goo.gl/WJokU, but here are some pertinent snippets that betray a massive ego on the part of intellectual monetarists:

“One mechanism through which such purchases are believed to affect the economy is the so-called portfolio balance channel, which is based on the ideas of a number of well-known monetary economists, including James Tobin [http://goo.gl/Am4Ib], Milton Friedman [http://goo.gl/cbir], Franco Modigliani [http://goo.gl/b9ZPi], Karl Brunner [http://goo.gl/OoThu], and Allan Meltzer [http://goo.gl/EZBia]. The key premise underlying this channel is that, for a variety of reasons, different classes of financial assets are not perfect substitutes in investors’ portfolios.”

These names are trotted out as gods instead of as economists. They are trotted out like the great social, cultural and scientific thinkers who have actually changed the quality of peoples’ lives as opposed to simply learned and taught about how to manipulate paper money. Our dear Fed leader is reverential toward these men and cut from the same cloth.

It is all about mechanisms, theories and formulas to them. Gold – the barbarous anchor to stability and one-for-one value retention – on the other hand, is much too simple. Why have simple when you can have overly complex and fraught with risk?

“Large-scale asset purchases can influence financial conditions and the broader economy through other channels as well. For instance, they can signal that the central bank intends to pursue a persistently more accommodative policy stance than previously thought, thereby lowering investors’ expectations for the future path of the federal funds rate and putting additional downward pressure on long-term interest rates, particularly in real terms. Such signaling can also increase household and business confidence by helping to diminish concerns about “tail” risks such as deflation. During stressful periods, asset purchases may also improve the functioning of financial markets, thereby easing credit conditions in some sectors.”

What he does not mention is that the need for such measures is the direct result of decades of manipulation of credit conditions and thereby, paper money. He does not mention that “tail risks such as deflation” only come to things that have first been inflated by being printed not only to excess, but right off any sane macro balance sheet and into the sublime. He does not mention that the use of ever more powerful monetary tools toward new inflation will bring ever more powerful corrective forces into play down the road, just as current problems were brought into existence by previous inflationary monetary policy.

These people – and here we include the likes of today’s “brilliant” thinkers like Paul Krugman, Larry Summers and the monetary rock star himself, Nouriel Roubini – actually believe their own bullshit, and that is dangerous because they are setting our policy.

This segment could go on and on, but I’ve got a newsletter to write. They make the rules and we play by them. So let’s get to it... NFTRH then goes on to the functional analysis that has kept the letter on the right side of the markets over a difficult summer. Stay updated with the free (and spam free) eLetter.

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Gold-Silver Ratio (GSR) Updated

2012-08-31T12:16:00.001-04:00

No, it's not some bizarre geometry problem. It's a chart of the liquidity indicator GSR!

The chart shows my beautiful Inverted H&S bottoming pattern that Mr. Bernanke decided was not to be in 2010 when he outlawed illiquid markets and made us all a lot of money.

What does this chart tell us today? Well, GSR (rising market stress) was stopped at the resistance zone we have been taking note of since it bottomed in 2011. A break above that resistance means some real trouble. Not only has GSR remained beneath resistance, but it is now breaking down on what it thinks it knows policy will be in the near term (before the end of 2012?).

Things are really getting interesting.

Hey, have a great weekend.

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Silver

2012-08-31T11:27:00.001-04:00

Silver had been resisted by the EMA 50 (blue dotted line) before its definitive breakout. I felt it could retrace all the way back to that line, given Ag's notorious volatility. I lost a little money being short silver against precious metals positions, but that's show biz. The hedge did its job I guess.

Just as you never let a silver bull pump you to frothy excess, you never stand in his way when he has that crazy look in his eye. :-)

It looks like Ag wants to hold the 200 day moving averages in a sign of relative strength.

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Gold

2012-08-31T11:20:00.004-04:00

The breakout above the EMA 200 resistance (red dotted line) was clear. What was evidently not so clear - to me anyway - was the retrace point. I felt a no brainer would have been a pullback to the EMA 200. Not to be... maybe the SMA 200 (solid red) is all we get.

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Jackson Hole...

2012-08-31T10:16:00.002-04:00

Move along, nothing to see here. Markets will now sink or swim of their own merits, technicals and sentiment profiles. And I wouldn't have it any other way.

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NatGas Index Has Already Broken Down

2012-08-30T12:13:00.001-04:00

As a companion to the previous post, here are the Natty's already broken down from their channel after flagging momentum made a signal.

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Oil Index on the Verge of a Breakdown?

2012-08-30T11:41:00.002-04:00

Momentum has come off nicely, but the Wedge is not decidedly broken. If it does break down, the converged EMA's 50 and 200 or the noted visual lateral support zone could come into play.

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What Do Small Caps and Semiconductors Think They See?

2012-08-30T09:10:00.003-04:00

The general Small Cap and the Semiconductor sectors are considered speculative leaders to the broad US stock market. In painting bullish chart potentials, what do they think they see?

Small Caps: Still Bullish, But at Important Resistance

We observed a bearish pattern on the Small Caps and a bullish one on the inverse fund TWM in mid-May, noted the "kiss goodbye" to the topping pattern at the end of May, noted a precarious situation for bears in mid-July, a Bull Flag channel in early August and then the competing bullish patterns a week ago.

From the mid-July post:

"Markets are still making higher highs and higher lows. But but but... the markets are supposed to tank claim the bears. Well maybe my furry friends, but despite the negative feel of this summer, they are making higher highs and higher lows."

Technically, the bulls continue to hold sway. I have been beating the drum on risk because any non substance abuser in the financial markets must remain aware of the risk profile at all points during the ongoing cycles, but thus far 'price' says bullish.

Today we update the IWM ETF and find a maturing Cup - complete with Inverted H&S characteristics (it's not an H&S reversal pattern because there was no previous downtrend from which to reverse) - that would ideally break above the red neckline, form a Handle and move higher to the ridiculous sounding target of the equivalent of RUT 930 or IWM 92.

It sounds crazy, since we know the economy is decelerating and corporate performance is slowly degrading. But the charts (along with risk and psych profiles) said be bullish in May and June. Now this crazy chart says IWM has the potential to make jaws drop on the upside. Well, speaking of jaws, that jawbone about to start moving in Jackson Hole tomorrow morning will have a lot to say about that, as will the red neckline on the chart above.

Semiconductors: At Support

The semiconductor ETF SMH broke down through the neckline of an H&S top as noted back in mid-May: Semi's back below a neckline... not a pleasant chart. As the spring of angst (+ price destruction) morphed into the summer of continuing angst (+ contrarian bullishness) SMH found a bottom, painted a nice 'W' on the chart (targeting 35+) and broke above the old neckline. That is now support.

Interestingly, I talked with an associate the other day who - unlike your blogger - remains intimately involved with the semiconductor industry and the manufacturing sector in general. He told me that semi is "dead in the water".

Hmmm... what does the chart above think it sees? What does the IWM (small caps) chart above think it sees? Why do these charts have the nerve to think they can paint such bullish potentials? Well, we all know what these charts think they see; they think they see what the precious metals that blasted upward last week out of long-term consolidation patterns think they see; just like the broad US and European markets we have been bullishly tracking all summer.

They think they see a perhaps coordinated campaign by US, European and Chinese policy makers to blow the inflationary gasket by engaging the competitive currency devaluation sweepstakes. Given that the risk profile has risen notably over the summer from its previous 'contrarian bullish' status, it could be a good idea to hear what the man has to say (or not say) tomorrow morning before committing too heavily to a particular viewpoint.

Bullish looking charts can after all, be broken with the flap and yammer of a jaw.

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"Political, Economic Potholes Along the Yellow Brick Road"

2012-08-29T11:26:00.001-04:00

MarketWatch has a piece today on the recent headline making noise out of the GOP about a return to the gold standard.

GOP's Gold Standard Idea Isn't Likely to Shine

"The gold standard, it is argued, would foster economic stability and prosperity, primarily by creating price stability, fixed exchange rates and placing limits government deficit spending as well as trade imbalances. It would also limit credit-driven boom/bust cycles through constraints on the supply of money."

Yes, absolutely.

"Opponents argue that the gold standard would limit the flexibility of governments and central banks in managing economies, restricting the ability to adjust money supply, government budgets and exchange rates. Opponents also point to the inflexibility of the gold standard, which may have contributed to the severity and length of the Great Depression."

In other words, a gold standard would limit monetary authorities' ability to "manage" economies by manipulating money supplies. As a knock on effect, it would also limit their ability to provide welfare to favored constituents like the first users and abusers of newly created money, e.g. the big investment banks.

The article then goes on to make several points about why a return to the gold standard is unlikely (I agree that it is unlikely any time soon). Here is the most telling reason, however:

"Money is now a matter of pure trust. American dollars still [bear] the words: “In God We Trust”. But God is not directly responsible for control of money; governments and central banks are. Politicians and policy makers are unlikely to willingly cede the power that a paper money system provides"

The article goes on to some silly stuff about a Tuscan spa, wealthy clients and the covering of these clients in 24k gold. So, we'll leave the article now except to note that it also has a link to the ever clear headed Mark Hulbert and his Bullishness rising faster than gold. Read it. Gold is not the risk/reward proposition it was a few weeks ago as it has raced to over bought levels in quick time. But that's how the barbarous relic rolls when it breaks out. From Hulbert:

"Unfortunately, there’s some bad news to accompany the good: Gold timers have reacted to bullion’s recent strength by eagerly and enthusiastically jumping on the bullish bandwagon."

We anticipated this in the newsletter, gave parameters for over bought upside and for a potential reaction to correct the over eagerness. A downside reaction, if indeed it comes about could be an ideal spot for traders of the metal to initiate new positions. Holders of the metal should have taken long term positions long ago and should calmly sleep through any near term turbulence.

Back on theme, while there is talk about the gold standard by the Republicans, they are just blowing hot air and taking advantage of a hot button issue and relevant topic. Don't hold your breath on a gold standard even if Romney/Ryan gain the White House. You and I, as lowly market participants and economic survivalists need to read between the lines in a functional way.

Gold is fine, as a standard or not. As long as it remains an asset class as opposed to official money, it will be subject to market forces and the macro manipulations of current power holders. These manipulations can constrain the metal as Operation Twist has played a roll in doing for a year now. They can also launch the metal to higher levels, when the manipulation is toward increased money supply.

Sign up for Notes From the Rabbit Hole (NFTRH) to effectively manage the process if you would like an effective source of market intelligence to track the progress of gold as well as the bigger picture macro landscape. Or simply watch the blog and/or check out the free eLetter for a lighter and less formal version of the analysis.

Edit (on 8/30 @ 7:25 am) Comment by reader 'Gary', which I accidentally deleted instead of publishing:

'As long as it remains an asset class as opposed to official money, it will be subject to market forces and the macro manipulations of current power holders. These manipulations can constrain the metal as Operation Twist has played a roll in doing for a year now. They can also launch the metal to higher levels, when the manipulation is toward increased money supply.'

A thought that I hope everyone bears in mind with regard to gold, is that the Fed can only control the price of electronic/paper gold, and derivatives thereof, but there's bugger all the assholes can do to control the real thing, so gold lovers, fill your boots whilst you can (with the real thing), because there ain't much to go around!!!

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Au vs. Industrial Metals

2012-08-29T09:47:00.001-04:00

The pecking order kind of goes like this... Au -> Ag -> Cu -> Sn, etc.

Here is a look at gold vs. the broad GYX index of industrial metals.

Oh yes, that's a Cup in the making. It should eventually break upward, form a Handle that would break upward if the pattern holds true; and then you can wave bye bye to the fantasy of man-made economic growth because when gold out performs the positively correlated stuff in a big way, we are in full throttled economic contraction.

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Gold in Euros

2012-08-29T07:28:00.002-04:00

You could call it a Cup or your could call it an Ascending Triangle... or you could just call it bullish.

First support is around 13 at the 50 day moving averages (if a Cup) and then in the 12.60's (if an Ascending Tri) at the EMA 200.

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Flipping the GSR over... Silver-Gold Ratio (SGR)

2012-08-28T09:36:00.002-04:00

Another way to look at it is that one of our indicators to speculation and liquidity, the SGR has gotten very peppy very quickly. In other words, it's over bought. Something just seems a little fishy with the big brain preparing to speak from J-Hole on Friday.

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From a Website Billing Itself as the Corporate Propaganda Antidote...

2012-08-27T16:21:00.000-04:00

...comes this little bit of propaganda:

The Ultimate 100 Year QUADRUPLE TOP BREAKOUT in Silver is Coming - and so is the Collapse

Ha ha ha...

This showed up in my inbox through a supposedly reputable source.

Ha ha ha...

You of course know what this headline means, don't you? Seen the silver CoT lately? Seems somebody does not agree. It is really sad how this stuff comes out concurrent with images like the below all too often. I am short against silver as a hedge to protect the quality gold stock core I have decided to hold through the coming volatility. That short may or may not end up working out, but I can assuredly tell you that $800 silver is not coming round any time soon.

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