KitcoKitco
 

Reaching The Puke Point

 

By Roger Wiegand

Sep 10 2008 1:30PM
www.webeatthestreet.com

   

One of our esteemed colleagues with over 20 years in trading and being a top notch analyst told me last week we’ll know the bottom is in when traders reach the puke point and are screaming get me out! This is that magic point in time when they toss everything over the side in desperation at a major loss. Immediately, usually the very next day, markets do a pivot reverse and begin to rally; almost as if Mr. Market is laughing in your face.

We think this date arrived sometime yesterday during that avalanche of selling as we were inundated with telephone calls and emails that weren’t just panicky but envisioned stark naked fear. We have traders using our recommendations with small accounts and very large seven figure accounts. If those big boys were on our recommendations, and many are, by using life saving spreads their haircuts were not in the category of being pure bald. Instead of being knocked out of the markets, most of their initial capital is alive and well and most important of all they are still holding their gold, silver, grain and energy positions. I am residing in the same boat along with them. I should say my mental fabric is stable and calm despite this mayhem. I feel this way assured by both the fundamentals and our technicals reinforcing these ideas.

That said, please note the following to settle your tummy and maintain your trading sanity:

  1. Our trades have not been irreparably damaged as we own our spreads and have not taken any final wipe-out losses. Those trades remain alive but merely out of the money for now.

  2. We do not have any current open recommendations on futures trades either long or short. In this market, daily mayhem can cost you plenty or, take you out entirely. When it comes to living-trading dangerously, we are the world’s champion chicken.

  3. Fundamentals on precious metals, grain and energy remain intact. If anything, they have improved even more under today’s wide-spread crashing credit conditions, inflation, and material shortages.

  4. Some analysts predicted the end of today’s commodities world as we know it. We disagree and have seen too much data to change our beliefs. Nearly 25 years ago gold took a -50% mid-rally drop and then followed that big dump with a +91% gain. Current trading action reminds me of this old, similar condition. The difference for now is our four larger gold rally haircuts since roughly 2002 have only seen Fibonnaci One Retracements; which is the mildest form in that measurement category. Stop the fear and study real numbers.

  5. The U.S. Dollar index is desperately trying to break-up and through major overhead resistance at 80.00. Can it do this? Yes it can but in watching trading action including important support and resistance points we think the best it could achieve is 81 to 83 before a larger, long term selling event resumes.

  6. Higher quality currencies, being the Canadian Dollar and Swiss Franc, sold back in response to the recent mini-dollar rally. Look for these markets to find new rally support when the dollar peaks out and sells.

  7. The Euro and Swiss are tied closely as the Swiss Central Bank would prefer they trade somewhat to parity in unison. The Swiss is of higher quality by far and if given the chance, it could enter a runaway rally leaving the weakening Euro in the dust and a big Mac in Zurich costing $20. This simply cannot be allowed to happen. Watch closely as the Swiss trades gradually higher than the weaker Euro.

  8. Today’s Euro index is near 141.00 to 140.00 and we see the next drop touching 137.00 as Euroland slides further into recession. Initially the Swiss could briefly sell lower but then we see the Franc going long.

  9. December gold futures are trading near 780 this morning of 9-10-08 and have come off a low at 766. Gold is trying to support at 775 but could slip to 750 support if more large fund selling-dumping continues. Several hedge funds are closing for good after major losses turning these markets upside down.

  10. December silver futures fell to a nasty 11.34, trading between 11.01 and 11.37. With our last price on the higher side we think the bottom ought to be near major support at 10.85 and resistance at 11.85.

  11. Grains had similar pullbacks but our soybean spread needs only two good limit-up days to polish-off some nice gains on that trade. Since we took half the money on the first leg we cannot lose but might have a smaller gain. That is still a winning trade.

  12. Understand the main driver of all these markets is CRUDE OIL. Oil is now dramatically oversold and seems to be firming at old support and resistance of $103.00. Oil’s true support and main line in the sand is $100. Should crude oil sell below $100 and hold we would be entering an entirely different market structure causing us to recalculate a whole new set of numbers for all of these markets.

  13. We are absolutely convinced Chopper Ben and Hank Paulson will continue to print money with ferocity to fight deflation. They are out of control and losing the battle. Most analysts predict no more rate cuts in 2008 as they have little effect. However, it can take many months and even years before the final markets’ curtain goes down. Trade the way you can to offset their inflation. Buy and trade gold and silver. By purchasing physical, futures’ spreads, shares and options, these trades can provide us with a triple win.

  14. Oil demand has slipped a few notches but oil supply is falling equally fast if not faster. Since oil is the key to major fund trading and our tiny markets are only along for the ride; watch oil like a hawk. We say the oil bottom support is in at $100 and this week’s storm should help propel an oil bull market for three reasons:

    1. Oil is supporting near $100;
    2. The storm will instill enough fear to give it a rally push;
    3. OPEC’s jawboning this morning said, “We will order production cutbacks to align supply and demand.” This is silly as they will do nothing of the kind and keep pumping in the face of large-picture falling world supplies
    4. The storm has major supply and refinery capacity curtailed, or shut down. Watch for rising oil prices. Gasoline should rally even faster. Goldman Sachs general market analysts’ forecast oil at $140 but specifically, Goldman commodities analysts remain on their $149 prediction.

  15. Gold and silver are commodities just like other markets we trade in futures. However, they are also the last bastion of real money not connected to somebody’s counterparty liability. What we see in today’s selling markets are our babies (gold and silver) getting tossed out with the grimy, specious gray water of Wall Street. When the funds stop closing and selling, they should get busy buying our stuff causing a rally. Keep in mind they have to do something with their cash and it should gravitate toward premium bull markets.

  16. Don’t confuse base metals and other commodities having adequate supply with precious metals, grain and energy markets. The primary weaker commodities are the base metals and materials used in manufacturing and factory production. Examples are autos, housing and miscellaneous durable goods. Our trades sit in the inflation model and the others are stuck in deflation.

  17. History tells us commodity bull markets last 13 to 17 years with an over-all modern average of 15 years. This game is only half over. The best half is yet to come. Just consider our current weaker selling point as being half-time in a big football game. Futures and commodities will provide some of our largest, consistent winners with gold and silver during the second half. Fully 80% of the entire projected gold and silver rally usually happens within the last 18-24 months. Do not be absent from our markets and miss this dramatic trading opportunity.

Watch for new rallies in most all commodities markets. It’s near time to buy. Our early fall precious metals haircut is almost over. The only action to prevent selling is our stunningly time-worthy Plunge Protection Team who had multiple recent failures propping shares. Will they win during the fall push-‘em--up event? With the election silliness underway the PPT will prop shares.

We think with September market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control; but it will sell somewhat.  In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management. Visit our website at webeatthestreet.com for more information on our spectacular futures and commodities trading record.

Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away.

Should you be having difficulty buying physical metals on new orders, we suggest placing an order and being patient. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy. - Traderrog

Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com

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Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information

Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a free 30-day trial subscription 718-457-1426 Monday through Friday, 9:00am to 5pm or, e-mail Claudio at cbassi@miningstocks.com