Gold stocks look to be on the move today signalling that the selloff in gold may be close to an end. Ventana Gold released excellent results with more extremely high grade results which has pushed the stock up over 13% to over $8 at its height today. If gold doesn't make it back over $1170 it will probably try and test the lows and support at the 200MA, but the way the price is acting and the way the cream of the crop gold stocks are acting today, it is starting to look like a bottom.
With stocks like Ventana reacting so well to good news it also bodes that the mood is much better for buying gold stocks than it has been at any time in the last 3 months. East Asia Minerals, another impressive deposit also took a hard turn towards the 50 and 200MA's today breaking out of its consolidation pattern. It certainly is not a declared bull again in gold but some of theses stocks look like they are not going to get any cheaper.
Today's trading looks like there is more than average buying interest for gold stocks. At least the premiere ones today. The smart investors will be buying gold stocks over the next month for a very strong seasonal run this fall.
All I know is that the 2 factors that are pulling the markets between a bull and a bear at the moment both will eventually drive POG much higher.
Last Friday after the close we correctly called an oversold situation and the markets have had 3 strong days on rally mode since Tuesday. We should see at least another 300 point follow through into next week. Not saying that tomorrow will be an up day but the negative sentiment that has been in the market for the last 2 months seems to be abating and I would expect a continued rally on light volume over the next week for sure as we enter into the summer months.
One positive sentiment factor for a continued rally is that the Euro has technically moved into rally mode of its own making a strong move and we should see the Euro test resistance at 1.300 and the breakdown point around 1.32 and change. With the drastic cuts to budgets in Euro zone nations the reaction has been positive, but we will still wait and see if the Euro zone economies can recover with these cuts.
Since it was the breakdown in the Euro and widespread fear that caused this last sell-off we could see the markets and Euro recover. At best we will be range bound for the summer when we enter into September and a new round of economic data. The TED spread is rising and we wait to see if the spread comes down which will signal stability in Europe. If it continues to go u,p that could be a warning sign although currently it is still within a normal range but on the high side.
The USD seems to be recovering as well from its recent drop off so the YEN is starting to become weaker against all currencies. If you are long the EUR, being long against the YEN may offer more upside than being long against the USD.
Gold should continue to sell-off over the next few weeks and I would expect at least $1170 and lower. If it goes under $1130 I would shy away from the trade. Gold stocks are very weak at the moment. Dogs include YRI and K... Kinross used to show so much promise and now the market treats them very poorly. Huge gap down the other day which is never a good sign. G and ABX are holding up the best but I would expect all gold stocks to continue to drag lower. There is definitely some negative divergence with the spot price and gold stocks. It seems that the strategy for the gold player would be to be long the yellow metal physically and trade the gold stocks cyclically because so far they have not broken out into a super bull market in gold stocks which we are all waiting for. I would expect this market to turn around at the end of July where one could time a good trade to the upside as Gold will soon be entering into a time of cyclical bull period into August and September.
One negative sentiment is that all risk adverse assets seem to be in sell mode and are well off highs. This is usually the first market that the money flees if we are indeed entering into another bear market this fall and none of the risk adverse assets I follow seem to be showing much bullish sentiment at all. The last buying spikes of pennies in April and into May could have been a last gasp of a bullish market the little guys.
One idea that I cannot stress enough that I mentioned last post was that the drastic budget cuts some of these indebted European nations are making could signal impending economic disaster for Europe, making default for this high debt countries even more probable. On the surface, obviously cutting government spending looks to be a good thing because governments will not be racking up more debt. But it severely hampers a governments ability to pay back what they currently own with lost revenue. Let's face it, government spending stimulates the economy to some extent, so depending on what the governments are cutting back on could be a big mistake.
If a government is forcing the worker to work 5 extra years... That is good because it is not a value added benefit. It also helps alleviates pension problem by forcing the worker to pays 5 more years and the obligation is 5 years less at the end of the life which is significant with compounding. With the average age of people getting older every generation it is not unreasonable to raise that age to 70+. This is a very easy solution in my books.
If the government stops building roads and highways, cuts back on education and health care and other economic stimulating strategies, this will have an immediate adverse effect on local economies with the end result being drastically reduced government revenues.
Problem with European consumer nations is that they have a lot of fat and most governments will find it easier to cancel government contracts and grants than raise the age of retirements and cut back vacations and reduce pensions.
The proof is in the pudding with Argentina when the drastically cut back which reduced their revenues to the point where they defaulted. Leverage is important if it is used to stimulate growth, science, the arts the economy and not pay someone to sit in their vacation home in the Mediterranean at 55 till they die.
Are the PIGS about to make the same mistake Argentina did? But on a much grander scale?
Anyway it is shaping up, this fall is going to be some exciting times. Personally, I am starting more and more to move to the double dip camp... Just on entertainment value alone, another severe crash with wild rebound is much more fun than chop chop for the next 2 years. Don't you agree?
With all this chaos in the markets, including the crisis in Europe and China's downswing. There is a lot of talk out there abotu a double dip recession. Problem is that NA companies are doing very well with positive economic numbers coming out of the the States and Canada. Not sure where the overall direction of the market is heading or whether this is going to be more than just a steep correction one factor you have to consider is the Baltic Dry Index which is a barometer of economic activity. So far the BDI is continuing to rise in a contrarian signal against the declining market.
This is a great index for economic outlook and so far it is signaling not to worry as shipping has not slowed down during this period but infact increased against the latest declines in the market. Until this index starts tipping down, that this is infact just a steep correction. I doubt that this correction is over immediately and we start a new run, but talks of a double dip recession are a little early in my opinion. This debt crisis will have to get much bigger for the global economy to shut down again.
Another note, as long as the bailouts keep happening... the markets won't falter like they did in '08/'09, but the cost of these bailouts will be steep in the future taxing our kids too death through inflation and increased taxes to fund the greed, laziness, and entitlement attitudes of the baby boomer generation.
Not sure what to do in this volatile market? With Europe on jitters and the EU being held together with a ball of yarn it seems these days everything is taking its lead off the Euro. Yes we have many other fundamentals in this market the should be driving us, but when fear and panic take over and Euro starts falling, it sets off a domino effect and investors start selling everything out of fear. So for the immediate turn until Europe gets off the front pages with the debt crisis, markets will continue to take their cue from the Euro.
After a very strong selling push to below 10,000 on the Dow the markets look to be extremely oversold for the short term and look like they could rebound next week. One key indicator for me that next week should be a good trading week to the upside is that the RSI made a strong move and bounced off 30 with some force. It bounced off 30 two weeks ago as well and tested the 50MA before moving back down.
I am not quite in the double dip camp yet, but it looks like the markets have topped out in the end of April. Any push higher should be traded and sold in my opinion and worries about Europe are far from over. The aid package for the EU should help alleviate short term worries and we may see a significant bounce in the EUR and GBP while markets rebound. Some key areas of resistance in the Euro would be around 1.2700 and 1.3000 where it initially started to break down and could technically fill that gap up before another leg down.
I highly doubt that Europe's woes are over with Greece and it will probably take most of the year to sort out what is going to happen in Europe and its economy. The severity of Europe's may have a significant impact on China's economy as the EU is a major customer of China's exports. With Geithner in Asia stressing that China needs to allow the Yuan to rise to allow China to develop its internal consumer economy which is growing, to me is a signal that China has to change its export driven economy and can no longer be rely solely on exports. If they remain this way they are subject to global economic conditions and can not be a leader in consumerism like they should be with a population of over 1 billion. With China still unwilling to unpeg their currency from the USD it still shows their huge reliance on their export industry as it would almost certainly lead a significant rise in the Yuan in the current global conditions.
Another, interesting tidbit was the US doubling their exports which is what I have been blogging about on Stockhouse for the last year. That US needed to reinvent itself as an economy and no longer rely on the consumer and a strong dollar to outsource because the American consumer is too in debt to keep spending at this rate and couldn't pull the economy out. They have deflated their dollar which had a double positive effect of reinvigorating their export industry and makes their debt much cheaper to pay back. So far so good for the US plan for recovery without the American consumer. But if this strategy keeps up, US unemployment will heat recover and when full-time employment numbers come back, so will the rest of the economy.
With Geihtner talking up the global economy this weekend and as well as the EU aid package, attitudes seem to be more positive going forward. At least for the short term. One disconcerting thing that could be red herring for now is the German Chancellor and the British Prime Minister not seeing eye to eye. But with expected visits from Giethner this week. Political rhetoric coming out of those 2 powerhouse EU nations may change and be a little more united.
Gotta love the gold stocks, in a major bull market and had such a nice selloff can't help but buy those that retreated to their 50MA's.
My top 3 juniors are EAS.V since $2, CSI.TO since $4.50, and VEN.TO since $5. I would buy all 3 one weakness.
