1. Did you ever see the cartoon with Wile E. Coyote and the Roadrunner? Where they both run over the cliff and then stand there in mid air? Then the roadrunner points down and smiles, and the coyote falls a thousand feet to the ground in terror, as he realizes he's been standing on air.
2. That, sadly, is the Dow. The American Stock Market. Currently supported by air. It broke the Dow Theory lows around 7552 last week.
3. And yesterday it blew thru the Bin Laden lows of 2002 like a chainsaw going thru hot butter. Look below those lows. What support do you see? Little outhangings of technical support rock to grab onto.
4. If the air support fails, investors and their stockmarket portfolios could accelerate towards the 1981 lows of around Dow 800 at 200 miles an hour in a freefall. Of course, most in the gold community are not in the Dow. Nor is the public. The public is in a truly horrifying situation. They are invested in a lot of "lessor companies". Compounding their risk and losses.
5. And they have little or no gold.
6. When the Dow fell 90% in 1929, was the public in the Dow? No. They were invested, through all-out greed, in companies and funds (called unit trusts then) that went off the map.
7. Just as they are today with their "wealth builder" portfolios.
8. What happened when the Dow broke those lows on Monday in the public's mind? The sad and horrifying answer is: Nothing. All the public investors are still clutching their bag of long term wealth builder portfolios. Supported by air.
9. What happens if the mass media starts pointing out to the public that they are standing on air, that under Dow 7000 is only air?
10. Beep beep goodbye, is what happens.
11. I have said for many years this will all end, sadly, with mass suicides and bread lines.
12. If you never ran a business, if you worked hard and then plopped all your savings into the stock market "wealth builder" dream machine in the late 1990's, I invite you to look below you. You are standing on air.
13. While there are very few such people in the gold community holding the stock market bag today, here's a picture of hundreds of millions of Wile E. Coyotes around the world standing on investment air right now. My question to you is: What happens if somebody or some thing really points out the cold hard reality?
14. I'll get to the technicals on this chart in a second. This is a monthly chart. The current intraday and daily charts show the Dow traded clearly below the 2002 intra day lows. Richard Russell, the man I consider the world's greatest expert on the Dow, says according to the 50% retracement principle it's actually possible that the Dow could retrace the entire bull market from 1982. Putting the Dow back below 1000.
15. Most investors put most of their money into the stock market in the 1990s. Their other asset is their debt loaded house. Why play Russian Roulette with one bullet in your investment gun when you can two it with two? Sadly, that seems to be the motto of most of the world's investors. Many even borrowed money against their house to buy more houses and more stock in a price chasing frenzy.
16. While the average stock market investor is taking massive risk staying in the market, the tale of the Dow chart is the tale of two realities. The reality of the price chasing equity investor who blew it all, and the reality of the gold community investor, who right now has the opportunity to put together a very solid insurance policy via the Dow, against hyperinflation and possible gold confiscation.
17. Going thru the technicals, here's what I see on the monthly Dow chart:
18. RSI way oversold. Calls for profit taking on short positions in stages.
19. Price below demand line of Keltner Channels. While acceleration of the downtrend is possible, profit taking on shorts is also indicated.
20. Price is way below the 15 month moving average. Again, profit taking on shorts indicated.
21. While yes, we're standing on air here around Dow 7100, when looking at monthly charts, a move into an area of tremendous support like the Bin Laden lows of 2002 calls for profit taking.
22. The ADX is showing an acceleration of the power of the downtrend, but the extreme gap between the positive green and negative red indicators also calls for profit taking on short positions here.
23. The Williams indicator is drastically oversold. Again, profit taking is indicated on shorts.
24. The full stochastics? Once again, take profits on shorts is indicated.
25. The MACD and the TRIX leave the door open to further price declines. Perhaps even a crash. But the indicators are not arguing against profit taking on shorts by any means.
26. So, should the Dow be bought here, despite the fact we're now standing on air?
27. I have started buying the Dow and selected Dow stocks. Not to make money. As an insurance policy against hyperinflation and gold confiscation. The Dow could fall to 800 tomorrow and my buy fills would be going off all the way down in pyramid of buys that extends to a Dow level of 1.
28. Some may say, "but Stewart you'll never get filled at even Dow 1000, it can't go down there".
29. I'm not interested in fantasies about where the Dow can or can't go. I'm interested in what action I'll take if it does go there. If somebody gets the hundreds of millions of Wile E. Coyotes to look down as a group, and fully realize they're standing on an airball, I don't care how "oversold" the technical indicators look to you right now, it's bombs away. I want to be a buyer, not a bailer, of that stock being offloaded by the terrified lemmings if that happens.
30. Those who bought oil at the $60 area based on the MACD buy signal got a taste of what happens the a herd of investors stampedes in panic. The technical indicators can fail completely.
31. How much to put into a Dow insurance policy? About 5% to 10% of liquid asset risk capital is probably reasonable, allocated in stages. Not in a 5% one time plop.
32. What happens if the Dow is reverse split, or diluted, etc? That is why you don't blow your Dow risk capital in one shot. You want to be able to buy after a dilution.
33. Subscribers know I have been urging all to book trading profits in gold week after week in stages as the price has surged higher and higher. Not all your trading position. Some of it. And certainly not on your core position. Do NOT mess with your core position in gold. My first sell point for my gold core position is at $1500. Some core gold is never sold. My final sell point for my core position that I will sell, is at $10,000 an ounce. Maybe it gets hit, maybe it doesn't. Regardless, I'm a buyer of gold all the way down to $1 an ounce, and a seller all the way up to $10,000 an ounce. And a holder of some gold even if it goes to a price of infinity. No matter where the gold price goes, you want to be: in control and a player. To do that, you must be prepared to act at any and all prices.
34. When it comes to gold, the world's lowest risk investment, don't take yourself out of the game trying to predict price direction. You'll find you are a VERY sore loser if you do. Probably telling your story while standing in a bread line.
35. Looking at the gold chart itself, what picture is there? Let's take a look together. First off, the same 20 yr monthly chart we posted for the Dow. While a few of the short term indicators are calling for profit taking, the picture is "hold your gold ship steady, all systems are go".
36. Don't pick away at your core position like a small scab. It might turn into a terrible boil. Leave your core position in gold alone, is what this chart is saying.
37. And saying a huge move to 1700 via a breakout from the massive flag pattern between 1030-680, is a very real possibility indeed.
Traders need to look at the daily chart. Most of the technical indicators are saying "take profit".
38. Do not confuse "take profit" with "top is here". Taking profit has nothing to do with calling tops for the professional investor. Selling into a $300 upmove with a portion of your trading position bought hundreds of dollars lower makes professional common sense.
39. RSI. You may see it as overbought, signalling a top. I see it as singing "take profits in stages".
40. Keltner bands. Arguably signalling a breakout. Arguably signalling profit taking. I'll go with the profit taking for my trading position. And the breakout, if it happens, sees my core soar. Win-win.
41. Price has moved away from the 15 day moving average by a fair margin. Again, here the profit taking bell is also ringing me for dinner.
42. Williams indicator. Profit taking being signalled.
43. The full stochastics also is calling for a program of profit taking.
44. MACD and TRIX have moved to higher levels. Again, profit taking is the call.
45. Leaving aside the daily chart action there are a number of "heavy duty" technical things happening in the gold market right now:
46. There is a huge flag pattern on the very long term charts, with a target of around $1700. An argument can be made that price has broken upside from that pattern.
47. There is a head and shoulders bottom. With a target of around 1100.
48. And a cup and handle pattern with a target of around 1250.
49. Amateur investors are buying gold now focused on these targets and other fundamental arguments for higher prices.
50. While the amateurs and funds have got all their price chasing buy orders in the market again, the bankers shorted about 80,000 contracts in the COMEX over the past month into strength. If you hold 1000 ounces of physical gold, and you short 1 COMEX paper gold contract of 100 ounces, what you have done is locked in a profit on 10% of your physical position.
51. Those who think the bankers are using the COMEX to "secretly hold down the price of gold, but are about to blow up any day now" (any day since $300 an ounce gold and still counting, but hey don't let that minor detail get in the way), are quite possibly, smokin' high grade dope.
52. The bankers are booking profit into strength. Profit on gold bought at much lower prices. If gold goes higher, no they won't be "blowing up". There is no imminent "commercial signal failure". There is only booked profit.
53. If they can cover a good portion of those COMEX shorts at lower prices than they entered the position, then the more the merrier! I want to thank readers for your patience while I got my new website up and running.
54. After a week of banging website construction hammers in your ears for a week, the earmuffs are off and letters of praise are pouring in, I want to thank my web app fellow, who I call superman, for his tremendous effort- and performance. In the newsletter, which I send out by email daily and post on the website, I focus on following the actions and mindset of the bankers, buying and selling as they do, and building more ounces!
Graceland Updates Subscription Service: Note we are privacy oriented. We accept cheques. And credit cards thru PayPal only on our website. For your protection we don't see your credit card information. Only PayPal does.
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time.
Are You Prepared?