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Dow Fundamentals... Metal Stocks Up-rocket

Stewart Thomson
Mar 8, 2011

1. The PDAC conference is in full swing in Toronto. The PDAC is the Prospectors & Developers Association Conference. I can tell you that the feel of this conference is solid. There is no indication of any mining stocks bubble. Markets tend to display this kind of aura in their middle phase. Mining stocks are in the middle phase of a monster bull market, and poised to enter an epic third phase higher.

2. This 3rd leg higher will be fuelled by financial system implosion fears that grow amongst institutional investors, not by a 1979-style “I’m greedy, gimme the gold!” public buying mania. It will be fuelled higher by long-term central bank gold buying programs, which means long term dollar devaluation and long term gold revaluation.

3. On Sep 11, 2001, thousands of people were killed as the world trade centre was destroyed, and the world changed. As the mid-east revolutions began, once again, the world changed.

4. When the world changes, you need to respond to that change. I began to short the stock market with real cash, as the mid-east revolutions changed the velocity of the rise in price of oil, against the dollar. The revolutions opened the door of possibility, but not the door of guarantee, to a drastic drop in GDP growth, or even a total elimination of GDP growth, and a return to official recession.

5. Oil was headed higher anyways, due to Ben Bernanke’s trigger finger on the banksters’ money printing gun, as well as long term demand/supply issues, but the velocity of the price rise suddenly changed, bigtime.

6. Corporations and institutional money managers around the world are suddenly racing to substantially lower their GDP and corporate earnings estimates, just here at oil $105. What happens at oil 115? How about at $125? $150? $200? What happens to institutional liquidity flows if that happens?

7. Shorting the stock market is not a game, when real money is on the line. The public is not involved in the market in a big way right now. You don’t have a billion price chasing public investor wieners on the other side of your Dow short trade, like you did in 1999. Do you see Morgan Stanley issuing you a free Triple Sell Signal, like they did in 2007? No.

8. Your competitors in the market this time are the Fed, the banksters, and thousands of institutional money managers. They may not be very nice people, but they are market winners. The bottom line is you better come to the Dow shorting battlefield with a lot of weapons, a lot of risk capital ammunition, and be prepared for a bloody long war.

9. A minor suggestion: Leave granny alone. Granny doesn’t need a portfolio of Dow put options, just because you’ve “called the turn”, to save her from herself. My “minor” suggestion is: Make a lot of wealth using your capital, then give some to her!

10. Here’s a look at the near-term Dow Chart. Remember when upside momentum died on gold and gold stocks at $1387 in October? Momentum is a moniker for the velocity of the rise in price of an item against the currency it trades against. The upside momentum of the Dow has died.

11. Here's a look at my longer term Weekly Dow Chart. What you are looking at over the past month, is the direct result of institutional money managers re-allocating their cash, to reflect the effects of their projected oil price ($110-125) on corporate earning and GDP numbers.

12. If the global revolution theme ends quickly, the markets could go back to rising mode, but we are fast approaching “sell in May and go away” and then the Aug-Sep-Oct period that I call “stock market hurricane season”, because crashes often occur in that time period. If you are out of the market, I would not be looking to enter the market on the buy side in size, unless we get a much more substantial take-down in price.

13. Ben “Dr. Pinocchio” Bernanke has a new worry. Oil. A high-velocity rise in the oil price could speed up the need to raise interest rates. Ben’s hope to keep rates low and then aim a new blast of QE at the stock market may be seriously delayed or even imperilled, if oil skyrockets.

14. More revolutions could take place, and if they occur in countries like Saudi Arabia, then the stock market, the T-bond, and the US Dollar could all go into a united free fall.

15. The risk of this death spiral is real, and it calls for a limited tactical shorting attack on the stk mkt.

16. Silver. The dreamer looks at the past, and seeks to recreate and repeat the past. Unfortunately, that’s impossible. The public tried it in the 1990s in the stock market and in real estate into 2005. Don’t repeat the tactics of losers against a background of pretending to know where silver is going. Silver has soared in price from the depths of the bear market. Your dollars now only buy you a fraction of the silver that they bought when there was a glut of silver. You can’t build serious wealth by paying up for dreams.

17. The (pipe)dreamer thinks, “but what if silver soars like it just did, maybe silver will be at $200 or even $300, I should back up (what remains of) my financial truck now!” If I mention silver stocks, a kind of eerie silence presents itself. A few silver stocks that are soaring are bought, but most are ignored.

18. Don’t buy the sizzle. Buy the steak. The steak is what hasn’t moved. The sizzle is the item you feel the urge to chase after, and rename that urge “analysis”. I’m starting to see highly dangerous statements about silver’s rise being made like, “sell everything you own, do it now! Put it all in silver, now!”

19. These are the statements of market losers. They failed to buy into the silver glut and want to re-create what they just missed. Can’t happen. Pipe-dreaming your way to wealth, solely by following your emotional urges, is not a viable strategy. It’s a price chasing clown act. If silver is going to ten billion dollars an ounce, or even just 50% higher, where do you think silver stocks are going?

20. If you don’t build ownership of an item in size, you can’t build wealth. The only time size is available is when the item is cheap. Click here now to view the Silver Miners ETF Chart. As the price of silver blasts higher, the silver stocks will move exponentially higher. Notice the huge size of the pyramid is that I’ve drawn above the rough $20-27 range. Price could soar to unknown heights if silver blows thru $52, as I’m 99% sure it will. My strongest suggestion is to look thru the ETF and find the stocks that really haven’t performed yet.

21. It takes time, a lot of time, for companies to recover from events like the greatest financial crisis since 1929. I absolutely believe that gold $1400-1700 is the zone where the stocks begin to do all you hoped they would do at gold $800-1200.

22. Here’s the GLDX Gold Juniors ETF Daily Chart.

23. Notice the huge h&s continuation pattern I’ve highlighted. The GLDX ETF holds less companies than other ETFs, so it brings you more risk and more possible reward, because it is more volatile. Using my PGEN pyramid generator, which goes far beyond scale trading, the GLDX could be the ideal ETF to play what I believe is coming astronomical volatility.

24. The reality is that the gold community is not greedy at gold $1430. Most analysts blew it, and shorted gold or sold out into $1310, instead of buying. Now the game is to wait for some magical correction that is “just right”, to get back in. That crazed mentality is nothing more than jumping out of the fire and into the fry pan. Rather than standing on the sidelines and waiting until gold $1700 to make the same type of statements about gold you see on silver now, instead you need to focus on gold and silver stocks, and be prepared to buy the weak ones now, and at prices far below what seems rational.

March 8, 2011
Stewart Thomson
Graceland Updates
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