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Major Market Technicals & QE

Stewart Thomson
May 25, 2010

1. In the bigger picture, GOLD is stomping on all paper money, and has for all of history. All paper monies have gone to zero, and gold has not lost any value over 5000 years. Not one iota of value. Therefore, Gold, alone, must form the backbone and foundation of all investment portfolios. I totally reject the worldwide view that gold is insurance, let alone Elmer Fudd Public Investor’s idea that gold is “high risk”. Gold is not “insurance”.

2. Gold is the foundation of financial excellence. For those of you who have an interest in excellence, I would suggest you turf the “insurance” thinking, and replace it with gold foundation thinking. Welcome to the Asian mindset. Buy US dollars for insurance. Buy gold for the foundation of your wealth building portfolio. Thanks for your understanding!

3. In the intermediate term, the various paperbug currencies move against each other, and that can affect the pricing of your gold foundation in those currencies. There’s money to be made (and lost) calling those swings, and it’s critical to not get the bigger picture confused with these swings, or you can turn excellence into mud.

4. For those of you living in Australia, and there are a number of you who do, the Australian Dollar, which was trading at 93 cents just 4 weeks ago, has faced the “wrath” of the US dollar, and has been mauled to 81 cents. What this has meant is that while Americans have seen their gold decline in the intermediate term in dollars, Australians have seen gold rise. The Aussie is down 13% against the USD, while gold is down 7%, using the 1250 to 1166 extreme low. After Gold, the US dollar is my largest holding. Here’s a look at the USD chart against the Aussie:
Australian Dollar Daily Chart Drastically Oversold The technical indicators are at extreme levels of oversold.

5. The bottom line: Some profits must be booked on long USD/AUD positions right now. There are, however, a couple of ways to view that chart. I’m a major US dollar long term bear, but there are two issues to keep in mind. First, currencies can have huge intermediate and trend swings. Second, quantitative easing is accelerating, not ending. There remains a quadrillion dollars (with a 1/3 of it hidden from you via mark to model games) in OTC derivatives, and the overriding global theme is the QE tool, to manage the implosion of that debt. The OTCD bombs keep going off. The economic nightmare did not end with Lehman. Lehman is the starting gate of the economic side of the crisis, not the finish line. The finish line is years away, maybe decades. So when you are buying “gold-related” items, remember they are not gold itself, not a replacement for gold. All paperbug currencies, are near-infinitely more risky than gold. You must be able to withstand massive price swings in your chosen assets against you, including commodity-based assets, as one OTCD bomb after another continues to go off, probably for 5 or 10 more YEARS.

6. Goldland is getting more focused on timing the market, when timing is becoming harder. If you want to be a winner in the next phase of the crisis, focus on your increasing ability to take pain, not your ability to predict your next loss.

7. The Australian dollar is oversold on the daily chart, yes, but it may also be breaking down from a huge top pattern. Here’s another way to look at that chart:
Aussie Dollar. Oversold or Massive Top in play?
Notice the blue HSR (horizontal support/resistnace line). Price has failed below that band of support.

8. The Australian dollar is an asset. So are the other paperbug currencies. The problem for investors comes when timing the next move gets confused with allocation of total capital to “the deal”. The decision to buy an asset is a deal and nothing more. If you have decided that the Aussie dollar is a better long term asset than the US dollar, you could get into trouble if you are unable to buy your chosen asset at much lower levels. I’m running buy pyramid programs on the Euro, the Australian dollar, and the Canadian dollar. The US dollars are still a larger holding than those other items, 4 times the size. Gold is the largest holding of all.

9. The biggest money is made in currencies, but without an understanding that these items can have gargantuan swings in time and price against your fundamentally-reasoned move, you can be hurt very badly if you have not allocated your capital correctly in these items. The danger comes in flipping from one currency to another, rather than pyramiding into them, all the way to zero. Your capital is your financial lifeblood. Allocate it like you are obsessed with that fact. Here’s a look at the weekly chart of the Australian dollar.

10. Australian Dollar Weekly Chart Horror Movie. HSR lines have been decimated. The next major support sits down at 77 on the weekly chart. Australian subscribers who are long the USD/AUD have been ringing the cash register non-stop for a month.

11. The monthly chart is even more horrific. Monthly Chart Australian Dollar. With currencies, failure to “respect” the longest term trends while allocating large capital to a “trade” is financial suicide. I’m a buyer of the Australian dollar into this weakness, and will be all the way to zero, with very modest capital allocation. This is not GOLD. With currencies, you should be ringing the cash register in one, while buying another one. So, while the daily chart is flashing “buy big now!” signals in the minds of many aud speculators, you want to be very careful with how much capital you allocate to that play, because that’s what the daily chart is, a play, not a systematic accumulation of a major asset. The monthly chart for the Aussie is not flashing “buy big signals”. It’s suggesting a WIPEOUT may be coming. The oscillators are flashing monster sell signals, not buys. “Buy the resource currencies, China will buy everything, it’s a slam dunk trade!” is a major theme in the gold community.

12. Yes, I agree, provided you can handle 30% to 50% moves in your currency positions against you, for years, while the great Chinese industrial revolution unfolds over DECADES. There is substantial support in the 79-80 area on the Australian Dollar monthly chart. For those accumulated the Aussie as a china/resources play related asset, it’s obviously a buying area.

13. The currency is down 13%, and that must be bought by longside players. For those who are long USD/AUD, the 79-80 area is what I term an “enhanced” profit booking zone, meaning you could book a little more profit than your original settings on my pyramid generator. The same applies on the buy side. You can add a BIT on the buy side. “Trade smaller than you think is rational” is one of the central themes of my newsletter. The currency market graveyards are the “picture speaks a thousand words” reason why that theme will never change for me.

14. This morning is cash register ringing time for those long USD against CAD (USD/CAD). The US dollar is beginning to maul the Canadian dollar. I keep friends & family separate from business. On the Canadian holiday weekend, Cdn family said to me, “the Canadian dollar looks set to trade high against the USD for a long time”. That’s a concerning statement to me, one that comes from amateur investors, and we see the results this morning as the USD has blown thru the key 107.50 HSR marker on the upside, and is well over 1.08 as I write this morning.

15. Here’s a look at the monthly chart of the Canadian dollar chart. USD? Trying to Break the Cbone's Spinal Column? The numbers are the reverse of the USD/CAD. While there are a lot of support zones nearby, the chart is turning very ugly. The culprit? Answer: The end of the Canadian fantasy that “we can have a party while America burns to the ground. We’re different and we’re better! It’s ok for me to buy a $600,000 house on a $70,000 salary with my credit card, because I’m Canadian and my government loves helping people!”. Nice try, but Wrong on all counts.

16. Oil has melted almost 25% from the $90 highs, into the $67 area. The “superior to America” Canadians working the oil patch have barely recovered from the 2008 beatdown (which featured oil workers buying mobile homes for $300,000), and now it’s all melting away again. A 20% correction in oil is a strategic placement of capital point in a major asset. Not a turn call. The oil charts look bad. One thing I don’t think that most investors understand is that the major markets move together. Stock market trends tend to change with currency trends. Extreme patience is needed to take advantage of the coming failure of quantitative easing, which really must fail by definition. Buying 10-50 trillion dollars of failed assets can’t work because the number of failed OTCDs is hundreds of trillions. Extreme QE is required, and my firm view is that if applied, the USD nosedives, but it is critical that the gold community understand we are not at that point yet, although getting closer. Here’s the daily chart for OIL. Oil Daily Chart Massively Oversold Technically. It’s massively oversold, and capital must be placed by bull oil investors when oil falls 20%, and more at the 25% marker. Still, closely here at the and you may see that the next support levels come in the $60, $55, and $49 HSR bands. Oil could drop much lower over the intermediate term. Have you allocated your capital in a pyramid formation to zero to manage that risk and be a player at all oil price levels, or in a plop formation at $80 and are now on fire wondering if oil is finished? If you want to PLAY oil here, or play anything at anytime for that matter, do so with an amount of capital that is smaller than rational.
Oil Weekly Chart. Support at $64, $55, $49 HSR points

17. All roads lead to Gold. This is the era of gold, and while opportunity exists in gold-related items, you will find that without the ability to withstand “surprise and massive” price moves against you, Queen Gold will leave you as a victim rather than a victor in this greatest of market wars.

18. Oil has been mauled, the stock market mauled, yet gold marches forwards. Quantitative easing has fuelled the bond market and gold, while all else has been obliterated. There is a decent head and shoulders top on the monthly bond chart, but it came after more of a sideways movement than a supersurge up. Price might be formed a 2nd right shoulder of a complex double-shouldered h&s top formation, but the oscillators are flashing massive buy signals and price has already risen above all the other shoulders.

19. The action in the bond market is Gold-Positive. The fact is that bonds have gained about 60% since the gold bull market started, while gold has quintupled. This the era of GOLD. Not the era of US Govt toilet paper bonds. Bonds will suffer the same fate that all other mkts have, at the hands of gold, but only after QE is recognized as having failed. That failure opens the door to dollar devaluation and eventually aggressive money printing. Again, QE and money printing are two different tools. Money printing is yet to come. QE is has similarities to money printing, but it is a weaker and different tool.

20. It’s going to be difficult for gold to go parabolic without more “advanced” QE, let alone with no dollar devaluation or the money printing nuclear weapon that blows deflation to kingdom come, albeit with the “minor inconvenience” of causing an implosion of the world’s reserve currency and economy. Govt's are stepping up QE here and now, not exiting QE. You are all in the right set up with your portfolios, and you’ll get the payoffs you need, just not what you want.

21. Bond Market. QE mauls the H&S top callers! Look at the massive buy signals being generated on Stochastics, MACD, and TRIX. The banskters paint charts. Chartists don’t paint banksters. Remember that fact.

22. Here’s a look at the gold daily chart. Some in the gold community have noted a possible “cup and handle” pattern that could see gold fulfill, approx, the target of the massive weekly head and shoulders pattern between 680-1033, which is approx $1350-1400.

23. The low on gold was 1166 last week. I said at 1170, “only one thing matters, here and now, and that is buying into 1170”. 1170 is not a “turn call”. Placing capital and calling turns are separate issues. Yesterday we were back ringing the gold cash register, as gold made a try for the $1200 round number marker. Here’s the gold daily:
Gold Daily. Are You Prepared?

24. Odds greatly favour gold making a turn around these levels and making new highs taking out 1250 like a rocket thru butter. But don’t bet money on that idea now. The time to make that bet was into 1170 when you “knew” it had to be “evaluated” and you had to stay away from the “falling knife’. The bottom line is that those who bought the falling gold knife… are holding it now in your hand!


May 25, 2010
Stewart Thomson
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