1. I see a select few analysts have drawn attention to the horrific dividends versus stock market earnings situation. Including market technician Supremo Bob Hoye, who I consider alongside Trader Dan Norcini as the best technician in the world's gold community. The chart is going vertical, meaning the payouts are being made more, logarithmically more, with debt. Not earnings. When I look at the chart I see: A legalized ponzi scheme. Borrow money via corporate bonds (or the local pawn shop) to pay investors a huge dividend. The massive blobs of diluted stockholders can't be paid from earnings. Laying off workforce, shutting down operations, issuing corporate bonds to pay your dividends, not exactly a confidence builder for stockholders!
2. Having said the above, don't think that means the stock market has to tank to new lows. It could, but dividend ponzi schemes can accompany quasi-hyperinflation. Markets change price only on liquidity movements. Not analysis. In a quasi or real hyperinflationary scenario, the stock market soars while earnings tank. On the other hand, if the bankers were to announce another Lehman type event, the Dow could indeed tank to new lows. And the gold rocket, currently in countdown to liftoff mode, on the launch pad, could blow up. The solution for you as an investor? Make sure you stay enrolled in money-making course 101:
3. Buy weakness, sell strength. If you place your orders professionally, whether the Dow/Gold soars or tanks, you make money. I'm shorting the Dow into current strength - against a larger existing long position built into Dow 6500 - because the Dow going up. Sell the Dow if it goes up. Buy the Dow if it goes down. Period. It's really that simple. And even more simple in the gold market, the world's lowest risk investment.
4. In the gold market, Bob Hoye's team has posted what could be called a "countdown to launch" going on. Perhaps 10 days of gold backing off or trading around 960 before a possible rocket blast UP. I don't want to misquote him, but that's my take on it. Read what he said and you decide. I'll tell anyone what he just posted is of tremendous significance and I agree 100% with what he's posted.
5. If we are indeed on the gold rocket launch pad, those of you who are naked short gold should consider yourselves as possibly 10 days away from the: Golden Gas Chamber.
6. It will be loss taking on this possible move, like all moves in all directions, that fuels gold towards 1200. Per Edwards and Magee, a head and shoulders consolidation pattern's price target is not reliable because the pattern is often "flat". Gold's 16 month H&S consolidation is not flat, making it even more powerful. The Dow's 16 year consolidation, which takes the same H&S consolidation shape as on the current gold chart, saw the Dow rise from 1,000 to 14,000, although the technical target was only around Dow 1500.
7. Those of you naked shorters who think gold has had its run are dead wrong. Gold is not overvalued and you are betting directly against: Ben Bernanke. You will lose your battle against Big Ben. Just as you did when you shorted bonds and failed totally. You will fail even worse with gold, much worse. You are probably staring at your mining company earnings. This has nothing to do with mining costs. Gold is trading as a currency now. And just as it caught all the geniuses short in the 1970s, it will do the same again. Gold revaluation is the next tool in Big Ben's toolbox. President Obama is his final tool, who will authorize aggressive money printing after the gold revaluation. Most of you think too much. "Where is gold going next?" The answer should be: "To my next pre-set buy or sell point!" Any other answer means you are an amateur investor. If you act like an amateur in the market, you will get amateur performance. Meaning: red ink. Buy weakness. Sell strength. And don't blow out your gold core.
8. All gold astronauts report to the gold rocket launch pad. Prepare for the countdown!
9. What if you don't have "enough" gold? Answer: Wait. Do not chase price. Gold may rise $500 now. It may rise $100. It may tank $500. We don't know. If gold soars to $1,500 now, great. If you have no gold and gold soars to $1,500, who cares. Buy gold weakness. Don't run out to the launch pad and grab on to the rocket as it takes off. The professional gamblers are inside the rocket in space suits. The bankers, and most of you, should be in Mission Control. The madman "chase the rocket as it blasts off and grab on!" approach could see your fry as the rocket takes off. If the rocket takes off soon and you have "too little gold," wait, it will come back down later. Buy then. Rocket chasers don't make money. They get burned to death, by the bankers who are sitting in mission control. I'm sitting there too. Compared to them, maybe I'm in a high-chair with my bib on, but I'm there.
10. I've detailed the symmetrical triangle pattern within the H&S monster consolidation pattern. And the mini H&S bottom within that. All technicals are in place, except the COT numbers, to send gold for a moon ride. I post these charts lower down in this essay if you want to look.
11. Function in the market as a professional, not a bucking bronco rider. It's very possible that COT numbers showing the bankers holding a "huge" short gold position that could "bankrupt" them or the comex, it's possible that this short position is a giant smokescreen. A scheme to keep the big funds and speculators out of gold. If gold soars to say $1,200, I expect to see their short position grow immensely. As they increase it to book profit against their super-monster physical position. I plan to do the same.
12. Some of you have rang your gold kachingo machines to the point where you are blown away, in recent intermediate moves, having bought into the weakness with your pyramid buy programs. If we roll towards 1200, it could get insane.
13. NOW is the time to make sure those sell orders are set professionally. Don't blow out your core! At the same time, don't think gold will rise forever. It won't. As gold crosses 1,035, we'll enter a new era, yes. But not the new era most of the gold community thinks we are entering. It will be a the new era of:
14. Gold Price Volatility. Translation: The new era of bankers frying the little guy like he's never been fried before. It will be the case of "Enough already, you've machine gunned him, run him over with a train, kicked him off a cliff, he's dead 3 times over, enough". High volatility is the ultimate playground for professional investors, who can buy any and all weakness, and sell any and all strength. Are you prepared?
15. The gold market will become a nuclear-powered bucking bronco. Only those with professional buy and sell orders in place to handle massive price swings will survive, let alone make a profit.
16. I'm not here to survive. I'm here to make money. If none of your sell orders extend up to gold 1,500, I suggest you fix that. If none of your buys extend down to 700, I suggest you fix that too. If you are a price plopper that wants to scream at your broker how HE caused all your price plopping problems, go ahead, you're screaming at a 2 year old. Hire a two year old to build the Empire State Building, well, expect it to fall down. Price plopping is your fault. Not any broker. The bankers brainwash the brokers and the media to facilitate the public into price plopping. Decide where you sit on the conservative to gambler scale. Notice I said, "all astronauts report to the gold rocket ship". That's for gamblers, to take positions over the next 10 days or so of gold price weakness. The rest of you should be in: gold mission control sitting beside the bankers. Operate rationally.
17. I think the gold community is going to go berserk as price breaks out upside. Irrational behaviour will become the norm as "the big one" occurs. The little penny mining stocks will likely skyrocket and, sadly, a gargantuan portion of the gold community will load up on them in the ultimate price chasing frenzy. As price soars, I think I may need to become vicious to keep many of you focused on: booking profit.
18. Price Chasing is the ultimate drug, the drug of greed. The Devil is the price chasing drug dealer. Just say no to drugs! Focus on one thing: Mission Control. Control of You. In 1982 I had a giant wall chart of the Dow that I drew by hand, extending back to the start of the Dow around 1896. It had 30 indicators on it that my cousin created with a primitive computer. I drew in the historic day the Dow broke out of the 16 year consolidation. I "knew" it was the breakout. I was dancing around the room. Did I buy? No. I had already bought. And after it did break out, I only had five hundred thousand more chances to buy Dow weakness and sell strength.
19. We are approaching a similar historic day for gold. The question is: Are You Prepared? I don't want to see a single email telling me why you need to load up at gold 1,200, because it's a new era. But I will. Sadly, they will pour in.
20. Let's focus on the business at hand. I am. I am 100% committed to my view that gold breaks out upside. I remain 51% convinced gold breaks upside, and 100% convinced of that 51% probability.
21. Stay with mission control. Not the rocket. If the rocket takes off, we make large money. If it lights on fire, we're on the buy. The gold head and shoulders consolidation is perhaps the greatest technical pattern I've seen since the bond H&S bottom of the early 1980s. Certainly since the Dow H&S bottom of 2002-2003. But because gold is the world's smallest market controlled by the world's largest money, I want you all to remember what happened to the French Curve Gold Rocket, which was an even bigger technical formation, with even lower odds of failure. Those of you who had 10, 20, 30, or more junior gold stock astronauts on board that rocket bought in a price chasing frenzy, know exactly what I'm talking about.
Team French Curve became Team Crispy Critter, as the bankers lit your rocket on fire and had a big laugh, while your junior gold astronauts all burned alive on the launchpad. When you put all your eggs in one price point basket, sorry, but you are begging for a banker whipping, and they are more than happy to oblige. I trade one junior stock. I'm in the black. Why? Because of my tactics and nothing else. The stock is $3 now. I'm a buying on any and all 10 cent weakness. And a seller into all 30 cent strength. With a portion of my risk capital. I'm not in the audience. I'm in the game. A player at virtually all price points for my stock. You don't need 10,000 junior stocks to make money in the junior gold sector. If you are buying them all at the same gold bullion price, you are increasing your risk, not decreasing it. Focus on correct buy and sell tactics. Most really can't handle more than 10 juniors. If you start to become a spectator, watching your own stocks sink underwater, with no buy fills coming in, you own too many stocks at too view [???] price points. Here's a look at the gold chart, showing the increasingly bullish price action. There are 3 charts. First the head and shoulders consolidation. Second, the symmetrical triangle with the H&S. And 3rd, the small H&S bottom within the triangle. Extremely bullish technical action. Bottom line: the gold rocket countdown is on!
22. The good news is: Longterm, the bankers want gold higher, not lower! Do they want it higher now? That's a question, but not the million dollar question. The million dollar question is... Are We Prepared?
23. For you options players (gamblers, options are for gamblers, not investors), remember the cost of options rises once the market begins trending. The best time to buy options is right before a move begins. For gold, that could be now. I've mentioned employing 70% gold call options against 30% put options. Use the basic buy weakness, sell strength techniques. You may be more or less aggressive than my 70-30 mix, depending on the extent of your gambling profile.
24. Don't cheer a rising gold price. Book profit into it. As we move towards gold 1,200, send me an email if you think you require an extra kachingo machine to ring in the profits. I'll arrange to ship it out!
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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?