Somethin’s coming, somethin’ ______
This coming week is going to be very interesting: (a) France has elections brewing – and Sarkozy is in danger, (b) the IMF (International Monetary Fund) is meeting again, but the ‘biggie’ is (c) the FED meeting. We had Quantitative Easing #1 (QE1), then QE2, and now we’re living "Operation Interest Rate Twist" (which is the Fed buying and selling short term notes against long term notes – in order to keep long term interest rates down – to help the housing industry). There is really a classic display of economic incest here – as the Federal Reserve is owned by the very banks that The Ben Bernanke is printing and giving money to. So he can’t let the banks fail or the entire Fed fails. Anyway, "Operation Twist" is scheduled to end in June, and the minute it ends, the market will force interest rates higher. So I’m pretty sure that somethin’s coming – I just don’t know what or when. We have The Ben Bernanke meeting for two days this week, and if he doesn't announce what he's going to do about the expiring ‘Twist’, the market will be grumpy. And if he doesn’t hint strongly enough about it, the market could still pout. Why? Because the market wants its new stimulus now!
The market these past couple of months has been going thru a nasty chop. We are basically at the same exact levels we were at in February. Yep – in two months we’ve basically gone nowhere. We’re also half way between two trend lines and breaking free of either of them will either send the market higher or collapse it to the 11k region. I think we're going to move sideways in the channel for a while longer. Then in June, The Ben Bernanke will announce his new "operation" and we will then make a wild run up to the election. In the meantime however, we have just as much ability to slide down to the lower boundary of 12,700 as we do challenging the 13,300 level.
Many of you have written in asking about my continued thoughts on gold and silver. We know that at some point The Ben Bernanke's going to inject some more "stimulus" and that will cause gold to rise. Gold rises in times of uncertainty as well as in times of inflation, and if we’re printing another $1 trillion, that is most certainly inflationary. Therefore, sometime between now and the big announcement is a good time to be accumulating gold or the gold ETF. I know gentlemen like Jimmy Rodgers (who’s been very right on gold) thinks that it could dip to $1,100 – but frankly I don’t think China is going to let it get anywhere near $1,500 before they open their wallets. And remember, the Chinese have hundreds of billions of paper dollars ready to be exchanged! Also the good economists (that have been gold bulls) have recently chilled on the investment and that adds somewhat of a contrarian twist. The upcoming election is also going to be influential to gold. If Obama is re-elected, his views on Social programs will cause The Ben Bernanke to continue printing, and at that point I believe China will embark on breaking free of the US dollar – and those repercussions are hard to imagine. However, with a regime change could come fiscal responsibility and this could give the Chinese hope, but we’ll still have existing inflation to contend with. Either way gold will rise.
What about silver? I think that silver has a date with $70 (it’s currently around $30). But right now we need to live through the whole short-term, massive silver manipulation thing. The lawsuits are there, the CFTC and the SEC know the fraud that goes on – they need to allow JP Morgan and others a way out of their naked shorts, and to make as much profit as they can before they end the fraud graciously. However, we are racing headlong into a silver shortage. Not of just coins and bars, but of the industrial silver that goes into electronics, aviation, the military, etc. At some point, (no matter how manipulated) the price will go up due to supply and demand. Once we finally end silver’s naked shorting and manipulations, I suspect my $70 call for silver will be closer to $125.
The market is not for the feint of heart right now. 200-point up-days are followed by 160-point down-days, and we end up running in place. I think we will break to the upside, but only after some wicked chop and fade before The Ben Bernanke’s next announcement. Once The Ben Bernanke announces his next gimmick, we "should" be on our way to new highs. We will head for these new highs not due to earnings or a better economy, just the simple fact that if he continues to print and hand money to the banks, the banks get a boost to their bottom lines, and they get to use the money to play in the market.
Unless something stunning comes out of The Ben Bernanke this week, I will not be surprised if the market continues to trend lower for a few weeks, and then starts firming up ahead of the next Fed meeting in early June. So, if you're carrying a lot of long side trades, please be careful.
One of the keys for me is to watch the XLF. The XLF is the symbol for the Exchange Traded Fund (ETF) for the financials. Currently, it’s just pennies over it’s 50-day moving average, and if it sinks under that, it could quickly go to its recent low of $14.95. A break under $14.95 is a clear signal that we're about to see the market dump out for a bit, as it's the banks that rule the roost.
Currently, I’m really sitting in very little other than my old stand-buys of Gold and Silver:
- HD in at 50 (currently = 51.61) – stop at 51
- GLD (ETF for Gold) – in at 158.28, (currently 159.45) – no stop, AND
- SLV (ETF for Silver) – in at 28.3 (currently 30.65) – no stop.
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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