Wall Street’s Worst Call In 20 Years, The Sucker Trade & Gold

On the heels of continued volatile trading in key global markets, today one of the top economists in the world warned King World News about Wall Street’s worst call in 20 years, the sucker trade and also spoke to KWN about gold. Here is what Michael Pento, founder of Pento Portfolio Strategies, had to say in his powerful interview.

Pento: “The entire Wall Street community is absolutely convinced that not only is the U.S. economy healed, but they also believe the U.S. dollar is going to have a massive surge from current levels. They also believe the end of QE is right around the corner, and that higher interest rates will not put a damper on the housing market or GDP growth.

That trade is so overcrowded, especially when it comes to how those factors affect gold….

“Investors would be very misguided not to take the other side of that trade. If you look at the U.S. dollar and how it relates to gold, that is one of the most overcrowded trades in my 20 years of experience on Wall Street. So it’s long the dollar, short gold, the United States healing, and the end of QE.

But I believe that trade is completely wrong. If you look at what’s happening with the 10-Year note hitting 2.75%, and you look at how it’s already negatively affected mortgage refinancing and initial purchases, people all over America are canceling their contracts because they cannot afford the new rates.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/10_Wall_Streets_Worst_Call_In_20_Years,_The_Sucker_Trade_%26_Gold.html

4 Absolutely Spectacular Gold Charts & Commentary

With oil surging and gold and silver rebounding, today top Citi analyst Tom Fitzpatrick sent King World News four incredible charts and commentary covering the gold market.  Fitzpatrick takes KWN readers through a fantastic look at the gold market as only he can, and KWN readers around the world will enjoy this extraordinary piece.

Here is Fitzpatrick’s piece along with 4 tremendous charts:  “(Below is an article covering gold from the) New York Times, 29 August 1976 (3 days after the corrective low had been posted in 1975-1976 before Gold started a 3 year rally into late 1979/early 1980):

 

“Two years ago gold bugs ran wild as the price of gold rose nearly six times.  But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight.  The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.
The rout says a lot about consumer confidence in the worldwide recovery.  The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold‘s allure.
Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course.  The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators’ dreams into a nightmare.”

The above note is probably a close representation of consensus market view at the moment.

We are biased to believe that the low in this correction may have been posted for Gold.  However it is early days and we need to see some more positive price action to support this view.

–  Crude has consolidated but still looks bullish overall

Between 1973 and 1974 the DJIA fell 45%.  As the Equity market then recovered Gold went into a corrective phase within 3 months that saw it fall 445 as the Equity market rallied.

This time around gold has in fact been much more resilient.

–  It did not peak until Sept 2011 (2 1⁄2 years after the Equity market bottomed out).

–  It has so far corrected 39% with an Equity market that has rallied 140% off the March 2009 low (DJIA).  In 1975-1976 it corrected 44% as the equity market rallied 76%.

“In 1976 the Gold correction ended in August and the Equity market began a deep correction in September (27% over 18 months).  During that period Gold rallied by about 78% and over the 1976-1980 period it multiplied in value by a factor of 8 from just over $100 to over $800.  The final part of that rally saw Gold rise from about $470 to $850 over about 4 weeks on the back of the USSR invasion of Afghanistan.  Even without that move it still multiplied by about 4.5 times in just over 3 years.

So what are we looking at to increase the likelihood of the low being in?

In addition, daily momentum is turning up from more oversold levels than those seen before the $270 bounce in 2012.  On a daily chart this is the most oversold we have Been since the turn higher in Gold in 2001.

It has become very stretched to the 55-and-200-day moving averages which now have a big gap between them.

An important thing to note is that Gold broke its support level the same week as the S&P broke above its 2007 high.  As long as the equity market stays resilient (As we saw in 1975-1976) it may be a drag on Gold’s ability to rally substantially.  In the 1980-2000 period when financial assets were aggressively rallying, Gold took a back seat.  We may need the market to be more concerned about the financial/economic backdrop before Gold can get any real traction again.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/3_4_Absolutely_Spectacular_Gold_Charts_%26_Commentary.html

3 Fantastic Charts + Commentary On Gold & Stocks

With continued volatility in gold and silver, today King World News is pleased to share a piece of legendary technical analyst Louise Yamada’s “Technical Perspectives” report. Yamada is without question one of the greatest technical analysts Wall Street has ever seen. This information is not available to the public and we are grateful to Louise for sharing her incredible work with KWN readers globally.

The equity markets appeared due for a pause last month, and the Fed’s “taper” caper may have simply been just a catalyst. Whether the sharp, steep decline, is actually over, is not yet clear. Indicators deteriorated dramatically and although improved somewhat with the slight kickback rally at week end, may set up for further weakness ahead.

Major transitions can unsettle markets, so unless the Fed assurances have calmed their taper storm, we anticipate continued volatility and uncertainty, notwithstanding a summer rally, even to new highs, possibly with indicator divergences. But we also anticipate the potential for further weakness from the 4-Year Cycle low due into 2014.

Most of the global markets have deteriorated further from last month’s concerns, giving weekly, intermediate momentum model Sell signals, many with the negative divergences in place discussed last month, warning of the potential for these further declines. The technical developments suggest more time either in consolidation or further corrective trends, notwithstanding interim rallies.

The rallies as we go to press appear more characteristic of kickback rallies following steep declines, which could encounter resistance at the broken support levels above. The rallies may develop as part of a sideways consolidation, or to be followed by further corrective action, if the momentum remains negative. New highs, less likely at this point, can’t be ruled out, but would require considerable repair for most indexes.

GOLD: Monthly, since January, we’ve presented extended cautionary discourses on Gold Spot price (GOLDS-1,234.57), and most recently were concerned with a break of 1,347 which has now occurred (allaying media speculation for a double bottom), and now both our 1,250 and 1,200 targets have been met in short order as many are rushing to the exit (see Figure 27), taking Gold as low as 1,180.

The smaller descending triangle formed since March 2013, offers another target by measuring the back of the triangle (1,485-1,320 roughly) the difference of which can be projected down from the recent price breakdown to achieve a lower target of 1,155, near the 2010 low. The decline to date is 39%, a defined bear market. There is always talk of trying to pick a bottom, but don’t try to catch a falling sword! Gold has certainly declined enough to bounce, but we don’t know when a bounce will occur! Momentum models (not shown) are all hard down suggesting risk remains.

Remember “the greater the drop, the longer the need for repair” … it’s as if the steel ball, wrecker and crane came to your house; it will take time before the mason, carpenter, electricians can put it all together again. Gold may be considered very oversold, as it was after the April decline, and it can get more oversold, as it has now!

Interim, even generous, rallies could take place into the broken support of 1,347, and even 1,400, but with the momentum both weekly and monthly still declining, the potential for risk still hovers.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/4_Yamada_-_3_Fantastic_Charts_+_Commentary_On_Gold_%26_Stocks.html