Tag Archives: Gold

Prices continue to churn as traders and investors try to figure if they want their hard earned dollar in cash or investments. The market is very jittery simply because no one wants to get caught on the wrong side of the market if it makes another 30-40% move, which is why we are seeing money rotate in and out each with very little commitment and follow through. Until a major trend looks to be in place most investors will not me holding many positions over night or through the weekend.

Here are a couple charts on what I think is most likely to happen in gold and the sp500.

GLD – Gold ETF Daily Chart

Last week we saw gold move higher by 1% but I cannot help but think a sharp sell off is only days away from being triggered. Either we get a another pop into resistance which would eventually trigger a wave of sellers and cause a sharp drop or the price of gold will drift lower to eventually break a key support level and trigger stop orders. Once the stops start to get triggered I would expect follow through selling for a couple days which will pull the price of GLD back down to the $113-116 area.

Also there is a possible head and shoulders pattern forming on this chart which is not picture perfect one but, it’s important to be aware as a neckline break could trigger massive selling and pull GLD down to the $100 area. But that would not unfold for several weeks if not months.

SPY – SP500 ETF

SP500 broke down from the support trendline two week ago and has since been trying to bounce. Last week we did see a two day pop but was given back Thursday. As you can see there is a possible mini head & shoulders pattern forming and the current price is testing the neckline. A breakdown below this should trigger a move to the $102 level.

Weekend Trading Conclusion:

In short, the market is trading at a key support level and this week should be exciting. Looking at several large cap stocks I am seeing bear flags on a large percentage of charts. Seeing these forming makes me think lower prices are just around the corner.

It looks like low risk trading setups are about to start popping up across the board and if we get a powerful trend going into the year end there will be some good money made for those on the proper side.

Learn how to buy gold and make great money doing it! Gold mining stocks is the best investment in ANY economy!

Did you close out any long positions today? Well if not then you are one of a few!

Today (Wednesday) the market gapped down 1.5% at the opening bell which set a very negative tone for the session. Volume was screaming as protective stops triggered and traders close out positions before prices fell much further. This gap seemed to have caught several traders off guard but those of you who follow my newsletter knew something big was brewing and to keep positions very small.

Just before the close on Tuesday I had a buy signal for the SP500 which was generated from the extreme readings on the market internals. After watching the market chop around and get squeezed into the apex of the rising wedge the past 3 weeks I knew something big was about to happen and I did not want to get everyone involved because I felt a large gap was about to happen and the odds were 50/50. Instead we passed on the technical buy signal and waited to see what would happen Wednesday.

Below are a few charts showing one of my extreme reading indicators I use which helps me to identify possible short term bottoms.

SP500 – SPY Exchange Traded Fund

This daily chart of the SPY etf clearly shows that when we see panic selling in the NYSE which I consider 15+ sell orders to each buy order to be PANIC SELLING. This is shown using the purple indicator at the bottom of the chart. Today there was an average of 37 sell orders to every buy order which tells me the majority of traders are closing out all their long positions.

In an uptrend this indicator works very well and can help time a bottom within 1-4 days. As you can see on the chart below we just had a huge sell off and everyone seemed to be exiting their positions. This panic selling tends to carry over for a couple sessions until the majority of traders around the globe are finished selling.

The problem with this indicator is that in a down trend we tend to get these panic selling spikes regularly which means this time it may not work out because of the trendline break today which I think has officially changed the trend from up to down. Because of this possible down trend starting I feel its best to wait and see if it’s a dead cat bounce or if there are real buyers behind it, then we will take action to go long or short the market.

Market Internals – Put/Call Ratio & NYSE Advance/Decline Line – 60 Min Charts

Here are two charts which are currently at extreme levels. This typically means we a bounce should occur the following day or a gap higher. If you did not know there was a strong trendline breakdown today you most likely would have taking a small long position into the close.

The Put/Call ratio when above 1.00 means more people are buying put options, meaning they are leveraging themselves to make money if the market drops. As a contrarian indicator, if everyone is buying leverage to the down side then they should have sold their long positions already. That would mean most of the selling has already taken place in the market thus it should have some upward bias in the near term.

On the other side you can see the NYSE A/D line which shows how many stocks on the NYSE are advancing and how many have moved lower. When this indicator is below -1750 then we know the market is oversold on a short term basis and there should be some upward bias in the near future.

Now Lets Take A Look At Gold

Gold was left on the side of the road today as traders and investors focused on the equities market. I was actually a little surprised that it didn’t make a big move today because the US Dollar rocketed higher for the entire session. Anyone who has been watching gold closely already knows that gold is doing its own thing now… Some days it moves with the dollar, other days it does not… its become much more random than it used to be.

Anyways it looks to be forming two patterns… first one is a bull flag. If a breakout to the upside occurs thatwould send gold to the $1230-40 level.

The second pattern is a mini head and shoulders pattern which would send gold down to the $1180 area if the neck line is violated. It is a very tough call for gold.

Mid-Week Technical Traders Update:

In short, it’s going to take a day or two before we get a feel for the SP500 as we wait to see if it bounces with volume behind it. I personally would like a bounce so we can short it. It is unfortunate how the market broke down today. We were so close to getting a really good setup in either direction but the FOMC meeting shook things up and caused the large gap which in turn made a large group of traders miss that beautiful drop… It’s frustrating when you wait for something only to have a piece of news mess things up. That’s just part of trading though.

As for gold, I feel it’s a 50/50 trade and could go either way so I am not going to take a position right now. I’m just going to wait for the market to tip its hand a little more before I jump.

Learn how to buy gold and make great money doing it! Gold mining stocks is the best investment in ANY economy!

Last week’s articles focused specifically on the option Greek Theta. This week we will shift gears and adjust our focus on Delta, another fundamental tenet of option trading. The official definition of Delta as provided by Wikipedia is as follows:

Δ, Delta – Measures the rate of change of option value with respect to changes in the underlying asset’s price.

Delta has a significant impact on the price of an option contract(s). When a trader is long a call contract, Delta will always be positive. Likewise, if an option trader owns a put contract long, Delta will always be negative. As option contracts get closer to the money their Delta increases causing the option contract to rise in value rapidly as the option gets closer to being in the money.

Clearly Theta has an adverse impact on a trader who is long a single options position (own options long with no hedge or spread), however Delta is extremely dynamic and is one of the major factors directly responsible for option pricing as the price of the underlying changes throughout the trading day.

If an option is deep in the money, the option contract will have a higher Delta and will generally act similarly to actually owning the individual stock. For a deep in-the-money GLD call that has a Delta of +.80, the first dollar GLD rises by then the value of the GLD call options increases by roughly $0.80 or $80.

If the delta is 0.80, this essentially means that the GLD call option will increase in value 0.80 ($80) for every $1 that the GLD ETF increases. As the GLD option goes deeper into the money, the Delta will typically rise until it nearly produces the same gains as the GLD ETF until the delta asymptotically approaches 1.00 and the option moves in lockstep with the underlying. While my next article will continue to help explain Delta, it is important to understand how Delta can enhance a trader’s return when trading options with a specific directional bias.

While options exist for the gold futures contract, typically if I want to trade gold I utilize the GLD ETF. The primary reason is that the ETF offers liquid options, which makes it easier to initiate spreads and multi-legged orders. If options are thinly traded, the bid ask spread is almost always wide making it more difficult to get a good fill and a good overall price. Most option traders stay away from underlying stocks that have illiquid options.

In order to better illustrate how an options’ Delta can create profits, I will use GLD as an example. Keep in mind, I am not advising any traders to buy or sell options naked. I only trade options using strategies that help mitigate various risks to my capital. Theta (time) risk, volatility risk, and market risk are not being considered as this is merely an example to illustrate the power of Delta.

Recently Gold and subsequently GLD suffered a pretty significant pullback. GLD broke down through a major horizontal trend line and the daily chart was extremely bearish. Just when a lot of traders were preparing to get short GLD, buyers stepped in and pushed GLD’s price back above the support area. The GLD daily chart listed below illustrates the breakdown and subsequent failure and a powerful rally followed.

Let us assume for contrast that an option trader and an equity trader each want to get long GLD. The equity trader buys 200 shares of GLD at $115/share. Assuming the equity trader does not use margin, the total trade would cost around $23,000 not including commissions. The option trader decides to utilize delta and purchases 5 October 107 calls which in our example cost $900 per contract for a grand total of $4,500 not including commissions.

We will assume the October 107 calls have a Delta of 1.00. When a call option has a delta of 1.00, it essentially means that the owner of the call is going to get 100% of the move reflected in the premium of the option he/she owns. Thus if GLD increases by $1, the value of the option would increase $1 all things being held constant.

This is where Delta really shines; it shines even brighter than gold in this illustration. Both the equity trader and the option trader have a profit target of $118/share. A few days later GLD reaches $118/share and both traders close their trades with profits. The equity trader made $3/share which relates to a total gain of $600, or around 2.60%.

The option trader realized roughly 95% of the move, meaning around $2.85. The option trader had five total contracts for a total gain of $1,425 less commissions. The total gain for the options trader was over 31% less commissions.

Keep in mind, the option trader only had $4,500 of maximum risk while the equity trader was risking over $20,000. The option trader made over 100% more money, while risking only 25% of the total capital required by the equity trader. Behold, the power of Delta!

Learn how to buy gold and make great money doing it! Gold mining stocks is the best investment in ANY economy!

Understanding the key differences between both gold and silver’s risk/volatility levels plays a large part in how I choose a low risk trade setup. Those of you who follow me already know the GLD etf is my favorite trading vehicle as it provides me with low risk trading setups along with a very high win rate.

Ok, let’s jump into to comparing gold and silver as trading instruments. I get the same questions from new traders all the time and I think these two questions will help clear them up.

The questions are:

Why don’t you give silver (SLV) trading analysis/signals? Why don’t you trade silver? My answer to the questions are simple and the chart below displays my view.

The gold (GLD) signals I provide work with silver so you can just trade silver when I have gold long or short trade. This is the reason I don’t provide much silver analysis because it’s duplicate info.

The chart below shows how gold and silver trade together when it comes to rallies and sell offs. But notice how volatile silver is while gold had a nice slow and steady trend upwards… Gold’s low volatility trending characteristics is what I love about it. Silver on the other hand is all over the place making it easy to have protective stops triggered before the majority of the trend is over. The silver charts almost always look terrible (tough to read for a direction). I really don’t like getting shaken out of a winning trade…

The pink circles show a quick short trade we did this week catching a quick 1% drop. The short trade was for FuturesTradingSignals where we capture 1-3 day extreme market sentiment shifts.

GLD – Gold ETF Trading Chart

The chart below shows several points as to why gold/silver was screaming BUY ME on Tuesday afternoon. The two things that carry 90% of the strength in my opinion are the candlestick pattern (Bullish Engulfing) and the volume surge. Those two things when seeing on virtually any time frame are a good indication to go long for 1-3 candlesticks minimum.

Gold VS Silver – 5 Minute 3 Day Chart

This chart clearly shows the power of trading a more volatile commodity with silver being the one. This week’s buy signal in gold is dwarfed by the performance of silver. Silver has always shined more in my opinion but when it comes to trading… It tougher than it looks to trade because of the wild whipsaw action it makes on a regular basis.

Gold and Silver Trading Conclusion:

In short, gold is the safe haven when it comes to actively trading. I do trade silver here and there but the size of my position is much smaller because of the difficulty level and volatility associated with it. I will not that I do trade gold and silver futures at times but for this report I focused on ETF’s.

Learn how to buy gold and make great money doing it! Gold mining stocks is the best investment in ANY economy!

In covering the gold sector for my premium subscribers, I have noticed something lately. The large-caps really suck! Ok, that is harsh but it is the truth.

The Dow Jones Precious Metals Index hasn’t gone anywhere for five years, while Gold has more than doubled. The next two (the XAU and GDX) are trading right at their 2008 peaks. Since then, I quickly calculate that Gold and Silver are higher by about 33%.

We all know that GDXJ outperformed GDX in 2010. It wasn’t close and even during this correction GDXJ is holding up better.

Yet, GDXJ is weighted heavily in some companies that are above $1 Billion in market cap. Where is the “junior” in that? I created my own index of 25 gold stocks, which are equally weighted and range mostly from $200-$700 million in market cap.

My junior index against the HUI (GDX follows the HUI) is moving higher after an 8-year breakout. This chart tells us that the juniors should outperform strongly in 2011 and likely 2012.

We’ve written about this before but it bears hearing again. Too often we hear about how gold stocks are cheap and how they are priced for $1000 Gold or $800 Gold. Just because the HUI/Gold or XAU/Gold ratio is low doesn’t mean the sector is at a bottom. The reality is that large gold stocks have consistently underperformed Gold over time. Take a look at this piece from Steve Saville and his chart which goes back to 1960.

Steve attributes the poor performance to rising costs, management errors, environmental and political factors but most importantly, depletion. Just to stay in business gold companies have to consistently find new deposits, mine those deposits and add to reserves. The larger a company is, the more difficult it is to do these things. A junior company can grow by building a few small mines. A large-cap needs to find huge deposits that can become huge mines. It is simply a more difficult business for the larger sized companies.

It is critical that investors and speculators take note of all these factors before partaking in the sector. I fear that the new entrants in the sector will think they are safe by buying Newmont or Barrick. They may be less volatile, but history argues you are better off holding Gold or Silver.

Sure the juniors have already had a fantastic run, but our chart argues that it may be even better in the next few years. As the bull market rages on, the herd will naturally become more speculative. The large players have begun to resort to takeovers and acquisitions. This will continue and further catalyze the junior sector.

Learn how to buy gold and make great money doing it! Gold mining stocks is the best investment in ANY economy!

Given the fact that we sit on the precipice of a holiday weekend, every attempt will be made to keep this short and to the point. M3 growth has collapsed. We had pointed this out several months ago and again more recently amidst a barrage of protest emails that the printing press always wins the battle with the deflationary black hole. To date, the black hole is winning hands down. The reasons are nebulous and complex, but the point is that our broadest monetary aggregate is now shrinking. This does not bode well for our economic prospects moving forward.

True to form, even the mainstream press is starting to take notice, long after the trend has been well established. Ambrose Evans Pritchard dedicated a piece yesterday to the collapse in M3 growth, something that hasn’t been seen in the US since the Great Depression. Monetarists the world around are frightened about this trend, and with good reason. US interest rates are already essentially zero. The massive monetary and fiscal stimulus has been epic in nature. And all this has still not prevented the actual textbook deflationary trend we now find ourselves in.

“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

The major reason for this is that the banking system has severely curtailed its lending activities, which are largely (but not entirely) responsible for the growth in the money supply thanks to the money multiplier. One must ask how this is possible since essentially the banks have the Taxpayer Put in place where the US taxpayer is immediately hooked for any significant failure. For decades we have had an economy that relied on credit for its survival and now, like a drug addict in rehab, that credit is being limited. The result was fairly predictable.

Given the massive debts in our system, there are two obvious choices. First, hyperinflate away the debt. However, that ultimately ends in the destruction of the currency and the end of the current fiat age. Secondly, we could default through deflation/devaluation, and try to, in effect, reset the system much like what happened in the 1930′s. The major difference between then and now is the relative financial position of both the nation and individuals. Both are considerably weakened as we approach this next phase in America’s existence.

I’ve argued for the coordinated default/devaluation outcome for some time now. The collapse of M3 growth is one of the biggest factors on this side of the argument. The second is history. The US already has a rich experience in fiat money, dating back to before Lexington and Concord. We also have a rich history of defaults thanks to the over-issuance of fiat money. Granted, the defaults consisted of ceasing to redeem paper money for specie (Gold/Silver), but a default is a default.

We are clearly out of control in terms of our debts, both internal and external, and don’t seem the least bit concerned about real generational or fiscal reform beyond traditional Washington lip service. The Fed has been largely ineffective at doing anything but fattening bank cash flows by squeezing savers and allowing banks to collect generous margins on the performing consumer loans they do have. The bailout money sits in bank coffers, withheld from an economy that now depends on loans for its very survival.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to “grit its teeth” and approve a fresh fiscal boost of $200bn to keep growth on track. “We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on,” he said.

I wrote many moons ago that once the parade of stimulus started that it would never end. Summers’ statement is tantamount to admission of the failure of his own Keynesian thinking. He is now acknowledging that in order to ‘grow’, we need stimulus (debt). Every once in a while the truth does come out.

Given these undisputable facts, it is really hard to conjure up a scenario where we can have any type of broad, well-grounded economic recovery. The various economic reports I dissect on a weekly basis bear this out. However, the bottom line as we solemnly observe Memorial Day weekend is M3. Where it goes, so goes America. Such is the way of things in a fiat money system.

Learn how to buy gold and make great money doing it! Gold Mining Stocks is the best investment in ANY economy!

Ostrich investors are a major driving force in today’s financial markets. As the name implies, they are hiding their heads in the sand like the popular literary perception of the king of birds. Burned in 2008′s epic stock-market panic, they have shunned active investing ever since. Trillions of dollars of their capital languishes idle on the sidelines, earning zero in money markets or near-record-low yields in Treasuries.

I can certainly sympathize with them. In the heart of that brutal once-in-a-century stock panic in October 2008, the flagship S&P 500 stock index plummeted 30% in a single month! Elite blue-chip stocks long considered safe failed to weather that fear storm well. Because the economy has been slow ever since the panic, countless investors fear another extreme selling event. They still want nothing to do with stocks.

The reasons for investor anxiety today are legion. Investors fear a new recession, the ever-popular double-dip scenario of heading back into economic contraction. They worry about the sorry state of the jobs market, consumers’ ability to spend, and the shaky housing market. They fret about the incessant and stifling growth of big government in Washington, and the Democrats’ threats of record tax hikes.

It’s not a pretty environment out there, so it isn’t illogical to hide heads in the low-yielding sands of cash and bonds. Unfortunately for ostrich investors though, this strategy is doomed to failure. While it is challenging psychologically, the active investors braving these stock markets are thriving. Our wealth is multiplying while ostrich investors’ is stagnating. Those hiding out too long will never catch up.

I wrote my original ostrich-investors essay 16 months ago, fresh out of the despair lows in early 2009. At the time countless worries plagued the markets. Economists were convinced we were heading not into a recession, but a depression. The newly-elected Democrats promised smothering tax increases on investors. And the S&P 500 (SPX) had averaged just 808 since the despair low 6 weeks earlier.

If there was ever an environment that encouraged ostriching, early 2009 was it. If you had moved your capital to cash then, you’d essentially have the same amount today. But boy the opportunity cost of hiding on the sidelines has been staggering. Between March 2009 and April 2010, the SPX blasted 80% higher in a massive post-panic recovery. Believing the pervasive gloom and doom back then nearly cost you a doubling of your capital!

Although the stock markets have been volatile and stressful, the opportunities have been great. In 2009 the SPX rallied 23.5%. Yet in our popular Zeal Intelligence monthly newsletter, the average annualized gain on all the stock trades we realized last year ran 45.0%. In our weekly Zeal Speculator, where we trade more often and take more risks, our average stock trade in 2009 enjoyed an 88.9% annualized gain.

As of the middle of 2010, the SPX was down 7.6% year-to-date. Yet our average Zeal Intelligence stock trade closed this year had seen a 73.7% annualized gain (64.8% absolute)! Of course these averages include all our losing trades too, full performance data is always posted on our website. Despite all the fears and anxiety floating around, there is lots of money to be made in these markets. Active investors have a good shot at winning some, but ostrich investors are guaranteed to make nothing.

As investors we carry a huge burden, we are the financial stewards of our families’ futures. If we make wise decisions, our capital will grow and our families’ lives will improve. Similarly, poor decisions today will greatly reduce our future wealth. No one cares more about your financial future than you do, your active stewardship is crucial. Hiding out on the sidelines is an abdication of this stewardship responsibility, a flat-out failure. Tough markets require different strategies, not capitulating and cowering.

Provocatively, even the Bible speaks out on this principle of stewardship versus ostriching. Jesus Christ’s famous Parable of the Talents is chronicled in Matthew 25 and Luke 19. A nobleman who would be traveling long and far entrusted his servants with portions of his capital. The good servants went out and invested it, growing it for their master’s return. He praised and rewarded them. But one servant was afraid, so instead of investing the capital he was given he hid it. He was a first-century ostrich investor!

Far from being commended for returning the cash unharmed, this ostriching servant was called “wicked and lazy” when the master returned. He was effectively fired, with his capital given to a good servant who had wisely invested and multiplied his own capital allocation. While this parable teaches deep spiritual truths to Christians, its literal surface application on the financial front is no less valid. As investors our responsibility, our moral duty, is to multiply our capital, not hide it away.

These post-panic markets are certainly far-more challenging than the pre-panic ones, but that just means we have to step up our stewardship efforts. Investors can’t just buy anything and hope a rising tide lifts all boats. They can’t just buy anytime and hope their stocks will eventually rise. They have to study the markets, learning about their cycles and finding stocks that will thrive in this environment.

If you’ve been ostriching since the panic, you can’t change the past. Though you could have nearly doubled your wealth since through active investing, there is no sense beating yourself up about it. But you can change the future. Your decisions you make today will determine how much capital you have in the coming years. If you hide in cash, what you have today (minus inflation) is the best you can hope for. If you get back in the game though, fighting your anxiety, you could achieve a much better financial future for your family.

The opportunities are truly vast right now in the stock markets, despite their big gains already booked since the panic lows. In nearly 100 weekly essays written since that panic, by business partner Scott Wright and I have detailed many awesome opportunities. Most of the key post-panic trends that have rewarded us and our subscribers with such massive realized gains in the past couple years are still ongoing.

To understand why, you have to consider cycles and sentiment. Stock markets move in great 34-year cycles I call Long Valuation Waves. The first half is a 17-year secular bull, like we saw from 1982 to 2000. The second half is a 17-year secular bear, like we’ve been experiencing since 2000. Within these sideways-grinding secular bears, smaller multi-year cyclical bulls and bears oscillate. Check out my essay delving into these critical cycles. We are in one such mid-secular-bear cyclical bull today.

Cyclical bulls within secular bears average 3 years in duration, but can be as short as 2 or as long as 5. Yet our current one was only 13 months old in late April when the stock markets peaked before their recent correction. This bull was far too young to give up its ghost then, which strongly suggests it is very much alive and well today. I recently wrote another essay explaining all this in depth.

In addition, secular bears have giant horizontal trading ranges. In SPX terms our current one runs from roughly 750 on the low side to 1500 on the high side. We hit this upper resistance in late 2007 at the top of the last cyclical bull, and lower support in late 2008 at the height of the panic. Today the stock markets remain low within this secular-bear trading range.

The upshot of our position today in these critical cycles that all investors should study is that probabilities strongly favor the stock markets rallying from here. These bull-bear cycles are strong and nearly ironclad, nothing stops their ultimate progression. All the news you hear every day, all the anxiety and worry, is nothing but ephemeral noise. The markets are always fretting about something, but it is soon forgotten (remember European sovereign debt, the oil spill?).

With our position in the bull-bear cycles firmly on investors’ side today, ostriching now is as irrational as it was in early 2009. Sure, you can bury your talents in cash over the next year and dig them up with just minor real losses after inflation. But that is not investing, it is just poor stewardship. If you take a little time to learn about the markets and seize the opportunities, you could really grow your capital in the coming year.

In addition to the cycles, all this rampant fear and anxiety itself is extremely bullish. Sentiment is all-important in the financial markets, driving most short-term price action. Sentiment is like a giant pendulum, perpetually swinging back and forth between greed and fear. When stock prices have long been rallying to highs, greed reigns supreme. When they have been falling to lows, fear dominates. But like a pendulum, once either extreme is reached you can be sure the next extreme will be the opposite one.

There is no doubt that this summer has been dominated by the fear side of the sentiment continuum. The stock markets have been weak thanks to the major SPX correction in May and June. Investors are scared of countless threats, worried that something even worse is coming. As is always the case when stock markets are weak, bearish and pessimistic theories dominate newsflow and consciousness. When prices are down, investors want to be scared and look for reasons to rationalize their emotions.

Yet it is fear episodes that birth all great rallies. Eventually fear and anxiety drive everyone interested in selling anytime soon into pulling the ripcord and bailing out. And once this selling-exhaustion threshold is hit, there are no more sellers left. Then no matter how bad the news is, the markets start rallying anyway because only buyers remain. And after this new rallying is established for a few weeks, newsflow turns positive as investors start feeling greedy and look for justifications to buy.

The great sentiment pendulum endlessly swings from greed to fear and back again. And since it spent most of the past few months deep into fear territory, the only place it can go from here is back towards greed. The only thing that can drive widespread greed is a big rally. Thus in pure sentiment terms, the stock markets are perfectly set up to enjoy a major rally in the coming months. The markets abhor extremes, and fear has ruled for too long. Greed is overdue to make an appearance.

If you study the markets, you have no choice but to acknowledge the bull-bear cycles and the greed-fear swings in sentiment. Many ostrich investors I’ve talked with over the past year have some level of awareness of cycles and sentiment. But they still argue that hiding in the sand is rational, because they fear another stock-market panic or crash. Together crashes and panics are extreme selling events.

From the widely-hailed Hindenburg Omen in the news lately, to all kinds of more obscure theories, perma-bears offer dozens of reasons why we face a crash or panic this autumn. Never mind that these perma-bears always think a new crash or panic is imminent! If you follow one of these guys, read what he was predicting back in early 2009. It will be a crash or panic, not the massive rally I predicted then. Gloom and doomers are broken records, they perpetually forecast calamity and lead investors astray.

An extreme selling event in the coming months is terribly unlikely, its probability approaching zero. Ostrich investors need to understand this, as constantly expecting an event with exceedingly-low odds of occurring is no excuse for burying their capital in the sand. There are a couple key reasons why we won’t see a crash or panic this autumn. Today’s bull-bear cycles are in the wrong place to spawn them and the last extreme selling event happened too recently.

Crashes, a 20%+ plunge in the stock markets in a matter of days, only occur at one very specific time in cycles. Crashes always erupt near multi-year highs deep in secular bulls, like in 1929 and 1987. Crashes are born in extreme greed when retail investors are fully deployed and almost no one is hiding in cash on the sidelines. Obviously today with widespread fear and ostrich investors hiding trillions in cash, this environment is all wrong for a crash. And the April SPX high of 1217 was far below the October 2007 high of 1565 at the end of the last cyclical bull. A crash ain’t gonna happen folks.

Panics, a 20%+ plunge in the stock markets in a matter of weeks, also only occur at one very specific time in cycles. Unlike crashes starting from multi-year highs, panics cascade out of lows in cyclical bear markets. A bear persists for a year or so, mauling about 25% out of the stock markets. Then some high-profile catalyst ignites a frantic rush for the exits, and the resulting intense selling drives another 20%+ loss in a matter of weeks. Like crashes, panics require heavily-deployed retail investors. People have to be in before they can panic!

We aren’t at the end of a multi-year bull near multi-year highs, so no crash is coming. We aren’t a year into a cyclical bear near lows, so no panic is coming. And extreme selling events can’t happen in an environment like today’s plagued by ostrich investors, when trillions of dollars are already hiding outside of the stock markets. Extreme-selling-event-magnitude declines require fully-deployed investors. Even Wall Street often acknowledges how chronically underinvested people are today.

Proximity to the 2008 panic is another strong argument against another extreme selling event anytime soon. Extreme selling events are so scary that everyone without nerves of steel is driven to sell. Some of these investors are so discouraged they never come back, and others gradually tiptoe back in over years. So throughout market history, you always see at least a decade between extreme selling events. It takes that long after one for enough investors to quit worrying and get fully deployed again.

So ostrich investors can’t latch on to some perma-bear’s flawed extreme-selling-event thesis and use that as an excuse for abdicating their family’s financial stewardship. Probabilities are virtually zero of seeing another panic or a crash anytime in the coming years. And without extreme-selling-event worries, the bull-bear cycles and sentiment pendulum become even more compelling. They are very bullish today.

Ostrich investors also bring up the horrible state of Washington as an excuse. They understandably worry about our out-of-control government’s epic debt binge. And the way the Marxists (Democrats using class-warfare rhetoric) want to raise job-killing taxes on hard-working American businessmen. And the terrible encroachment by the federal government into all aspects of our lives through insane overregulation.

There is no doubt at all that the Democrats’ terrible anti-prosperity philosophy, monstrous overregulation bills, and endless threats of higher taxes have strangled this post-panic recovery. But this isn’t the first time we’ve had an abominable government in America. Remember Jimmy Carter? The beauty of the United States is we can vote out these thieving socialists. We’ve done it before and we’ll do it again in November and 2012. Don’t extrapolate out our current bad government into infinity. This too will pass.

Realize that oversold or undervalued stock markets can rally strongly even when we are saddled with a terrible government for a season. Remember that back in early 2009 we had the misfortune of the same openly-Marxist Obama Administration and prosperity-hating Democratic Congress we do today. Yet despite all the despicable things Washington has done to us taxpayers since then, the SPX is still up 80% at best since its lows!

Ostrich investors have really lost out since the panic, giving up nearly a doubling in their wealth. But they don’t need to bear such crushing opportunity costs forever. If you have been hiding out in zero-yielding cash or low-yielding bonds, get back in the game! Start redeploying a small fraction of your capital in stocks. As you get more comfortable and enjoy gains, gradually move more of your capital back into stocks. Eventually you’ll be out of ostrichdom and back into wise financial stewardship of your family’s future.

We can help you. At Zeal we study the markets constantly, always looking for high-probability-for-success trading opportunities. We specialize in commodities stocks, the great secular bull market of the past decade. We publish acclaimed monthly and weekly newsletters analyzing the markets, explaining what is going on and why, and detailing which stocks we are buying and selling (and when) to ride these trends. Our subscribers have been richly rewarded by our trades even in these tough times. Join us!

The bottom line is there is no excuse to be an ostrich investor. Hiding your capital in the zero-yielding cash sands is a failure, a millennia-old abdication of stewardship responsibility. Tough markets are not as easy to grow your wealth in as normal markets, but with a little time and effort you can still thrive as an investor. Get your anxiety and fear in check, buckle down, and start investing to win again.

The markets are actually very bullish right now, with almost no chance of an extreme selling event like the perma-bears perpetually prophesy. Stocks are in a great place in their bull-bear cycles to rally strongly in the coming months. And the very poor sentiment we’ve weathered this summer ensures the next sentiment swing will be towards greed. The only thing that can generate it is a major stock-market rally.

Learn how to buy gold and make great money doing it! Gold Mining Stocks is the best investment in ANY economy!

Precious-metals stocks really haven’t had a great summer by any means. After rallying initially in June, they started relentlessly drifting lower in July. The net result of this lackluster summer trading is a lethargic drift sideways. Naturally this listlessness has weighed on sentiment among this sector’s traders.

At the end of May just before the dawn of the financial-market summer, the flagship HUI gold-stock index closed at 454. Since then, it has generally been flat averaging just 458 on close. At best so far this summer, the HUI was up 8.8% in mid-June. At worst, it was down 4.7% in late July. For a sector accustomed to wild volatility and exciting action, 10 weeks of drifting can feel very discouraging.

But it shouldn’t be. Gold stocks almost always tend to drift sideways to lower in the PM summer doldrums. Such uninspiring behavior is par for the course this time of year. I wrote an essay explaining the research behind the PM summer doldrums that was published the very day the HUI peaked this summer (June 18th). At that time when traders were pretty excited about PM stocks’ prospects I concluded…

“The bottom line is summer isn’t a great time for precious metals. Led by gold, the entire PM complex tends to drift sideways to lower in the summer doldrums in June, July, and August. This listless price action is driven by the combination of no seasonal gold-demand surges and the general lack of investor interest that plagues all markets in the summer months. Sun, sand, and surf simply provide too much competition for traders’ attention this time of year.”

But today a couple months later, the financial-market summer is starting to wane. We’re on the verge of emerging out of the wilderness that was the summer of 2010. After forming a relentless headwind retarding gold stocks’ progress this summer, the major seasonal influences affecting this sector are shifting back towards a favorable tailwind. The HUI bull seasonals are looking up, a very bullish omen.

Yes, believe it or not seasonals do affect gold-stock price levels! This probably sounds counterintuitive initially. Investors and speculators can buy and sell gold stocks anytime regardless of the passing of the calendar year, so why does the time of year matter? The answer is quite logical. It matters because calendar seasons greatly affect gold investment demand, and the gold price is the primary driver of gold stocks’ ultimate profits. When it rallies, they rally. And when it falls, they follow.

Gold seasonals are extremely important for all PM-stock traders to understand. Read my latest essay discussing them in depth if you are not up to speed. In a nutshell, deeply-ingrained income-cycle and cultural incentives drive big gold demand spikes in the autumn, winter, and spring. But in the summer, there is nothing to drive above-average capital inflows into gold. Thus it tends to grind sideways to lower, and the gold stocks trail in sympathy.

These gold-driven seasonal trends are readily apparent in the HUI. Since markets behave quite differently in secular bulls and bears, I like to start my seasonal analysis when today’s secular gold-stock bull was born in 2000. To distill out the HUI bull seasonals, I individually index each calendar year’s HUI action from the first day of that year. This ensures percentage changes within each year are perfectly comparable across years despite the HUI trading at progressively higher levels as its bull marches on.

Finally I average together all these individual-year HUI indexes and chart the results. This process reveals the HUI bull seasonals rendered below, which are very valuable for traders to understand. Regardless of everything else going on in the markets, gold stocks tend to be consistently strong and weak at certain times of the calendar year. These tendencies can be used to help investors and speculators execute superior trades.

It’s been two-and-a-half years since I last updated this thread of research, with an epic discontinuity defining the period since. During that crazy once-in-a-century stock panic we weathered in late 2008, gold stocks were ripped to shreds in the belly of the beast. Between July and October 2008, the HUI plummeted a jaw-dropping 67.7%! And around half these losses accrued in this span’s final month alone! It was not a fun time to own PM stocks.

Then between its brutal October 2008 lows and the end of that year, the HUI rebounded 99.5% higher. This index has never witnessed anything remotely like that panic span, so I was really curious about how such wild swings would alter the HUI’s seasonals. Surprisingly though, the blue HUI seasonal line in this chart didn’t change too much at all. This shows the value in averaging over a decade’s worth of years. No one year, even one as crazy as 2008, wields an outsized influence.

On average since 2000, the HUI has rallied around 27.6% per year (from an indexed level of 100.0 to 127.6). These are stupendous gains over an ugly decade where the general stock markets have languished in a secular bear. As a matter of fact, on the day the HUI bottomed in November 2000 the flagship S&P 500 stock index closed at 1383. Today a decade later it is 21% lower while the HUI is 1151% higher! Gold stocks have been a spectacularly-lucrative investment since 2000!

In this secular bull the HUI has tended to trade in the well-defined seasonal uptrend channel shown in this chart. It hits its seasonal support four times a year, in mid-January, mid-March, late July, and late October. These are the best times of the year seasonally to add new gold-stock and silver-stock positions for investors and speculators alike. Your odds of “buying low” around these support approaches are far better than they are the rest of the year.

Out of these major seasonal lows, the HUI’s largest seasonal rallies of the year emerge. The first runs from mid-March to early June and has averaged 14.5% over the course of this gold-stock bull. As long as gold stocks aren’t radically overbought in March, we diligently play this strong spring gold-stock rally every year. Our subscribers have made lots of money over the years buying PM stocks with us around mid-March and then selling them in late May or early June.

After this first big seasonal rally, the PM stocks enter the dreaded summer doldrums. They tend to drift sideways to lower for much of the summer. The summers are, without any doubt, the weakest time of the year for the gold stocks seasonally. Every year in May I warn our subscribers about these dangerous PM summer doldrums. They not only result in real trading losses and even bigger opportunity costs, they can really devastate traders’ psychology and confidence.

The second big seasonal rally of the year erupts out of exceptionally-oversold HUI lows in late July. It tends to run 15.1% higher on average between late July and late September. Of course right now, in mid-August, we are early on in this HUI seasonal rally. This is very encouraging and ought to excite PM-stock traders bummed out from weathering the summer doldrums. PM stocks almost always rally big heading into autumn, and statistically this seasonal rally is probably already underway.

If you follow our research work at Zeal, you are probably scratching your head at this point. I imagine you thinking, “But Adam, you often write about a mid-August seasonal low. Doesn’t this late-July HUI seasonals data contradict this?” Yes, it certainly does. But this apparent contradiction highlights the supreme importance of broad and well-rounded research. Indicators must be considered in concert, not isolation, to optimize trade timing.

Remember that gold stocks (and silver as well) are ultimately driven by the fortunes of the gold price. If gold is weak, the entire gold complex has a tough time rallying. And gold seasonals bottom in mid-August. Of course silver seasonals dutifully follow gold, bottoming between mid-August and mid-September. And just last week, my business partner Scott Wright published some landmark research on junior seasonals. Junior gold stocks are hyper-sensitive to gold sentiment. And when do they bottom? You guessed it, mid-August!

So if you want to buy PM stocks in late July due to these HUI bull seasonals, your odds for success are high. And indeed this year, the HUI’s 432 low on July 27th may indeed prove to be summer 2010′s closing low. But I’ve seen plenty of really ugly HUI selloffs into mid-August, like 2007′s sharp 13.6% loss over 6 trading days ending August 16th. So personally, I feel more comfortable waiting for the probable mid-August gold lows before adding new long positions. Gold is gold stocks’ primary driver.

The HUI tends to see another seasonal pullback in October. Provocatively, the wicked-sharp plunge in October 2008′s stock panic stretched this seasonal tendency considerably. Prior to that anomaly, the HUI tended to bounce in the middle of its seasonal uptrend in mid-October, not near support as this latest seasonal chart shows. Since that panic was such an exceedingly-rare event, I certainly wouldn’t hold out for a seasonal support approach in Octobers in general. But an early-October pullback is still highly probable.

The third big seasonal rally launching out of October’s low actually lasts until late February of the following year. All together it accounts for a 17.6% average HUI rally over this past decade, which makes it the seasonally-strongest time of the year for gold stocks. So as long as gold’s fundamentals remain bullish, and neither gold nor the gold stocks have just rapidly spiked to very-overbought levels, it is prudent to be heavily long gold stocks in the winter. Throw in autumn and spring as well, for the other two big seasonal rallies.

So boiled down, these HUI seasonals are really pretty simple. Expect weakness in summer since there is nothing then to drive gold investment-demand spikes. If you are an investor, just gird yourself psychologically for this weakness and don’t get caught up in it or worry about it. If you are a speculator, you can sell long positions between late May and early June and then redeploy between late July and mid-August. And then stay long and deployed for the rest of the other three seasons.

This simple truth is so powerful and really highlights the value of expert market research for all traders. Every year without fail, I receive tons of e-mails from discouraged PM-stock investors and speculators in this late-summer timeframe. They are frustrated, discouraged, and have either given up on PM stocks or are considering capitulation. Yet if you study the markets, or spend a little time and money learning from those who do, there is nothing to fear in the summer. Don’t expect too much, and you won’t be let down.

This next chart takes an alternative view of HUI seasonals, this time dissected monthly. Every calendar month of this gold-stock bull is individually indexed, and then each month is averaged with the same months across all other calendar years. In addition, as in the first chart above, standard deviations are rendered in yellow. The smaller inset charts show the full range of these standard deviations.

Standard deviations, of course, are measures of dispersion. When you are running averages for market-analysis work, the tighter the underlying data the higher the probability your average is meaningful. The narrower the yellow bands (closer to the core blue average), the less dispersed the underlying data is. The sequences 4, 5, 6 and 0, 2, 13 both average 5, but obviously the tighter first one is more likely meaningful.

In calendar-month terms, November, May, and September are the best months for the HUI on average. We are talking gains of 9.2%, 7.7%, and 4.6% respectively. The worst months of the year for gold stocks on average are October and July. This is skewed by the panic October and November of 2008, however. While these two months were still weak and strong pre-panic, they weren’t as extreme as they look above.

The 2008 panic and its 2009 aftermath had a much more-pronounced impact on the smaller monthly seasonal datasets than it did on the annual ones. It flattened January, March, and August while extending October and November. If you want to see the panic changes with your own eyes, compare this chart to the last one I built before the panic with data current to February 2008.

These monthly seasonal tendencies reinforce the annual analysis. Summers, especially June and July, tend to be weak during the PM summer doldrums. August looks strong above in monthly terms, but realize most of these gains merely offset July’s big losses. The result is the flat late summer seen above on the annual chart. But once summer passes, gold stocks tend to rally on balance in most months except October. While they can drift lower other times, these non-summer pullbacks tend to be trivial.

So once again the core thesis of the HUI bull seasonals emerges. Write off summer, but make sure you are deployed in high-potential gold and silver stocks for the autumn, winter, and spring gold rallies. Thanks to summer’s dampening effect on sentiment among naive PM-stock traders, this time of year almost always sees nice bargains in PM stocks. August is the perfect time to stock up and prepare for the highly-probable large autumn gold rally.

Gold tends to rally sharply in autumn because of big Asian buying. After harvest, farmers can invest in gold once they know how big their profits are. And gold demand in India in particular, the world’s largest consumer, rockets higher during autumn’s festival season. If you have any Indian friends, ask them about Indian wedding season. It is fascinating and often drives big gold rallies which PM stocks leverage.

Which stocks to buy? We can help you with that. At Zeal we deeply research entire PM-stock sub-sectors (gold producers, silver stocks, advanced-stage junior golds, early-stage junior golds) to uncover what we believe are the best stocks fundamentally. We publish comprehensive profiles of our dozen favorite stocks (out of initial universes often in the hundreds) in our popular Zeal Reports. You can enjoy the benefits of hundreds of hours of our expert research for a mere pittance. Buy a PM-stock report today and take advantage of the late-summer bargains!

We also publish acclaimed monthly and weekly newsletters that are invaluable to investors and speculators. All of our research and wisdom flows into these products, helping traders better understand what is going on in the markets, why, and how it can be profitably traded. There is no need to ever be anxious about the financial markets! The more you understand, the less you will worry and the better you will do. Subscribe today and take charge of building your personal fortune!

The bottom line is precious-metals stocks have exhibited very definite seasonal tendencies over the course of their secular bull. This is largely the result of gold demand spikes driven by income-cycle and cultural factors that are tied to the calendar year. While PM-stock seasonals are often secondary drivers that can be temporarily overridden by short-term technical and sentimental extremes, prudent traders still pay close attention to these headwinds and tailwinds.

HUI bull seasonals show investors and speculators when they have the best odds of buying low and selling high. They reveal that summer tends to be a poor time of the year for PM stocks, but the rallies in autumn, winter, and spring far more than make up for these summer doldrums. They also show that our current mid-August timeframe is one of the best times of the year to add new long positions.

Learn how to buy gold and make great money doing it! Gold Mining Stocks is the best investment in ANY economy!