Posts
The old adage of "Sell in May and go away" is well known and well played by many on and off The Street. The thought is that many traders simply take the summer off. Whether this is truly the case, is debatable. There are indicators that show a drop in volume during these summer months and trends tend towards the negative. The problem is, as always, determining how to play this. Is this simply a case of self-fulfilling prophesy? I think it probably is. Whatever the cause, I believe this May will be a good time to visit Hawaii.
Does this mean sell everything? absolutely not. But I am moving out of some of my more speculative holdings and shoring up my core positions. I think, at this time, being in cash is not the answer. If you are a short seller I think that this would be a great time to go short several areas. The financials are ripe for another sell off. This would probably cause other stronger sectors to sell off as well and may present another buying opportunity for some other sectors like commodities and energy. Look for disappointment in the usual summer oil rally. I do think oil will return to the $70 neighborhood but not for some time.
Furthermore, this move in precious metals may be another head fake but it doesn't matter I'm still extremely bullish on precious metals and am enjoying buying silver anywhere around 12 bucks. I can't believe that the markets are letting me accumulate at these prices.
I apologise for the short post today but things have really not changed much. The overall Macro picture is playing out exactly as expected and the trend is still in place. The only thing to concentrate on is your short term trades and those moves are typically difficult to predict, so protect yourself against next month and don't be surprised if a sell off happens before May. Traders don't like to "react" They want to be in position ahead of time. If you are reacting, you are probably loosing money and setting your self to lose more of same.
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post
Monday, April 27, 2009
Sunday, April 5, 2009
To my Friends and Family
For my regular readers this weeks post may seem a little redundant, but as the title suggests, I am targeting my family and friends with this article. Why? because the time is upon us to act decisively.
But before I launch into my speech I would like to preface it by making the following distinction;
This is not a political issue. It's just fundamental analysis. I don't care to evaluate the policies just the implications of those policies. If you are on the right I apologise, if you are on the left, I apologise and if you are in the middle, I probably don't have to apologise, but I will just in case. Sorry everybody.
The reason for my concern for family and friends, is that I don't want to see you suffer the consequences of a government gone mad. I don't see anything that can reverse the path that we are on and that path will lead to inflation. Serious inflation. The creation of money on this magnitude can only lead to inflation.
Let me say that again in a different way.
There is no other reaction to an increase in the supply of dollars, than inflation. It's a cause and effect relationship.
If you take that at face value and forget politics, there is only one reaction that you can have; And that is to protect your family and friends from this hidden tax increase.
How is this a hidden tax?
The best way to look at that is to think about what a politician must do if he wants a new program and there is no available money to pay for it. They can either borrow money or increase revenue, that's it, those are their only options. Wait, there is one more option they have now that we are no longer on a gold standard, they can just wave a magic wand and create more money.
Well heck, waving the magic wand sounds pretty easy. You don't piss off voters by raising their taxes, in fact you make them happy by giving them what they want. You don't have to make those annoying debt payments on borrowed money. In fact by making more money out of thin air you actually make the existing debt smaller. Even better!
What politician wouldn't like this. The best part is that when voters look at their savings and their paychecks they won't see that hidden tax, they'll just say that "man, things are getting more and more expensive, it must be those greedy Wall Street guys or those damn oil tycoons". They won't see that there are simply too many dollars chasing too few goods or services.
Why do you think politicians(on both sides of the isle), over the years, have moved us away from a currency backed by gold? It's because you can't create gold by government decree. There is a finite amount of gold in the world and when you peg your currency to that supply, you essentially cap the amount of currency that can be created to the amount of gold that exists.
The problem here, is that we have 4000 years of monetary history that tells us that every nation that has debased it's currency has failed and ended their future prosperity. It's played itself out over and over again throughout the ages and we are doing it again.
People will ultimately return to tangible wealth. Things of value, that can't be created out of thin air. Things that can't be devalued by morally bankrupt politicians. Things that are a store of value. Gold and silver have always been that store of value and they will increase in price, relative to the value of the dollar.
So to my friends and family, you have to save your money in the only form, that the government cannot devalue by endless borrowing, spending and printing. Buy real physical gold and silver and keep it somewhere safe. My preference is silver for various reasons, but I don't care, buy which ever you prefer. If you need help, let me know, I have several reliable sources I can send you to.
There are a lot of talking heads in the financial world that are advocating re-entering the stock market at these levels. I have had a lot of people telling me that I missed the boat on Bank of America. Maybe I did, I can't pick every one correctly. But I still wouldn't touch the financials with anybodies money. I don't have any faith in them and now that they have relaxed regulations on Mark to Market accounting, I am even more afraid of the banking sector. Keep in mind that while they may take off in value, there is no foundation under that house of cards and they can tumble just as fast as they did last time. If you want to come back into the markets, please do so, cautiously and buy stocks with strong underlying value and little or no debt. This storm is not over yet, in fact it's about to take a new turn, an inflationary one.
Debasing the currency has always resulted in it's destruction. This has always happened throughout history. I don't know if it will happen today, tomorrow, next year, in the next 10 years or even the next 100 years, but it will happen. What I do know with certainty is that inflation is here and now and for every dollar that they print, every dollar I have, is worth less and less. I want my friends and family to be safe and prosperous, so trade in those dollars before they are worthless.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post
But before I launch into my speech I would like to preface it by making the following distinction;
This is not a political issue. It's just fundamental analysis. I don't care to evaluate the policies just the implications of those policies. If you are on the right I apologise, if you are on the left, I apologise and if you are in the middle, I probably don't have to apologise, but I will just in case. Sorry everybody.
The reason for my concern for family and friends, is that I don't want to see you suffer the consequences of a government gone mad. I don't see anything that can reverse the path that we are on and that path will lead to inflation. Serious inflation. The creation of money on this magnitude can only lead to inflation.
Let me say that again in a different way.
There is no other reaction to an increase in the supply of dollars, than inflation. It's a cause and effect relationship.
If you take that at face value and forget politics, there is only one reaction that you can have; And that is to protect your family and friends from this hidden tax increase.
How is this a hidden tax?
The best way to look at that is to think about what a politician must do if he wants a new program and there is no available money to pay for it. They can either borrow money or increase revenue, that's it, those are their only options. Wait, there is one more option they have now that we are no longer on a gold standard, they can just wave a magic wand and create more money.
Well heck, waving the magic wand sounds pretty easy. You don't piss off voters by raising their taxes, in fact you make them happy by giving them what they want. You don't have to make those annoying debt payments on borrowed money. In fact by making more money out of thin air you actually make the existing debt smaller. Even better!
What politician wouldn't like this. The best part is that when voters look at their savings and their paychecks they won't see that hidden tax, they'll just say that "man, things are getting more and more expensive, it must be those greedy Wall Street guys or those damn oil tycoons". They won't see that there are simply too many dollars chasing too few goods or services.
Why do you think politicians(on both sides of the isle), over the years, have moved us away from a currency backed by gold? It's because you can't create gold by government decree. There is a finite amount of gold in the world and when you peg your currency to that supply, you essentially cap the amount of currency that can be created to the amount of gold that exists.
The problem here, is that we have 4000 years of monetary history that tells us that every nation that has debased it's currency has failed and ended their future prosperity. It's played itself out over and over again throughout the ages and we are doing it again.
People will ultimately return to tangible wealth. Things of value, that can't be created out of thin air. Things that can't be devalued by morally bankrupt politicians. Things that are a store of value. Gold and silver have always been that store of value and they will increase in price, relative to the value of the dollar.
So to my friends and family, you have to save your money in the only form, that the government cannot devalue by endless borrowing, spending and printing. Buy real physical gold and silver and keep it somewhere safe. My preference is silver for various reasons, but I don't care, buy which ever you prefer. If you need help, let me know, I have several reliable sources I can send you to.
There are a lot of talking heads in the financial world that are advocating re-entering the stock market at these levels. I have had a lot of people telling me that I missed the boat on Bank of America. Maybe I did, I can't pick every one correctly. But I still wouldn't touch the financials with anybodies money. I don't have any faith in them and now that they have relaxed regulations on Mark to Market accounting, I am even more afraid of the banking sector. Keep in mind that while they may take off in value, there is no foundation under that house of cards and they can tumble just as fast as they did last time. If you want to come back into the markets, please do so, cautiously and buy stocks with strong underlying value and little or no debt. This storm is not over yet, in fact it's about to take a new turn, an inflationary one.
Debasing the currency has always resulted in it's destruction. This has always happened throughout history. I don't know if it will happen today, tomorrow, next year, in the next 10 years or even the next 100 years, but it will happen. What I do know with certainty is that inflation is here and now and for every dollar that they print, every dollar I have, is worth less and less. I want my friends and family to be safe and prosperous, so trade in those dollars before they are worthless.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post
Sunday, March 29, 2009
Bear Market rally
As the title suggests, I'm not buying into the notion that we have reached the bottom and it's all smooth sailing from here. I find myself firmly in the camp of the profit takers. What this represents to me is opportunity. If you've made some money here, it's a good time to take something off the table and/or reallocate your portfolio. The thing to remember here is that the fundamentals of the economy haven't changed. In some data, conditions, although not as bad as forecast, are still abysmal. Don't be sucked into the argument that we've turned the corner. Nothing goes either, up or down in a straight line and until now, it's been a free fall for most asset classes. The overall trend for the broader markets is still down.
This is indeed a rally, but a rally in a bear market. This is no different than a bull market sell off.
What I mean here is treat it the same way you would if the markets were doing well and then pulled back. You would add shares on the pull back in price right? The only difference here is that we are given a chance here to either, take some profits from our new investments or recoup some losses from our older, beaten down positions, then reallocate those funds in more profitable sectors.
All of this applies to other assets only. What do I mean by "other assets"?
Everything except gold, silver and anti-dollar investments such as TBT. These things should be accumulated over time because their overall trend is up and fundamentally, that trend is still in place.
I still see serious times ahead, this rally just puts me in a place where I can correct earlier mistakes, such as DOW, sell it off and either, wait to reallocate those funds, after the next leg down, or play the down move with a short position.
So what's the best sell technique here?
Set your stops.
This is the absolute perfect time to use this sell strategy. There are a couple ways to do this, but essentially I'll be letting the market take me out.
Let's look at the DOW trade. First let me repeat, I screwed up on this one. I bought into the old line about buying blue chips and I realise now that the old blue chips are just that, old. But my mistake wasn't in buying DOW, all investors pick losers every now and then. My mistake was in holding DOW as it continued down. The buy and hold mentality took control and I figured that over the long term it was a good acquisition. It may well be, given enough time, but is it the best acquisition?
That's where we let the market decide. I'll be entering a stop loss order. What that means is that it is a conditional order to sell if the price hits a certain price level. In this case I'll dump it if it hits $8.50. Current price is $8.96. That's about 5% down from here and it's a critical support level. This trade will automatically execute with or without me around.
The advantage here is that it removes emotion from the decision. If DOW holds the support level and continues higher the trade doesn't go off and I can participate in an ongoing rally. In that case I would cancel the stop loss order and issue a new one at a higher support level. Or I can issue a trailing stop order which is the same thing, but it works off of percentage drop rather than set price levels and the stop level ratchets up with the price on it's own. I prefer to be more active and use predetermined support levels. But either method works. Your own broker may have different procedures to accomplish these trades, so do your homework and consult with your broker to learn their methods and restrictions.
If, on the other hand, DOW breaks the support level, the trade is automatically entered and executed with no further action from me. I just wake up with a new account balance and no shares of Dow Chemical.
Good luck and Godspeed
JT
This is indeed a rally, but a rally in a bear market. This is no different than a bull market sell off.
What I mean here is treat it the same way you would if the markets were doing well and then pulled back. You would add shares on the pull back in price right? The only difference here is that we are given a chance here to either, take some profits from our new investments or recoup some losses from our older, beaten down positions, then reallocate those funds in more profitable sectors.
All of this applies to other assets only. What do I mean by "other assets"?
Everything except gold, silver and anti-dollar investments such as TBT. These things should be accumulated over time because their overall trend is up and fundamentally, that trend is still in place.
I still see serious times ahead, this rally just puts me in a place where I can correct earlier mistakes, such as DOW, sell it off and either, wait to reallocate those funds, after the next leg down, or play the down move with a short position.
So what's the best sell technique here?
Set your stops.
This is the absolute perfect time to use this sell strategy. There are a couple ways to do this, but essentially I'll be letting the market take me out.
Let's look at the DOW trade. First let me repeat, I screwed up on this one. I bought into the old line about buying blue chips and I realise now that the old blue chips are just that, old. But my mistake wasn't in buying DOW, all investors pick losers every now and then. My mistake was in holding DOW as it continued down. The buy and hold mentality took control and I figured that over the long term it was a good acquisition. It may well be, given enough time, but is it the best acquisition?
That's where we let the market decide. I'll be entering a stop loss order. What that means is that it is a conditional order to sell if the price hits a certain price level. In this case I'll dump it if it hits $8.50. Current price is $8.96. That's about 5% down from here and it's a critical support level. This trade will automatically execute with or without me around.
The advantage here is that it removes emotion from the decision. If DOW holds the support level and continues higher the trade doesn't go off and I can participate in an ongoing rally. In that case I would cancel the stop loss order and issue a new one at a higher support level. Or I can issue a trailing stop order which is the same thing, but it works off of percentage drop rather than set price levels and the stop level ratchets up with the price on it's own. I prefer to be more active and use predetermined support levels. But either method works. Your own broker may have different procedures to accomplish these trades, so do your homework and consult with your broker to learn their methods and restrictions.
If, on the other hand, DOW breaks the support level, the trade is automatically entered and executed with no further action from me. I just wake up with a new account balance and no shares of Dow Chemical.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post
Sunday, March 22, 2009
New stuff!
Before getting into the main topic of today's Blog, a quick note on the silver action of the past week; After what appeared to be a bounce off the support level of 12.50, silver looked poised to rally, then it collapsed. What happened?
I don't know for certain, however it looks to be a failed attempt of the short sellers to bring down the price. I'll know more this week as the details unfold.
The interesting thing here is the action of silver after the close in New York on the 18th. After it tumbled during the day, it shot up, as the overseas markets took control. Which leads me to believe that there are some short sellers here in America that are having an Imodium AD moment.
The "gap up" in price tells me that the rest of the world thinks that silver below 12 bucks is too cheap. I agree. Personally I think silver below 50 is too cheap, but only time will tell. Depending on what happens this week, I may do a mid week post, so keep an eye out.
On to our main topic.
KMP and CHK.
Kinder Morgan Energy Partners and Chesapeake Energy Corp.
Here's how these two companies fit into the macro picture. We all witnessed the collapse of the financial sector, and how this took out many people that didn't deserve to get hit. Chesapeake was no different. In fact the CEO of this company literally put his money where his mouth was and was buying massive quantities of his own stock. He, as did many others, misjudged the severity of this downturn and as a result, got called on margin and lost a ton of his personal wealth. What he saw in his company was value, intrinsic and substantial value. They are a natural gas company with first rate drilling and transportation operations. I've been watching this company for years and the thing that attracted me to them in the beginning was the insider trading activity. Some people believe insider trading is illegal, it's not. It just has to be done under close scrutiny by the SEC and in the full light of day. The thing that flagged CHK for me was the fact that all the top people in this company were buying the shares for their personal portfolios, consistently. This is what you look for under normal market conditions, which we are decidedly not seeing right now. But the fact remains that the people in the best position to see the condition of a company, thought pretty highly of CHK before everything tanked. Now if you are of the opinion that a recovery will come some day, as am I, then we want to buy the stuff that is on sale right now and has real tangible value. A look at their chart(which I encourage you to with all stocks) shows that they have stabilised in the 15 to 20 dollar range. As a trader, I'm a buyer in the 15 dollar range and a seller at 20, but for you buy and holders, this is a great one at 15 bucks. I see some great basing action here folks and that just means that they've consolidated nicely. In addition to that, I believe the price of Nat gas is unusually low and as the price climbs, as I think it eventually will, their P/E ratio of 15.5 should plummet, making this company a steal at $15, but if I wanted a long term play, I still think it's a buy under 20. Oh yeah, their 52 week high was $74, cool huh?
Okay let's look at Kinder Morgan.
A very different story but still a Nat gas company with first class assets in place. Their volatility is quite a bit higher so if I wanted to hold this one, I'd buy the dips and avoid watching it every day. That helps cut down on the Tums. As a trader the volatility aspect only makes it more appealing. Another appealing aspect is it's yield, check this out, 9%! And there is little danger of them losing that yield. They have an interesting tax status that requires them to pay out 90% percent of their profits or risk losing exemptions. (It has been some time since I researched that, so don't quote me exactly on the 90%. There are some timber companies with that same tax status so maybe I'll dust off that research and do a blog on that in the future).
KMP's P/E is a little high at 23.6, but in this environment that just indicates that they've got some pretty good institutional support, and again that will drop as pricing power in gas improves.
Their 52 week high is $60.89 so don't expect a home run on this one. conversely their low is $35.59 which indicates some risk to the downside, but with high yielding investments being a rarity these days, I think they are relatively safe.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post
I don't know for certain, however it looks to be a failed attempt of the short sellers to bring down the price. I'll know more this week as the details unfold.
The interesting thing here is the action of silver after the close in New York on the 18th. After it tumbled during the day, it shot up, as the overseas markets took control. Which leads me to believe that there are some short sellers here in America that are having an Imodium AD moment.
The "gap up" in price tells me that the rest of the world thinks that silver below 12 bucks is too cheap. I agree. Personally I think silver below 50 is too cheap, but only time will tell. Depending on what happens this week, I may do a mid week post, so keep an eye out.
On to our main topic.
KMP and CHK.
Kinder Morgan Energy Partners and Chesapeake Energy Corp.
Here's how these two companies fit into the macro picture. We all witnessed the collapse of the financial sector, and how this took out many people that didn't deserve to get hit. Chesapeake was no different. In fact the CEO of this company literally put his money where his mouth was and was buying massive quantities of his own stock. He, as did many others, misjudged the severity of this downturn and as a result, got called on margin and lost a ton of his personal wealth. What he saw in his company was value, intrinsic and substantial value. They are a natural gas company with first rate drilling and transportation operations. I've been watching this company for years and the thing that attracted me to them in the beginning was the insider trading activity. Some people believe insider trading is illegal, it's not. It just has to be done under close scrutiny by the SEC and in the full light of day. The thing that flagged CHK for me was the fact that all the top people in this company were buying the shares for their personal portfolios, consistently. This is what you look for under normal market conditions, which we are decidedly not seeing right now. But the fact remains that the people in the best position to see the condition of a company, thought pretty highly of CHK before everything tanked. Now if you are of the opinion that a recovery will come some day, as am I, then we want to buy the stuff that is on sale right now and has real tangible value. A look at their chart(which I encourage you to with all stocks) shows that they have stabilised in the 15 to 20 dollar range. As a trader, I'm a buyer in the 15 dollar range and a seller at 20, but for you buy and holders, this is a great one at 15 bucks. I see some great basing action here folks and that just means that they've consolidated nicely. In addition to that, I believe the price of Nat gas is unusually low and as the price climbs, as I think it eventually will, their P/E ratio of 15.5 should plummet, making this company a steal at $15, but if I wanted a long term play, I still think it's a buy under 20. Oh yeah, their 52 week high was $74, cool huh?
Okay let's look at Kinder Morgan.
A very different story but still a Nat gas company with first class assets in place. Their volatility is quite a bit higher so if I wanted to hold this one, I'd buy the dips and avoid watching it every day. That helps cut down on the Tums. As a trader the volatility aspect only makes it more appealing. Another appealing aspect is it's yield, check this out, 9%! And there is little danger of them losing that yield. They have an interesting tax status that requires them to pay out 90% percent of their profits or risk losing exemptions. (It has been some time since I researched that, so don't quote me exactly on the 90%. There are some timber companies with that same tax status so maybe I'll dust off that research and do a blog on that in the future).
KMP's P/E is a little high at 23.6, but in this environment that just indicates that they've got some pretty good institutional support, and again that will drop as pricing power in gas improves.
Their 52 week high is $60.89 so don't expect a home run on this one. conversely their low is $35.59 which indicates some risk to the downside, but with high yielding investments being a rarity these days, I think they are relatively safe.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post
Monday, March 16, 2009
Resistance and Support
It's all about Resistance and support.
I called the top in silver back in my February 22 update at 14.50. The following week, March 2, I called the bottom at 12.50. In both cases I was wrong by 6 cents. I guess in the grand scheme that's not too bad, but what's next?
While no one can know with certainty, things are looking very nice right now. The current price action is encouraging in that, the markets seem to be consolidating nicely in preparation for a new run at the 14.50 resistance.
But lets talk about resistance and support as a concept for a minute. What are they?
Resistance is simply a technical analyst's term for an overbought condition, a condition where market psychology is such that the smart money gets nervous and takes some or all of their profits off the table. It's the "how and why" of the way to make money as a trader.
Support is the other end of the trade. When an asset hits a support level, it is simply another way of saying that the asset is at a fair value at that given time.
Are these indicators always right? of course not. But they are right a majority of the time.
Here is an important point to remember; Each time resistance or support holds, it gets stronger.
Another important point to remember is that, if you can break through resistance, say in this case 14.50, that resistance level becomes the new support level. And the reverse is true as well, if the support level, 12.50, is broken through on the downside, it, in turn becomes the new resistance level.
Important point #3; These concepts hold true in both bull and bear markets, the distinction that needs to be made is that in a bull market support is more likely to hold and resistance is more likely to be broken through. Conversely, in a bear market resistance is the strong one and support is more likely to be broken through.
Sometimes these things happen very quickly and are difficult to spot. But they do happen and whether or not the smart money is creating a self full filling prophecy is irrelevant. This is what they do, it's what they talk about over drinks and it's how they consistently make profits. As small players in an ocean of big fish, we can become big fish too, if we stay out of their way and feed off the scraps of their kills. Does this mean we are scavengers? no, it just means we are smaller smart money.
Here's where I see us right now, I think we will bounce around here for a very short time before moving higher. I will be surprised if we don't break through the 14.50 resistance level and have that in turn become support for a run at 16 bucks. After that we'll wet our finger and see which way the wind is blowing. If 14.50 does hold, it is simply another opportunity to add to our position down to the 12.50 level.
We are still in a bull market correction, but strength is building for a strong upward move.
James Turk is reporting of continuing backwardation in the silver futures market as well as rumors of physical bullion shortages. I'll save the definition of backwardation for another post, but suffice to say for now, this is a very bullish sign for silver.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
I called the top in silver back in my February 22 update at 14.50. The following week, March 2, I called the bottom at 12.50. In both cases I was wrong by 6 cents. I guess in the grand scheme that's not too bad, but what's next?
While no one can know with certainty, things are looking very nice right now. The current price action is encouraging in that, the markets seem to be consolidating nicely in preparation for a new run at the 14.50 resistance.
But lets talk about resistance and support as a concept for a minute. What are they?
Resistance is simply a technical analyst's term for an overbought condition, a condition where market psychology is such that the smart money gets nervous and takes some or all of their profits off the table. It's the "how and why" of the way to make money as a trader.
Support is the other end of the trade. When an asset hits a support level, it is simply another way of saying that the asset is at a fair value at that given time.
Are these indicators always right? of course not. But they are right a majority of the time.
Here is an important point to remember; Each time resistance or support holds, it gets stronger.
Another important point to remember is that, if you can break through resistance, say in this case 14.50, that resistance level becomes the new support level. And the reverse is true as well, if the support level, 12.50, is broken through on the downside, it, in turn becomes the new resistance level.
Important point #3; These concepts hold true in both bull and bear markets, the distinction that needs to be made is that in a bull market support is more likely to hold and resistance is more likely to be broken through. Conversely, in a bear market resistance is the strong one and support is more likely to be broken through.
Sometimes these things happen very quickly and are difficult to spot. But they do happen and whether or not the smart money is creating a self full filling prophecy is irrelevant. This is what they do, it's what they talk about over drinks and it's how they consistently make profits. As small players in an ocean of big fish, we can become big fish too, if we stay out of their way and feed off the scraps of their kills. Does this mean we are scavengers? no, it just means we are smaller smart money.
Here's where I see us right now, I think we will bounce around here for a very short time before moving higher. I will be surprised if we don't break through the 14.50 resistance level and have that in turn become support for a run at 16 bucks. After that we'll wet our finger and see which way the wind is blowing. If 14.50 does hold, it is simply another opportunity to add to our position down to the 12.50 level.
We are still in a bull market correction, but strength is building for a strong upward move.
James Turk is reporting of continuing backwardation in the silver futures market as well as rumors of physical bullion shortages. I'll save the definition of backwardation for another post, but suffice to say for now, this is a very bullish sign for silver.
Good luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Wednesday, March 4, 2009
Is Ted Butler right?
For those of you not familiar with Theodore Butler, he is a former precious metals futures player turned market analyst/crusader. It is his contention, that the precious metals markets are manipulated and the silver market, in particular, has been manipulated down to artificially low prices by large investment banks taking massive short positions. On the other side of the fence his critics claim that his conclusions are fantasy bordering on fanatical. Rather than going through his claims and his reasons, I will let you do the research yourself, Mr. Butler explains it far better than I. http://www.butlerresearch.com/archive_free.html
So is he right?
Yes and No
I tend to come down on the same side of the road as David Morgan of Silver-investor.com. To paraphrase his position, Mr. Morgan believes that the overall market price is not manipulated but it can be temporarily influenced.
My position is similar, mainly because I, as well as other analysts, have been successfully calling the market tops and bottoms through the use of various charting techniques as well as fundamental analysis. This is not to say that the people who may be manipulating aren't using those techniques as well. Of course they are.
Market forces will have their way. Manipulation can only work temporarily, but "temporary" can be a relative thing. It could be weeks, months or years.
Where I find Mr Butlers position to be very useful, is in taking his analysis from the COTs (Commitment of Traders report) data and use it as a confirmation of my technical analysis. If he flags an unusually large build up or spike on the short side at the same time I find overbought or topping indicators, it just strengthens my conviction to put on a trade.
The question remains as to which comes first. Are the manipulators causing the top or are they just taking maximum advantage of technical analysis.
From a moral standpoint I stand firmly behind Mr. Butlers concerns because these banks are not merely taking obscenely large short positions, his contention is, that they are colluding with other shorts to force the price to extremes. These are not the actions that can be allowed in a free market. So his crusading, as some have called it, is a just cause.
That the regulators at the CFTC are not responsive to this issue, is of course, to be expected. Having worked for the government for so long, it comes as no great surprise that there is incompetence in the government and this ineptness, actually lends credibility to Mr. Butlers arguments.
Illegal activity right under the nose of regulators?
Can anyone say Bernie Madoff?
Stick to your analysis and look to all sources for information. It is a mistake to dismiss Mr Butlers analysis as fantasy. Puzzle pieces often take on strange and unfamiliar shapes, but when correctly put together, can present a very pretty picture.
Good Luck and Godspeed
JT
So is he right?
Yes and No
I tend to come down on the same side of the road as David Morgan of Silver-investor.com. To paraphrase his position, Mr. Morgan believes that the overall market price is not manipulated but it can be temporarily influenced.
My position is similar, mainly because I, as well as other analysts, have been successfully calling the market tops and bottoms through the use of various charting techniques as well as fundamental analysis. This is not to say that the people who may be manipulating aren't using those techniques as well. Of course they are.
Market forces will have their way. Manipulation can only work temporarily, but "temporary" can be a relative thing. It could be weeks, months or years.
Where I find Mr Butlers position to be very useful, is in taking his analysis from the COTs (Commitment of Traders report) data and use it as a confirmation of my technical analysis. If he flags an unusually large build up or spike on the short side at the same time I find overbought or topping indicators, it just strengthens my conviction to put on a trade.
The question remains as to which comes first. Are the manipulators causing the top or are they just taking maximum advantage of technical analysis.
From a moral standpoint I stand firmly behind Mr. Butlers concerns because these banks are not merely taking obscenely large short positions, his contention is, that they are colluding with other shorts to force the price to extremes. These are not the actions that can be allowed in a free market. So his crusading, as some have called it, is a just cause.
That the regulators at the CFTC are not responsive to this issue, is of course, to be expected. Having worked for the government for so long, it comes as no great surprise that there is incompetence in the government and this ineptness, actually lends credibility to Mr. Butlers arguments.
Illegal activity right under the nose of regulators?
Can anyone say Bernie Madoff?
Stick to your analysis and look to all sources for information. It is a mistake to dismiss Mr Butlers analysis as fantasy. Puzzle pieces often take on strange and unfamiliar shapes, but when correctly put together, can present a very pretty picture.
Good Luck and Godspeed
JT
Monday, March 2, 2009
Nothing new. Metals are still the place to be.
Here's the scoop; There isn't one. At least nothing new.
As I pointed out last week both gold and silver were up against strong resistance and probably, could not break through. Look for a consolidation period here before they continue their upward trends. I am sticking with 850 support for gold and 12.50 for silver. These are my buy levels. If they break below these levels we could be in for another dance with 11 bucks and 750, but I view that as highly unlikely. With current world economic events, I see a much more likely chance that they will turn around even before those support levels and resume their climb.
In times like these, I would worry about the future for precious metals, if the Government was doing anything that would strengthen the dollar. They are not. In fact the inverse is true.
If I were writing a strategy to ruin the dollar, I would be advocating everything the government is doing, as well as what they are planning on doing.
This is not a criticism of President Obama, it is a criticism of all politicians, past and present from both sides of the isle. It would be charitable for me to say that they are just uneducated in monetary history. They know, but they are saying that "this time is different".
For almost a hundred years, politicians have refused to acknowledge history's precedents.
Rather than going through examples, suffice to say, that no country has ever successfully debased their currency.
Our founding fathers were mindful of past monetary catastrophes, that is why they spelled out, very carefully, what a dollar is. When we departed from that definition, we set ourselves on a path, the destination of which, is the destruction of the dollar. Can we turn from that path and save our currency?
Probably not. In fact the opposite is true, as I already stated, I couldn't come up with a better plan to destroy the once mighty Greenback, than what our leaders are doing. Not only are they continuing past practices, the are ramping up debt at a geometrical pace, with monetary supply following closely behind.
From psychology we know that true and lasting change will not come without a "significant emotional event", and we have yet to see that happen. It's beginning but, unfortunately, much more economic pain has to occur before that significance can be realised.
Back to the gold standard?
Yes, but I realize that in our current climate, that will not happen. The entire world will have to realize the necessity of a currency backed by silver and gold, and again, that will not happen without a world wide "significant emotional event".
Am I hoping for it to happen?
Absolutely not.
In fact, I would give away every ounce of silver and gold, as well as every dollar I have, to avoid it and return to our previous standard of living. But that would do no good. Instead I am trying to get friends and family to prepare for the hurricane ahead.
I am, by nature, an optimist. I know that sounds strange following my dire predictions, but I do think we will find a way out of this and my optimism is illustrated by the belief that I will emerge from the future events in much better shape than I am entering them, but not without being prepared.
As Doug Casey from Casey research is fond of saying "Rig for stormy weather!"
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
As I pointed out last week both gold and silver were up against strong resistance and probably, could not break through. Look for a consolidation period here before they continue their upward trends. I am sticking with 850 support for gold and 12.50 for silver. These are my buy levels. If they break below these levels we could be in for another dance with 11 bucks and 750, but I view that as highly unlikely. With current world economic events, I see a much more likely chance that they will turn around even before those support levels and resume their climb.
In times like these, I would worry about the future for precious metals, if the Government was doing anything that would strengthen the dollar. They are not. In fact the inverse is true.
If I were writing a strategy to ruin the dollar, I would be advocating everything the government is doing, as well as what they are planning on doing.
This is not a criticism of President Obama, it is a criticism of all politicians, past and present from both sides of the isle. It would be charitable for me to say that they are just uneducated in monetary history. They know, but they are saying that "this time is different".
For almost a hundred years, politicians have refused to acknowledge history's precedents.
Rather than going through examples, suffice to say, that no country has ever successfully debased their currency.
Our founding fathers were mindful of past monetary catastrophes, that is why they spelled out, very carefully, what a dollar is. When we departed from that definition, we set ourselves on a path, the destination of which, is the destruction of the dollar. Can we turn from that path and save our currency?
Probably not. In fact the opposite is true, as I already stated, I couldn't come up with a better plan to destroy the once mighty Greenback, than what our leaders are doing. Not only are they continuing past practices, the are ramping up debt at a geometrical pace, with monetary supply following closely behind.
From psychology we know that true and lasting change will not come without a "significant emotional event", and we have yet to see that happen. It's beginning but, unfortunately, much more economic pain has to occur before that significance can be realised.
Back to the gold standard?
Yes, but I realize that in our current climate, that will not happen. The entire world will have to realize the necessity of a currency backed by silver and gold, and again, that will not happen without a world wide "significant emotional event".
Am I hoping for it to happen?
Absolutely not.
In fact, I would give away every ounce of silver and gold, as well as every dollar I have, to avoid it and return to our previous standard of living. But that would do no good. Instead I am trying to get friends and family to prepare for the hurricane ahead.
I am, by nature, an optimist. I know that sounds strange following my dire predictions, but I do think we will find a way out of this and my optimism is illustrated by the belief that I will emerge from the future events in much better shape than I am entering them, but not without being prepared.
As Doug Casey from Casey research is fond of saying "Rig for stormy weather!"
Good Luck and Godspeed
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
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