-- Posted Friday, 19 October 2007 | Digg This Article
| Source: GoldSeek.com
10-18-2007
Let me remind those who follow this report that I now record and publish two Mid-Day Video’s: One on Gold and Silver along with one on Stock Indices. These are in addition to the in-depth nightly video I record that covers charts and my market opinion on all the major futures markets.
The link to my Mid-Day Videos is below. Be sure to click on the RSS feed to know when a new video is posted. I do my best to record and get these posted by 1:00 P.M. CST.
http://www.iepstein.com/videos_start.aspx
Fear and the markets…….
Sometimes the best of intentions by some aren’t taken by others that way. For example, the new Super Fund that a consortium of banks here in the US and in the UK are forming is being done with the best of intent. That intent is to cushion the blow from SIV loans that have become illiquid. There is a limited market to price and trade them due to the nature of what they now represent. By forming a fund to take make a market for them, a fund of last resort if you will, the members of this fund hope to “buy” time and don’t have to write off losses at fire sale prices. This makes sense to our Treasury Secretary and to the banks that hold this illiquid paper.
It also made sense, but the wrong type of sense to others of us who keep up with issues like these.
Simply put, we were put on notice that at least $400 Billion of “bad SIV” paper is out in the market place. More than many may have thought. This in and of itself offered gold a reason to rally.
And then there’s Crude Oil. As I am writing this November Crude Oil prices are closing in on $89 a barrel. Yes, $89 a barrel is nearly a 6% rise in prices this week alone. Gasoline and heating oil prices haven’t been keeping lock step, but it’s only a matter of time until they begin catching up. Gold is moving up on this as well. Silver is following gold, but silver being an industrial metal has to concern itself about a slowdown in our economy, that gold doesn’t have to.
Next there’s Turkey. Turkey is fearful of a Kurdish state being formed on their doorstep. The Turkish Parliament yesterday gave the army to “go” signal, should the government decide to invade Iraq. The world needs this like it needs a “headache”. This puts the US between in a very bad position, as the Kurds in Northern Iraq are a US ally. I seriously doubt that there will be an immediate invasion, given how politics work and the weather. Yes the weather. In that region of the world there are many mountain passes. With winter approaching, those passes will close due to snowfall. Late winter early spring seems a more likely invasion time frame than now.
The timing of actions of the US Congress bewilders me. Congress wants to label Turkey with genocide for actions that took place 90-years ago, in WW1. It’s the timing of this action that amazes me, not the intent. Their intent is good; the timing is well…stupid. Last I looked we had nearly 300,000 soldiers in Iraq in need of supplies. Nearly 70% of those supplies come to them in one manner or the other via Turkish airspace. The Kuwait ports and air strips are jammed and cannot handle the traffic needed to supply our troops. Given what this action does to our army, is the time now to use the genocide label? I think not!
February Gold
The Seasonal Chart below was provided by the Moore Research Center, Inc.
The Gold Seasonal Chart shown above is one of the tools I use to “measure market price momentum”.
Last week I made mention that gold may not back off significantly. Here’s what I said, “Historical charts have limitations…I am recommending February Call Options on Futures Contracts as they provide you with enough time to get your positions into to the late December time. December’s do not.” As readers of this report and my Twice Daily Updates know, I did recommend buying the 760-780 February Gold Call which should have been filled at $8.00.
In last weeks report I also provided you with two different scenarios. One followed the Seasonal Price action as shown on the above chart and the other did not.
Last week I came to the conclusion that by building a “small core position” in February Gold Calls, those who put theme on have until their expiration date, January 28th, to maneuver. So I made the recommendation and those that followed it as of this writing are approximately $200 ahead, per spread they put on.
The historical odds still favor some type of pullback between now and the end of the month. To me that means that you don’t get overly aggressive. Rather, let’s use weakness to build a long position. If no weakness develops, you wait until November and start buying more futures or options on strength. I will advise you along the way as to what I see.
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Conclusion and Recommendation
Look at the matrix below. It is comprised of February Gold Calls.
The Matrix below was created today, near 3:00 Chicago time.
Last week I recommended taking the first step to build a core position in the February 760 Call-780 Call Spread at a difference of $8.60 or less. Those that entered per my Twice Daily Updates ended up putting this spread on at $8.00, as the day I recommended it the market was weak.
Your total dollar commitment is limited to $800 plus whatever commissions and fees you paid. In the above table I used a higher commission in this calculation, since many of our customers use Broker Assisted Accounts.
Assuming you are a multiple position trade, you should not have put on your normal position size, as I want you to have ammunition to buy more of these should a price break of good size develop.
The above Matrix was made with help from Mark Pasek, an IECo broker.
To discuss these Gold Call Strategies in more detail, either call your IECo Representative or Mark Pesek.
Mark can be reached at:
1-800-284-1065
If you wish to e-mail Mark you may do so by writing him at:
mailto:MarkP@iepstein.com
Silver
I haven’t done a lot of writing on silver for the past week or so because it is not the leading metal market. It has been a follower of either copper or gold. The seasonal influences are not present for a sustained market advance until November rolls along. Gold is greatly influenced by what the US Dollar and energy prices do. Silver is not influenced in the same manner as gold is by these two forces.
The slow US economy along with a debacle in housing market has put a crimp on silver prices. However, the US is not the world’s only silver user. The growth in emerging markets world wide is a much more important catalyst. As the populations of these emerging markets become wealthier, their population’s needs and desires change. Often, these needs and desires end up consuming silver in some form. The consumption comes from electronics, new homes, their community’s infrastructure and so on. Simply put, the creation of wealth in emerging countries leads to a better life style, one that often consumes metals like silver and copper in greater numbers than past.
Let’s look at a chart of December Silver.
I captured this chart using my IraChart Software, at the close of business today. If prices break through 13.915, an uptrend will develop. The current risk in getting long is too large for me, as it requires a risk to 13.595, as labeled on the above chart. This amounts to 32 cents which equates to $1600 per silver contact.
This leads me to explain how I view “Dollar Risk”, as I do use Dollar Risk as a trading tool. Here is how I label Dollar Risk:
Definitions of Initial Dollar Risk:
Low-Risk Definition:
A Low Risk Trade is defined as one having an approximate initial dollar risk of $0 to 150.
Medium-Risk Trades Are Broken Down Into 3 Categories:
Lower-Medium Risk:
A Lower-Medium Risk Trade is defined as one having an approximate initial dollar risk of $151 to $250.
Medium-Risk Trade
A Medium-Risk Trade is defined as one having an approximate initial dollar risk of $250 to $350.
Higher-Medium Risk Trade
A Higher-Medium Risk Trade is defined as one having an approximate initial dollar risk of $351 to $500.
High-Risk Trades
A High-Risk Trade is defined as one having an approximate initial dollar risk of $500 to $600.
All dollar-risks are calculated with no allowance for slippage of fills, gaps in the market and commissions.
Recommendation
What I intend on doing is waiting to see if 13.92 is hit. If so, on a pullback I will look to buy the December Futures Contract at 13.68, risking that trade to 13.595. My short term objective, assuming prices hit 13.92 is 14.12, which was the high made on October 15th.
An alternative to this strategy will be to employ a Long Call Silver Spread. If I do so, I will not use the December Contract. I will use options related to the March Silver Contract.
Rather than set the Call strategy up now, I prefer to wait and see if the futures first trigger a buy signal. If so, I will offer up a Call Strategy.
I will as usual keep those who get my Twice Daily Market Reports in the loop as to my thoughts.
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-- Posted Friday, 19 October 2007 | Digg This Article | Source: GoldSeek.com
