-- Posted Friday, 18 July 2008 | Digg This Article
| Source: GoldSeek.com
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
Gold, Crude Oil and Equities
It is intuitively obvious that any security, other financial instrument, or commodity with great price Volatility provides opportunities for great Profit and great Loss.
The serious study of Volatility is a sophisticated subject, especially suitable for professionals and graduate seminars. But here we intend to make only a few brief observations potentially profitable to Investors and Traders in major Sectors of Interest: Gold and Silver, Crude Oil and the Energy Complex, and Equities-in-General.
Volatility, BETA and VIX
Volatility “measures the variability of a stock’s (Ed: or other financial instruments’) returns (price movement),” according to The Authority: “Technical Analysis of Stock Trends,” by Edwards and Magee (8th ed.).
Closely related to Volatility is the concept of BETA. BETA measures “the systematic risk of a stock, (or for those who are not into the financial industry jargon,) the sensitivity of a stock to the market. Thus if the market moves one point, a stock with a BETA of 1.5 will move 1.5 points and a stock with a BETA of .5 will move half a point. Approximately. Or more or less.” (Edwards and Magee).
Essential to Investors and Traders is close observation of the Volatility Index for which the symbol is VIX. The CBOE (Chicago Board Options Exchange) Volatility Index (VIX-X.W) measures periods of relatively high Volatility and low Volatility in the markets.
To simply state (without distorting too much), one important and useful generalization about Volatility: periods of relatively high Volatility mean relatively high fear levels in the market (i.e. high VIX readings) and thus tend to correspond with interim market Bottoms. Periods of low Volatility (i.e. low VIX readings) tend to correspond with interim market Tops.
For example, Dow interim bottoms of August and November, 2007, late January, 2008, and March, 2008 corresponded with Volatility tops all of which were above 27.5 on the VIX.
“Buy and Hold” Increasingly Fails
But High Volatility entails negatives, one of which is expressed in the recommendation from successful investor Peter Lynch, “The key to making money in stocks is not to get scared out of them.”
Unfortunately a “religious” adherence to the “Buy and Hold” recommendation implicit in Lynch’s statement can result in massive losses. For example, many stocks that suffered in the “Tech Wreck” of the year 2000 still have not come back and never will, leaving investors with worthless paper.
Significantly, the major U.S. Equities Indexes are down trending for the first time in 34 years, and Buying and unthinkingly Holding now could be disastrous. The “Buy and Hold” Strategy which would have worked for strong stocks in strong Sectors in the last 34 years could be quite damaging if employed now.
The Equities market “Boom Times” Paradigm of the last 34 years is gone for a long, long time. “Buy and Hold” thus increasingly fails.
Keys to Profit
However, one key to Profit in Times of High Volatility Peril is to pick the correct Sectors in which to go long or short and then not to get “scared out of” those sectors by high volatility but, rather, to time one’s moves in and out.
For example, the Financial Sector and financial institution stocks in particular are in for a long hard road for at least two or three years, as Deepcaster and several other non-Wall Street affiliated commentators have pointed out for many months now. Regardless of Official Wall Street Insider and Big Media Pronouncements, the Fundamentals for the Financial System are so terrible that Financial Sector stocks are not likely to experience a sustained renaissance for many months.
Therefore, one road to Profit in this “Peril for the Financials” would be to seriously consider shorting the Financial Sector every time it experiences a nice bounce up.
We modestly recall that Deepcaster (and several other non-Wall Street affiliated commentators) pointed out the weakness in the Financial Sector many months ago. That is why the near demise of Fannie Mae and Freddie Mac in the week ending July 13, 2008 comes as no surprise to us. Indeed, Deepcaster’s recommendation to short the Financial Sector (via a “short” ETF - see below) in the Summer, 2007 generated a considerable profit opportunity for Deepcaster Speculators.
Let us reiterate, the Financial Sector Blood Bath has only just begun.
One key to coping with Volatility of individual stocks within a Sector is to buy Exchange Traded Funds or Exchange Traded Notes as we described in detail recently (see Alert for week ending July 13th in the “Alerts Cache” at www.deepcaster.com). Fortunately for Investors and Traders, in recent years there has been a veritable explosion of these ETF’s and ETN’s which allow one to speculate on both the up and down price moves on a one-to-one, or in the case of the “double” funds, on a two-to-one short or long basis, without the substantial expiration risk of options.
The Interventional “Joker”
But regarding Timing and Direction and Sector Selection, one must also consider The Interventional “Joker” in the “deck” of the various markets. There is overwhelming evidence that a Fed-Led Cartel of Central Bankers and their allies and factota regularly intervene in the major markets*.
*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Central Bankers and Allies to read Deepcaster’s July, 2008 Letter containing a summary overview of Intervention entitled “Market Intervention, Data Manipulation Still Accelerating -- Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com >LatestLetter. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”
Often, but certainly not always, these Cartel* Interventions are volatility dampening. As well, from time to time, the volatility that would naturally occur in a non-manipulated market is allowed to occur for the purposes of implementing The ‘End Game’ Agenda of the Cartel. For more information about The Cartel’s Techniques and Agenda, see Deepcaster’s June 2007 Letter “Profiting from the Push to Denationalize Currencies and Deconstruct Nations,” and August, 2006 Alert “Massive Financial-Geopolitical Scheme Not Reported by Big Media,” posted at www.deepcaster.com. Especially important is Deepcaster’s March 28, 2008 Article “Defeating The Cartel… With Profit” in the Articles Cache at www.deepcaster.com.
Four Factors for Forecasting
So we take a brief look at what Volatility, Interventional, Fundamental and Technical considerations indicate regarding Key Sectors.
As we Forecast just over a week ago, our “most likely” scenario for Equities was an Equities Bounce beginning sometime in July.
It now (July 17th) appears that that anticipated Bounce has begun. We believe that it could take the Dow back over 12,000 to a 12,200 or 12,300 plateau (with corresponding up moves in the other Equities Indexes) -- that is, to the Fibonacci 61.8% Retracement Level. Thereafter, we Forecast continued Volatility and another Major Move (see details in our most recent Alert posted in the “Alerts Cache” at www.deepcaster.com).
Our Forecast of July 10th that we expected Gold, Silver and Crude Takedowns (resulting from Cartel Intervention) to begin soon appears to be being fulfilled. The August Gold Contract Price has dropped from $990 to about $955/ounce (as we write) and Crude Oil has shed $15/barrel to hover around $130. The question is whether The Cartel can continue to successfully take Gold & Silver down given the unprecedented bullish Fundamentals.
With Official CPI reported up at 5% per year, and Real CPI at 12.6% annualized (shadowstats.com), with the holders of $5 trillion (in the aggregate) in mortgage portfolios (Fannie Mae and Freddie Mac) in trouble, and with more bank failures coming, we can expect Volatility to be with us for quite some time.
The Monetary Metals, Equities, and Crude are among the most volatile Sectors. But, if adequate attention is paid to Volatility and Interventional Attempts as well as to the Fundamentals and Technicals, one can both protect one’s capital and profit from Major Moves, as well.
Deepcaster
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
Gravitas, Pietas, Virtus
-- Posted Friday, 18 July 2008 | Digg This Article | Source: GoldSeek.com
