|
-- Posted Wednesday, 26 February 2003 | Digg This Article
I've chided one subscriber in particular about his eagerness to second-guess my every gold forecast, but in the case of Royal Gold (RGLD), his bearish call appears to have been perfectly timed. As it happened, we added Royal to our list just as the stock was topping near $29 not long ago, prompting this subscriber -- you know who -- to warn that it was due to take a hit. And so it has - down to a low of 19.18 yesterday, after trading near $26 as recently as last week. In our defense, we should note that we have yet to recommend a long position in the stock; moreover, our most recent target is actually somewhat below the trench Royal carved out yesterday on its intraday charts. We'd speculated that the stock eventually will settle in a rut near 18, presumably waiting for the opportunity to prove the naysayers wrong. Meanwhile, we missed what might have been a good short in the stock. Bullish as we are on the entire gold sector, no bullion stock should be considered sacred. We'll try to catch tops and bottoms, and to go short or long, respectively, as such opportunities emerge. Soon enough, it will probably be time to look at Royal and a few others as ripe for buying. Crude at $44.90?
A note from a subscriber who thinks oil prices are topping prompted me to look at some of crude's long-term charts. The good news is - well, there really is no good news, unless I'm very wrong. My measurements are approximate, since the chart did not provide cursor-on-bar readouts, but my guess is that forward-month highs for light crude are going to reach a minimum $44.90. Higher Prices Deflationary?
Since the early 1990s, writing in Barron's and the San Francisco Examiner, I have steadfastly maintained that an outbreak of inflation was all but impossible. My reasoning, even a decade ago, was that disinflationary forces in the global economy had become too powerful to yield to the kind of price pressures that had prevailed during the 1970s. As a corollary I asserted that there was no way the world's second-largest economy, Japan, could sink into the deflationary mire without taking the first-largest economy with it. So far, nothing has convinced me otherwise. Another prediction I made was that certain hitherto intractable engines of inflation - namely housing, college education, medical care and government spending - would at some point grind to halt. That has not occurred - at least, not yet - but as the recession persists and deepened, my logic should be more compelling now to those who might have been skeptical just a year or two ago. Is college tuition at a private college on its way to $80,000? Will a routine doctor visit cost $200? We who would pay such costs know that our incomes will never keep pace. For individuals, as well as for governments, higher prices are unlikely merely because they would be unaffordable. Here is a note from the always provocative folks at Comstock Partners that drives the point home: "Since the PPI came in at an unexpected rise of 1.6% for January, we are following up yesterday's comment in an attempt to answer the criticism of our deflationist stance. The fact that energy and other goods have increased in price in any past period means that businesses purchasing any of these goods undergo decreased profit margins if they can't pass the price hikes along to consumers. On the other hand, if they can pass along the increases, consumers have less money on hand to spend elsewhere. The past represents how much money the Fed was able to push into the banking system for consumers or corporations to borrow in order to purchase these same goods. The Fed may be able to continue this process indefinitely, which would produce the inflation most of the financial community believes is inevitable. On the other hand, if the goods and services are too costly, or the inability to take on more debt to purchase them is curtailed, it could lead to the deflation we are worried about. 'Printing Money'
"The Fed has been very successful in convincing whoever would listen, that there should be no concern about deflation as long as they can purchase Treasury Notes and Bonds or 'print money' in order to reflate and thereby offset any deflationary forces. We do believe the Fed can control the first part of the reflationary process. The FOMC can purchase Treasury securities from dealers such as banks, and pay for the securities with a new check from the Treasury. The part they can't control is the banks' willingness to loan the money, and a creditworthy entity willing to borrow the money. If the money is not loaned out to purchase goods and services, the jump-start the Fed made to stimulate economic growth comes to a screeching halt. This process is called the Velocity of money and is essentially nothing more than how much GDP is produced by each unit of money supply created. "There is another scenario that could affect the balance of inflation and deflation. If the Fed were actually able to 'print' enough money to drive the dollar much lower, how do you think our trading partners (who pray each day that America will continue to buy their products) will react? For example, if the reserve currency drops by 30%, that would mean the main driver of the world economy just lost 30% of their purchasing power. Any car being exported into the U.S. which cost $100,000 before the debasement would now cost $130,000. This essentially exports deflation abroad, since our trading partners would probably have to lower the price of their exports to the U.S. The key to the battle of inflation or deflation is the direction of debt relative to GDP and the absolute level of debt. Since the destruction and elimination of debt is synonymous with deflation all you really have to do is to monitor the debt levels to determine which direction we are headed. Right now, the debt charts are continuing to grow. We are expecting this to change (probably later this year). With the U.S. economy continuing to deteriorate, and the global economy staggering, debt burdens can be the Achilles heel that trigger a wider slump. Under these circumstances it appears to us that deflation is a much greater probability than inflation." [The + symbol means we have an open position, while $ means there is actionable advice.]
Gold
APR GOLD (352.40): The futures will need to close above a hidden pivot at 360.80 to develop the torque needed for the next big leap -- to 379.20.
+ GG (10.80): We hold 200 shares for an average 4.65. The mild penetration yesterday of a supportive pivot at 10.87 implies Goldcorp's correction is not yet over. Our target is 10.45, and we should therefore bid 10.46 for 200 more shares, no stop.
 
DURBAN DEEP (NasdaqSC:DROOY) : Quote - News - Profile - Message Board - Website
+ DROOY (3.60): We own 600 shares for an average 4.38. DROOY is barely holding a hidden-pivot support at 3.61 that we'd flagged, but if it's breached by more than four cents intraday, or if the stock closes below it, the next stop below would be 3.40.
RGLD (19.73): Royal is bound for presumably restful support near 18, the approximate middle of a consolidation zone where the stock spent a few months prior to the big run-up late last year. As a worst case over the next 8-10 days, we cannot rule out a somewhat lower low -- 16.45, which would be a 0.618 correction of the bull market cycle begun last July.  
DJIA (7909.50): The closest rally resistance is a hidden pivot at 7943.12, but if the Dow is trading above that number after the first hour we'd infer it has sufficient energy to reach 8165.53 before Thursday's close. E-Mini S&Ps (839.00): This vehicle got even closer than the Dow yesterday to its closest minor-trend resistance, a hidden pivot at 841.25. If it decisively surmounted this morning the short-term outlook would brighten with new upside potential to as high as 865. MAR BONDS (114.02): The futures are closing rapidly on our rally target, 115.07. We don't advise shorting there, but if you've been long on your own initiative, it'll be a good place to take profits on half to two-thirds of the position. OEX (424.88): Yesterday's close above a hidden pivot at 419.92 is mildly encouraging, since it portends further upside, to a minimum 426.15. If the OEX can leap that hurdle, then close above it, we'd look for the rally to continue to as high as 438.61 over the next 2-5 days. QQQ (24.74): The cubes closed above the 24.51 pivot we've been monitoring for the last couple of days, suggesting it is capable of reaching another at 26.20, provided the tape is supportive. MAR NASDAQ 100 (998.00): A rally to 1062.00 is possible, but the futures will first need to get by a hidden pivot at 1028.00. The first sign this may be imminent would be a close today above a minor hidden pivot, 1003.25
-- Posted Wednesday, 26 February 2003 | Digg This Article
Sign-up for the entire Black Box -- its free! --
MarketWise Black Box is published on weekdays 240 times per year. Copyright 2003 by MarketWise. For further information please go to www.marketwise.com. All information was gathered from sources believed to be reliable The risk of loss in futures, stocks or options can be substantial; therefore only genuine risk s should be used for such trading. Futures, stocks and options may not be a suitable investment for all individuals, and individuals should therefore carefully consider their financial condition in deciding whether to trade. Commodity option traders should be aware that the assignment of a short position will result in a futures position. Past profits are not indicative of future profits.
Previous Articles by Rick Ackerman
|
