Anytime you have daily ranges in the Dow of near 3% or greater you have trouble brewing — if not already brewed. We are living the Chinese curse: may you live in interesting times. While Wall Street burns George Bush and his cronies fiddle with a plan to keep the Titanic from sinking. Unfortunately they are like the band and haven’t noticed that the stern is already underwater. Where are the lifeboats? Hard assets.
Here is GLD which is how general investors invest in the gold market. Futures offers much greater leverage and thus more risk so we only track this instrument for our reader. We have been noting for two or three weeks (prior to the meltdown, that is) that gold was throwing off buy signals. Gold has a habit of running up, then selling off severely in order to punish late buyers. Then it takes off like a rocket in order to make people chase it down the runway. Here is the chart where we observed it was all right to buy again:
A little technical analysis sometimes goes a long way. Incidentally, silver (SLV) is a buy also. The Dow is still in a downtrend and the extreme volatility presages more volatility. We expect Monday to be extremely volatile but changing the trend to up would require an enormous amount of work here –but it is possible. After all if we’re going to relive October panic all over again it’s nice to be in an uptrend.
Dow — end of week. Does anyone think the economic and psychological damage done over the past year will allow a bailout here to alter the trend? As everyone knows we were ejected from the psychics society for laughing during seances. Now we just read the chart and the chart says we are in a rally wave of a severe downtrend. A closeup look follows.
This wave pattern is almost complete. Lower low in July. Lower high in August. Lower low in September. The September low is not yet a confirmed low. In order to solidify it we need to see three days of price activity outside the range of the bottom day. The August high is a confirmed downtrend Basing Point, meaning that shorts can take that point and set a stop x% (3-5) above it as an algorithmic exit point.
Our readers love it when when we heap scorn contempt and criticism on our political and economic leaders. Consider it heaped. In China these guys would have been taken care of with a bullet behind the ear long ago. What is delightful is to see free market ideologues running around like chickens with their heads cut off as they discover that unfettered capitalism is another word for greed and fecklessness run rampant. If they are so tough why don’t they just let the free market sort it out? The idea of bailing out the perps is supremely unattractive. We sent a message to Senator Shelby (along with all the other economics and finance professors in the country) urging him not to buy distressed assets, but in the extreme to LEND against ALL the collateral the perps have and let the market sort out the weak and the strong. A better plan we suggested would be –if you have $700B, why not– to abandon them all to their fate and set up a totally new Federal bank to loan directly to businesses and individuals. Then watch with amusement as the perp banks struggle to get out of the sand pit in the dunes.