Friday, February 5, 2010

FAS Update

A quick note to the many readers who have sent me the following question:  "You have shorted FAS, should I go long on FAZ if I don't want to short something?"

We do not recommend using the leveraged ETFs as a long vehicle, as they suffer price decay consistently over time, and only overcome that when the market runs one way with little or no pauses for some time.  (This is not a very common occurrence, so generally the decay will work against you).  You are better off to catch any of them on high levels of sentiment in conjunction with high levels of sentiment in the assets they are leveraging, and short-sell them.

Once the market starts working against a leveraged ETF, even in a slow, steady way, the declines are greater relative to the gains because the gains are coming off of lower price points (i.e. a 3% loss from $50.00 is larger than a 3% gain from $48.50).

Here's an updated chart of FAS with some more in-depth analysis.


And our thoughts on the broad markets as a whole:

Have a great weekend everyone!
A quick note for next week - I will be doing some ice-fishing during the middle of the week next week so I won't be posting for Tuesday, Wednesday, or Thursday.

Stay warm, and keep your heads up out there.


End of Day Update,  due to the barrage of email I have received sine the market enclosed. In the last hour, I've read more variations on "I think gold just bottomed" or "you are suicidal if you think gold is going down now!" than I thought the English language could produce!.
Thought I'd throw up a chart of GLD to pull in some perspective.  Have a great weekend!

Just remember that we are unwinding a 14 month uptrend that has grown rife with skyward expectations for the price of gold.  Such a thing will take some time, and serious price action, to neutralize this optimism.



  1. hi Derek,

    the puts on JPM have made a nice gain in just a few days, and in the last hour it's bounced back a bit; do you see this with more to the downside in the near future? thanks for your thoughts,

    Larry A

  2. Derek, It looks like we had a reveral in gold and
    particularly gold stocks on very heavy volume towards the close today. Could we have possibly
    bottomed with a cup and handle in evidence.

  3. @Larry - specifically what strike and date did you take them out for, what did you buy at and what are they at now?

    Anonymous - I'm posting a chart in about five minutes about the "heavy volume" we witnessed this afternoon.


  4. Derek, I can see your point but couldn't there be enough momentum in the gold stocks with todays outside reversal for a short term play?

  5. Since October of 2009 I have been stating that gold will be going down. My high was for a price of $1071-1171, this predicted back in October 2009 with the high either in Dec 09 or Jan 2010.

    The price will get back to $1082-1085 by April 2-4, 2010......

    Then down to $640 by Nov 2010/Jan 2011 or April 2011 and a retest in June 2011. Silver to below $8.00

    The US index is at the 50% which is 81.37 or so and then it should go down to 77-75 by April 2-5, then pop to 92-96 by the same time periods mentioned for Gold.

    After 95 has hit the US index will go to 41 by end of 2012

    ES to 420-380, YM to 4200-3800, Sugar to 15 then $9-10.....

    I have been stating this before Derek Blan was mentioning gold will go down.

    The exact low for gold will be $667.50-$640.00

    "Nothing is new under the sun"

    "By way of deception" I go into battle.

    " The enemy is within, while you still looking for it on tv, media."

    "Satan is here already with his 2 witnesses...US and Britain."

    "Jesus was a Rebel" You don't have to be religious to get revelation 2.9 by John.

    "He who controls your media, news, hollywood, Wall Street and your government controls America."

    "They have is set up so the Christians are fightning the Muslims and we are dying for nothing...the scam is so beautiful...that American Christians to blind to see." It has nothing to do with oil.

    "Find out which group controls your LIFE" and take it back like Lincoln said...bring it back to the Christians and the Christian way of life where we make money but do not worship it like some people do.

    Good Luck as round 2 is coming and its going to be worse than round 1...Depression talk again...don't BELIEVE THE HYPE.

    Finally..911 was set up to saves lives back in the late 1980's. Its so funny how 9/11 is known for blowing up buildings. Coincidence...NOT.

    Scam...yes. Who did it..its obvious...not the CIA, not Osama...but "By way of deception" we go into battle.

    No different in trading.

  6. Hi Derek
    Excellent work. Dont know whether you have your own proprietory system or hunch. Anyway I thought this yellow and white metal has hypnotised everyone especially in the face of controlled inflation which could last a few years while the system is 'overhauled' or addressed in the background. I cannot agree more with your synopsis of shorting pr metals or related stocks but sort of disagree on your bearish pic for S&P etc. Maybe test of 850 but do not see any further. Now a question for you:
    Where do you put the HUI & XAU relative to your scenario of gold halving from its top? Thanks.
    Found a bit difficult to post this comment as kept looking for an email address. And when subs begin would it be day or position trading and how many stocks would be recommended. It would also be helpful to know the systems live past performance. Good trading..

  7. hi derek,

    in reply to your reply, i bought the JPM March 35 puts twice, at .69 & .43; I sold part of my position after they ran to $1.43, which was just before the market's reversal. By my novice estimates, there seems to be little support all the way down to $32...??? I doubt that JPM can recapture most of its downturn but if the market turns slightly up, who knows? What do you think about JPM's downside from here??

    Thanks much, larry

  8. I'm easy-going and like to hear everyone's point of view, but the anonymous who is posting his thinly veiled rants against Jews (and this isn't the first time), claiming they control all human life, is not a good read. Conspiracy theories against Jews are not new. I'm sure I won't be able to prove to you that your comments are absurd. I know you KNOW you're right. I just want you to be aware that readers know what you mean by your insinuations. So we get it; the Jews blew up the WTC. There is no Islamic jihad. Osama is a media creation (Jews again).

    This is supposed to be a place to comment on markets, so I will leave it there. But I wanted to go on the record to let you and everyone know that your comments are not in any way accepted as reflecting reality by at least this section of the readership of Derek Blain's blog.

  9. We shoud avoid poiting our finger at any 'religion'. However, one has to decide whether one is a 'conspiracy theorist, or a 'coincidence' theorist.

    If the latter, then one has to accept an awful lot of 'coincidences'. (Doesnt one?) Smile

    Why is it important to understand what is behind the political, and economic
    scene? Why does it constantly crop up in these discussions, not just here but all others sites that deal with similar themes?

    Because everything else depends on the understanding that all is not what it seems, and what we are fed to believe, it behoves us to seek answers.

    I care not who is behind it. I do care that I know that someone, or powerful cabal is, and I do not believe it is those whom we elect. (or believe we elect)

    They cannot be 'religious', because, having given them all some study in my academic years, I know none of the accepted religions would sanction what has been going on in their tenets.

    What some may pretend to be is not the 'being'.

    Knowing this helps me to make better, and more careful judgments on where i place my chips.

    I also watch where mass media (their tool) is directing me for I know that is is not in my best interests.

    The most serious of mistakes I see being made is that so many cannot even see the curtain, never mind that there is someone behind it pulling the strings.

    Just a word about GOLD, a metal in which I am deeply interested,

    Even when gold had one of its largest day falls the other day, at least for some time, there were still companies who understand the gold market very well, it is their life, were still advertising on tV to buy your gold.

    Those advertising spots cost millions.

    Now that should tell you far more than any media analyst about where gold is going in the longer term. Markets do not move in a straight trend line, I am sure you have observed.

    Try to get somewhere near the pivotal points, for making your trades. You will not hit them spot on except on a lucky shot, so do not panic as long as you are in the trend.

    I leave you with happy trading
    Ray Newton

  10. Perfect Justice-

    -"Conspiracy theory" is nothing other than a meme socially batted around like a volley ball and conveniently invoked by a person when a subject is broached which makes them uncomfortable. It's like a magic shut-off switch for critical thinking, if you will.

    -"The Jews" did not blow up the WTC -- certain elements within the US government clearly did however.

    -There also does happen to be 'Islamic Jihad' (just because the official narrative regarding 9/11 is a lie doesn't mean Islamic terrorism isn't real. Of course it is.

    -Osama is not a media creation per se, but his myth and the ridiculously overblown Al Qaeda myth is certainly fostered and protected by a %100 corporate-controlled news media.

    -I do agree with you though that Jew bashing isn't helpful when it comes to this subject. It just further diverts attention away from all of the verifiable physical and circumstantial evidence which demonstrates the real perpetrators behind the mass murder of 9/11. (Remember, "conspiracy theory" is a meme; evidence and reason is what is important).

  11. Gordon, NewfoundlandFebruary 8, 2010 at 9:12 AM


    I have only recently started to watch your articles and I like them and your clear explanations and charts.

    I have been watching the $USD closely as it relates to Gold and the general markets. It seems to be eerily similar to Oct 2008, just past the 200MA and just before it spiked 4 cents closer to the 400MA, which would mean a huge drop in Gold & Markets. What are your thoughts on this in view of the Euro crisis?

    Also can you recommend a good free chart source that has monthly charts - stockcharts does not have it?

    Thanks and I look forward to your next article when you return.

  12. What I see is mass programming, which has existed in all societies at all times in human history. However, with modern technology and media it has become a science. Much of this programming is unconscious and a legacy of the past. Certain core beliefs exist and are continually reinforced by media as the "norm". I don't believe that there is one overriding conspiracy. Markets are manipulated by government and by other entities, such as wealthy individuals like Soros or the Hunt brothers, hedge funds, brokerage companies, etc. The Fed manipulates our money supply. Insiders who know what is coming can accumulate great wealth. The rest of us speculate on the future and look to a person such as Derek to help get a clearer picture of the markets. Multinational corporations have acquired immense power and use their massive wealth to control national agendas to the degree they are able. Individual nations and blocs of nations are all competing for world resources as they put forth their propaganda spin to the world's media to justify their actions. But not all nations are comparable. I would rather live in a world under U.S. hegemony than under Chinese hegemony, despite all the criticism that can be leveled against the U.S. I think it is an over-simplification to say in essence that one hand secretly rules the world, like some wizard of Oz who pulls all the strings. Maybe someday, if all the continents were brought together under one government, such a situation would prevail. But we are far from that point. The alternative media are warning us against such an eventuality at every turn. I fear that if too great a case is built to foster the false belief that presently one hand rules the world the result could be the exact opposite of the freedoms we all desire. I suspect that those who are screaming the loudest that we are being manipulated may be doing a little manipulating themselves. Things may not be that good, but they can get a whole lot worse, and it behooves responsible people to choose carefully their words and actions.

  13. "...I would rather live in a world under U.S. hegemony than under Chinese hegemony, despite all the criticism that can be leveled against the U.S..."

    Apart from the fact, that unless you spoke and could write Chinese, and that your family, and home is in the US
    which would put you at a disadvantage should you move to China, how do you arrive at the above conclusion.

    I ask this because I have lived and worked in both countries. I lived just as 'agreeably' in China,including Taiwan, and Hong Kong as in the US.

    Now, if I were a drug peddlar or rapist, I would not like to live in either nation. Maybe the quick certain punishment of finality I would get in China would be favourable to a long lingering spell on death row USA.