Monday, February 1, 2010

A Non-Asset-Related Post

Okay, I already lied - I'll just cover what I think we are going to see on the week.  Gold and silver should see some consolidation (albeit wide-ranged) with a slight upside-bias.  This might not last out the week, however this should be the "calm before the storm" in these metals.  The next major leg down in silver should take it to <$14.00 and in gold below $1000.00 / oz. - The USD also looks ready for a pause in its rally that should shave a couple of points off on the USD trade-weighted index, before it starts its larger-leg upside move.

As for the broad markets, we are expecting similar - a sideways-corrective pattern in the Dow with an upside bias.  The price should correct to a maximum of 10,380 before a resumption of the downtrend.  A clean break of the bottom of this latest, shallower channel will negate that forecast and could take the Dow down as low as 9,600 to 9,700 (yes back into the 4-digit territory) before a sustainable pause.  We'll keep you updated on this most-traded-of-indexes.

Now that we've got the formalities out of the way, I'll get to the Non-Asset-Related aspect of this post.
We've had a wave of email response to our announcement of future subscription services and as such we are very excited.  I spent over 8 hours this weekend working with my "tech guy" and good friend Mike "the Fox" to figure out how we are going to approach this thing.

One thing we would like to do,  is to give all you who are asking about our subscription services the chance to give some input before we actually get the site up and running.  I don't really follow other subscriptions (we can take that one back to not being caught up in social mood, I suppose) so, for readers out there who have followed such things, I'm sure you have had good and bad experiences, and we want to go into this thing having already dealt with anything bad that our "competition" might be dealing with now.

Already we have a lot of praise for the fact that we are not going to be a "long-only" subscription, and we will offer lucrative positions that will make money in declining markets, as well as the "long-only" alternative, all in the same service.

We are also planning on keeping a fairly low limit on the amount of subscribers as we want our primary source of income to continue to be trading (keeps us honest), and not "advising".  Not to mention that some of our more high-profit-potential trades are not in the 5-million-shares-a-day liquidity situation, so our most aggressive/highest profit subscription service will have a very low limit on the number of subscribers.

But what else would you, future subscribers, like to see in our services?  What assets do you want us to focus on or ignore?  I'm opening this one up to the several thousand visitors that come here every day to get rational and objective analysis - what do you want our services to include and exclude?

We've already been brainstorming and have some good ideas, but in this case (contrary to the markets) I think several-thousand heads are better than just a few.  So send those ideas and suggestions away to:

And have a great week!  We'll be back with more in-depth charts and analysis soon.


Sorry, I couldn't resist - very high probability intraday long setup just came to my attention - we should see the Dow end on the higher side today, for all you intraday traders.  If you are already short from the very top, and are in this to make serious gains on the major trend, then this little move shouldn't worry you.  Just an exercise in charting, which I find to be so much fun!


Thanks everyone for the suggestion emails already sent in - some great ideas and keep them coming!

Here's the end-of-the-day chart for the Dow.

And the last free in and out trade that we will offer before we launch our new website and subscriber services.  This is another one with huge profit potential similar to our STD Trade we posted just a short while ago (already in-the-money double digits).
We will be opening our position tomorrow morning, especially if we see a gap-up in prices off the open.  We'll post it as soon as we have executed the trade.

From this point on we will only be covering the general movements of the Dow, the USD, Gold, and Silver on the blog, until the new site is up and running. 
Thanks again for all the feedback we received today and we look forward to hearing more.


UPDATE:  February 2 @ 9.37 AM Short FAS - Entry at $73.05.


  1. Hi Derek,

    I copped this from an SLV site which correlates with what you opened with.

    >"The wave group think we're probably getting close to the end of this first down-leg and will probably start a counter-trend bounce before too long. Think I have some charts on what to look for to see when the bounce may start.

    First up, silver (EOD) cut/paste the link$SILVER&p=D&b=5&g=0&id=p82571156320&a=189642687&listNum =37

    Had a pretty good break of the Head&Shoulders neckline. Notice how it paused one day before breaking the neckline. There's support at about 16.00 from the apex highs and lows (green circles) and from round numbers (16.00). MACD looks to be bottoming as the histogram has dramatically slowed its descent and as an early sign, may start climbing back up. When it starts to climb, I would expect that climb to reach the 17.00 to 17.75 area before resuming its fall."

    When you buy the specie do you go with an ETF like SLV/GLD or CEF? and what is your opinion on owning and personally holding silver coins and gold bullion as a safety net just in case?

    I live in the U.S. so you know where I'm coming from.

  2. There's a whole heck of a lot going on in that chart!

    I'm fairly familiar with the wave theory, and I like it for some reasons but don't like it for others, and as such I might pull it out from time to time to get some perspective but it certainly isn't my top analytical tool by any means.

    As for silver and gold themselves - if you read back over the last year especially, we have long propagated silver and gold in physical forms as the best means of preserving the long term purchasing power of your savings. What we always attempt to do is figure out when the best time to buy physical is versus holding off on accumulation.

    With physical gold and silver we recommend a core holdings (as a long-term savings vehicle) only - trading the ETFs and Miners is a good way to take advantage of major sentiment swings, however that is all those should be looked at for - trading purposes.

    Thanks for the question!


  3. Derek,

    Please check out the 1986 to Present monthly chart of the DJIA at It is located in the historical charts section.

    I believe I see a long term head and shoulders top. Left shoulder occured in 2000 at 11149, head in 2007 at 13930, right shoulder January 2010 at 10767. Please let me know your thoughts.


    Cindy S.

  4. Cindy,

    You may be nominally correct, however to truly measure sentiment it helps to look at the Dow:Gold ratio (if you are not familiar with it, it is the number of ounces it takes to buy one share of the Dow Industrials). It peaked in 1999 far outside any normal range of optimism and has plummeted ever since. We are anticipating a Dow:Gold ratio of 0.5 or less by the time this major bear market is completed. One of the benefits our subscribers will receive is our quantitative research to this effect and some means of protecting themselves.

    Either way the place to be is short or in cash - if this is your rationale for shorting the Dow it could pay big. However you did not mention your neckline, which to me appears to be in a state of decline - generally when this occurs the breakthrough occurs in the middle of a violent downward move - if this is the case, then that analysis would fall in line with our "the next 12 months is where the bulk of the decline in percentage terms will take place).

    Best of luck and thanks for the question.


  5. Hi Derek,

    You asked for input from people as to what they would like to see on your blog.

    I'm not very adept at shorting stocks/puts/calls, etc. I have for the last 10 years been putting into my 403b retirement account and my Roth IRA primarily, almost exclusively gold mutual funds and have done well. But in the summer/fall of 2008, I was aghast at how quickly my portfolio basically dropped in 1/2 in a few weeks -- and I'm 70 years of age (though continue to work 40 hr/week). I didn't touch a thing, and they recouped nicely. Therefore, when in Jan. 2009, you mentioned the possibility of The Big One coming again [and from others that I've read on the Internet with similar opinion], I sold all my funds/ETFs into cash and am thankful to you for doing so. For me, I just want to know when to go back into the market. Don't get me wrong -- I enjoy your comments about puts/calls, but for my portfolio, I think it way too risky.

    Well, there's my 2 cents worth. I really enjoy your blog -- keep up the good work!!

    Charles/Portland, OR

  6. Hi Derek
    I'm looking for a service that will help be in the best vehicle to make money on the way down and when bottom is reached, make money on the way up....I am 72 so I'm not interested in high risk situations.....Want to accumulate physical gold and silver, plus trade mining ETFs....Enjoy your blog very much....Looking forward to your service...
    Brad/Longview, TX

  7. Can you buy FAZ instead of the short. My roth will not let me short stocks.


    Kiley Kuhl
    Wisconsin USA

  8. aye, even E-Trade won't let you short FAS... I need a better on-line brokerage =(

  9. Will your Roth allow you to buy put options, or can you only go long individual stocks.

    There is certainly a major move coming to the downside in broad-based financials, and as such FAZ might make a good swing trade for a couple of weeks. However, I would not hold on to it too long because a 10% move followed by a 5% correction wipes out a lot more than 50% of your gains.

    If you can buy options on FAS instead you might consider buying far out-of-the-money puts for July or later, and perhaps one or two contracts closer in time and price to $73.00 as well. One of the services we will be offering for subscribers is to offer some high-probability options trades with serious upside potential. The more you learn about them now, the better you will be able to execute once you get the notifications.


  10. Derek I agree that we could easily see a breakdown in the Silver prices but It seems Gold is marching to a different drummer. India and China are looking to make a major purchase if Gold gets down to the $1000=$1050 range. Silver does not have that support. Short term of course anything is possible, but price of gold in 12-18months will be 1200-1500/oz.

  11. If a person had say four, $1000. face bags of junk silver would it be advisable to sell one now in the hopes of buying more silver at a much better price?