Gold Likes/Dislikes
& Bouncing Dead Cats
Richard Russell
snippet
Dow Theory Letters
published Sep 17, 2008
Extracted
from the Sep 16, 2008 edition of Richard's Remarks
September 16, 2008 -- IMPORTANT
-- Lowry's reports that yesterday was a "very decisive 90%
down-day," the third one in September and the sixth one
since April.
Question -- Is there a difference between actual
bullion (gold coins) and GLD?
Answer -- In my mind there is. Gold coins represent
gold that you actually hold in your possession. GLD represents
paper stating that you own a specific quantity of gold. There
is a difference.
I've heard rumors that some
of the "gold" that GLD owns is in the form of gold
futures. I asked wife, Faye, a leading securities lawyer about
this.
Her answer, forget the rumors,
look at the prospectus. If GLD is buying futures instead of actual
bullion, then the prospectus would have to state that they can
do that.
Actually, there's now a run
on gold coins. The Treasury is out of Gold Eagles, and I hear
there is a premium charge for Krugerrands. Check with your coin
dealer on this.
Gold -- the monthly chart, December gold, dropped
from a 1017 high in March to a recent low of 742, a loss of 275
points. On a normal rebound of 50%, gold could recover to 880.
That may be what's happening now.
What do I like about the monthly chart below? Gold
has not violated its long-term blue trendline, although it has
broken below its shorter-term, steeper trendline. What don't
I like about the chart? Gold has violated the steeper trendline
and RSI has turned down.
I also don't like the fact
that monthly MACD has given a sell signal (red arrow) and the
first monthly negative (below zero) histogram has appeared.
The correction does
not appear to be over on the monthly chart.
***
Late note [The markets] -- Today, just a normal
and expected bounce after a 90% down day. Following a
90% down-day, there is usually a 2 to 7 day "dead cat bounce."
Today's market internal action was rotten. Despite a 141 surge
in the Dow, breadth was down and there were a huge 1165 new
lows on the NYSE. Down volume was a dismal 79.4% of up +
down volume, in all a poor picture of market internals.
Gold gave up a little of the
yardage gained over the last two days. The gold stocks continue
to go with the stock market, they continue to act like just another
group of stocks.
***
The great tragedy unfolds phase
by phase. This is the way I see it. The first phase was the giant
edifice of inflated home prices topping out and rolling over.
The second phase was the collapse of the great Wall Street houses,
the third phase was the stock market sinking day after day. The
path of the stock market directly affects public sentiment. And
I'm very much afraid that the next phase is going to be a pull
back in spending, particularly discretionary spending, by the
US public. Jobs will be difficult to find, the word will spread,
if you've lost your job, you're not going to find another one
at the same level of pay (if you find one at all). This will
have an impact on retail sales, and US imports (which will have
international implications for the exports of foreign companies,
remember, the US is buyer to the world). In this atmosphere,
the big money, as I see it, will be made by wealthy speculators
who will buy up foreclosed housings at bargain prices, often
below the cost of replacement. Everything now depends on people
being able to finance what they own, and this takes income and
cash. The two rarest items around will be just that -- cash and
income. The great danger as I look ahead is that the bearish
trends will feed on themselves. Frightened people dump their
stocks for cash, the result is a sinking stock market. A sinking
stock market further frightens people and pushes them to sell
("get me out at any cost"). When I tell people that
the correct posture now should be cash and gold coins, they look
at me as though I was crazy. That reaction makes me worry.
One advantage of gold coins
is that you're not tempted to trade them (it's too difficult).
As my buddy, old-timer Sir Harry Schultz puts it, "The
last man standing is he who owns gold."
Hold your gold coins.
more follows for subscribers.
written Sep 16, 2008
Richard Russell
website: Dow
Theory Letters
email: Dow Theory Letters
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