twilight zoneSubmitted by Morris Hubbartt:

The base building process over the last 18 months has been frustrating.  There is strong support under market, coming from commercial traders.  This is the “platform” that should propel gold to higher prices.   Commercial traders are now holding positions comparable to the 2006-2007 timeframe.  Gold gained over 70% after that, and it could happen again!

When Fed officials make comments that the end of QE is coming, it’s probably a verbal sleight of hand.  A rally in the T-bond is what the gold market desperately needs!  As the price has softened, the public has fled the gold market. The old saying is, “If you can’t handle the heat, get out of the kitchen.” Well, the public clearly cannot handle the heat. Look at the extreme sentiment reading. It looks like something from the twilight zone!   I’ve never seen the sentiment for gold stocks this bearish, which means potential upside reward has never been bigger!

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TLT (T-Bond Proxy) Game Changer Chart

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  • A relief rally in the bond market is now underway, and a change of character has taken place. That change can be identified by looking at volume patterns.   A “fuel cell” volume day occurred this week, and Ben Bernanke’s speech has opened the door, for a substantial rally.
  • The “smart money” commercial traders have been buying the bond, and I have said for quite a while that the US government has a vested interest in keeping rates as low as possible.
  • When Fed officials make comments that the end of QE is coming, it’s probably a verbal sleight of hand.  A rally in the T-bond is what the gold market desperately needs!

Dow Spinning Top Chart

 

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  • In the last three weeks, the Dow has had 5 distribution days. Distribution days suggest sophisticated market participants are unloading their positions, in anticipation of a sizable decline.
  • I am looking for serious downside action.  My short term target is 13,400, and volume patterns are becoming very bearish. Lighten up on any further strength.  In my stock market account, I’m now at 85% cash.

 

  • The spinning top formation adds weight to the argument that a substantial topping process is in play.

 

Gold Public Opinion Chart

 

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  • As the price has softened, the public has fled the gold market. The old saying is, “If you can’t handle the heat, get out of the kitchen.” Well, the public clearly cannot handle the heat. Look at the extreme sentiment reading on this chart, courtesy of www.sentimentrader.com. It looks like something from the twilight zone!  I’ve never seen the sentiment for gold stocks this bearish, which means potential upside reward has never been bigger!

 

Gold COT Goes Green Chart

 

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  • The base building process over the last 18 months has been frustrating.  There is strong support under market, coming from commercial traders.  This is the “platform” that should propel gold to higher prices.

 

  • Commercial traders are now holding positions comparable to the 2006-2007 timeframe.  Gold gained over 70% after that, and it could happen again!

 

Gold Buy Signal Chart

 

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  • I remain as bullish as I can be. That said, the most important thing for investors to do is to maintain a large core position, while doing some short term trading.  My latest buy signal for gold is highlighted on this chart.

 

Gold Miners BPI Chart

 

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  • The GMBPI (Gold Miners Bullish Percentage Index) chart has reached a massively oversold reading, as of this week.  An enormous buy signal will be generated, when this key index crosses the 10 day moving average.

 

GDX Sentiment Washout Chart

 

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  • The bottom line is when people become overly negative about gold stocks, massive rallies unfold. The reason for this is simple; when all the money is out, there is only one direction for money flows to go, and that is back in!  Hold gold stocks, for long term capital gains.

 

GDXJ Trap Zone Chart

 

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  • Capitulation volume, a potential bear trap below major price support, and the superb position of most oscillators….suggests that a major bottom, or possibly a generational bottom, is forming in junior gold stocks.

 

Silver Versus Gold Chart

 

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  • I prefer to accumulate silver in times of weakness, for long term capital gains.

 

  • To get a full buy signal, I need to see the CCI indicator rise above the -100 line.  That will be the final confirmation of the buy signals given by my other technical indicators.  My choice is physical silver, and this chart suggests that the time is almost here, to place your buy orders!

 

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  1. Biderman at Trim Tabs over at ZH had a commentary that is very telling. 
    He’s like Jim Willie in his hard edged statistical analysis and  Celente in his willingness to tell the truth.  There’s plenty of glum news in his commentary but maybe one of the most telling things he said is that corporate insiders are selling their stock 50 to 1.  Yes, these corporations are buying company stock by the  handfuls but that’s balance sheet cash and it’s ZIRP driven.  But seeing the sellers 50 to 1 at this level  of the market valuations says the market is going down. 
    This  means cash will seek other assets. If the stock market tanks it  could drive PM prices down in a gross overall liquidation of all asset classes. That’s a buying opportunity.  But long term this means cash will seek precious metals amongst other assets classes.  These sellers are smart people selling tens of billions of stock.  They’ll probably avoid bonds since that’s in an uber bubble with rates guaranteed to go up within the foreseeable future.  They may buy income real estate but that will drive prices higher.  It’s a pretty good chance that real estate is getting frothy according to those who study that sort of thing.  They probably won’t sit in cash. Even a rudimentary review of FDIC and SIPC protection would not cover a tiny percentage of those liquid assets. 
    The equity market valuations are unsustainable so this sends a signal to exit the market. But where will these funds go? 
    I’m guessing and hoping it’ll rotate to precious metals.  There are not many asset classes that offer protections of gold and silver. There are rumors that many of these wealthy folks are turning to PMs, getting in at these low prices. It’s also rumored they are doing this in  large numbers but that statistic is not available. Does anyone have that data available?
    There is one thing that can be said about smart money. It’s smart and large because the holders know when to hold ‘em and fold ‘em.  If they’re folding on stocks they’ll be holding something else. At these low precious metal prices and every ounce of PMs spoken for in one way or other, the new gold rush could be substantial.   This gives me encouragement that for once, I and we have made very good decisions in  assembling a portfolio of physical assets in the metals.
     

    • I am very hopeful that we have found the gold bottom and we will see prices increase sometime in the near future.  Sentiment could not be lower I don’t think.  Most of the weak and greedy have already moved on so where else can the market go but up?  Thats the hope anyway.

    • Charles Biderman is a great source of info and I try to read his blogs and watch his videos a couple of times a week.  You may have noticed my comments there, as I simply cannot resist running off at the keyboard when the subject seems to warrant.
       
      I agree that the bulk of corporate insiders, who had been buying company stock is significant quantities, have turned a corner and are no longer doing so.  Yes, this IS a red flag warning and one that all investors should regard as significant.  There are VERY few people in business who think that 2014 will be a good year for business.  They know that ObamaCare will be in full swing beginning with that year and that business profits, difficult as they are to earn in good times, will be VERY difficult to earn in ’14.  Some of this concern is slopping forward into 2013 as well, which is why I am mildly bullish for the 1st half of 2013, I am bearish for the 2nd half.  This does not mean that I am not investing in this or next year but it does mean that I will be doing so with extra caution.
       
      ” If the stock market tanks it  could drive PM prices down in a gross overall liquidation of all asset classes. That’s a buying opportunity.”
       
      It might.  PMs tend to fall in major market corrections for the usual reasons:  they are liquid and often have a profit that can be captured at those times; shorts must be covered and PMs are usually a good source of the cash with which to do that; and when buyers are scarce for paper, they can readily be found for PMs.  Any pull-back in PM prices are likely to be of short duration, so, yes, it will be a buying opportunity for those with a longer view of investing.  Actually, this brings up a chance to mention that much of what occurs in the stock market today is trading, not investing.  Investors create wealth, traders extract wealth.  Investors build businesses, traders build short term profits.  An investor is a chef, a trader is the minimum wage guy who stirs the soup.  Yes, I have done trading and made money at it but it was about the least satisfying money I ever made.
       
      “They probably won’t sit in cash. Even a rudimentary review of FDIC and SIPC protection would not cover a tiny percentage of those liquid assets.”
       
      Actually, cash is king in a market pullback.  By waiting in cash for a bottom to appear, some really fine investments can be made.  Quite a few of these guys have access to or control of company safes or vaults, so holding their cash themselves or in their investing accounts via money market funds IS a viable option.
       
      I agree about the bonds.  It would be difficult to find a worse investment these days.  People who invest in them are, IMO, intellectually lazy and are doing so basically because of inertia.  UST bonds USED to be a good investment, so they assume that they still are when they are not.  Interest rates are very low now but one can only wonder just how long it will be before they begin to rise.  The question I have on this is, “Can the Fed hold interest rates at historic lows for as long as they want or will some now unknown event occur that will force them higher?”.
       
      “There are not many asset classes that offer protections of gold and silver.”
       
      True.  But other things in the commodity arena will also be attractive and will compete with PMs for those dollars:  oil, gas, coal, food crops, fiber crops, flocks and herds, timber, etc.
       
      “There are rumors that many of these wealthy folks are turning to PMs, getting in at these low prices. It’s also rumored they are doing this in  large numbers but that statistic is not available. Does anyone have that data available?”
       
      I haven’t seen data of that kind.  We do know that various mints had to curtail their silver coin production recently but they seemed to be OK in the gold coin department.  If there was a lot of buying in gold one would expect to see the numbers of AGEs and CGMs rise to high levels.  In fact, we are seeing that with US gold and silver coin sales up more than 100% over the Jan-Feb time frame in 2013 vs that same period in 2012, so some of the money you mention could be going into PMs now.  My question is, “Do these wealthy people buy PM coins or large bars?”.  When investing millions of dollars, those 400 oz. London Good Delivery gold bars and 1000 oz. silver bars start to look better than a big pile of coins.
       
       

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