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August 27, 2010

Verge & Folio

It's been such an unusually long stretch since my last blog post, one may think that I hopped a plane and headed overseas again. If fact, I've been quite busy with a new project and am sitting up late hammering out this post just so the gap between posts doesn't get larger. The markets have certainly given us some exciting action since that distant August 18 entry, but I believe the fun has only just begun. Gold, silver, and precious metals mining shares appear to be on the verge of a monster run. Take a look at the XAU chart:

Gold mining stocks weekly chart

Just to save you from reaching for your calculator, XAU 235 is 30% above the current price, and I suspect that if the group gains 30%, some individual mining shares will surge 50% or more. Looking for shares displaying relative strength is probably a good place to start.

Silver Wheaton stock chart

The precious metals themselves aren't doing too bad, either:

Gold price chart

Silver price chart

Stocks also appear to be on the verge of an important bounce... important because the bounce will likely offer the last decent chance to liquidate stocks... of the non-mining nature, mind you... before a long and protracted decline.

S&P 500 stock chart

The stock market looks and feels very scary right now, which is partly why I anticipate a bounce to materialize here. Sentiment, in fact, is more bearish now than at the July low. However, cycle theory suggests the top of the cyclical bull has already been seen, and I will be watching the near-term action intently for confirmation of that view.

I'll leave you... hopefully for not so long this time... with a quick note on bond action:

30-year Treasury prices

The bond market also seems to be warning, like cycle analysis, that trouble is brewing for the stock market and economy in general. However, I expect this panic buy to end badly for bonds. The chart has the look of an asset that wants to test an extreme price before shifting its long-term trend. And if bond prices are going to fall during bad economic times, it can only mean the trouble will be with the dollar.

For what it's worth, the holdings of the Docfolio are completely dedicated to the long precious metals trade. If the S&P action starts to trace out as expected, I may sell some time (write calls) against rallies just to try for some extra spending money, but my main focus is trading the gold bull.


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