Silver, Oil, Gold - Market Screams Inflation is Coming

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Silver is having its best month in 22 years. It was up to 15.49 in overnight trading, getting close to important resistance around 16.00. Gold traded as high as 974 before the U.S. markets opened, inching closer and closer to that key 1000 level. Light sweet crude was trading at 66.18 at 8:00 AM New York time. It's next resistance is in the 67 area and then 70 after that. Resource stocks were up significantly in Asian trading last night. Expect gaps up in SLV, GLD, DXO, and ERX when the U.S. market opens. Keep in mind that at some point those gaps will have to be filled.

Markets tend to be bullish at the beginning of a month, so early next week is a favorable period. While it may not happen today, silver, oil and gold will become too extended from their 10-day moving averages and will have to come back down to that line. Traders with a shorter term horizon need to take this into account. If you have a longer term perspective, you can wait until key resistance is reached. Oil is heading toward the 75-78 price level. While it may not finally peak this summer until it gets to around 100, profits should be taken in the mid-70s and oil should be swing traded shorter term at that point. You don't have to worry about gold until 1200 and silver until it reaches 21. They haven't even begun their rallies yet.

Marc Faber, a very well-known market investing advisor and market commentator that appears in Barron's annual roundtable has come out with a report stating hyperinflation in the U.S. is inevitable. While, I would certainly agree that lots of inflation here is inevitable, I don't yet think the 50% a month inflation rate needed for hyperinflation is a done deal. It is certainly a possibility though. To get to that point will take incredibly inept government policy and oblivious monetary authorities. You would practically have to have a central banker throw money out of a helicopter! By the way, the Fed is still currently worried about deflation, while printing money Zimbabwe style.

The market for all commodities is bullish going forward, but that doesn't mean there aren't going to be tradeable pull backs. Which ones you pay attention to depends on how short term your trading perspective is. Other than too much extension above the 10-day moving average, you need to be aware of the 200-day moving average - HWD (Harry Winston) is caught there at the moment, but it has a textbook perfect bullish chart - and the 38% Fibonacci retracements. If you sell with a short term perspective, you must be willing to buy back with a short term perspective as well. If you can not do this, and most people can't, wait until major resistance is hit before pulling the trigger.

NEXT: How Susan Boyle Provides a Lesson for Stock Investing

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

A Rally Frothing at the Mouth

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Volume was relatively high on Nasdaq yesterday, but the price action went nowhere. Churning action like this is not a good sign and indicates lots of people are selling as other people are buying. As soon as the buyers get less enthusiastic, the selling pressure will drive the market down. This is only one of many hints that the current rally is heading for some trouble. The other obvious ones are the put/call ratio, overextended stocks, gaps, and resistance. There is also plenty of bad economic and corporate news waiting to be released and although the market has been ignoring it lately, at some point it will start paying attention to it again.

The put/call ratio is a contrary indicator and is only significant at extremes. It has fallen into the 0.5's range, not too far above the low for the last year, which is above 0.4. This level of put/calls indicates an excess of bullish enthusiasm and that traders are taking on too much risk. Still it is not impossible for the put/call level to hit a new low for the year and even if it that occurs, it doesn't indicate that the market rally ends the next day. It does mean the rally is getting long in the tooth however.

The market is also full of overextended stocks and there is extensive gapping going on. Once a stock starts to rally (let's define a rally as beginning with the 10-day moving average crossing the 50-day and staying above it), it is important that the price doesn't get too far above the 10-day moving average, nor the 10-day moving average gets too far above the 20-day (after it too has moved above the 50-day). The statistical phenomenon known as reversion to the mean is likely to kick into action when this occurs. The stock price will want to go back to the 10-day or even 20-day moving average (see a 3-month daily chart of HWD for a good example of this). The situation becomes ever more precarious if the stock gaps up while it is becoming overextended. This has happened not just once, but two or three times for some stocks lately. The market likes filling gaps and this adds another impetus for driving a stock's price down.

You need to keep an eye on major resistance areas. The Nasdaq is having trouble going higher because it is stuck at its 200-day moving average for the moment. The Dow and S&P 500 still have a way to go to get to theirs (currently around 9000 and 950 respectively). When they do, the entire market could start having trouble moving up. At the very least choppy action is likely to follow, if not an outright drop in the market (if it doesn't happen sooner, it will happen later).

If you have been in the market for the last month or more, you should have some nice profits. Don't let them disappear. Put stops below your positions or sell them if they have been going up too far, too fast and you have large profits.

NEXT: U.S. Unemployment 15.8%; Grade Inflation on Bank Stress Test

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.