Chartists Forum

[richard5za]

Will 2008 be a most memorable Christmas rally?

The following charts illustrate what I was saying in my previous posting:

Firstly the Dow: I am anticipating a break through the 8900 resistance level followed by a move to at least 10000, perhaps higher:

Dow16dec08.jpg (44.18 KiB) Viewed 5560 times

Mining shares are moving up strongly as illustrated by this chart for BHP BIlliton. Anglo American has a similar chart. This particular chart is in South African Rands but the chart in British pounds is identical. BHP Billition has broken up through the R 190 resistance level and I am anticipating a move to at least R 280

BHP Billiton 16DEc08.jpg (38.04 KiB) Viewed 5558 times

[richard5za]

Euro and Oil

When I wrote on December 11 that the Euro had broken upwards and that we could expect a weaker dollar going forward, I wasn't expecting this almost explosive thrust by the Euro. On other analysis I am doing, the charts are confirming dollar weakness, but what this is saying about the Euro isn't clear.

Euro$17Dec08.jpg (33.18 KiB) Viewed 5507 times

OIl's drop in price yesterday after the OPEC production cut took a number of people by surprise. Whatver the reason for this, my charts are giving a strong buy signal for Oil, as this chart for Brent Crude shows:

Brent17Dec08.jpg (32.26 KiB) Viewed 5508 times

[richard5za]

A really fascinating picture is emerging

On 11 December I wrote that gold had broken up through the $ 820 resistance level and was now positioned for a new bull trend. Since then the price has briefly topped $ 880 and gold looks almost explosively poised to charge at its previous high.

I can understand gold; for thousands of years it has been a safe haven in uncertain times. And our global economic conditions do currently look bad.

However, as I write platinum has broken upwards through its $ 875 resistance level; this looks like it might be another trend reversal. Platinum mining shares are also giving strong buy signals.

The lead indicator on dry commodities, the Baltic Dry Index continues in its early stages of recovery and is up another 8 points today to 836.

General mining shares, BHP Billiton and Anglo American, in particular, have shown strong buy signals and as a chartist I estimate that both will enjoy around 50% price rises in the short to medium term. Today BHP Billiton issued an optimistic newsletter to shareholders, which I comment on below.

Gold mining shares have likewise given strong buy signals. Anglogold Ashanti closed in New York last night at $ 26.59 almost 100% up on its November 20 low; this gain in less than a month! With bullion apparently poised for an explosive upward charge there will no doubt be much more to come on gold mining shares.

Oil is giving a strong buy signal detailed in a previous posting of mine.

On currencies, the feature is the weaker dollar trend going forward.

In general equities we seem to have all the ingredients for a strong but short term bear market rally.

The reason all this is very interesting is trying to work out what it all means? Assuming of course that the above does happen. If there is suddenly a sharp reversal of these buy signals, then we are back to the deflationary trend that established itself in recent months.

I am wondering if some of our forward global economic assumptions might be incorrect? Here is an extract from today’s BHP Billition letter to shareholders:
“ …. and so far we have been able to substantially maintain our sales volumes through a combination of our normal long term contract and spot business.” This is not a commodities disaster, rather a very large general mining company continuing to do well!

And as a chartist I can confidently tell you that commodities were very over sold. As they were over bought.

But who has been doing the selling at such low prices? Is it hedge funds in speculative trouble, desperate for cash and forced to liquidate whatever assets they owned? Does this explain why the oil price dropped substantially after OPEC announced their production cuts. There was a clear indication given at the news conference that OPEC would drive oil prices back up. In these circumstances who sells at bargain basement prices? Its easy for funds to buy derivatives for oil but if you desperately need cash, or the time contract is running out and you don’t have a place to store the stuff, you will need to liquidate at any price. Is this an explanation?

Views from anyone else?

I am going away for Christmas so won’t be placing any further postings until the next year. I wish all who visit this site peace and joy over the festive season.
Richard

[John]

Dear Richard,

I have just a few thoughts:

• Investors are not using gold as a safe haven these days. They're
  using US Treasury bills, with the result that some interest rates are
  effectively negative (you're paying the US government to hold your
  money).
  
  The "Treasury bills" bubble is a very interesting phenomenon, but
  it's worth remembering that gold is also in a bubble, so investors
  face the problem of dealing with competing bubbles. To many of them,
  T-bills are safer because their principal is protected even if the
  gold bubble bursts.
• The reason for the improvement in mining shares (BHP Billiton and
  Anglo American) may simply be the collapse of Rio Tinto, which is
  heavily in debt and in a great deal of trouble.
  
  Furthermore, pundits are predicting that the recession will end next
  year, so investors probably think that mining stocks are a safe bet.
  Little do they know!
• As you know, I disagree with you on the dollar, expecting it to
  strengthen as the deflationary spiral continues. Apparently
  Denmark's Saxo Bank agrees with me, as they're also predicting a much
  stronger dollar. They also predict oil falling to $25. Perhaps they
  have different charts?
  
  ** Ten 'outrageous' predictions for 2009 from Saxo Bank
  ** http://www.generationaldynamics.com/cgi ... 19#e081219

At the end of the Saxo Bank article, I referenced the Chartists
Forum. Perhaps other people will post their thoughts.

Sincerely,

John

[freddyv]

Why a Chartists Forum in a Generational weblog?

So that one day we will buy back into equities at near to the bottom of the market. Let me elaborate:

I agree with the views expressed by StilesBC. If you want to do short to medium term investing you need stop losses in place because you are not going to be right all the time. If you can be right 75% of the time, and as long as you are not greedy, the profits will mount steadily.

But why charts in a generational context?

Because charts help us to see the current trends. Galbraith wrote about people who were beguiled into investing into the market down trend of the early 30's and lost all. Because every bear market has rallies, and thats how they were beguiled, they thought it was going up again. What John calls the "Principle of Maximum ruin". (The term 'Principle of Maximum Ruin' so exactly describes some of Galbraith's writing that I thought that this was a Galbraith term. John was more than mildly indignant at this suggestion and pointed out that he coined the phrase! Apologies, John, excellent term)

I sold out of equities 50% in February 2007 and 50% in October 2007. I wanted to be in cash and not equities in a market that based upon fundamentals was going to go down a lot eventually, and I sold when my charts gave sell signals. At the time I didn't know that October 2007 would be the top of the market, I just knew that the shares were massively over valued. (I lost all my savings plus borrowed money in the 1969 crash of the Johannesburg stock exchange so that was a good life long lesson. It really irritated me that my father, who had lived through the 30's, sold all his shares the year before and bought back at bargain basement prices about 4 years later)

Currently my charts are saying that there will be a bear market rally this Christmas or January. This may be wrong and if so my stop losses will kick in, but if I'm right, and I took some investment positions at the beginning of the month that are doing very nicely, there will be a short lived up, probably a sharp up, and then down. So I watch every day and will sell soon.

My charts will keep me from believing that this bear market rally is a trend reversal and back to the happy days of party making. My charts clearly show no bear market reversal. They keep me a sane trader investor.

And from the fundamentals I am fully confident that the Dow is heading below 5000 in the next 12 months to 3 years, perhaps longer. How much below 5000 I don't yet know, but 1500 is possible. My guess is that we are looking at the next long term bull market beginning around 2018, but again I don't know yet.

But my most important objective is to be sitting on lots of cash to buy back into equities at the market bottom. This, dear people, will be a massive opportunity, and something we cannot afford to miss.
Richard

I assume you are not relying on charts alone and that you are also looking at other fundumentals such as leading, lagging and coincidental economic Indicators, as well as vaulations. I have found the best chartists (Louise Yamada is my favorite) do so.

Regardless, you seem to have a very solid perspective on investing that should serve you well. I always get a bit if a quesy feeling when I read posts about how to make a quick buck in this or that with no view of the bigger picture. IMO, the bigger picture is the best to profit from because it is the hardest to manipulate. Eventually every bubble will burst and every overcorrection will turn back into a bull market. Well, except the final one.

I'd like to add to your very useful comments something that I picked up just recently that supports your views:
In good times and even more so in bad times, opportunity presents itself; preserve capitol so that you will have the means to take advantage.

--Fred