Gamble Blindly or Speculate Intelligently?

Silver has and will continue to lead the way once it (re)establishes what Livermoore described as the line of least resistance. This will be reveal by the strength of the tape. As expected, the upper trading channel has been formidable resistance for gold and silver. It has also become the line in the sand for the paper operators as they understand the technical implications of an upside break. This means that the battle for control over this line will be fierce.

Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate intelligently and get a smaller but much more profitable profit?, Jesse Livermoore.

The above quote hints at why gold and silver seem so indecisive at the upper channel resistance. While the pros are watching intensely, they have withdrawn from the trade in order to speculator more intelligently. The withdrawal of the pros and the holiday trading conditions means a sharp reduction in liquidity (volume) and discipline within the trend. In other words, price will be increasingly influenced by the weak hands of retail money and the actions of the paper operators.

While price has faded from upper channel resistance, it has yet to decisively break down. This suggests that the third tap of "three taps and out" remains in play. The labelling of the three taps will not be known until the tape reveals the line of least resistance.

Silver ETF (SLV):

Hi Eric,

On monday you posted "Silver will lead the way" ... but once it approaches the 30-level it gets hit ... and tumbles about 1.5 USD.

The chart - technical inidicators - looks very bullish these days ... Could it be that we see big moves the coming days or will shorters lead the way .

thanks to share your insights with us.

Barry

Lower Taxes AND Spend! Deficit Cuts "Will Be Self-Defeating," Economist Declares

This is not opinion but rather the message of the markets. Any material reduction in deficit spending will generate a harsh response not only on Wall Street but also Main Street. Either devalue the currency – kick the can down the road to live another day, or immediately adopt harsh fiscal discipline and get your ass served on the silver platter of social order here and now. Nobody wants to be the lead scapegoat story on 60 minutes.

Damned if you do, or damned if you don’t. Those seeking the protection of gold understand the conundrum.

The U.S. Senate is soon expected to pass an across-the-board extension on the Bush-era tax cuts. President Barack Obama’s $858 billion proposal also allows an extension of jobless benefits for the close to 15 million unemployed Americans.

The bill, however, is still a long way from a done deal as it does not have the full backing of House Democrats, who want to limit the tax cuts to the first $250,000 of family income. Liberals also oppose the estate tax provisions in the bill, as discussed here with former Sen. Ted Kaufman (D-Del.).

Source: finance.yahoo.com

Newswire Targets Zombie Traders

Thus, eliminating the need to think objectively.

Eric,

I just thought you'd get a kick out of Yahoo finance's front page right now...
It reads "disagreement over EU Debt Crisis Measure Deepens" immediately followed by "Gold Prices suffer sell off" just below it...

Hilarious...

Amir

Batême Du Feu - Baptisted By Fire Will Characterize The Recognition of Hyperinflation

The undeniable face of hyperinflation - policy desperation, shortages, and growing social discontent is everywhere yet largely unrecognized by the public. I can’t help but think of the old French phrase baptême du feu. Unfortunately, baptized by fire will characterize the public's recognition.

Headline: Hungary Follows Argentina in Pension-Fund Ultimatum, `Nightmare' for Some

Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

Headline: Anti-austerity riots erupt amid Greece strike

Protesters clashed with riot police across Athens on Wednesday, torching cars, hurling gasoline bombs and sending Christmas shoppers fleeing in panic during a general strike against the government's latest austerity measures.

Police fired tear gas and flash grenades as the violence escalated outside parliament and spread to other parts of the capital.

Headline: Portugal Tries to Prevent Sugar Hoarding Amid Shortage, FT Says

Portugal faces a sugar shortage, the first European country to find itself in this position in more than three decades, the Financial Times reported.

Agriculture Minister Antonio Serrano asked people not to hoard the commodity after a breakdown in imports to refineries led to a run on supplies in the shops, the newspaper said.

Headline: U.S. Called Vulnerable to Rare Earth Shortages

The United States is too reliant on China for minerals crucial to new clean energy technologies, making the American economy vulnerable to shortages of materials needed for a range of green products — from compact fluorescent light bulbs to electric cars to giant wind turbines.

So warns a detailed report to be released on Wednesday morning by the United States Energy Department. The report, which predicts that it could take 15 years to break American dependence on Chinese supplies, calls for the nation to increase research and expand diplomatic contacts to find alternative sources, and to develop ways to recycle the minerals or replace them with other materials.

Attention Will Turn To The U.S. Dollar Soon

The media's intense, unbalanced focus on the troubles within the Euro Zone should be a major warning sign for astute trades. The US Union (States) are also struggling with massive budgetary holes driven by excessive consumption have already drawn from the bailout well numerous times under relative media blackout. Yet each time the bucket is dipped, it is camouflaged by ‘redirective’ headlines.

Who's the more foolish: The fool, or the fool who follows him?

The eventual termination operation Euro necessitates the following question: what’s next? The dollar index strength, a byproduct of Euro weakness, is cyclical rather than structural. The US Union requires similar, possibly significantly more, withdrawals from the bailout well as the European Union.

Jim said it best this morning,

The momentum decline of the euro in operation short of the euro named "Shark Feed' is the best precursor of the " Shark Feed" being a terminal attack on the US dollar very soon.

The 12/3 down gap on heavy volume has been filled on contracting volume. This suggests that the cyclical strength in the Dollar Index is weakening. A turn in the leveraged money flows from short to long by smart money will mark the turn in the dollar.

U.S. Dollar Index ETF (UUP):


Heading: Stocks, euro hit by Spanish credit rating warning

World markets and the euro fell Wednesday after Spain was warned it may have its credit rating downgraded, echoing a similar report on Belgium the day before and renewing worries about Europe's debt crisis.

In Europe, the FTSE 100 index of leading British shares was down 22.92 points, 0.4 percent, at 5,868.29 while Germany's DAX fell 55.70 points, or 0.8 percent, to 6,971.70. The CAC-40 in France was 34 points, or 0.9 percent, lower at 3,868.87.

Source: finance.yahoo.com

CNBC's Boldest Predictions for 2011

Some of my favorites were cited below. It's best to read them with pom-poms in hand.

16. The Fed Ends QE2 Program in June

"The Federal Reserve, responding to intense political criticism and an improving economy, ends its QE2 policy after purchasing Treasuries in June. The Fed will avoid punitive legislation ... GDP growth of nearly 3 percent will ease pressure on the central bankers. By year-end, speculation will be percolating about the first Fed rate hike, which could come in early 2012." — Greg Valliere

15. U.S. Stock Prices Soar
"Buy, buy, buy . ... I’m calling Dow 14,000 by this time next year. Why? Highly productive firms only need a little growth right now to blow the doors off. They won’t get a lot of growth in 2011 in the U.S., but with high productivity, strong global growth, and fewer competitors, they’ll get enough." — Tony Fratto

11. Consumers will return to spending.
"Yes, consumers will be more frugal, but the negative pundits will be shocked that people actually do buy presents this holiday season. Sales will not only be better than last year but even mildly reminiscent of previous years. ...This holiday season will cause many to wonder about the sanity of the American public as consumption returns. Never underestimate the motivation of the American public to spend. " — Michael Yoshikami

9. Bonds Keep Booming
"The secular bull market in bonds should continue through 2011. Bond investors may fear inflation, but ... secular changes will keep driving rates on all fixed-income securities to record lows—Treasuries, munis, and corporate bonds alike." — Gary Kaminsky

Source: cnbc.com

Judge the Exterior Without Examining the Inner Workings

How could the biggest jump in department store sales in two years be interpreted as anything but good news before the holidays? There lies the beauty of surface analysis as known as economic spin. Words such as ‘strong’ and ‘huge’ provide a formidable facade which most of the public cannot refute. Our basic tendencies are to judge the exterior, i.e. first impressions, without bothering to examine the quality of the inner workings.

This basic human tendency makes for easy prey in the money game. Money always punishes flawed reasoning, intellectual laziness, mistakes, etc; and it will do it while shaking your hand and smiling.

The headline and detailed commentary make one critical omission; retail sales are measured in U.S. dollars. These are the same U.S. dollars the Fed is creating, some call it printing, to purchase $600 (more like $900) billion in Treasuries for QE2. It is this money creation, better known as QE to infinity here, that’s driving the price of gold up in all fiat currencies.

How could the biggest jump in department store sales in two years be interpreted as neutral to bearish news? The strong number doesn’t look so strong when retail sales are priced in constant currency terms. In other words, retail sales don’t look so impressive when the effects of currency devaluation are removed.

“Real” or constant currency retail sales remain in a deteriorating downtrend since 2001. The deterioration of within the downtrend is illustrated by declining momentum. The weakness in real retail sales has been confirmed by declining auto sales since 2005.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change:


Auto Sales (AS) and YOY Change:


Headline: Retail sales rise 0.8 percent in November

Retail sales rose for a fifth straight month in November, as the biggest jump in department store sales in two years gave the holiday shopping season a strong start.

Retail sales increased 0.8 percent last month, the Commerce Department said Tuesday. That came after a 1.7 percent gain in October, which was propelled by a huge increase in auto sales.

Source: finance.yahoo.com