Sunday, June 30, 2013

Moment of Truth

Well, GLD hit my downside target of 116 (big fib line) on Thursday, and I believe selling has exhausted itself.        If that Thursday low does not hold, we have major deflation issues in front of us, but if you reference my post from last week Ben and company will not allow that to happen without throwing the kitchen sink at the problem.

I also think the miners have exhausted themselves to the downside.  The fact traders were buying Friday before quarter end is a tell for me.  Lazy traders who read the news that the bull is dead in gold were caught flat footed on the reversals.  The Central Bank knows, and smart money has been positioning for the liquidity to continue and we will start seeing the money flow into commodities.  What will help is some disappointments in employment on Friday and Q2 earnings, and Q3 outlook.  This will pressure the broad markets and we will see some of the long equity and short metals/miners/commodities trade unwind.

Believing that,  I give the stock market one more week to break through the 50 again and try for new highs.  If yes, I will stay in my XIV trade, if no I will close it, and buy TZA/SH.  At any rate I will start building a short position again next Friday for a multi-month correction in the stock market.

Related, I believe bond yields have peaked.  China will relent and provide liquidity, and Ben will keep on keeping on.  When stocks roll over, there is no other liquid haven for big money to hide.

Finally, I have been watching and trading the solar stocks of late, and they are waking up.  China will resolve its differences with Europe, prices will firm, giving them higher margins, and electricity prices are going up (11-25% in CA for 2014).  I have some inside insight as I am a Solar dealer and installer.  My neighbors and friends have been getting the SDGE letters telling them how much their bills will rise, and I never had more inquiries since I started this business 6 years ago.  At the same time my distributor is warning me prices on equipment will rise 10% this fall.   Seems like a recipe for higher revenue and margins for the industry.

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