Dialling in the breakout.... RIMM

We went long RIMM today, as it crossed the previous High of $80.59 and closed at the day's high... We are buying the breakout here as we like the setup of the risk-reward ....


We suspect the current breakout is going to get attention from the trading world and the media...and we hope to see RIMM test previous highs of 86, over the next few trading sessions... We would have loved to see some more volume on the breakout.... But we want to press ahead of the trade, keeping a close stop of $80.50, in case of any reversals.....

Recovery.... comes as a cost......

While the mainstream media, analyst communities and govt authorities are cheering that we are out of the woods and we have averted a major depression, we want us to pay attention to the chart below....

This is a plot of S&P 500 v/s the USD Dollar with the dotted lines, classifying the time period since March 09. Ain't the two plots look a mirror image of each other....



The Equity markets got a big jolt up since the Federal Reserve declared its mega QE (Quantitative Easing) program after its March Meeting. As the Equity market have gained swiftly since, the recovery effort has primarily been at the cost of trashing the dollar. As the dollar has weakened, the wealth of anyone and everyone holding Dollar Assets has gone down. The burden of the weakening dollar is shared by the population at large, in terms of high commodity prices - such as Sugar, which is at an all time high, steadily climbing Copper prices (which has moved more than doubled to $2.8), Gold prices (currently around a High for 2009) and Oil prices (having moved from $32 per barrel to a nr term High of $75 per barrel)....with the fear of higher taxes, lesser public facilities and a confused healthcare environment running at the back of the mind.....

It goes to show time an again.... that there is really no free lunch.....

Stopped out in Gold puts

We got stopped out in our gold puts position, as the precious metal did a U-turn after reaching 982 on the lower end and moving back to 1000. 'Prudent is the best part of valor' - As bulls and bears both make convincing cases for Gold, we want to move away from the counter to better opportunities for the time being and see the drama unfold from sidelines...

Closing Gold and Buying Puts

With Gold around $989, we are booking our last 20% position in gold. We feel gold has seen a near term top and we will see some profit taking here.



We are taking a small punt with a portion of our profits, buying Oct 95 puts in GLD - which will cost us $1.75 per contract. We are buying the October expiry as we are giving ourselves sometime for the move to mature. If gold rallies back to nr $1000, we will cover our puts.

Booking another 45% in Gold

A weak close on NY markets doesnt bode too well for the bullion market. Asian investors will wakeup to see the Gold crossing 1000 and coming back in and the knee-jerk reaction would be to book profits.

We are taking another 45% off the table, leaving just 20% to run.



We wont be surprised to see gold in 980 range tommorrow AM EST.

Booking 35% position in Gold

1 pm EST

After a Higher open today, crossing the 4 digit mark in months, there has been selling in Gold over the last 2 hrs. We want to book 35% of our long position in Gold, to preserve our profits.



If gold closes below $995 for the day. We will book another 30-40% of our position.

Weekend Video Viewing - The Money Masters

Eye Opening (read: Popping) video -


THE MONEY MASTERS is a 3 1/2 hour non-fiction, historical documentary that traces the origins of the political power structure that rules our nation and the world today. The modern political power structure has its roots in the hidden manipulation and accumulation of gold and other forms of money. The development of fractional reserve banking practices in the 17th century brought to a cunning sophistication the secret techniques initially used by goldsmiths fraudulently to accumulate wealth. With the formation of the privately-owned Bank of England in 1694, the yoke of economic slavery to a privately-owned "central" bank was first forced upon the backs of an entire nation, not removed but only made heavier with the passing of the three centuries to our day.



For more information - check out

http://www.themoneymasters.com/

TGIF ...not necessarily for FDIC

TGIF ... long weekend ahead, Labor day, Last Summer Event, US Open in NYC..... not necessarily for FDIC...

Four more banks closed today bringing the total to #89. Here's a summary of today's failures (courtesy - seekingalpha)

# First State Bank of Flagstaff, Ariz., becomes the 89th bank failure of '09, at an estimated cost to the Deposit Insurance Fund of $47M.

# Platinum Community Bank of Rolling Meadows, Ill., with $345.6M in assets, becomes the 88th bank to fail in '09 and the 15th in Illinois

# Banks in Illinois and Iowa become the 86th and 87th to fail this year, at a combined estimated cost to the Deposit Insurance Fund of $234M.

# First Bank of Kansas City becomes the 85th bank failure of the year, at an estimated cost to the Deposit Insurance Fund of just $6M.


For a complete list here's the link

http://www.fdic.gov/bank/individual/failed/banklist.html

FDIC's reserves are depleting at a faster pace than ice from the artics....Just a cautionary note to ensure your funds are spread across in safe banks ...pun totally intended...

Enjoy....

Dow to Gold Ratio - Part Deux

Most mainstream media tend to focus on the primary index performance while analyzing and reporting the day's activity and trends. We like to look under the hood, to understand what's really happening.

One such ratio - we love to look at is the Dow to Gold ratio. The ratio tells us a lot about the investor appetite and preference. Dow30 represent a proxy for paper assets and the value investors are willing to pay for it, while Gold Price represents a class of hard real assets investors are valuing.

If the ratio is consistently moving lower (as was the case during the bear cycle Oct 2007 to March 2009), it shows the preference of investors is clearly towards hard assets, away from the paper world. After a brief 5 month bear bounce (during which investors were snapping value picks and then chasing momentum), we are of the opinion that the ratio has made a high for the year and is again headed lower (telling us that investors are again preferring real hard assets to the paper assets... and the tacit truth may be that they dont trust the underlying values of the paper assets...)

In Today's action,

1. Though DOW had a positive close, due to a super final hour, the DOW-GOLD ratio today was still lower than yesterday. (#chart 1 below)
2. Momentum in Gold, continued to take it closer to the elusive 4 digit mark. This despite a not so weaker dollar (#chart 2 below), which reflects the underlying strength in Gold momentum. We think Gold will surpass previous highs of 1007 to create new highs for the year. Whether previous highs of $1033 will be taken out depends on the momentum once the first highs of 1007 are taken out.

Smart money will be looking to see a day where gold gaps up at the open and sells into the day to close on the lows of the day; that will be a tell-tale sign to close your long positions, while the mainstream media will be going gaga with $1200 odd price targets for the yellow metal...

#chart 1


#chart 2

Dow to Gold Ratio

Take a close look at the chart below. This is a chart of Dow Jones Industrial Average (DJIA - DOW30) to price of Gold in terms of Dollars per Oz.

Right through the bear market cycle from Oct 2007 to the bottom in March 2009, the ratio had fallen from a high of 21 odd levels to just below 7 (6.86 to be precise). In the 5 month bounce the ratio has moved back again to 10 odd levels... and over the course of last few days, has started the descent back down...the move down can be precisely monitored in the daily charts...

DOW-GOLD - Weekly chart



DOW-GOLD - Daily chart



With Gold's breakout today and the headwinds in Dow entering the weary months of September / October, we believe we have seen the highs of the ratio for the year. Investors can position themselves to profit from the trade by going long gold and shorting DJIA - using any available and preferred channel - ETFs (Long GLD or DGP, Short DIA,DDM or Long DXD) Futures, Options etc.

This trade requires patience as the trade takes time to make itself profitable and the ratios may snap back for brief periods of time, but the patience will be truly rewarded and satisfying.

More on the ratio in upcoming posts...

The movie is over.....

We were watching the battle in Gold with a bag of popcorn in our hand - waiting patiently for gold to move beyond the 940-950 zone.... We knew, once it breaks the zone the moves were going to be vicious...irrespective of the move...up or down....

And..it finally happened today...the wait was over...NY EST AM hours..Gold cracked past 960-965 and is sitting snuggly at 980 (Highs of the day on strong volume) within striking distance of the 4 digit mark....



People who are still not long can get long into Gold and Gold ETF complex - GLD, DGP. We would not recommend any miners, as we dont want to be exposed to vagaries of the mining business and want to leave that unsystemic risk out of our equation. Today's close can be used as a stop level.

A tale of two markets.....

China and US...

Experts worldwide have been beating the airwaves and stating that US mkt are aloof from the recent corrections in the Chinese mkt. Chinese mkt is small compared to its economy etc.... But the numbers dont lie....

Lets look at the chart below.... Chinese mkts have been leaders when bouncing off the lows before US took off in march.... as also Chinese mkts were first to start the correction when it started in 2007.....



As we enter September, US mkts seemed poised for a material correction getting into the month...