Market, Gold and Silver Update

After some well-placed vacation time, during which the market bounced as expected, we're back at it with the DJIA at a crucial point. 

Last update, on August 30, we were warning of an imminent bounce writing: "We would not turn longer-term bullish unless the DJIA is closing above the red trend line shown on the chart."

This was the chart, and as always charts can be clicked to view a larger version:

This is an up-to-date view:

For now we remain bearish and still expect September to be a losing month for the general market.  If not, at least some of the gains so far this month are likely to be retraced very soon. 

Why do we think so?  Other than the obvious, and some no-so-obvious, technical indicators such as the trend line shown on the charts above, the put/call ratio (amount of option puts vs. calls being bought) reveals a multi-year bullish sentiment extreme.  Such extremes normally coincide with market tops.


Mid-day August 27th we posted that we were selling most of our gold and silver speculations which were bought in late June virtually at the lows.  Here's what's happened to gold (and silver) since then, as shown by a chart of GLD:

Some of the call options we sold, which at the time were up by hundreds of percent, are now not quite as profitable and that underscores the importance of good timing.  Often the best way to time a trade is to simply do the opposite of what the majority of investors is doing.

When we were buying, multi-year highs in bearish sentiment were being registered.  On the day we sold, we noted the highest bullish sentiment of the year. 

Here's another example.  Recall that on August 16 we linked to this article, which was published on August 12.  In the 11 trading days after its publication, the DJIA dropped 700 points. 

Most are still very bullish on precious metals so while we are not yet ready to short gold or silver again, neither are we in a hurry to speculate bullishly beyond holding the remaining cost-free calls we have left.

As for equities, we're currently comfortable with our outstanding short positions.


Interesting news, which if true would probably prove at least short-term bearish for gold and equities:  Obama set to name Summers as Fed chief







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