Thoughts on Markets

Friday, October 10, 2008

All Markets Turned Nasty as the Week Ended

The DJI came back a great deal today after being down another 90% day. The index closed down only 128 after being down well over 500 during the day. However, the graph still is nasty and shows that there is more downward pressure. The index is so far below the 50 and 200 day moving average that there is little chance for it to recover in the near future. The DJI is very likely to test the 7000 level next week unless the banks and government can pull a legitimate rabbit out of their hats. Is the DJI over sold? I do not believe we have yet reached that point. We are still in October and none of the intervention has been able to stem to free fall of the market.

Gold, on the other hand, as represented in the GLD has shown some signs of moving lower. The double bottom "W" failed today. It collapsed on the upward right side of the "W." Therefore, we should expect it to move lower next week. However, it did perform well for a change most of the week closing at $849.90. It's sister, silver closed at $10.17. Both closing prices were disappointing. However, we may be privileged to have another buying opportunity.

The mining stocks, after having a very exciting upward week revealed a collapsing "W," as well. I have begun trading both DROOY and HMY. I like to buy DROOY at or below $5 and sell toward $6. For HMY, I like to buy less than $9 and sell as it approaches $10. This is a dangerous practice unless one can watch the markets very closely. There is always the possibility that there will be an extended upward move when one has sold. This leads to a feeling that they have been locked out of the really big move. It has happened to me in the past, so I always retain a major portion of my core stocks and trade with a smaller trading portion. If you are more risk tollerant, you may want to trade in options on some of the other mining stocks. This provides greater leverage which can be used to your benefit.

Some of the earlier selling in the general and mining stocks may be due to investors seeking to lower capital gains in anticipation of an increase in taxes for the gains. However, most of the profit taking has obviously subsided as we are now in the loss and not profit area. The toll taken on retirement plans and insurance company investments must have been very great. Most have avoided gold and mining stocks. However, these are the means of protecting the wealth one has over time.

The amasing thing is that with the lower price of gold, there is not much to be purchased. The demand has seen a significant increase during September and October, but the supplies have been depleted. There is precious little to be had. Even the large bars are in short supply. The pressure is very great for a giant leap upward in price, but it has yet to materialize.

Intervention by bullion banks and governments has capped the price very low. We have no free markets now and the intervention is limiting the price of both gold and silver. We must go before the Lord as ask "How Long, O'Lord?" How long will the intervention be able to depress the price of the metals? One must wonder about that when the paper currencies are depreciating rapidly.

The election and all of this is in the Lord's hands. We will have to wait and see who He will put in as our president. It will be no statesman this time around. Hopefully, He will raise up some statesmen in the very near future to point the nation back to the Living Sovereign God, that He may once again bless our nation. Will He give us another leader with curses upon the people? It seems very likely. Of course, we deserve His wrath rather than blessings. However, in the long run, He will change this. Pray for Him to do so very soon.

Best to each, Doug


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