Sunday, February 22, 2009

DOW has Broken Down - Collapse is imminent? DIA, GDX, CDNX, FXI, SLW.

Dow has broken November's Low and everybody is bearish. Rally we have been talking about did not materialised so far. Dow theory gave a Sell last week according to Jim Paplava. We see a lot of conflicting signs. Dow is heavily exposed to financials and one talk about nationalisation has killed rally in the making. Reminder - Dow is only a reference point for us for our reinflation plays on China: FXI, Grains, Zinc with CZX.v, Copper with TNR.v and other Juniors covered. We do not see Collapse as an imminent at this moment to be sure enougth to build Short positions. Our Gold and Silver plays are acting "Bold and Swiftly" sensing destroying of the paper currency - they have finally decoupled from general markets and we are making new highs on financials melt down. Back to general markets observations: Obama happen to be a Rock star without a band for a while, Tim the Secretary has a verbal dysfunction: he has managed to anger Chinese and then they spend time at a different parties with Obama before the "Bold and Swift" action. His general market observations were even more lethal then our blogging (our readers can not make so much distraction, we do hope) about matters we do not understand, he forget to mention after all - that all what he has been doing before was wrong and now he will make this and that and that. Markets are build on expectations and now they are expecting, and rightly so, Insolvency Admitting from the national banking and insurance system and following nationalisation. You can not talk about Stress Test with already insolvent banks, go to Monaco and make a Crash Test on Formula One - it will Crash and banks already did as well. Make up your mind and nationalise with wiping all equity out or "nationalise" with diluting it to almost zero. Taste the difference, but do not test the markets. Dow 5000 is much more closer then the people think. Deflation is too dangerous, USD is making a perfect Double Top after Moody's news about old news that Euro is exposed to more then 1 trillion Eastern Europe liabilities. What about from 2 to 3 trillion losses in USA? If it was not a Fake Break up into Second Weaker Top and US Dollar will rally further above 92 Depression and Deflation will be already happening. Gold is sensing it as well as agency problem as we have discussed on Friday. We do not like to challenge history, but all these conflicting signs are making us unsure that the break down will happen now: US Dollar is at Double Top and sliding down two last trading days, SPX did not violated November LOW so far, Vix is much lower then in November - professionals are not in a panic as public in November selling at exactly the wrong moment, Gold play becomes too obvious and is on front pagers. Should we be not bold enough to see the collapse our Gold and Silver positions will protect us, Zinc, Copper, Grains and China will be under pressure. If rally will materialise on finally some action regarding Failed banking system to isolate it from Toxic Assets (which should be written to zero), Gold could be consolidating after reaching 1000 in a weekly Cup and Handle before moving much higher. Our reward for insisting on continuous Equity play will be in Juniors, even if profit will be taken from Major Gold producers in a short term. Calls are reduced on Majors and GDX, reallocation to Silver and Juniors. If rally in general market will bring some pressure on safe heaven Gold play we will have better entry points in our cherry picking game, if Juniors will continue to rally with market we will have momentum with us. More on the charts to follow and do not forget that all our observations are not about your lunch money! It is pure Science Fiction as usual.
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