All Things Financial Must Rise (NYSE:FAS)
You can love gold.
Just don’t be long gold.
We received the requisite ‘world is going to hell in a handbasket’ talkbacks in response to last week’s letter, Prepping for the Great Gold Fizzle, in which we wrote that gold still had some downside. Our readers didn’t all agree, of course, and several offered us millennialist reasoning to support their claims.
To review, we wrote,
…if RSI and MACD indicators have anything to say about it, [GLD’s] next move will be down. RSI moved sub-waterline the first week of December, and if current trends continue, MACD could confirm with her own dive by week’s end. If and when that happens, GLD will accelerate toward the lower end of the trading band at 148.50.
It took a few more days than we expected, but as of midweek this week, weekly MACD has confirmed, and that’s good enough for us. The fix is in. Next stop for GLD is 148.50.
And for all those who wrote and still believe that a swing to $2500 gold is but a heartbeat away, we have only this to offer.
It’s possible to be right and to go broke. Both at the same time.
Because the world will go to hell, eventually. And certainly something better will rise on the ashes of the older, less perfect order. And we also recognize the need to prepare for that eventuality, physically, emotionally, financially, spiritually – what have you.
But it’s not happening this weekend, friends.
Nor the next.
And in the meanwhile, your long gold position is burying you.
No, You Look!
Here’s the last six months of gold proxy GLD, the SPDR Gold Trust. As you can see, trade in this monster has been bearish for nearly five months running.
What’s clear is that a series of deadly rising wedges (in red, at top) have conspired to both send GLD lower by 8.5% and to keep gold holders in the game, hoping the next uptick will signal a bottom.
Now we face a situation where GLD is buried beneath a descending trendline (not shown) and all her moving averages, while RSI and MACD continue bearishly submerged below their respective waterlines.
This is full-on bad news, and any cut below GLD 158.50, where the last flimsy line of support now sits, would put us on pace toward another 7% loss (at least) from these levels.
Because of the foregoing, we now expect volume to begin ramping up on the ETF, as latecomers to the Gold Bear party realize it’s after midnight and their favourite investment just turned into a cucumber.
And that goes double for you!
We’d be remiss if we didn’t add that within the same five month time frame highlighted above, silver has lost 13%, and the miners, with by far the dreariest technical picture of the group, are down by an unbelievable 25%.
We don’t hate just gold at this stage, friends. We hate her whole family.
Which is not to say that gold will not shine again. It certainly will. And when it does, we will be there, in the pits, egging on all the doubters. Just as we’re doing now.
Make money with your gold, friends. Not love.
While we’re at it, we like the bearish bond trade, too.
Here are charts of the CBOE’s ten and thirty year bond yield indexes, TYX and TNX, for the last six months.
Note the uniform rise in yields (drop in bond prices) since the stock market began its ascent in mid-November of last year. And note, too, that both yields have ascended above their long term moving averages (in yellow), with the rise in the thirty year outdistancing the ten year considerably.
We’re now entering a new phase of the bond market sell-off, folks, and we see little hope of a return to the safe haven, fixed-income days of years past.
The rise in yields is inevitable.
And the biggest beneficiaries of the backup will be the financials.
The financials as a group have positioned themselves for the rising rate scenario, with a collective, two to three year average portfolio duration that should cushion them against heavy losses while they benefit from higher rates on their own loan portfolios.
The financial tide is already rising.
The financials blew past Wall Street’s Q4 growth expectations, and we see no reason why it should stop here.
If you can find a good entry point, we say the triple leveraged Direxion Financial Bull ETF (NYSE:FAS) should pay off big.
We’re pounding the table.
Many happy returns,