When Do We Get The Obama Bump?

by JDH on January 31, 2009

The month of January is now over. How did we do? Not great. Worst January ever for Dow and S&P 500 scream the headlines. Why so bad? Could be that the U.S. Economy Shrank The Most Since 1982. Yup, that would do it.

I have been operating under the assumption that the markets would have an “Obama Bump” in late January and February before resuming their descent. That is still my operating thesis, although I have not been entirely correct up to this point. My reasoning is this:

The economy is in terrible shape, much worse than is generally acknowledged. I’m not keeping track, but it appears that there were more layoffs announced in the past week than during any other week in recent memory. We are not at the bottom yet.

However, President Obama was elected to “fix things”, and he will try. Each down day on the markets puts increasing pressure on legislators to pass another stimulus bill, and they will, perhaps this week. Long term of course the government can’t “stimulate” the economy any more than I can stimulate the sun. The government can borrow or print money and spend it, but eventually it has to be paid back, or taxed, or defaulted upon, which reverses the short term stimulus. That being said, the bill will pass, and I expect the markets to temporarily rejoice.

We amateur market technicians will look at the chart and we will say “look, the bottom is in, the lows have not been breached, this time the rally is for real!” And yes, I guess as long as the Dow hangs around above the 8,000 market, the old bottom will not be breached. (Is it just me, or does anyone else think it’s a remarkable coincidence that the Dow closed on Friday at exactly 8,000? It’s almost as if someone is trying to manipulate the markets, but I guess that’s not possible 🙂 ).

I don’t trust the market, so I am maintaining significant cash reserves. I may try to play the bounce, but not with any serious money, because while the bounce might be high, it will probably be short lived, and by the end of February I expect to be setting up my short plays to take advantage of the inevitable slide.

Gold

What about gold? I tried to get the discussion started with my post this week on Point & Figure (P&F) Charts. I showed two gold charts, both of which showed that the down trend in gold remained intact.

This week on the Forum, sidewinder posted an excellent gold chart showing a series of lower highs and lower lows, indicating that the direction for gold may be more down than up. Pinetree posted a similar gold chart, and reached the same conclusion.

Well, despite what sidewinder, Pinetree and I predicted, it would appear that on Friday gold decided to break through it’s down trend line, and close at $928.40 Does this mean gold is now going immediately to $1,000? Could be, but I’m not convinced yet.

I have no doubt we will see $1,000 gold this year. In fact, I would not be surprised to see $1,500 gold this year. But, the gold market is still a highly manipulated market, so I would not put it past the Big Boys to drive the price up, break a down trend line to cause us all to jump on board, and then drive it back down for one last burst of profits on their shorts.

Also, if you look at the Point & Figure gold chart posted on The Privateer (I suggest you bookmark it), gold did have an upturn on Thursday, but using a P&F chart the down trend line remains intact. We can’t declare a new high until we actually have a new high, and that’s why I think our big gains will come when we have a decisive close above the $1,000 mark.

So, my game plan remains the same. I have lots of cash right now, and I have stink bids placed on all of my favorite gold and silver stocks. If they get filled, great. If they don’t, I will sit and wait. I am still holding some stocks in case I am wrong, but I’m currently more than half in cash, awaiting better buying opportunities later in February.

Here are my current stink bids, all in Canadian dollars, and all subject to change:

ABX.TO – Barrick Gold Corp. at $39

AEM.TO – Agnico-Eagle Mines Ltd. at $59

K.TO – Kinross Gold Corp. at $20

G.TO – Goldcorp Inc. at $33

SLW.TO – Silver Wheaton Corp. at $6 and

SSO.TO – Silver Standard Resources, Inc. at $22

We shall see whether or not I get filled. Of course the market may run away this week, and gold may hit $1,000, and being on the sidelines may cost me lots of money. Oh well, that’s the risk we take. I prefer to believe that the markets are very volatile, so a big up day will be followed by a big down day, so my opportunity will arrive at some point.

That’s it for today, good luck to your team in the Super Bowl tomorrow (I have no vested interest, so I’ll just enjoy the game), and we will talk again next week.