Gold, The Dow, and Pizza (but not in that order)

by JDH on December 4, 2010

This is my wife’s twice yearly “go to Toronto and shop for the weekend” weekend, so it’s just me and my two sons for the next 48 or so hours. Fortunately for me, much to my surprise, my 12 year old apparently knows how to make pizza. Apparently you can buy pre-made dough, which he then spreads out on a pizza stone, and then lathers with tomato sauce, with a hint of garlic. Actually, more than a hint; he pressed a clove of garlic into the sauce, mixed it in, and then spread it on the pizza. Next came the cheese, pepperoni, green and black olives, mushrooms and red peppers (the last two of which Mom sliced before leaving, and left in the fridge) and a final coating of cheese.

All I needed to do was put it on the barbecue, and ten minutes later it was pizza time. Equally fortunately, my 10 year old is quite satisfied with two hotdogs, boiled, with nothing on them (he doesn’t like pizza, and wouldn’t eat his brother’s cooking anyway). Can’t get much easier than that.

Now, if I can only get them to eat something healthy, we’d all be happy. Oh well, can’t have everything.

As soon as I push send on this post this fine Saturday morning the three of us are off to visit my father, and to deliver, early, his Christmas present: a new computer. I’m bringing my boys because, even though I’m quite skilled on the computer, they, at ages 10 and 12, are much more skilled than me, so I’m sure their help in setting up the machine will be invaluable.

Then three generations of JDH’s will be off to Boston Pizza for lunch. Talk about a “boys weekend”; you can’t beat that.

On Sunday, if the weather co-operates, we’ll build the frame for our backyard ice rink. Later in December, when it’s below freezing all night, I lay a tarp in the frame, fill with water, and instant ice rink.

So, you ask, why did I waste the first five paragraphs of today’s commentary talking about pizza, hot dogs, three generations, and lunch? Because there is more to life than the markets, and technical analysis, and the idiots running government, and so on. Every now and then you have to stop and smell the roses. What’s the point in making a billion dollars, if you have no-one to share it with, or spend it on?

Having said that, let’s talk technical analysis, and let’s look at the charts. First, the Dow:

Isn’t it interesting how, back in late August and early September, the 10,000 level was a major support level? It bounced off that level for seven straight trading days before heading higher.

Then, in late November and early December, the exact same thing happened with the 11,000 level. For eleven days it provided amazing support, before taking off to the upside.

Why would the random market choose 10,000, and then 11,000, as levels of significant support? Why not 10,127, or 10,898, or 11,121? It’s almost as if there was someone, or some group of someones, who were intervening at just the right time to keep the market from crashing. It’s almost as if they didn’t want any psychological levels to be broken. But that’s not possible, is it?

Is it?

Perhaps we should just assume that the markets are manipulated. Perhaps we should further assume that since they are being manipulated and are not being allowed to fall, we should just jump on for the ride? In a twisted kind of way, it makes sense.

Short term the concern will be the high reached on November 5 at 11,444. If we don’t break that level this week, or next, we could have a classic double top forming, in which case you want to sell and get out of the way. However, if that level gets taken out, there’s no reason to believe that we can’t start attacking the previous highs on May 2, 2008 at 13,058, or even the all time high on October 12, 2007 at 14,093.

When I use the term “no reason” I don’t really mean “no reason”. Of course there are lots of reason why the market should be crashing, not making new highs. You know, reasons like:

  1. The Fed’s balance sheet keeps on expanding
  2. 42.9 million Americans are now using food stamps, the highest level on record
  3. The unemployment rate in the U.S. is still above 9% (and that’s using the government’s numbers)
  4. Gas prices are going up (to $3 a gallon in the U.S., and well over $1 per litre in my corner of Ontario, Canada), and at those levels it’s hard for the economy to expand
  5. There is a supply of around two year’s worth of housing for sale in the U.S.
  6. Iceland, Greece, Portugal, Spain (and the U.S.) are insolvent
  7. etc., etc.

But reason doesn’t matter. The market is going up. So you have three choices:

First, wait on the sidelines until sanity returns (which is basically what I’ve done all year, missing most of the upside).

Second, go all in, and keep riding the general market up. If the government wants to prop it up, why not go along for the ride?

Third, buy gold.

I like the “buy gold” option. The Dow and the S&P 500 may be going up, but that’s artificial. We know it’s fake, because while the markets have had a great year, and inflation is near zero, the price of gold continues to climb.

Interestingly, the gold chart is not all that dissimilar to the Dow chart. With gold, we again are approaching a resistance level; will this be the week that we make yet another new high, or do we form a double top? I’d be betting on the new high, because gold stocks are already there.

The close for AEM.TO – Agnico-Eagle Mines Ltd. over the $85 level is an all time high, so if you want to “buy high and sell higher”, now would be the time.

The previous high in 2008 is now history. Everyone who owns this stock owns it at a profit, so will anyone be under any compulsion to sell and get back to even? I think not.

Silver stocks have done even better; SLW.TO – Silver Wheaton Corp. peaked on March 14, 2008 at just under $20; obviously with a close on Friday at $39.37 that level is long gone.

How high will it go? If the past few months are a guide, the RSI peaked at:

  • just over 80 on September 7; then
  • just over 80 again on September 29; then
  • just over 85 on November 8

So, as a guess, I would say that if the RSI, which is now at 73.70, gets over 80, either sell, or do short term covered writes to scrape some profit.

So that’s the plan: watch for a double top on the general markets, and keep taking the profits in the precious metals stocks. A crash will happen at some point, so have cash ready, but until then, take advantage of the opportunities as they present themselves.

Thanks for reading, and have a good week.

{ 0 comments… add one now }