As the bond market continues to struggle, today one of the greats in the business sent King World News a fantastic piece stating that we may see a turn in gold and a massive head and shoulders top in stocks, plus a bonus Q&A about gold, the possibility of the U.S. moving to a digital currency and more.
November 5 (King World News) – While I’m sure much of the mainstream media focus today will be on the action of Facebook, Google, Amazon, etc. — which were all higher — to me the more important development was in Qualcomm (and Valeant, to some degree), which was 15% lower right out of the blocks and helped erase an early rally, as the market lost 0.5% through midday (though the Nasdaq was a bit weaker). However, most of those losses were in the afternoon, as the market closed flattish. Away from stocks, green paper was sort of flattish, oil lost 2%, fixed income was lower, and the metals were slightly weaker…
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A Glimpse of the Finish Line?
However, despite the comeback on the part of the indices, today was the first day since this rally began in late August that felt to me like we might have achieved exhaustion. That is an admittedly subjective observation on my part, and I don’t want to make too much out of a gut feeling or the action in a few stocks, but seeing Qualcomm shattered for 15% when it has been part of a group that everyone loves, and it has an activist behind it, was very unusual.
I had previously been short Qualcomm and/or involved in the puts, but I didn’t do anything going into last night’s report because I thought that the way everything had been acting, even if the company did poorly (which it did), the stock might only go down a couple of bucks — a situation I obviously handicapped wrong.
A Shoulder To Cry On
Nonetheless, if it turns out that the S&P is “failing,” then we would be starting down the right slope of a massive head-and-shoulders top. Again, we need to see more information, but I do believe that if that happens, the downside action could accelerate quite quickly given that the run we had in October caused people to max out on the long side.
On the other hand, this discussion could look foolish after tomorrow’s nonfarm payroll report, but I wanted to note that I thought today’s market action might be meaningful.
Reversion To the Mine
The recent decline in gold has been extremely lopsided. It has been lower now for seven days straight, 11 out of the last 12, and 14 out of the last 16. While lopsidedness does not guarantee a turnaround, I have noted over time that long streaks — either higher or lower — often end in reversals. So there is some chance that, despite the horrible action over the last couple of weeks, we could be close to a turn, though obviously the data tomorrow could have an impact on how things play out.
Included below are three questions and answers from today’s Q&A with Bill Fleckenstein. The questions are from his subscribers and they get to read Fleckenstein’s answers every day.
Question: Bill, are you shorting into today’s weakness?
Answer from Fleck: “I’m seriously thinking about it, as the tape feels exhausted, but I’d like to see tomorrow’s NFP report first.”
Question: Do you think in the future the US attempts to move towards all electronic currency? I know the politicians would love that so they can track every dollar for their own purposes. With the dollar used globally as it is, is this even possible to move to an all electronic currency standard? Thank you Bill.
Answer from Fleck: “No, I don’t think so. Not any time in the next five years anyway.“
Question: There are reports that at COMEX, paper gold to registered gold ratio is now close to 300 (a ZeroHedge report). With the nation’s large banks, Federal Reserve regulations ensure that they are sufficiently capitalized and things like Tier 1,2 Capital Ratios are within limits. The question is, is there anyone regulating COMEX that they are sufficiently gold-ized? It will be great to get some insight into this. I suppose if this dam breaks, that’s the only way for gold to move up violently. If it does not, the ratio can go from 300 to 500 and all the incremental demand for gold will quietly get absorbed on paper without a blip in the $1100 price.
Answer from Fleck: “The CFTC regulates the Comex. This story has not mattered at all so far. It seems as though it should at some point, but not yet. Your analysis, though, is flawed. That ratio is not the problem all by itself. It is the lack of demand combined with the paper-centric bombing runs.“
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