Gold closes at record high, but lows are the story of the day

There is something that is difficult for most people (including myself) to grasp. Especially with the market bleeding red . The difficult concept is that when something goes down in the market, something else goes up. The reason that the stock market was down so much today had very little to do with housing and with the investigation of Washington Mutual. That mess does not have the power to drop the U.S. stock market over 350 points in one session. The stock futures are still ticking lower as I type.

The reason that the stock market fell so much today was because of China. They hold 1.3 Trillion U.S. dollars and they announced publicly today for the first time that they will sell dollars in order to diversify assets.

When the announcement was made, the euro gained a penny on the dollar in less than 4 minutes. In the world of currency trading, that is a monster move. It continued to rise throughout the session and put in what I think is an intermediate top. This is what caused the market to fall today. The declining dollar. Here is the usd/euro chart:

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The Japanese yen also had a similar move, but it has a more important relationship to the action of the stock market. The yen now determines if the U.S. market is up or down. And the dollar continues to move lower against it as I write this. If you thought today was bad, tomorrow could be worse if the yen breaches the 111.5 level and stays down there for any considerable period of time (30 minutes or longer).

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I know how bearish this sounds, but when looking at the bigger picture. It becomes clear that the August lows will be tested, and that some of the larger banks are at risk of suffering serious financial hardships.

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You can still make money by putting your money in the right places. I know I sound like a broken record, but Jim Rogers has given investors many options to make money in this type of environment. The Japanese yen can be purchased through the FXY.

Now, take a deep breath, calm down, and watch the video

Markets and Balancing Rocks

This is currently the US stock market

Today seemed like a very panicky day in the market, but it was not. The two charts below illustrate that the market tested support and resistance throughout the day.

1 Month S&P Emini Chart

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6 Month S&P Emini Chart



I have added support levels
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These charts are the 1 month, and 6 month S&P 500 December futures . Futures markets, are some of the most highly liquid markets in the world. What concerns me is that the market was quickly sold off at resistance, and it looks like it is now in balancing rock mode. If it gets just the right push, we could be going right back below 13,000 on the DJIA in short order. In my opinion there are a few safe places to put your money right now, and few of them involve the U.S. stock market.

I think that the number one single thing to buy for the long term is: The Jim Rogers Commodity Trakrs. This index was created by Jim Rogers. Jim Rogers stores a large chunk of his money in this index. He also holds various foreign currencies like the Chinese yuan, Japanese yen, and Swiss franc . I think that the best way to make money is to follow what a billionaire does. Unless they buy an airline, that is a sign that a billionaire will soon become a millionaire.

I will post later about how I plan to make money in the coming days/weeks/months. Three words: commercial real estate

Looks like the juice has been made

Banking shares never recovered on the last rally.

It looks like the brief squeeze was used to sell and to short at higher levels.

The dollar is falling almost .01 against the euro, and gold made another new high at 810.60. I expect gold to open higher next week and continue upward. I think that the fed will not step in again soon to help out the struggling banks. I am also expecting the market to rally on hopes that the fed will do something over the weekend. It seems like investors are deeply worried about banks like Citigroup and Merrill Lynch.

Rumors are flying that Citigroup may cut its dividend, or even worse that it is potentially insolvent. The company stopped all lending in California on October 31st.

There are claims that Merrill Lynch attempted to hide assets by selling them to hedge funds with an agreement to purchase them back at a later date for a set price. Not only is this unethical, but I am sure that the government will be looking into this. The pressure from the street to beat estimates is tremendous, but lying, cheating, and stealing to get there is much worse than just taking the loss. Now is a good time to remind you about how great of a place America is. Where else can someone tank the company stock, hide liabilities, make unethical decisions, get fired, and leave with $130 million dollars?

Yes, America is a great place.

If You Had a Bad Trading Day

Just take a look at the chart below and you will feel better. The company is WCG, and they had the pleasure of being raided by the FBI on Wednesday. The stock was subsequently halted and as you see below there was a small gap down at the open on Thursday.

"The nature of the investigation is unknown at this time. A release from the U.S. Department of Justice was generally vague. It said the ongoing investigation does not directly concern, nor should it have an impact on, the delivery of any health care service to any person."

My guess is that they were actively participating in Medicare fraud. I know someone who used to work for the office of the inspector general and he would tell me that it was rampant.

P.S. Take a look at the RSI reading (overbought/oversold indicator) it went from above 70 (overbought) to below 30 (oversold) in ONE day!

Welcome

Thanks for stopping by my blog. This is the first post, in what will be a series of daily postings on the economy and financial markets. The super brilliant people at the federal reserve continually say that inflation is not a problem. It is good to know that they do not have to eat or use energy. Whether it be in the form of crude oil (closed at a record 83.69/bbl) gasoline, heating oil, electricity, or natural gas.

Gold is now basing in the 740-750 range with short term support at 742.50 (where I would try to buy on a break). There is even better support at the 732 level. Don't listen to the people telling you that gold shouldn't be that high. It has been consolidating for over a year and creating an ascending pennant ( a strong chart pattern I follow). Gold is in an early breakout stage right now. Remember when AAPL just cracked 90-100 a share and people said that was too much? Well that is where I think gold is right now.


Listen to the market. The market is voting all the time with billions of dollars and it is saying that gold deserves to be at this level. This is an early trend, and it is solidly up for gold.

Thanks for reading,

Michael