Friday, June 28, 2013

Precious Metals Life Cycle Nears an End - Final Stage of Denial

The life cycle of most things not matter what it is (living, product, service, ideas etc...) go through four stages and the stock market is no different. Those who recently gave in and bought gold, silver, mining stocks, coins will be enter this stage of the market in complete denial. They still think this is a pullback and a recover should be just around the corner.
Well the good news is a recovery bounce should be nearing, but if technical analysis, market sentiment and the stages theory are correct then a bounce is all it will be followed by years of lower prices and dormancy.
I really do hate to be a mega bear or mega bull on anything long term but the charts have painted a clear picture this year for precious metals and I want to share what I see. Take a look at the chart below which shows a typical investment life cycle using the four stage theory.

The Four Stages Theory
Classic economic theory dissects the economic cycle into four distinct stages: Accumulation, Markup, Distribution, and Decline.  Stock, index or commodities are no different, and proceeds through the following cycle:
  • Stage 1 - Accumulation: After a period of decline a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers.  Price action is neutral as sellers exit their positions and buyers begin to accumulate.
  • Stage 2 - Markup: Upon gaining control of price movement buyers overwhelm sellers and a stock enters a period of higher highs and higher lows.  A bull market begins and the path of least resistance is higher.  Traders should aggressively trade the long side, taking advantage of any pullback or dips in stock price.
  • Stage 3 - Distribution: After a prolonged increase in share price the buyers now become exhausted and the sellers again move in.  This period of consolidation and distribution produces neutral price action and precedes a decline in stock price.
  • Stage 4 - Decline: When the lows of Stage 3 are breached a stock enters a decline as sellers overwhelm buyers.  A pattern of lower highs and lower lows emerges as a stock enters a bear market.  A well-positioned trader would be aggressively trading the short side, taking advantage of the often quick decline in share price.

Gold Price Weekly Chart - Stages Overlaid

Silver Price Weekly Chart - Stages Overlaid

Gold Mining Stocks - Monthly Chart
This chart is a longer term picture using the monthly chart. I wanted to show you the 2008 panic selling washout bottom in miners which I think is about to happen again. While physical gold and silver are in a bear market and should be some a long time, gold mining stocks will likely find support and possibly have a strong rally in the coming months.
Many gold stocks pay high dividends and are wanted by large institutions and funds. The lower prices go the higher the yield is making them more attractive. So I figure gold miners will bottom before physical metals do. A bounce is nearing but at this point selling pressure and momentum continue to plague the entire PM sector.

Precious Metals Investing Conclusion:
In short, I feel with Quantitative Easing (QE) likely to be trimmed back later this year, and with economic numbers slowly improving along with solid corporate earnings the need or panic to buy gold or silver is diminishing around the globe.
While there are still major issues and concerns internationally they do not seem to have any affect on precious metals this year. Long terms trends like the weekly and monthly charts shown in this report tends to lead news/growth/lack of growth by several months. So lower precious metals prices may be telling us something very positive.
The precious metals sector is likely to put in a strong bounce this summer but after sellers will likely regain control to pull prices much lower yet.
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Liquidity Services, Inc. (NASDAQ: LQDT)

Liquidity Services, Inc. operates various online auction marketplaces for surplus, salvage, and scrap assets in the United States. The company's auction marketplaces include that enables corporations to sell surplus and salvage consumer goods and capital assets;, which enables selected federal government agencies to sell surplus and scrap assets; and that enables local and state government entities, including city, county, and state agencies, as well as school boards and public utilities to sell surplus and salvage assets. It also operates that enables corporations to sell idle, surplus, and scrap equipment in the oil and gas, petrochemical and power generation industries; for corporations located in the United States, Europe, and Asia to sell manufacturing surplus and salvage capital assets. The company's marketplaces provide professional buyers access to supply of surplus and salvage assets presented with customer focused information, including digital images and other relevant product information along with services to complete the transaction; and enable corporate and government sellers to enhance their financial return on excess assets by providing liquid marketplaces and value-added services that integrate sales and marketing, logistics, and transaction settlement.
Please take a look at the 1-year chart of LQDT (Liquidity Services, Inc.) below with my added notations:
1-year chart of LQDT (Liquidity Services, Inc.) After peaking at $57 in September, LQDT has gradually worked its way lower. From November until May the stock had shown a tendency to react to the level of $35 (red) and LQDT showed a sign of life when it broke back above $35 in mid-May. Unfortunately, the stock stalled again and broke back below that level in June. The stock is now approaching the 52-week low level of $30 (blue) that it has tested multiple times since the end of January.
The Tale of the Tape: LQDT is approaching its key level of $30. A trader could enter a long position at $30 with a stop placed under the level. If the stock were to break below that support a short position would be recommended instead.
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5 Ways to Profit From Gold and Silver’s Drop


Anyone thinking about how to invest in precious metals right now has been watching the plunging prices of gold and silver.

Both metals are firmly in bear market territory. By the end of last week, gold was down about 27% from its 52-week high of $1,803 and silver had cratered by a whopping 43%.

But the recent downward slide in the price of silver and gold has once again revealed to investors the most important fundamental fact about precious metals — they’re incredibly volatile. Swings of 50% in value in a single year are not unheard of.  (more)
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As Stocks, Bonds and Gold Fall, Where’s the Cash Going?

June is when spring turns to summer, but this year it’s felt like fall for investors in nearly every market.

Bonds have tumbled in value, from Treasuries to corporate debt to municipals, as the focus on a possible end to the Federal Reserve's asset-buying prompted heavy withdrawals from fixed-income funds. Gold is collapsing and is on its way to posting the metal’s worst quarter on record. Non-shiny commodities have also been weak. Emerging markets have led the declines, as China’s banking system heaves. Stocks are down from their highs of May, though they’ve bounced the past couple of days.

 This recent across-the-waterfront swamping of most every investment market raises two key questions: Where is the money that is exiting these assets going? And what happened to the balanced interplay among markets that produced offsetting movements and flattered a diversified portfolio? (more)

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Gold Is Unsafe at Any Price: Dicker

Another day another beating for gold. The yellow metal fell another 3.5% overnight bringing it to prices unseen for almost three years. The SPDR Gold Trust ETF (GLD) is now down over 25% year-to-date as retail investors find themselves on the wrong side of what is suddenly looking like one of the great boom-bust cycles in precious metal history.
As for what's driving the plummet, MercBloc president Dan Dicker says it's all about Main Street coming to the sudden realization that there is no safety whatsoever in gold. "When the retail customer gets frightened, they get frightened in a hurry and they get frightened for big numbers," Dicker says in the attached clip. (more)

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Ford: It’s Time to Buy

For the first time since its near total collapse in 2009, the American auto industry is hitting top gear.

And I’m talking about the entire industry — from major car manufacturers to small parts suppliers.

Vehicle sales are on track to reach about 15 million units this year, up from 10.4 million in 2009.

As a result, factories are now operating at 95% capacity — and for the first time in four years, they’re looking to add more workers, floor space and machinery. (more)

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