A Look at Gold Charts

We have been monitoring the gold market closely for the past several weeks in anticipation of the development of a meaningful low, and today’s sharp move higher was a bullish signal that suggests the anticipated low may be in the process of forming right now. Gold closed well above resistance at the upper boundary of the downtrend from early January on the daily chart, confirming the start of a new reaction.

From a temporal perspective, we are 5 trading days into the cycle following the Short-Term Cycle Low (STCL) on January 27, and today’s move up to a new short-term high is a bullish sign that indicates the current cycle may be right translated. If the developing reaction continues to strengthen and consolidates the gains of the past 5 sessions at current levels or higher, the bullish translation will be confirmed.

However, the most important potential development relates to the intermediate-term cycle. We are now 27 weeks into the cycle following the Intermediate-Term Cycle Low (ITCL) on July 30, and 90% of all intermediate-term cycles are less than 23 weeks in duration, so the next low is well overdue.

A strong close tomorrow would create a bullish engulf pattern on the weekly chart, signaling that the latest ITCL very likely occurred last week and forecasting additional gains during the next 2 to 3 months.

The Economist - 5 February 2011

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WHERE CAN VIX FUTURES GO?

Since we have seen a very steady decline in VIX futures across the curve, I thought it was an opportune time to look at how VIX futures behaved in the last few years. It is hard to say that we will decline back to pre-2007 levels considering the crisis we have been through, the huge government deficits, and the continued weak employment levels and housing market. That being said, I think it is good to get a perspective of what I believe would be a floor to what we should expect.

By looking at the 5th month VIX futures contract over time, I pinpointed a few different spots in the last couple of years that I thought would be interesting to look at relative to today. Each point marked a low within its own slice of time:

What a wild ride vol took

With these spots in time marked, now we need to dive into what the VIX futures curve looked like at the time: (more)

Treasuries Fall, Dollar Gains, Stocks Fluctuate After Jobs Data

Treasuries fell for a fifth day and the dollar gained after the U.S. unemployment rate unexpectedly dropped to the lowest level since April 2009. U.S. benchmark stock gauges returned to the highest levels in 2½ years.

Ten-year Treasury note yields rose 10 basis points to 3.64 percent, the highest since May, at 4 p.m. in New York. The dollar appreciated 0.4 percent to $1.3579 per euro. The Standard & Poor’s 500 Index, which has rallied 94 percent from a 12-year low in 2009, climbed 0.3 percent to 1,310.87, its highest close since June 2008. Canada’s currency rose to a 32-month high against the dollar as the nation added more jobs than forecast.

The U.S. jobless rate for January dropped to 9 percent, below the 9.5 percent forecast in a Bloomberg survey of economists, even as employment increased at one-fourth the projected rate after winter storms depressed hiring.

“We’re along the path to recovery,” said James Gaul, a money manager at Boston Advisors LLC in Boston, which manages $1.7 billion. “The picture overall looks better. However, chances are we might need another full year to see consistent gains in payrolls.” (more)

Housing prices to drop 25% in Canada, forecaster predicts

House prices in Canada will fall over the next several years by as much as 25 per cent, creating a massive impact on the economy and possibly pushing the country into recession, says a forecast.

“The recent housing boom has resulted in the largest rises in house prices ever seen in Canada, which have been similar in magnitude to those during the recent boom in the U.S.,” said Capital Economics analyst David Madani in a report released Thursday. “Unfortunately, the subsequent falls in prices could also be just as severe as those elsewhere.”

Madani is predicting house prices will fall by a cumulative 25 per cent over the next several years, or “in the same ballpark as the recorded declines in the U.S. and other countries.”

other economists think that prices and sales in Vancouver and Toronto are likely to dip in 2011 because the two cities have shown a significant, and possibly unsustainable uptick over the last decade.
But most have backed away from the bubble word. (more)

John Paulson's Long-Term Stock Picks: BSX / GLD / KGC / LNG / MI / RF / SPY

John Paulson is president of one of the world's most famous hedge funds. He raked in more than $5 Billion in profits for his firm, Paulson & Co., last year. Paulson got his BA from New York University‘s College of Business and Public Administration and his MBA from Harvard Business School. In 2007, during the mortgage bubble, he shorted subprime mortgages and provided enormous abnormal returns. Paulson's 2010 profit was one of the greatest returns in investment history, and one of the reasons for his fame. In 2010 Paulson won Absolute Return’s “Best Long-term Performance (over five years)” award for his Advantage Fund.

John Paulson regularly emphasizes fundamental analysis to make investments. Right now 45% of his US equity portfolio is basic materials and companies in the finance sector. Paulson’s total assets under management is about $35.9 Billion, higher than the 2010 value ($32.1 Billion). Approximately $23 Billion of his clients’ money is invested in US securities. According to Paulson’s year end letter, he transitioned the strategy from short equity bias/long distressed focus to a long equity event focus in 2010. Paulson reinvested all his gains back into the funds since inception. He also encourages his investors to make long term investments on the fund.

Paulson's 13F filings from the most recent 4 quarters reveal that in the US equity market, he usually makes short-term investments. He had invested in 149 different stocks during the year and only 6 of them remained in his portfolio until the end of the September. (more)

FABER: EXPECT EQUITY CORRECTION, COMMODITY RALLY, NEW CRISIS

In a recent Bloomberg interview Marc Faber says equity markets about set to correct. He believes global inflation is causing instability and should lead to higher oil prices. Faber believes emerging markets could decline as much as 30% from current levels and that developed markets are likely to outperform. Ultimately, Faber is still very bearish about the long-term as he expects the Fed’s incessant intervention in markets to cause another crisis.