We had a real three ring circus today with Bush, Bernanke, and Paulson all going at it and then the idiot from the SEC saying that he’ll limit short selling of Fannie Mae, Freddie Mac, and the brokers. So much for free markets although I gave up on that concept years ago! I watched part of Bush and Bernanke but really had no stomach for Paulson. I really can’t stand the man. Of course I was more than amused by the goings on in the markets as Bernanke was finishing up. Intervention could not have been more obvious, not only in stocks but in oil, gold, and the rest of the commodities. The intervention was open and blatant. Oh, and it will not work. My hope was that the boys would have refrained from playing games and we could have washed it all out with a capitulation, but I guess that makes too much sense. So we have intervention which only serves to prolong the agony, allows me to short yet again from a higher level, and most importantly raises the odds that we fail to hold support at 10,722. At least that’s how I see it. I must have received a hundred e-mails all asking the same thing: did we see the bottom today? I obviously don’t know but I suspect we have not.
In an e-mail to my clients this morning I noted that yesterday’s Lowry’s registered the widest gap between selling and buying pressure in seventy-five years. I also said that Lowry’s selling pressure made a new high (at 736) while buying pressure made a new low (at 204) and that indicates that we have yet to see the bottom. The gap must begin to shrink before we see a bottom and not after. Aside from that we have yet to see a third (and maybe even a fourth) 90% down day. Then when I glance at the daily
chart and look at today’s action, all I really see is yet another lower high and lower low. About the only thing that makes a decent argument for a bottom is the fact that the Dow is quite oversold, but then again I have seen things stay oversold/overbought for a long, long time.
As I advised my clients I covered all my short positions (Dow, S & P, and NASDAQ) when the September Dow hit 10,850 and in hindsight I was lucky to have done so. The market did go lower as the September Dow fell down to an intraday low of 10,815 before intervention drove prices higher. This is within a mere 90 points of the often mentioned critical support at 10,725. From the 10,815 intraday low, the September Dow traded all the way up to 11,115 before sellers entered the picture again. Never one to turn down a bargain, I sold short the September Dow again at 10,990 and the September NASDAQ a number of times at an average price of 1,815.00 and I will look to sell more on the way down. I remain absolutely convinced that the September Dow will mark price at 10,725, but what I don’t know is what will happen after that. When I see the type of intervention, poorly thought out at best, like I saw today, I have the feeling that we may not stop there. At this point, your guess is as good as mine.
Gold had a very volatile but good day. How can I say that gold had a good day when it finished almost 12.00 below its intraday high? Simple, one year ago the August gold would have closed down 10.00 or 15.00 instead of closing up 4.00 as it resisted any and all attempts to drive the price down. The August gold did close up 4.00 at 977.70 as it traded in a 22.00 range with an intraday low at 968.7, just 1.00 above strong support at 967.70. Take a look:
When I look at today’s action, I do not see wasted opportunity; rather I see untapped potential highlighted by a higher high and a higher low. Today’s intraday high of 989.60 was our first approach of critical support at 999.40 and it will not be the last. It is worth remembering that gold has a message and the message is this: in spite of the dollar, in spite of intervention, and in spite of the Dow, gold is going to go a lot higher. First through 999.40, and then 1,077,60, and then on to 1,148.70 as it works its way all the way up to 1,711.00 by late April 2009. You can either go along with it, or get run over by it. You choose.
I am going to end up yet again with the poor US dollar, an issue that Mr. Bernanke tap danced around today as if he were Fred Astaire. Last week we heard Paulson make an official proclamation claiming a “strong US Dollar policy” and today Bernanke stated that we “should” have a strong dollar if and when the economy begins to grow. All I can say is that I’m bald, but I will have hair once it begins to grow back. In spite of this strong vote of confidence from the Fed Chairman, and significant intervention, the September US Dollar Index still end the day down .16 at 72.01 but traded as low as 71.55 and that is a new all-time intraday low:
The close was still above the April 22nd all-time closing low of 71.94 but the intraday low was a new all-time intraday low. I firmly believe that we’ll reach my price target all the way down at 60.38 and I expect to see that price marked before the year’s end. The dollar has broken down and there is no stronger proof of the weakness than Bernanke’s inability today to espouse the “strong dollar policy” of the government.
Today was the beginning of the government’s attempt to legislate stability into the market place. The SEC, a group of crooks, proposed to outlaw the short selling of brokerage houses as well as Fannie/Freddie and will now go after commodities speculators (me!) next. Personally, I welcome the challenge as I’ve been a bit bored recently (sarcasm) and don’t have enough to keep me occupied. The fact that the Dow sold off 100 points in the last 20 minutes is testament to the fact that the liars and thieves now have zero credibility and that suits me just fine. These folks have created the perfect market conditions for me to make money and I could not be more grateful-
ebo@dtanalysis.com
Dow Theory Analysis SAC
July 15, 2008
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