Graceland Updates 4am-7am

Oct 15, 2009

1. I’ve gone over certain themes this week. There’s a number of them, let’s review them now. First the major head and shoulders pattern on gold. Most investors are focused on small potatoes. When a sea change arrives, they are focused on the little potatoes.

2. Gold spent 18 months building the head and shoulders between 700 and 1000 an ounce. That’s a long time. I spoke of gold “head and shouldering action” as gold rose from 680 to 1000, and began to see the 680 low itself as the head of a massive head and shoulders POSSIBLE continuation pattern. As gold hit $1000, many of you wrote me of your battle to stay in control of your emotions, overwhelmed by the urge to buy. As we broke under 900, the reverse occurred. Panic reigned, fear reigned.

3. I mentioned the 850 area as a possible right shoulder for a massive head and shoulder continuation pattern. We got it. But that didn’t matter to team potato-head. The “I’m a longterm bull but I’m ultraleveraged short now but I won’t tell anyone” theme became dominant. It featured periods where the gold sites would go quiet as the margin calls hit, then the writers would drag themselves back from depression and put out one more for the gipper. Gold rallied from 860 to 990. We bought into 860 blindly and sold into 990 blindly, having an idea we could be bottoming or topping, but only vaguely. The profits weren’t vague. They were solid and booked.

4. Gold began to corkscrew tighter and tighter, selling off from 990 to 905. At 905-930 a huge wave of analysts went short. I warned that liftoff was imminent and the risk to the price plopped shorts was absolutely huge. Dennis “the gold market menace” Gartman lead the “gold is way overvalued, short it!” parade to the gas chamber. Our own Babe Ruth bought his first additional core position as the potato heads acted more and more irrationally.

5. As gold corkscrewed tighter and tighter in a triangle, I urged options traders that the big money was made anticipating a breakout from a major price pattern, and the time was now to act. I said “the move will be so big, whether the pattern activates or fails, you could hold puts and calls and the winning side will be big enough to overwhelm the loser.” I suggested odds favoured playing action more to the upside. Some of you did and made a pile of money just to this point. Before the breakout, at the end of the corkscrew, boredom set in, as gold traded tighter and tighter.

6. As the actual break out occurred, I detailed a “first notice buy for technical players” as the triangle breakout point. Sadly, many in the gold community have decided to bet all they can against one of the greatest technical formations in the history of markets. Many sold all their gold, thinking, “it can’t go any higher”.

7. Which leaves us where we are now. At 1060 this morning, just off of 1070. The professional investor, me, is a price robot. Price goes up, I sell. Price goes down, I buy. Different themes dominate the gold market at different times. Sometimes there is no theme at all. The themes now are these: the head and shoulders pattern, the 2^nd break below 80 on the US dollar index, and from a fundamental perspective, the institutional exit from the US dollar, which threatens to morph into an institutional exit from ALL paper currencies. Not a complete exit, but an exit of enough money to turn the gold charts into a vertical flagpole within months from the time the exit begins.

8. A flagpole that will send the gold shorting potato heads to the poorhouse permanently. Just in time to get into the coming breadlines along with the rest of the bustout public investors who should have never ridiculed gold. If you curse Gold, you may get away with it for a long time. But the grim reaper will come and take most of your assets eventually if you engage in such behaviour. I’m not joking. Buy and sell it, yes. Don’t curse it. Some of you know what I’m talking about. Some will learn the hard way.

9. Picture a $100 a DAY flagpole sticking it to the gold shorts. THAT is what is coming. If YOU are a gold PLAYER, NOW is the time to step up to the plate. If there was EVER a time to launch a range pyramid on gold, or a time to place repeated massive bets with stoplosses, it is now. I went thru this in the bond bull market of the 1980s and watched THOUSANDS of commodity traders DESTROYED as the bond went impossibly higher and higher while the pathetic potato heads shorted it until their accounts were no more.

10. Some of you have made TREMENDOUS progress buying weakness and selling strength, reversing many decades of consistent demoralizing actions in all markets. My concern is that many of you have not taken the head and shoulders seriously, you are not taking the 2^nd penetration of massive support at 80 on the USD index seriously, and you are not taking the US dollar institutional money panic seriously; you liquidated vastly too much gold into the gold breakout and you now fear “if gold pops to 1500 I’ll be out of control, I don’t know how I’ll act”. THAT is the main theme right NOW.

11. And gold COULD pop to 1500. In a WEEK. 5 trading days, not 500 days. This is the RECKONING. The world’s golf ball advisors and millions of investors are being mangled in the largest scheme the banksters have ever unveiled, one designed to make themselves a fortune in gold, and then a fortune vastly bigger in the US dollar.

12. Listen carefully: The institutions JUST finished charging IN to the US dollar after being SMOKED in the stock market. Now their move is OUT of the dollar AFTER it has gone into TANK MODE. Their tactics this time? Do you know what that kind of double failure does to a fund manager MENTALLY? Now they’re all herding the money IN to non-US dollar paper currencies, and BORROWING MONEY FROM THE BANKSTERS to boost returns. They are acting more and more irrationally. If ANYTHING goes wrong with this play, they have only one place to go: GOLD. And some are already doing it, thinking, “I blew it in the stock market, I blew it in the US dollar, I’m a two time loser, I’m doing the same thing as thousands of other fund managers, do any of us really know what we are doing, now I’m going to borrow money and bet on US rates staying low and these other countries raising rates, what happens if their economies go in the tank, is this really a solid deal? Maybe I better buy SOME gold”. We’re at BEGINNNING of that mass thought becoming ACTION.

13. I don’t believe most of you are fully prepared for the coming MELTDOWN in the US dollar, and understanding the night and day difference between a 10 cent fall in the buck now, and a 10 cent fall a year ago.

14. A year ago, the institutions thought gold was risky, an investment for idiots. WHY aren’t the institutions putting BIG MONEY in the stock market, now, why the token size trading? Answer: because they know the earnings, the stimulus, all the good news is priced IN the market now. They are afraid of doing ANYTHING in ANY market.

15. A move from 70 to 60 on the US dollar is not simply a higher percentage move than one from 80 to 70.

16. IT’S A MOVE THAT WILL CAUSE AN INSTITUTIONAL TERROR.

17. That TERROR will be followed by DOLLARS into GOLD. The thought of the money managers will be, “What if this fall has the other managers thinking hyperinflation is coming? They could panic-sell ALL their USD holdings! Maybe I should sell a big whack now and beat them to it, and…what if those fears could become reality, what if real hyperinflation IS coming?”

18. When the banksters hike American interest rates the fundsters’ carry trade scheme will explode like a hydrogen balloon. As they try and dump the other paper currencies they’ll find the banksters aren’t interested in buying from them in size, nor will the banksters be interested in selling their US dollars.

19. Then the banksters will back the dollar with gold, to add some icing on the fundster cake they are baking.

20. Ironically all this occurs while a major metals dealer comes out with a “Who cares about the USDollar” gold index JUST IN TIME for the US Dollar to be ALL THAT MATTERS to the gold market. Nice timing.

21. Whether his name is Mr. Elliot, Mr. Scrap Metal Sales, Mr. Overbought, Mr. Stock Market Crash, or a host of other names, the bottom line is that Mr. Gold Bear is a DEAD MAN. He’s not simply going to LOSE, he’s going to be OBLITERATED. The pain he felt from 905 to 1070 is a MICROSCOPIC bit of the pain compared to what’s coming on the gold bull train.

22. Having said all that, I see gold is down this morning. I added to my Aussie dollar position. For those of you who “had” to buy yesterday’s gold strength, I’m assuming you’ve got the guts to buy today’s weakness…in a BIGGER way.

23. The weekly chart for gold is overbought. IF gold sells off here, my USDollar/cbone positions ring the cash register while I buy more gold. If not, then I ring my gold cash register some more. I added some aussie/usd this morning. Decisions, decisions, life is hard; which cash register will ring today? I also bot a touch of oil after yesterday’s kachingos there.

24. The gold MONTHLY chart can stay overbot for MONTHS while gold SURGES hundreds of dollars higher. Keep that mind before naked shorting gold here, fresh off $170 of being totally dead wrong already. Buy the DOLLAR if you think gold “has” to correct. The odds of the dollar falling more than 30% from here over the next few years is probably 49% or less. The odds of gold rising 30% or from here over the next few years is 99%. There were lots of opportunities to short gold up to $1000. They’re GONE. You missed them. You had 20 years of bear market to short gold from 1980 to 1999. If you missed ALL THAT, need I say more if you are naked shorting it NOW???? What the sam hill is going on?!, as my Grandfather used to say when I did something totally stupid. Naked shorting time is OVER. There will be ONE more mauling of gold in this bull mkt. That time is not now, not at all. Right now, the time for gold shorts is…time to die.

25. Don’t get spooked by the natural gas sell-off. Own it at the lowest possible prices. All the way to zero. That’s who you’re buying it from: Those whose ACCOUNTS have gone to ZERO. Send them a thank-you note. Those who fixed your “I bought too much” error on the recent rally should now have smaller buy pyramid in place with the buys extending much lower, preferably to zero.

26. The neckline on the gold head and shoulders can be drawn in several places. The highest point is around 1035. We touched about 1048 as I get ready to send this off. That’s a 24 dollar fall from the 1072 highs. Are you on the buy? I am.

27. Decide whether you are a PLAYER or a PROFESSIONAL here and now. The player should make more money than the pro between here and gold 1400, but the pro will make money too. Obviously there is more risk as well for Mrs. Gold Player than for Mrs Gold Pro. The professional will only slightly tweak your buys and sells given the bullish set-up, and continue to systematically respond to price. The player will use pullbacks to put some serious powder into their gold gun. I can’t tell you whether you will win or lose as a player. I think you’ll win. Look at various price points on the chart and think about what you can handle. As a player, my suggestion would be to build a pyramid perhaps between 1100-900. The more aggressive you are, the tighter that pyramid would be. Meaning maybe 1100-1000 or 1100 to 1050. That’s big risk reality, big reward potential. I’d balance it with a small bull USD pyramid to keep your sanity. The banksters are fully aware of EVERY THOUGHT YOU HAVE ABOUT THIS MARKET. If you want to play it purely technically, you want to be a buyer in the 1035 area. Maybe a 1050-1020 pyramid. That’s a little too much action for me, but if you want to play the head and shoulders per Edwards and Magee, you need to buy the pull back towards the neckline.

28. I’ll post the three possible necklines you can use on the site. The 3^rd upsloping line is the technically correct line, drawn across the peaks of the rally FROM EACH SHOULDER. But the other lines are horizontal resistance lines that are IN PLAY in the area of the actual neckline and there is no 100% rule that price actually has to pull back to the neckline. OR STOP FALLING THERE. The pattern is alive even if price fell to under 900.

29. Having said THAT, this is one of the greatest works of art to appear on the charts in the history of markets, so the odds are VERY HIGH that a picture perfect pull back to the neckline and STOPS ALMOST EXACTLY THERE is VERY POSSIBLE.

30. Interestingly, the pullback to the neckline could actually occur just as Jim Sinclair’s bizarre “countdown to dollar downtrend acceleration” ends.

31. Today’s questions are: If you want to trade like a professional, are you prepared for gold strength and weakness of $100 a day, have you tweaked your pyramids to handle that on both the risk and reward side? If you want to be a PLAYER, you have one of the greatest technical patterns of all time sitting in your lap. My question to you is: Have you looked at the neckline? Do you have any buy orders there, Are YOU Prepared?

Cheers

Stewart Thomson

Graceland Updates