Anxiously Awaiting the Bull’s Advance (GLD, GS, FCX)

Do you remember the Mind Attack of 2015?

Remember where you were? The anxiety you felt? The fear?

As if things were closing in?

Some say it’s passed, but I don’t know…

There’s certainly something to be said for the last few weeks tension in international markets. Between ISIS’s latest hijinks, the ongoing war for Eastern Ukraine, Greece’s temper tantrum and the murderous rampage underway in West Africa, we certainly don’t lack for reasons to be antsy.

And yet, at the same time, we also see a great deal of light.

Start with the major market indexes. The Dow is a mere 84-points from an all-time record high.


Huh?

 

That’s right – a move of just one half of one percent will set a record, yet who’da thunk it – what, with all the trash talk from the media.

Consider also –

Sentiment is strong – because it’s weak.

How’s that?

Take a look at the charts –

sentiment
This is the latest read from the American Association of Individual Investors (AAII). And as a barometer of Main Street’s excitement for stock ownership, it’s, of course, best used as a contrarian indicator. That is, high bullish readings (and corresponding low bearish numbers) generally indicate market tops. While the opposite holds true for bottoms.

Here, we see diminishing enthusiasm, a clearly bullish development, as the percentage of optimists fell by a third since New Year’s – roughly 60% down to 40%.

Yet at the same time, the number of bears also receded significantly, losing 12.2% last week
to a mere 20.3% read, the biggest one week decline in over three years.

And that reveals to us a situation where the number of Ma and Pa investors who HOLD NO PARTICULAR INVESTMENT POSTURE nears a plurality! Some 40% of investor households haven’t a clue which way things are headed.

mindattack

And we also find that deliciously bullish.

China Roaring

 

Third, we’re amazed that despite all the ills plaguing the world, Chinese stocks have also held up triumphantly, posting an even and tempered 20% rise over the last four and a half months that we believe is a sign of things to come. Chinese outperformance has been driven, in large part, by reforms that allow easier access to, and ownership of Shanghai listed stocks, and that’s a trend that should continue.

Not only that, but as we explain below, as the money flows toward the Chinese market, the trend here will also continue upward.

Money flows, friends. It’s all about money flows.

moneyflows

That’s right, Johnnie. Many will take their cue from the Chinese market, purchasing U.S. equities because growth in Shanghai means growth the world over, right? Right.

Ahem.

That, at least, will be the prevailing belief. And the financials will undoubtedly benefit most from all this money circulating and all these stocks being bought and sold.

And that, my friends, means nothing but Goldman Sachs (NYSE:GS).

We Clean Up Big!

 

Two weeks ago we opened a trade in a letter called Get Up, Slug-a-Bed, wherein we advised the purchase of deep-in-the-money, long dated CALLs on Goldman. Specifically, we then wrote –

“Goldman hit an iceberg, underperforming the broad index by over 8% in a two-month period. And not just Goldman. The rest of the financials were lower, as well. Utilities and Health Care bested the bunch, but in the latest dip, the financials [fared] worst.”

And look what happened next –


gs216
539″ />
This is a chart of GS for the last six months but you need only focus on the last two-weeks action on the far right (in green).

As you can see, we bloody well nailed it. Goldman is up 11% in two weeks and our GS January 2016 125 CALLs have appreciated from $52.15 to $63.55 in that period. That’s 22% or 572% annualized.

And that’s why we’re jumping.

Not that we believe the move in the financials is over, by any stretch. Just that a profit of this magnitude on such an extreme move over such a short period is a gift horse. You’d have to have a full blown case of arseness to let it go.

arse

Anything could happen here, friends. Even though RSI and MACD indicators are pointing toward future gains, GS could just as easily misfire and back off in a retrenching move, or drift sideways – anything. And we want to avoid that.

Take your money and scram.

bloodywell

Remember that one?

Winners and Losers

 

As the indexes climb (alongside the dollar), we see continuing weakness for the commodities and, in particular, for the poster child of the class, gold.

Face it – a strong dollar is a plague of boils for the commodities and gold. A look at mining giant Freeport MacMoRan (NYSE:FCX) shows just how devastating the dollar’s advance has been.

Look here –

fcx216

With the losses piling up, copper weak and gold looking to succumb to the chloroform any day now, FCX appears to be taking its last dizzy spin about the crapper.

We’re counting on the company’s fat 6.16% dividend to be cut shortly. No one wants this lass, and she’s going to have a serious cash crunch very soon. It’s even possible she’ll suspend the payout altogether.

AVOID

 

As for gold itself, we’re going to take action today, because the way we see it, the metal has about two days of play left in her before she either straightens up and gives herself a good bidet, or else.

See here –

gld216
This is the SPDR Gold Trust ETF (NYSE:GLD), the biggest bullion fund in the world.

Now trending below all her moving averages, GLD has approximately a day and a half to rise above the short term MA (red circle) or MACD will confirm RSI’s slide below the all-important midway waterline (blue boxes). That will mark a sell signal for technicians, and the gates of golden hell will be opened.

Because we place a high probability on that eventuality, we’re advising you to revisit a trade we made on January 19th, in a letter called Walking Through the Trade. There, we sold a GLD CALL spread and used the funds to buy a PUT.

We since sold the PUT for $2.66 (on the 9th of February, in Charting Gold to the Gutter), and today we’re selling the long CALL side of the spread for $0.75.

And the short CALL?

We’re leaving her to wither.

She caused the mind attack.

[mepr-rule id=”994″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule]

[mepr-rule id=”203″ ifallowed=”show” description=”wall_street_elite_members_only”]

Wall Street Elite recommends you consider 1) selling your long GLD April 127 CALL for $0.75 and 2) your long GS CALLs, as detailed above.

[/mepr-rule]

[mepr-rule id=”988″ ifallowed=”show” description=”executive_lounge_members_only”]

Wall Street Elite recommends you consider 1) selling your long GLD April 127 CALL for $0.75 and 2) your long GS CALLs, as detailed above.

[/mepr-rule]

With kind regards,

Hugh L. O’Haynew, Senior Analyst, Normandy Research

Share your thoughts...

We encourage people to join in on the discussion. Please keep in mind however, that all comments are moderated according to our comment policy, and all links are nofollow. Let's keep the conversation professional and meaningful.