Bite the Junior Golden Apple (GDXJ, AAPL)

We understand you tune in to us at Normandy because we’re not your average investment letter bears.

yogi

In fact, we’re not investment bears at all.

We pride ourselves on telling it like it is, despite the ruffled feathers, the sideways glances and the occasional upturned snout that’s turned our way.

We understand, too, that it can be a bit puzzling for the great unwashed – for those who are not acquainted with our sometime offbeat mode of communication. We have, we admit, a ‘unique’ way of delivering the message.

But so be it. Because in the end, we’re more than just a financial website.

We’re the internet’s ultimate locus of survival.

fool

Love it.

And so, when we get a question from a good reader like Steve, we feel obligated to elaborate somewhat on the occasional non-financial aspect of our writings.

It goes like this…

 

Steve asked –

“You keep making references to doom and gloom coming. I wish you would lay out what is coming and why.”

Certainly, Steve.

We’ll do it as briefly as we can. And we’ll offer apologies in advance for those who’ve already heard the story. We will, however, try to add something new.

Here goes.

We start with liquidity.

A process of non-stop bloating of the global financial system with ever-larger injections of fiat currency is currently underway. It began after the stock market crash of 2008/09, and we believe it will continue unabated until a general loss of faith in government-backed money ensues.

We see this as an inevitability, and we look to the far east – China and Japan – as equal culprits in the crime, along with our own American central bank and many others to boot.

And our understanding is that this unprecedented pool of liquidity will shortly seep into our economy at an accelerated rate, sending the price of U.S. based assets heavenward. That includes American real estate, financial assets, what have you. It will also be the case in other nations, but owing to the relative strength of the U.S. economy, the principal target of all this newly printed cash will be the continental U.S. of A.

And the outcome will be plain rotten.

For even though we’ll have a stock market party the likes of which no one has ever seen, that will carry far higher and far longer than anyone imagines, the fallout will be gruesome.

Here’s a general picture of what you should expect.

• In the first place, a global market crash is all but certain.
• In addition, a breakdown of the civil order is also nearly assured, particularly in cities, where supply lines will be disrupted and obtaining essentials could turn into an all-out gang fight, or worse.
• Martial law will be the rule in many jurisdictions.
• A great migration toward rural America, the source of those aforementioned basic necessities, is also likely, though we imagine a great number will also flee northward, to Canada.
• Lengthy disruptions on nearly all fronts – communications, energy, transport, work, social, school, health – will be the rule until local order is re-established, a process that could take anywhere from one month to several years, depending upon the social fabric that obtains in any given location and the willingness and flexibility of the local population to accept this or that commodity as ‘money’.

Generally speaking, it will be a time of suspicion, lawlessness and, sadly, the apotheosis of brute force. And for those who’ve yet to plan for it, it could also be disastrous.

In addition, it will also be taken as an invitation for those that hate America to attempt some sort of twisted revenge.

But that’s for a different time.

rain

In the meanwhile, we have two separate tasks to undertake. The first is to ride the wave of the stock market higher, because there will be no other way to successfully keep pace with the coming inflation, and 2) to plan prudently for the cataclysm that awaits.

That’s our job. And that’s why you place your trust in us.

And you won’t find anyone else on the internet’s broad expanse who has tasked himself with that mission.

Steve…

Welcome aboard.

faint

Let’s trade some stocks.

 

We’re going to look at a pairs trade today that matches one very strong company (with a market cap larger than the economy of half the world’s sovereign nations!) against a sector that looks very beaten up and potentially prepared for a turn.

The company is Arsle Inc. Apple Inc. (NASDAQ:AAPL) and the sector is the long stomped upon junior gold miners, as represented by the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ).

What we like about this trade will become clear from the charts.

Let’s look first at Apple –

aapl
The chart speaks amply to the need for a break in the buying.

1. We had nearly a quarter of the stock’s value added to it in just over thirty days (in red),
2. We had dwindling volume on the move (in green), and
3. RSI twice struck above the severely overbought 80 level last week (in blue).

All told, there’s a greater chance we’ll see a sideways drift in the stock or a slight decline, at least until the overbought condition is worked off and her moving averages have a chance to catch up to price.

Compare that to the junior gold miners, a sector that’s declined by an unbelievable 86% since registering all-time highs back in December of 2010.

gdxj
Here we see an opposite picture developing.

1. We have a recent bottom on volume at its highest levels since trading began on the stock in late November, 2009 (in black),
2. We have a short-term moving average scooping price (in red), and
3. We see the beginnings of hope from RSI (in blue), now surfacing above its all-important mid-way waterline.

In short, the junior golds’ momentum is upward.

And we’re therefore betting on AAPL being the likelier candidate for a fall.

[mepr-rule id=”203″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule]

[mepr-rule id=”203″ ifallowed=”show”]

Wall Street Elite recommends you consider purchasing the AAPL January 100 PUT for $0.38 and selling the GDXJ December 24 PUT for $0.40. Credit on the trade is $0.02 per pair written.[/mepr-rule]

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

Wall Street Elite recommends you consider purchasing the AAPL January 100 PUT for $0.38 and selling the GDXJ December 24 PUT for $0.40. Credit on the trade is $0.02 per pair written.[/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.