Don’t be a ‘Hoper’ (EPI, GLD)

High school football coach used to yell at us something fierce for not being in on every tackle. “Don’t be a hoper,” he’d yell. “Don’t just stand there hoping someone else gets it done, Ruminov! You get in there yourself – you be the one! Cement head.”

Never had to convince me, though. I always took pleasure in running over would-be fame seekers. Even fancied myself the second coming of mean smilin’ Jack Lambert of the Pittsburgh Steelers. Had an entire scrapbook of pictures devoted to the man that I surreptitiously tore out of Sports Illustrated back issues at the local library.

football

Now that we’re older, though, we see that selfsame tendency in our chosen field of investment education, where ‘hope’ is everywhere, is patently not a virtue, and where the price of failed objectivity is nothing less than a disaster that leads to anger, depression and in severe cases, a whole lot worse.

And nowhere is this phenomenon more evident than in the gold market, where a full 99% of investors are of the emotional, believing type – ‘hopers’, as it were, whose objectivity was long since thrown to the dogs. Only the wishful, would-it-were-so fantasy world of the baddies getting theirs and the know-it-all gold buggerers striking it rich overnight exists for this cadre of pagan co-religionists.

gld529

To wit, here are two letters we received in the last few weeks dealing with gold and the precious metals and our apparently errant prognostications on the topic.

The first is from a fellow whose script is always the same. He opines as follows:

“The fundamentals for gold & silver haven’t changed!!! Both will be multiples higher in the future than they are now!! Perma bears that continue to wear out their welcome on the short side of p metals will eventually be burned!! …When it finally blows up in their faces it will be dramatic… !!”

Another fellow, who’s significantly more intelligent and whose comments we actually relish reading, wrote this –

“You were wrong on the GLD chart earlier, missing the perfect reverse head + shoulder, which gave a beautiful break out. Now you missed the wedge that is about to be resolved, either way. If down, then the $123 mark will hold at the 5 point bottom.”

Not sure what exactly we missed and when, or which perverse head and shoulders pattern the fellow’s talking about, but it’s all water under the bridge. We’ve been gold bears since the $1,900 top, and even recently, on the 15th of May, in Horrifying Research Reveals Rally-Ready Market we wrote:

“Gold… has held above its two month lows at $122.90. But will it continue to do so? Yes, but only for as long as it takes the Dow to notch another high. A day? Two days? A week? You tell me.”

Needless to say, this Tuesday the 27th, the S&P 500 (not the Dow) cracked through overhead resistance to new highs, sinking gold like a toy boat in a bathtub.

Look here –

sp500gld

Hope kills, friends.

It’s not over! Stand back!

The final capitulation bottom for gold is now much closer. We would expect momentum to start building now that the latest declining triangle has been broken and we urge everyone still long the metal to dump it now and buy back once she starts scraping the rocky bottom. It’s anybody’s guess how deep that will be.

missindia

India and gold were for decades, synonymous terms. But it appears that nation recently turned its investment focus away from the yellow metal toward stocks.

In just the last four months the Indian market, as represented by the Wisdom Tree India Earnings ETF (NYSE:EPI), is up by 45%. And many are wondering if there’s still any juice left in the move.

Have a look at the technical’s –

epi

Our take on the matter is a decided ‘NO’.

After a move like that, penalty flags are strewn everywhere, including –

  1. RSI (in blue) breaking above the grossly overbought 80 line for nearly a full week,
  2. Price detached in a most vulgar manner from the long term moving average (now a full 25% higher),
  3. An apparent ‘island gap’ reversal day last Friday at the $22.85 high, and
  4. Far too much foreign money chasing the investment flavour of the week (over $2.6 billion in inflows YTD).

Ostensibly, a good bit of the excitement for Indian equities was generated by an election that recently put a pro-business party at the helm of that country’s government.

gandhi

We agree.

This is a politician, gang.

Don’t be a hoper.

The shine will come off EPI good and quick. And reality will set in once Mr. Modi begins to deal with the day-to-day vicissitudes of governing more than a billion souls.

So…

Watch for a MACD cross lower (in blue) in the days ahead, a slow price retreat toward the bunched moving averages in the $17.50/$18.00 range, a bullish unwinding of those same moving averages, and a pullback on the part of both RSI and MACD toward their respective waterlines.

Once we see those conditions in place, we’ll again be buyers.

Until then, have a look at selling near term CALLs on EPI above the latest highs. The July 23’s might even be worthwhile.

Many happy returns,

Matt McAbby
Senior Analyst
Normandy Research

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