The Sachs of a McMorAno (FCX,GS)

 

 

We have to open with a quick shout-out to long time reader and avid backtalker Jesper, who recently took issue with fellow scribbler Hugh L. O’Haynew’s assertion that we here at Normandy were fibbing (the language was far more scurrilous than that – shame, Jesper!) when we said we’d long recommended the purchase of U.K. Sovereigns.

 

Now, Jesper assured us that he was still amorous and loving of the crew here at Normandy, but, alas, Hugh’s a sensitive chap, and doesn’t take well to name calling. He asked me for a few spare Zoloft tabs and a hit of Ritalin – to which I gladly obliged – and then told me to set the record straight.

 

Here goes…

 

Now, Jesper, dear friend, you should know that a trip downstairs to the holy catacombs beneath the mansion that houses Normandy Research is no roasted marshmallow affair. It’s cold and damp down there, bud – enough to send a fellow to the sanatorium for a week. But Hugh implored us, and that’s where the records are kept, so below we went.

 

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The work was onerous and the air was dank, but in the end we emerged with a full twelve examples of instances over the last seven years in which we’ve urged you, Jesper (apparently not a very careful reader), to consider the purchase of U.K. gold Sovereigns.

 

So, in the name of our slighted comrade, Hugh, that his honor be restored and that good men everywhere might know the truth, we offer hereunder just five links going back to 2008 in which we recommended what Jesper nastily referred to as but a scatological fancy.

 

U.K. Sovereigns Reference #1

U.K. Sovereigns Reference #2

U.K. Sovereigns Reference #3

U.K. Sovereigns Reference #4

U.K. Sovereigns Reference #5

 

Please avail yourself of the linkitude.

 

[With additional thanks to our in-house archivist, Dieppe, for his regular, reliable strenuous efforts.]

 

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Now that that little mess is behind us (and Jesper’s buttocks have been rendered an appropriate rouge), let’s address the issue of gold and U.K. Sovereigns but briefly.

 

  • Number 1: We are not of the opinion that investors should be long gold if they intend to make money. Should they desire to increase their capital, however, short positions in the precious metals would greatly benefit the cause.
  • Number 2: UK Sovereigns, or any other semi-numismatic coin that contains a significant measure of gold, is always an advisable purchase. These are to be considered an insurance policy, and they may save your life somewhere down the road (think ransom from an ISIS brigade somewhere in upstate New York). They can be purchased monthly, one or two at a time, or in even greater quantities depending upon your commitment to your crystal meth addiction.

 

A World of War and Winnings

 

Let’s turn our attention now to our trade for the week, and focus on some of the themes we’ve been harping on of late.

 

We’ll begin by saying that there’s nothing that will get in the way of the current conflicts in the Middle East or Eastern Europe – and certainly nothing that will bring peace to these lands in the near term. In fact, tens of millions of new migrants running hither and thither about the globe is more a recipe for increased conflict than less.

 

Yet strange as it may seem, the market actually likes a good war, or three, or nine.

 

Boo! Hiss! Throw the bugger out!

 

We take no pleasure in reporting that in increase in the global flow of blood raises the prospects of the stock market manifestly. But it does. And unless those conflicts reach us here at home in rural Indiana (or upstate New York), you can count on further gains for the S&P 500.

 

Sure enough, that’s exactly what’s happening now. As the rhetoric and materiel sent to those theaters ratchet up, we also spy the financial sector revving up after a three month dormant period, with stocks like Goldman Sachs (NYSE:GS) once again approaching their former highs. The aerospace and defence sector, too, is shooting the moon, with drone makers and arms manufacturers large and small firing projectile-like to ever higher highs.

 

But it’s the precious metals, alluded to at the beginning of this article, that perhaps best tell the tale of equity strength.

 

For gold and her cheap stepsisters have become of late one of the best contrary indicators around.

 

And it’s for that reason we believe a trade that pairs the aforesaid Goldman Sachs with the least of the gold miners offers the best upside in today’s environment.

 

Let’s look at some charts –

 

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This is Goldman Sachs for the last six months, and as you can see, there’s plenty of reason for the bulls to be cheering.

 

Consider –

 

  1. The stock is up 15% in six weeks,
  2. It’s ascended above all its moving averages,
  3. The MAs themselves are now unfurled and trending higher,
  4. RSI is above its waterline – a bullish indication, and
  5. MACD just confirmed RSI’s rise with its own surfacing two weeks ago (blue boxes).

 

Taken together, there’s very little reason to suspect anything but a push toward GS’s former highs at $219.

Now look at the bums!

 

Not just gold, but the entire commodity sector has been in a deep rut of late. While gold and silver are toying with their own bear market bottoms, copper just this week hit multi-year lows.

 

Take a look –

 

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The base metals have all taken a sheet-creaking, as the following chart of the London Metals Exchange Commodity Index amply demonstrates –

 

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There will be nothing but pain in the immediate future for the miners.

 

Which is why we’re trading them against the bankers at Goldman.

 

And who better to represent the miners than sad sack loser Freeport McMoRan (NYSE:FCX), base metal (and gold) miner extraordinaire!

 

We believe a long Freeport McMoRan PUT funded by the sale of a GS PUT is the best way to play it.

 

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Options Trader Elite recommends you consider the purchase of the January 2017 FCX 10 PUT for $3.10 and the sale of the GS January 2017 GS 150 PUT for $5.70. Total credit on the trade is a fat $2.60.

 

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Options Trader Elite recommends you consider the purchase of the January 2017 FCX 10 PUT for $3.10 and the sale of the GS January 2017 GS 150 PUT for $5.70. Total credit on the trade is a fat $2.60.

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Many happy returns,

 

Matt McAbby

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