One year ago, I published a short post noting one of Jim Cramer's predictions for 2011. He predicted that Alcoa (AA) would be the best performer in the Dow Jones for 2011. It was one of the worst, and if I'm not mistaken the worst non-financial performer in the Dow. Poor Jim. I actually like the guy to be honest. He is set up to fail most of the time because I'm sure he's told to be positively biased and so on. If I had a show on TV where I had to do what Jim does, I'd probably have a shittier track record than him. The best performers were by far IBM and MCD. Everyone but Cramer knew that going into 2011. =)
With respect to Cramer, I'd like to post some charts here for the things I'm going to watch and what I expect to unfold in 2012.
First and foremost, is the $USD. If I could follow only one chart to give me a clue as to what was going on in the broader market, it would be the DIXY or even the EURUSD exchange rate. Everything seems to key off the dollar. The following chart is a weekly view of the DIXY, with the 89 and 233 SMA, a 21 period BB, 34 period stochastics. Notice that the 89 and the 233 are tight here. I have circled the period in early October where these two averages served as resistance for the DIXY. It eventually broke through both, and appears to me to be forming a bearish rising wedge. Stochastics are overbought, and there is divergence on the MACD histogram. I'm going to watch that wedge closely, and also the inevitable re-test of the 89 and 233 weekly moving averages.
Next up is a long term view of the Gold/Silver ratio. This has been a really useful chart over the past year. The ratio peaked out in April (as did many many risk assets and markets in general) after a parabolic move. Honestly, this correction or reversal in the ratio has been healthy. It has come almost all the way back to the breakout point. Notice the 600 weekly moving average. I chose this number because it is close to the Fib number 610 and 600 is as high as stockcharts.com will allow. I think its close enough. Its essentially an 11 and a half year period weekly moving average. I think Silver is not only in a bull market, but I think it will out-perform Gold in the long run. Therefore, this particular average should fall over time and I think the break out below it beginning in the Fall of 2011 was an important and decisive move. Due to the parabolic nature of it, it is only natural that it should come back and re-test the breakout point. In the image I have circled what I think its going to be firm support for Silver vs. Gold around G/S ratio of 60 or so. Notice that another longer term moving average, 377 a fib number, is coming in at 57.32. RSI has potential divergence, MACD histogram has divergence, and stochastics are in overbought territory. There also appears to be a wedge forming, as I have drawn a trendline for this 7 month reversal, counter-trend correction. There is more room to go in the wedge, and if the G/R tested 60 and bounced off that, it would be textbook in my opinion. Wonderfully healthy and an excellent opportunity to buy.
The next chart is courtesy of Break Point Trades. It is a very long term view of gold. They showed this chart when gold was overbought and above $1900 in September. BPT has been amazing during the past few years of the gold market. Always sober-minded and prudent, while all the while being gold bugs. I don't have much to add except that I think gold could come down a little more and probe the low $1500's and high $1400's. I think this would be wonderful. Gold/silver bottomed in Jan/Feb in 2011 and 2010 and then took off . That could fit this chart.
The next chart is a weekly one of silver. Honestly, what a thrill ride the past 15 months have been. I'm so glad that I got on board in the 18-19 range and was able to sit back and observe this move. I enjoyed the parabolic rise and my low cost-basis as allowed me to remain patient and calm during what has been a healthy correction. Silver looks close to bottoming out, but honestly I don't think its quite done yet. I have circled what I think is firm support around the $24.50 level. The lower band of the BB is down there, as is the 144 (again with the FIB #) MA which it bounced right off of two years ago in February. I remember the day it bottomed: I was broke having bought all the silver I could during the previous December. =). Regardless the MACD lines don't look done to me (they are still gaping as circled) but the histogram is setting up for some beautiful negative divergence. Similar story with the 34 period stochastics. RSI doesn't look ready to turn up and a brief stint below the 20 level would be great. A move to the lower end of the BB and a test of the 233 weekly MA (~$24.30) would put the G/R ratio at 61.7 @ $1,500 dollar gold and 59.67 @ $1,450 gold. This is a price area I would suspect gold and silver to complete this correction at. I plan to purchase gold/silver/select GDXJ companies at this time point in the next couple of months. I got a free newsletter from Frank Barbera recently and he is thinking ~$20 silver in the next few months. Ned Schmidt on FSN recently said $16.00 is possible in 2012. Perhaps they will be calling for those levels if silver falls to ~24.30 in the next 6 weeks. The healthy consolidation that began in April/May could bottom above ~$23.00. When the newsletter writers are bearish, and I would expect them to be, its usually a solid contrary indicator.
This chart is a simple, clean short term (daily) chart of the 30-year T-Bond yield. I don't have a ton to say except that it looks fairly directionless to me. There is some negative divergence on the MACD. If that divergence were to play out, gold and silver would likely bottom and move higher quickly. Risk would be back on.
Actions such as this are bearish longer term for T-Bonds in my opinion:
This chart is a weekly view of copper. Not a lot to say. Clear triangle forming. It is remarkable how copper has held that 200-day MA. That particular level might be key for everything written above, and also more broadly RISK on vs off, the DIXY, China, and inflation vs. deflation. I suspect it will be telling for the market as a whole and that it will be resolved pretty soon by the looks of that triangle.
In a 12/31/11 interview on King World News, Jim Rickards discussed the possibility of China weaking the yuan. Were China to weaken the yuan and/or loosen monetary policy in some other fashion, could the Shanghai Comp bottom and turn higher? Maybe this is a stretch, but it looks like there is some positive divergence on the RSI and MACD, and that definitely could be a bullish falling wedge. Over the past 14 months, the SSEC has traced out 3 other falling wedges that broke out but didn't push higher emphatically. The index declined steadily 2011. China lies about its economic numbers just like everyone else, but it is clear their economy has cooled in response to earlier monetary tightening. I think an important question for 2012 is: What the heck will happen with China? Perhaps they'll loosen aggressively and surprise markets in a currency war shock and awe missle? The index could also just as easily move lower over time.
These four charts all have a similar pattern in my opinion. They could break up out of the pattern or head lower depending on the direction of the $USD and the $TYX. It is interesting to me how markets are so highly correlated at this moment in time. Have the ETFs, the "HFT churn," and unchecked criminal activity on Wall Street and the City of London turned the market into theatre? Is this theatre nothing more than complex and fragile system on the verge of collapse?
If not outright collapse, than perhaps hypervolatility? Can Ben Bernanke kill the $VIX???
Here are my market calls:
I think the Gold/Silver ratio tops out ~around 60 in January or February and heads lower in 2012. Gold and silver bottom in early 2012 and move higher in dramatic fashion. My 2012 year end metal price forecast is as follows:
Gold:
$2,386
Silver:
$53.50
Gold/Silver ratio:
~44
I think gold touches $2,500 in 2012, and I think silver will trade up to $64 and perhaps even touches ~$81. To be honest, why not 2012 as a year where the market in general just goes crazy? The chess pieces of the global currency war seem to properly aligned. Uncertainly and/or conflict in Egypt, Libya, Yemen, Syria, Iran, Venezuela, Somalia, Pakistan, Iraq, Afghanistan, North Korea, with the specter of peak oil, and QE to ∞ make for an alarming set of circumstances. STRATFOR was recently hacked and embarrassed by Anonymous. Could 2012 be the year of the unexpectable? Of course, this is also an election year, so god knows how that will play out. Obama needs inflation, Krugman can rationalize it for the masses, and Ben can make it happen. Rickards noted in the KWN interview that Obama and Romney are both weak dollar candidates. Romney as of today appears to be in the driver-seat for the Republican nominee. (I love Ron Paul!!!)
Regardless, collectively as species, we seem to be ready to make 2012 an insane year.
Is it goin' down in 2012? See you in the gold/silver mall if it does.
You are amazing!
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