Labour problems at its Indonesian mine caused copper and gold production to fall. The company did finish the year up. Net income was $4.560 billion in 2011 compared to $4.273 billion in 2010.

The company’s stock was largely unchanged at $44.49 a share.

Copper production for both the year and the 4Q were down. The company recovered 823 million pounds of copper in 4Q compared with 1.007 billion pounds a year ago. Overall copper production was 3.691 billion in 2011 compared to 3.908 billion in 2010.

Gold was also down from 181,000 ounces in 2011 4Q compared with 629,000 a year ago. Overall gold production in 2011 was 1.383 million ounces compared with 1.868 million ounces.

“The estimated impact of the labor and pipeline disruptions (net to PT Freeport Indonesia), including the eight-day work stoppage in July 2011, totaled 165 million pounds of copper and 170 thousand ounces of gold in fourth-quarter 2011, and 235 million pounds of copper and 275 thousand ounces of gold for the year 2011,” said the company in a statement.

Looking ahead Freeport says that sales from Indonesia will be about 930 million pounds of copper and 1.1 million ounces of gold for the year 2012, compared to 2011 sales of 846 million pounds of copper and 1.3 million ounces of gold.

“Gold sales in 2012 are projected to be lower than in 2011 because of mining in a lower grade section of the Grasberg mine in 2012. At the Grasberg mine, the sequencing of mining areas with varying ore grades also causes fluctuations in the timing of ore production resulting in varying quarterly and annual sales of copper and gold. The achievement of projected 2012 sales volumes depends on a number of factors, including the timing of restoring full operations at Grasberg following the extended disruption.”

Read more here:
Freeport-McMoRan’s net income in 4Q halved but still finishes the year up

I’m not really sure how many people watch the futures market but I do know the majority of people do not. So Tuesday morning there will be a lot of people in a panic when they see stocks gap down sharply.

Taking a look at the 4 hour charts you can see the recent price action which unfolded today. We have been anticipating this from early last week. So none of this should be a surprise.

Dollar Index 4 Hour Chart:

The dollar index broke out of it falling pattern and has made a run up to the first resistance level of 75.40. I feel we could see it go a little higher on Tuesday but overall it looks ready for a pause or pullback here.

SP500 Futures 4 Hour Chart:

The equities market has fallen sharply in the past week and the green circle is where we shorted the market using the SDS etf. We did take partial profits last week to lock in 7.4% profit in a couple days, but we still hold the balance of the position which is currently up over 10% using today’s futures price.

The SP500 looks to be getting oversold here and is now entering the previous low set a few weeks back. I will be looking to tighten stops and or exit the position early this week before a sharp rebound takes place.

Bond Futures 4 Hour Chart:

Bonds are a safe haven for investors when fear is running high. The past couple trading session’s the price of bonds have shot up. This tells me panic selling in the stocks market has starting and that generally means we are nearing and tradable bottom for stocks…

Gold Futures 4 Hour Chart:

Gold is the other safe haven. Here again we see money flow into gold at a very quick pace… We will need to see some resolutions in Euro-land before gold will trade lower or sideways, but until then I think scared money is going to keep rolling into gold.

Crude Oil Futures 4 Hour Chart:

Oil has drifted its way up into a resistance level as of late last week only to find overhead supply. Once the selling started oil slid lower at a steady rate all the way back down to a short term support zone. Now we are waiting to see if it will make a double bottom at $79 or bounce here.

Weekend Trading Conclusion:

In short, Tuesday will be a volatile session judging from today’s sharp price action. Fear is driving prices at the moment and until everyone panics out of stock positions and dumps their money into the save havens we will not see a bottom form. Generally this takes 2-5 days to play out but time will tell.

I hope this quick Labor Day update helps get you back on track for trading this week.

Consider joining me at TheGoldAndOilGuy for ETF trade ideas on the SP500, Oil, Gold, and Silver with great accuracy. Check it out at http://www.thegoldandoilguy.com/free-preview.php

The turmoil in Europecontinues with no end in sight other than the slow disintegration of this ‘one size fits all’ lunatic ideology. We have warned you about this train wreck that is looking for somewhere to happen for some time now as the Euro struggles to maintain its value. However, the European mess serves only to take the spot light off the US dollar which is also dead in the water despite the occasional dead cat bounce. The race to the bottom continues between currencies with the only beneficiary being hard assets and as we see it gold and silver are top of that league.

Today we will take a quick look at gold and also the HUI, the gold bugs index, of mainly unhedged gold mining companies designed to give investors significant exposure to near term movements in gold prices.

Historically the summer season in the northern hemisphere is a lackluster period for gold. The summer vacation period sees many of the traders away from their desks until around Labor Day, which is the first Monday in September, (5th) and its upon their return that normal business activity resumes. So it will be interesting to see how things pan out when they do return considering that gold and silver have been trekking north for the past two months.

A quick look at the gold chart clearly indicates that gold prices are bucking the seasonal trends this year, having moved up since early July from $1500/oz to $1855.30/oz at the close on Friday. The technical indicators are firmly in the overbought zone suggesting a breather is due, especially when we have the RSI standing at 81.25 which is well above the ‘70′ level that some traders use as a signal to lighten up. However, the fundamentals for gold remain strong and we are on track to hit $2000/oz fairly soon, in fact we could be there in the next few weeks. Golds progress will eventually pause for a rest, but for us it is difficult to see just what would be the catalyst for such a pause, other than exhaustion.

Now with gold and silver making wonderful progress one would expect the associated stocks to going gang busters to, not so. They remain in a sleepy mood right now and are not showing much appetite to reflect the progress of the precious metals. As we see it this situation cannot remain as is, because these producers will be generating handsome profits that will captivate the investment community. The question is when will they take off and in our humble opinion the HUI needs to breakout above 625 with some conviction in order to convince investors that the stocks are finally going to outperform gold. For an investor to carry the many risks associated with mining there needs to be a return that is superior to that of gold, otherwise they will buy the metal and ignore the mining sector.

Taking a quick look at the HUI chart we can see that it is standing at 581.29 as of the close on Friday. A couple of attempts have been made to breach the ‘600′ level but they haven’t been sustained, thus far. This gives you the time to prepare for a possible breakout and a rally in this sector. You need to identify and list the quality stocks that fit with your investment criteria and have a good chance of meeting your targets in terms of capital growth, etc. Our portfolio is free to view on our site and you are welcome to drop by and take a look for yourself.

Finally, in an attempt to get leverage on this bull market we have been utilizing options as our preferred vehicle for maximizing returns. This type of trading is not everyone’s cup of tea as movements can be dramatic in either direction. However, when you see your contracts go exponential, it is truly an exhilarating feeling.

As always time is of the essence, so do your due diligence now and get into position by preparing yourself for the difficulties that we are all going to have to face ready or not. Consider a layering in approach and buy on a regular basis to build your position. The oscillations will become violent at times so expect them and hold on tight, making further acquisitions throughout any weakness in this sector. And smile, you’re a gold bug!

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007 For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter

Disclaimer: gold-prices.biz or SK Options Trading makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents our views and replicates trades that we are making but nothing more than that. Always consult your registered adviser to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this letter. Options contain a high level or risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. Past performance is not a guide nor guarantee of future success.

Yesteray gold broke through $1,800/oz.

While gold was down, markets were up on strong corporate earnings and good U.S. job’s data. The Dow Jones was up 5.16% and the S&P 500 was up 5.76%. The Canadian markets were up modestly. The resource-heavy S&P TSX rose 2.16%.

Cisco brought in earnings on Wednesday night that were stronger than expected. The US Labor Department reported that initial jobless claims fell to 395,000. Analysts had been expecting a higher number of jobless claims.
Read more here:
Gold tumbles to $1,740 while stock markets bounce back strongly

Inspectors have already visited 41 of the 100 sites on their list, the department said in a statement.
Read more here:
Mexico shuts down 12 mines for safety problems

A variety of factors drive this phenomenon during the financial-market summers, which run from Memorial Day to Labor Day.  The primary one is the same summer psychology that affects all the financial markets: vacation season.  Traders flee the markets in droves during these lazy summer months, enjoying the bountiful sunlight, long warm days, and precious family time while their kids are out of school.

Naturally this reduces the collective focus on the financial markets.  Speculating and investing take a back seat to vacationing and relaxing, leading to much-reduced trading volume globally.  Gold, which is the primary driver of silver and the PM stocks, is certainly not immune.  Waning interest in the financial markets as a whole bleeds into this metal, robbing these summer months of compelling buying catalysts.

Since nothing moves gold prices like large spikes in investment demand, it mostly just drifts sideways in June, July, and August.  The major income-cycle and cultural factors that drive big gold demand spikes between Labor Day and Memorial Day simply don’t exist in the summer months.  This makes summer the weakest time of the year by far for gold seasonals.

Gold’s surprisingly-strong seasonality is purely demand-driven, as its newly-mined supply is nearly constant throughout the entire calendar year.  Summer lacks the investment-demand spikes seen between September and May.  Summer has no Asian harvest, no Indian wedding season, no Western holiday shopping, no end-of-year income-surplus investing, and no Chinese New Year.

The result is the PM summer doldrums, leaving the precious metals drifting along listlessly like a great tall ship trapped in the oceans’ infamous doldrums.  So to avoid frustration and discouragement, traders really shouldn’t expect much from the PMs during these lazy summer months.  On the bright side, this season’s grinding ultimately leads to the best seasonal buying opportunity of the entire year.

Unfortunately this phenomenon is not as widely-understood as it ought to be.  As prices march higher on charts during secular bulls, earlier years’ price action becomes distorted.  Moves that were important in summers past when gold was much lower barely even register visually on a current chart culminating in today’s higher prevailing prices.  This makes it hard to view past summers in comparable terms, obscuring the doldrums.

The solution is to build a spreadsheet that renders every summer in perfectly-comparable percentage terms.  Each year’s final pre-summer close, the last trading day of May, is indexed at 100.  And then each summer’s daily trading action after that is converted to this common percentage baseline.  So whether gold entered a summer at $500 or $1500, a 5% move looks identical on these indexed charts.

Averaging every indexed summer since 2000, just before today’s secular gold bull was born, clearly reveals this metal’s grinding summer-doldrums tendency.  But averages can obscure extremes, and offer no insights into how tight or dispersed the underlying data is.  The tighter the raw data fed into an average, the higher the probability that average is meaningful and important for predicting future price action.

So in addition to the red average line below, I included each summer’s raw indexed data in yellow.  While it looks like a bowl of spaghetti was thrown at this chart, these individual years’ performances illustrate the average’s underlying building blocks.  In addition, gold’s current action in this year’s young summer is rendered in blue for comparison.  The PM summer doldrums are well-established technical fact.

The vacation season and lack of investment-demand spikes for gold lead to the summer-doldrums drift seen on this chart.  On average, gold tends to meander through the market summers flatlined, but with a definite downside bias.  At best this average only climbs 0.7% above gold’s May close, and at worst falls 1.5% below it.  This listlessness is no big deal if you expect it, but can be quite frustrating if you don’t.

The center-mass downtrend encompassing all the individual indexed summers in yellow is definitely down.  The trend lines drawn above capture the vast majority of the past decade’s gold price action.  While there were a few years where gold broke out above or below this downtrend, such moves were relatively-rare and always short-lived.  This sideways-to-lower drift has a magnetism that can’t be resisted for long.

Gold’s upside-exception summers were 2005 and 2008.  Back in 2005, gold’s autumn rally started early as this metal caught a bid in late July and surged in early August.  This was way back near the end of the old Stage One days of this gold bull, when this metal’s every upleg and correction was directly driven by opposing US dollar moves.  In just a couple of weeks that summer, the US Dollar Index fell 3.5% (a big move for the world’s reserve currency) leading to atypical summer interest in gold.

As the dollar held most of its losses until the end of August that year, so did gold keep most of its gains.  It finished the summer of 2005 4.0% above where it had started, its best summer performance of this entire secular bull.  Still, on average gold ended each summer just 0.3% above where it had started.  Such gains over 3 entire months are terrible, gold was essentially unchanged.

And though 2008 enjoyed a big anomalous gold spike in July, it was very short-lived.  A month later in August gold had plunged way under its center-mass downtrend, and it finished that summer a whopping 6.5% below where it had started.  This was its worst summer of this entire bull by far.  As you probably remember, the summer of 2008 saw the bond panic which snowballed into that autumn’s stock panic.  As US mortgage giants Fannie Mae and Freddie Mac teetered near bankruptcy, gold caught a temporary bid.

The other major downside breakout happened in June 2006, and it too was short-lived.  Earlier that spring, gold had rocketed higher in its biggest upleg of its entire bull to that point.  It was wildly-overbought in May, which soon led to it plunging in a necessary and healthy correction in June.  By mid-June it had fallen 21.9% in less than 5 weeks!  Though gold soon climbed back into its center-mass downtrend, it still finished that summer down 4.0%.

Gold’s summer-doldrums center-mass downtrend has ultimately prevailed throughout all the years of this gold bull.  While anomalous events can drive gold outside it temporarily, this metal soon gravitates back to its magnetic grind.  All that traders can reasonably expect any summer is more of the same given this ironclad precedent.  At best gold is likely to meander near the flatline during the summer months, but it definitely has a downside bias with selling pressure much more likely than buying pressure.

While the fortunes of gold are silver’s biggest driver, this wild metal is far more volatile.  So the raw data under silver’s even-worse summer doldrums is much more dispersed.  Nevertheless, when this mess of individually-indexed summers is averaged the result is still a meandering drift lower.  Silver can buck gold’s lead from time to time, but eventually it always falls back in line with the PM sector’s leader.

Far-more speculative and hence more likely to be battered about by the apathetic summer psychology, silver’s summer-doldrums drift is more pronounced than gold’s.  At best its average nearly regains its May close, down 0.3%.  And at worst it falls as low as 5.2% below May’s close.  And silver tends to end the summer about 3.0% lower than where it started.  Summer is the weakest time of the year by far for silver seasonals.

Silver has seen more outlying summers than gold, on both the upside and downside.  Most simply mirror and amplify what was going on in gold though.  If gold was oversold after a correction heading into summer and thus likely to rally above trend, silver naturally followed.  If gold was overbought after an upleg heading into summer and thus likely to correct below trend, silver tagged along.  Silver usually follows gold.

Interestingly as the blue line shows, today silver is off to one of its worst early-summer starts of this entire bull.  This metal has been hyper-volatile after soaring to absurd heights in a parabolic speculative mania, and then promptly collapsing in a brutal near-crash in early May.  After any unsustainable parabolic ascent, its aftermath leads to exceptionally-volatile silver until the extreme oscillations gradually abate.  This volatile-yet-moderating trend will probably persist well into this summer.

The range of silver’s summer performances in its bull so far has been vast, from falling 19.7% in 2008 as that bond panic was gradually morphing into the first stock panic in a century to rallying 10.8% way back in 2004.  But silver’s average center-mass downtrend definitely meandered lower.  So though silver is always a crapshoot and a strong summer is possible, the odds are certainly stacked against it with gold drifting listlessly sideways.

Not surprisingly with gold and silver trapped in the PM summer doldrums, the gold stocks and silver stocks are slaved to their metals’ lethargic drifts.  The flagship HUI gold-stock index naturally shares in the precious-metals malaise, drifting sideways to lower for much of the summer.  If you want to deploy more capital in gold stocks and silver stocks, early summer is the worst time of the year seasonally to do it!

While the HUI witnesses outlying summers too, the center-mass trend of all its indexed summers is definitely down.  And so is their average, for most of summer anyway.  It goes as high as 1.9% over May’s close and as low as 5.0% under it.  Unlike gold and silver the HUI finishes summer relatively strong, up 1.6% on average.  But given the huge risks inherent in PM stocks, this is nothing to write home about.

Interestingly this average is heavily skewed by a single year, which is why it is important to consider the underlying individual-summer indexed data and not just the averages.  During the summer of 2003 the HUI soared a breathtaking 36.9%, manhandling the summer doldrums!  That year gold rallied 3.0% while silver climbed 10.2%.  But the PM stocks still broke out big time, as many investors new to them rushed to join the early contrarians enjoying big gains.

That incredible summer, mainly August, was an anomaly that hasn’t even come close to being replicated since.  With the PM stocks’ collective market capitalization far larger now, and far more mainstream investors including hedge funds owning PM stocks, it isn’t likely we’ll see another anomalous summer surge like 2003’s.  As long as gold and silver drift sideways in their summer doldrums, there is almost no chance the PM stocks will command such an outsized bid.

Provocatively if that summer of 2003 is excluded from this average, the HUI’s summer performance falls dramatically from up 1.6% on average to down 1.9%.  And if you ignore 2003’s outlying indexed line above visually, the HUI’s center-mass downtrend is definitely down just like silver’s.  So summer really isn’t a high-probability-for-success time to deploy new capital in gold stocks and silver stocks.

At least early summer, that is.  The red average line above, whether 2003 is included or not, shows the PM stocks carve a distinct seasonal low near the end of July.  So late July and early August is the time to start deploying capital in the beaten-down PM stocks.  I suspect this early low occurs because traders are anticipating the big autumn rallies in gold and silver.  These are driven by major gold-investment-demand spikes out of Asia that really start ramping up in September.

Sentiment also comes into play near these summer lows.  Following the often-exciting spring action in the precious metals, summer really demoralizes newer traders who aren’t aware of the doldrums.  They get more and more discouraged as the summer wears on and PMs grind lower, defying the bullish fundamentals.  Eventually they capitulate and sell in disgust, driving PM stocks down to bargain prices.

The subsequent often-large autumn rallies are the reason the PM summer doldrums are a blessing, not a curse, for speculators and investors.  As these charts show, on average gold, silver, and the HUI

really start powering higher in September.  Soon before that is when you want to have all your capital allocated to the precious-metals complex fully deployed.  The PM summer doldrums are awesome because they drag the PMs lower right before their big autumn rallies launch.  This grants a wonderful opportunity to buy low!

So I actually look forward to the PM summer doldrums each year.  As a speculator and investor, they give me plenty of time to research PM stocks to find the highest-potential-for-success ones I want to buy and recommend to our subscribers.  And they drag down gold, silver, and especially PM-stock prices to their best entry levels of the year seasonally.  Some time to figure out what to buy, followed by subsequent relatively-low prices to do that buying, is really a great boon for traders.

The bottom line is the precious-metals summer doldrums have arrived.  The market-wide vacation psychology combined with the lack of any major seasonal gold-investment-demand spikes leads to drifting PM prices.  With the exception of occasional anomalies, this happens every year like clockwork.  PMs’ summer performances have been poor for their entire decade-long secular bull.  2011’s summer isn’t likely to buck this trend.

This is very frustrating for those not expecting it, leading to a sentiment wasteland in late summer where many traders capitulate in disgust.  But this summer-doldrums washout drives the best seasonal entry points of the year for gold, silver, and the PM stocks.  Soon after, the powerful autumn gold rally arrives as seasonal investment demand surges in Asia.  Buying low late in the summer doldrums usually leads to big gains in the autumn rally.
Read more here:
PM summer doldrums

Of course the flagship S&P 500 stock index (SPX) is the best technical proxy for the stock markets as a whole.  This market-capitalization-weighted behemoth has been around for over a half-century.  It tracks the 500 biggest and best American companies, with a staggering collective value in the marketplace around $12.4 trillion dollars!  It is the definitive benchmark against which fund managers measure their performances.

The stock-market busy season runs from Labor Day to Memorial Day, early September to late May.  The SPX’s performance over this latest span has been awesome.  After being deeply oversold in late August, paralyzed by irrational crash fears like that silly Hindenburg Omen indicator, the SPX started rallying sharply as I predicted at the time.  By late April, it had powered 30.2% higher in 8 months!

It was a heck of an upleg, no doubt.  But the stock markets perpetually flow and ebb, mighty uplegs are followed by sharp corrections or long consolidations.  These are healthy and necessary to rebalance sentiment.  After the stock markets have risen relentlessly for a long time, greed and complacency dominate trader psychology.  But emotional extremes never last long, as they naturally burn themselves out.

Once that happens, the great sentiment pendulum starts swinging the other way.  And it seldom stops until it gets to the opposite extreme in its arc, in this case fear and anxiety.  Almost all short-term stock-market action can be distilled down into endless greed-fear cycles, the pendulum forever swinging back and forth between greed and fear.  This dynamic is simple and easy to understand.

Traders gradually bid up stock prices, and after enough rallying greed grows.  But eventually prices get so overbought that all traders interested in buying anytime soon have already bought.  So only sellers remain, and once their selling pressure starts driving prices lower it scares others to sell.  Eventually this feedback loop leaves prices so oversold that everyone interested in selling soon is already out, fear peaks.  Only buyers remain, and their buying pressure once again pushes prices higher, attracting more buyers.

The key to successful investing and speculating is to fight the crowd, do the contrarian thing.  When others are already greedy because prices are high after an upleg, sell.  As Warren Buffett wisely says, be afraid when others are brave.  And then when others are scared because prices are low after a correction, buy.  Be brave when others are afraid.  While simple conceptually, this discipline demands self emotional mastery.

So where are the stock markets in their greed-fear cycles today?  The SPX technicals can help answer this critical question as we head into summer, which tends to be weak seasonally.  This chart shows the SPX trading action during the past couple years’ cyclical bull.  A second series, the Relative SPX, is explained below.  Understand this chart and its implications, and you will radically improve your odds of making the right trading decisions this summer.

Since this busy season began early last September, the SPX has soared powerfully.  And much of this upleg, especially in early 2011, was very one-sided.  The stock markets rallied for days on end, a melt-up with few down days to keep greed and complacency from growing overwhelming.  But back in mid-February, this seemingly-impregnable advance suddenly stalled on news of the Libyan revolt.

Anything could have been the catalyst to arrest that long-in-the-tooth upleg though, it doesn’t take much to turn an overbought market south.  And the SPX was certainly overbought!  One way to measure this is by comparing the SPX to its 200-day moving average.  200dmas form a gradually-evolving baseline from which prevailing price levels can be measured.  Once an upleg stretches too far above its 200dma, its days are numbered.

This relationship between prices and their 200dmas is the basis of my Relativity trading system.  Learn it and you will have vastly greater success in buying low and selling high!  It simply takes any price and divides it by its own 200dma.  The resulting multiple distills this critical relationship into constant-percentage terms that are perfectly comparable over time.  Even better, these multiples tend to form horizontal trading ranges, a price tends to trade in a well-defined band relative to its own 200dma.

The Relative SPX (rSPX) multiple is shown above in light red, slaved to the left axis.  Over the past 5 years or so, lopping off the anomalous extremes driven by 2008’s once-in-a-century stock panic, the SPX has tended to trade between 0.95x to 1.10x its 200dma.  When on the low side of this range it is oversold, the time to buy as stock prices are relatively cheap.  When on the high side it is overbought, the time to sell as stock prices are relatively expensive.

At that mid-February peak the rSPX ran 1.152x, which was very overbought.  The SPX had stretched 15.2% above its black 200dma line.  This is readily apparent above.  Look at the left axis and visualize the black 200dma line as flattened to horizontal at 1.00x, and the blue SPX line as a multiple of this baseline rendered in light red.  So far in this cyclical bull, the stock markets haven’t done well after 1.10x was exceeded.

Of course the wild stock-panic-driven gyrations battered this indicator about like all other indicators.  But once the SPX started stabilizing after the panic, the rSPX grew overbought.  The result was the largest pullback (less than 10% selloff) in this entire bull in early 2010.  But the SPX didn’t correct fully and was soon stretched 10%+ above its 200dma again by April 2010.  These overbought conditions resolved themselves through the only correction (greater than 10% selloff) of this entire bull late last spring.

When markets get overbought, selloffs are the best and quickest way to resolve the sentiment imbalance.  Greed and anxiety are rapidly obliterated by rapidly-falling stock prices.  But a secondary way is through a sideways grind, a consolidation.  And that is exactly what we’ve seen in the several months since that mid-February peak.  The stock markets have just drifted sideways on balance, gradually eroding greed and ramping up anxiety.  Consolidations take much longer to rebalance sentiment, delaying the next buying op.

There was a minor pullback during this consolidation, the SPX fell 6.4% by mid-March as the Japanese earthquake/tsunami/nuclear fears peaked.  After that the stock markets staged a rally during Q1 earnings season, but it was relatively minor.  At best at the end of April, the SPX was still merely 1.5% above its mid-February peak achieved almost 10 weeks earlier.  The stock markets are definitely mired in a high consolidation!

These sideways grinds really wear on bullish traders.  They see all kinds of good news, like blowout earnings for high-profile companies and improving economic data, yet the stock markets fail to rally in response.  Gradually this morphs their smug greed seen at the initial peak into anxiety.  Sideways-grinding markets look increasingly toppy as time marches on, ratcheting up the psychological pressure to sell.

Even worse technically, consolidation drifts compress the SPX ever closer to its key 50-day moving average.  50dmas are super-important technically because they are where pullbacks within ongoing bulls tend to bounce.  Corrections, on the other hand, slice through the 50dma and often plunge all the way back down to the 200dma before they fully run their course.  So once the SPX falls below its 50dma, it enters a technical no man’s land where a bigger correction is probable.

During this recent high consolidation, the SPX’s white 50dma line above has failed on three separate occasions.  Though it was able to bounce back over this key metric after the first two, the second rally on that earnings-season bump was much more anemic than the first.  This is making technically-oriented traders a lot more worried about today’s third 50dma failure.  If the stock markets don’t surge back above this critical line in the sand soon, selling pressure is going to accelerate.

Remember that the stock-market sentiment responsible for nearly all short-term price action perpetually oscillates back and forth between greed and fear.  Greed peaks when the SPX stretches far above its 200dma late in an upleg, while fear peaks when the SPX is dragged back down to its 200dma in a correction or consolidation.  But note that our current consolidation has yet to force the SPX back to its 200dma.  This high-probability-for-success buying point is still a long way down.

So the stock-market technicals really aren’t very favorable heading into the seasonally-weak summer doldrums.  While the SPX has been far less overbought in recent weeks than it was initially at its mid-February peak, it is still high relative to its 200dma.  Trader psychology is unlikely to be fully rebalanced, greed and complacency totally burned away, until the SPX returns to or under its 200dma.  We aren’t there yet.

Major summer rallies are pretty rare, and are only likely if the SPX is oversold and under its 200dma heading into summer.  That certainly isn’t the case this year, so further rallying in the coming months is even more unlikely than usual.  If the SPX continues drifting sideways in its high consolidation, it should finally get low enough relative to its 200dma to signal an oversold buying point by late summer.

But this year, I’d assign equal odds to a new correction versus a continuing consolidation for a variety of reasons.  Healthy bull markets see major uplegs followed by serious corrections to rebalance sentiment.  The first big upleg of this cyclical bull that climaxed in April 2010 played out this way.  A sharp correction immediately after eradicated the interim high’s excessive greed and complacency, eventually spawning fear.

Our current second upleg has only seen two minor pullbacks over its entire 10-month life, one in November and one in March.  So greed and complacency have reigned for far longer than usual.  The longer a stock market rallies on balance without seeing any meaningful fear, the greater the odds a correction is imminent.  Other indicators certainly support this thesis, as I explained in an essay in mid-April.  And early summer, when many traders take vacations, is a high-probability time for sellers to gain the upper hand.

Also arguing for a selloff rather than a drift is the upcoming end of the Fed’s highly-controversial QE2 Treasury-monetization campaign.  Quantitative easing, a fancy term describing creating new money out of thin air to buy bonds, is scheduled to end in late June.  And all the Fed’s inflation has really correlated strongly with this stock-market cyclical bull, as I recently explained in depth in another essay.  Traders are getting increasingly worried as the deadline draws nigh, and odds are many will sell in anticipation.

A weak SPX, whether it is gradually drifting lower or selling off sharply, will weigh on commodities and commodities stocks this summer through two key mechanisms.  First, stock-market psychology directly drives the commodities risk trade, the desire of traders to own commodities and their producers’ stocks.  Weak stock markets lead to much-less speculative demand across the entire commodities realm.

Second, SPX selloffs ignite dollar rallies or accelerate dollar bear rallies already in progress like today’s young one.  And of course a stronger dollar weighs on commodities prices since all the popular ones are primarily denominated in dollars worldwide.  So today’s weak SPX technicals certainly don’t bode well for commodities and commodities stocks during the upcoming summer doldrums either.

So what to do given today’s lackluster SPX technicals?  Get prepared for the likely-excellent buying opportunity on the other side!  Realize profits and raise cash now while stock prices are still fairly high, and start studying sectors you are interested in so you know which stocks you want to buy.  It is critical to do this homework in advance before a buying opportunity arrives, as stock research takes lots of time and oversold markets never last long.
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Weak SPX technicals

Also:

The U.S dollar fell to a four month low versus the Euro.  The Dollar has struggled under the weight of higher crude oil prices and good jobs data.

In addition Fitch ratings are expected to revise Spain’s bond rating from stable to negative.

THIS WEEK…

The department of labor announced the unemployment rate dropped  1/10 of a percent to 8.9%….better than the projected 9.1%.

Thursday…..

According to the Department of Labor…Initial Jobless  Claims fell by 20,000 to 368,000 for the week ending 2/26….  This was far better than the 395,000 that was projected….

There are reports that Iran’s security forces are clashing with  government opposition supporters in Tehran causing further  investment concerns of tension regarding the flow of oil from Iran

European Central Bank boss Jean-Claude Trichet  Indicated that the ECB may raise interest rates in April……

Wednesday’s gold session notched another all-time high as the  Globex April contract traded $1441.00 per ounce…..

Friday’s Silver session notched a 31 year high as Globex  (May) contract traded $35.40.5 per ounce…..

MY SWING NUMBERS MONDAY 3/7

APRIL GOLD

RESISTANCE # 2…………………..$1444.00

RESISTANCE # 1…………………..$1436.00

PIVOT………………………………….$1425.00

SUPPORT # 1……………………….$1417.00

SUPPORT # 2……………………….$1406.00

Volume………………………………..121,000

MAY SILVER

RESISTANCE # 2……………………$36.15

RESISTANCE # 1……………………$35.74

PIVOT………………………………….$34.97

SUPPORT # 1……………………….$34.56

SUPPORT # 2……………………….$33.79

Mike Daly / Gold Specialist

PFG BEST

mdaly@pfgbest.com

312-563-8029

877-294-4669
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Another wild week in the precious metals

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Silver outweighs gold