Is Gold Ready For Another Up Surge ?

Gold tried to dig its heels in and attempt to rally despite the euro slipping half a percent to a new low for the week. Can it hang onto those gains?

If gold can resist the downward tug of the euro on Friday and rally for the first day in seven, this would be an encouraging sign that the metal and its shares are putting in another important low and beginning to diverge back to the upside despite the continuing correction in the euro, just as we saw back during the November-December period.

Disinflationary Shangri-La isn't going to appear because the Fed pauses next week. A quick glance at oil still hugging around $116 should make that more than clear to any 10-year old.

It’s been six straight days of selling in gold based on the fear that a Fed pause next week will
mark the low in the dollar, collapse inflation, heal the economy and supercharge the financial markets (and apparently in that order too). If one believes that ziperdee-doodah, then gold should be sold early and often (as I’m sure many shorts have already done).

If on the other hand, one believes (as I do) that stagflation remains, and inflation will continue to accelerate regardless of whether the Fed pauses or what the dollar does over the next month, then gold and its stocks are a buy with both hands at these levels.

Regarding the dollar: Remember, the dollar index bottomed in 1978. It was only after that bottom that inflation really exploded and gold quadrupled over the next 14 months in that stagflationary mess.

I for one don’t actually believe the dollar index has bottomed yet because I’m not sure Europeans are ready to accept more of the inflationary burden, which they would have to do by cutting rates if the dollar index was to have recently made its bear market low.

But the point is that whether the dollar has bottomed or not is irrelevant as far as gold is concerned, because inflation will continue to accelerate while the Fed is forced to leave interest rates well below the rate of inflation regardless of what the dollar does.

Trading The Oil Bubble.

The Shanghai Shenzen Index had a parabolic surge before and it has fallen by more than 50% since. And it is still within the context of a bear market in which all rallies should be sold.

Crude oil is still in a parabolic rise and I'm not yet trading it. Here's why. .Markets can remain irrational longer than you can be solvent. So you don't just short during a parabolic move. Sell your longs? Absolutely, because when they turn, it's usually a vicious move, particularly with a commodity.

The key is to wait for a sharp reaction down (or first leg down), an unsuccessful retest of the upside, and then short it with a stop above the old high. The chart above is an updated version of Crude Oil futures from yesterday vs The Shanghai Shenzen index.

Surfing The Elliott Waves - Prechter's Style.

I am an Elliottician. I believe there's a deterministic natural rhythm to the markets that's called the Elliott wave principle (Ewp). I believe it to be truth. Unlike many other technical indicators, it works all the time and it's only the analyst’s interpretation of it that fails. The pattern is always there and it's always correct. Everything else is periphery; fundamentals, all other forms of technical analysis, even social evolution itself. Everything that’s rooted in behavior follows the natural rhythm of the Elliott wave principle. It's a law like gravity and electricity. And like gravity and electricity, we don’t have to fully understand it in order to use it.

Forecasting the future with the Elliott wave principle is scientific in its approach; there are 13 simple patterns to the Elliott wave principle that connect and combine in a limited number of possibilities. By identifying Ewp patterns in charts, we can use logic and Fibonacci mathematics to deduce which other Ewp patterns most likely will follow suit. Often, there are several alternatives, but sometimes we can fine tune it to only one possible outcome. Perhaps I can shorten the learning curve for you. If you want to learn more about the Elliott wave principle, the best place to start is the biblical text; Frost and Prechter’s: Elliott Wave Principle.

The wave principle spans the whole of social evolution. I'm only going to focus on the part we can trade. In the chart above, I will provide my perspective of current cycle Ewp patterns. Robert Prechter Jr. believes that 2000 was the top of the Super Cycle: a 5 count impulse wave up that started in 1932. When the market rallied back from the 2002 low and made a new high, most market watchers quickly dismissed his thesis (and with it the Elliott wave principle). More recently he suggested that 2000 was in fact the top and we are in the midst of a corrective flat. In a classic case of crying wolf syndrome, no one believes him. I do.

I have never seen anyone else attempt to provide a detailed wave count to substantiate his flat theory, but I have done so here. I have also added a probable path of decline based on common Fibonacci wave relationships (in price only: not time).

It's tempting to go all in short and wait it out isn’t it? There are other possibilities however, so it's probably best to focus the lens on multiple timeframes in order to maintain a total perspective, and trade the cycle trend one wave at a time.

Change always starts at the smallest degree and ripples out to the larger degrees. Let’s look at the chart above labeled primary trend for more clues. At the level of primary trend, based on the evidence of Elliott wave rules, guidelines, and Fibonacci ratio analysis, we have probably completed five waves down and three waves up. The question now is have we resumed the down trend, or are we in a downward correction of the counter-trend correction (which is up), which I will call a correction of the correction.

The wave patterns are often difficult to interpret short-term at this degree, so I will focus the lens one degree lower to see if the evidence is clearer. Elliott wave patterns are believed to be fractals. Different time frames fit together. By examining the smaller time frames we can gain detailed insight into the probable direction of the larger ones. Conversely, we sometimes rely on the larger ones to see the forest through the trees when the shorter time frames become too complex. It is a constant balance of interpretation. Looking from the 60 minutes chart,we can see that on April 7th of this year, we completed the counter-trend corrective combination up called a double zigzag. The end of this pattern clearly indicated a turn, but is it the turn?

Again, based on the evidence of Ewp rules, guidelines, and Fibonacci ratio analysis, I interpret the recent downturn to also be more corrective in nature than impulsive. The wave count shown on 60 minutes is another double zigzag with a close to perfect 11 Fibonacci ratio (outside numbers). It is the cleanest interpretation I can identify on intra-day charts. However, we're at a crucial test point. We can only sustain a very limited continued downside without a significant 3-wave bounce for this to remain the highest probability. A small extension of the last wave down into Monday’s close, say 1320-1322 would be the preference. This happens to coincide nicely with a .500 Fibonacci retracement of the entire counter-trend double zigzag up from the bottom (inside numbers), a common retracement.

If this thesis is correct, and we bounce, one of two things will happen. We either resume the counter-trend rally up toward our next Fibonacci target, or get a significant 3-wave bounce, similar in degree to the bounce on April 10th, and then turn back down. If we bounce and turn back down, it will be the last wave of a correction of the correction. The Ewp rule states that corrective waves can only extend to 3 corrective combinations. We've either completed or are a fraction away from completing two of the three allowed in this wave set. Another turn down after a bounce would also most likely end at 1322 or 1307.

My Sacrifice.

'>http://

Global Rice Prices Don't Reflect Fundamentals.

Record rice price on the CBOT don't accurately reflect the global situation as supplies are adequate to meet short-term demand - so claimed by a senior executive from India's largest Basmati rice exporter.

"There is no immediate shortage of stocks, only a shortage of quotations (fewer bids) in the anticipation of higher prices, because countries such as Thailand, Vietnam, Pakistan and the U.S. are sitting on stockpiles of rice." said R.S. Seshadri, director of Tilda Riceland Ltd.

He said India's recent ban on rice export wasn't the key driver behind the run up in prices as the country exported 5.1 million metric tons of rice in the Oct-Jan period. This is 2 million tons more than the entire marketing year to September. "Price on the CBOT reflect just 5%-6% of the global rice production, which is controlled by three major producing nations of Thailand, Vietnam and the U.S.," Seshadri said.

Global rice production totals around 419 million tons, of which 29 million tons to 30 million tons is traded, and the rest is locally consumed. So, don't go rush to the nearest TESCO outlets just to stock up on rice.. Moreover, Thailand, the world's largest rice exporter, has doubled its rate of exports in the last six weeks. So when the new crop arrives from Thailand it will exert downward pressure on prices. However, specialty rice like Basmati and Jasmine, the tightness will continue as there is a physical shortage and demand is strong. And trading insider sources had indicated that Thailand has surplus rice in excess of 9-10 million tons.

It is just that the global rice market is shallow which exaggerates shortages and surpluses. The shortages of specialty rice only count for 4%-5% of total rice produced.

Dark Clouds Over GE.

General Electric, the iconic industrial conglomerate, posted weaker-than-expected earnings for the first quarter and lowered its profit forecast for 2008. The share plunged dragging down the Dow into three-digit losses.

According to The Wall Street Journal:

-Net income fell 5.8% from a year ago to $4.3 billion, or $0.43 per share; analysts were looking for $0.51 per share.

-Revenue grew 7.8% from last year to $42.3 billion, lower than analyst estimates of $43.7 billion.

-The company lowered its full-year earnings outlook to between $2.20 and $2.30 per share, down from previous a estimate of $2.42.

-GE saw strong growth in its global infrastructure business; most of the profit shortfall was attributed to losses in its financial services division.

GE's CEO, Jeff Immelt, said: "We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments."

Despite garnering more and more of its income from financial services, GE is still seen as a barometer for global growth. Analysts will be hanging on Immelt's every word on this morning's conference call, listening for clues about the state of the world economy.

After aluminum maker Alcoa posted lower earnings on weak demand from industrial customers, that global economic picture is much bleaker. Like Alcoa, strength in overseas markets was overshadowed by weakness in the U.S. The earnings miss and market reaction thereafter -- which is more important than the news itself -- indicates that analysts are overly optimistic about a recovery in corporate profits.

Losses in the financial sector and slow growth at home will continue to be drag on bottom lines. Unless analysts adjust estimates accordingly, it's going to be a very long earnings season. The continued decay in the financials are making this look more and more like a pre-cursor to "crash 2.0" !

No Pain, No Gain.

I remember why I wanted to be a trader. I figured that the easiest way to make money was to stand near the cash register. Of course, as I discovered through my fifteen-years career, there's a reason why consistent producers get paid the big bucks. Flashy bets and big swings sometimes connect but, in the end, a disciplined approach pays the bills.

I've tripped plenty through the years, the types of missteps that almost cost me my livelihood. But I persevered, climbed the ladder and morphed those mistakes into valuable lessons.

My approach wasn't always constant but, in the end, certain rules allowed me to stay in the game.

Respect the price actions but never defer to it.

The action is a valuable tool when trading but if you defer to the flickering ticks, markets would be "better" up and "worse" down—and that's a losing proposition.

Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always attempt to define your risk and never believe that you're smarter than the market.

Opportunities are made up easier than losses.

It's not necessary to play every day, it's only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

Emotion is the enemy when trading.

Emotional decisions always have a way of coming back to haunt you. If you're personally attached to a position, your decision making process will be flawed. Always take a deep breath before risking your hard earned money.

Zig when others Zag.

Sell hope, buy despair and take the other side of emotional disconnects (in the context of controlled risk). If you can't find the sheep in the herd, chances are that you're one!

Adapt your style to the market.

At various junctures, different investment approaches are warranted and applying the right methodology is half the battle. Identify your time horizon and employ a risk profile that allows the market to work for you.

Maximize your reward relative to your risk.

If you're patient and pick your spots, edges will emerge that provide an advantageous risk/reward. Proactive patience is a virtue.

Perception is reality in the marketplace.

Identifying the prevalent psychology is a necessary process when trading. It's not "what is," it's what's perceived to be that dictates supply and demand. So stop reading those well-organised "intels". Stick to price actions.

When unsure, trade "in between."

Your risk profile should always be an extension of your thought process. If you're unsure, trade smaller--or paper trade--until you get back into "the zone".

Don't let your bad trades turn into investments.

Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk off—win, lose or draw.

There are obviously many more rules but I've found these to be my common threads through the years. Each of you has a unique risk profile and time horizon, so some of these commandments may not apply.

As always, I share these thoughts with hopes that they add value to your process. Find a style that works for you and always allow for a margin of error.

No approach is failsafe and any trader worth his or her salt has endured periods of pain.Good traders know how to make money but great traders know how to take a loss. For if there wasn't risk in this profession, it would be called "winning" rather than "trading" verrrrd...! "Jarr-Dole!" (Ipohites' lingo.)

Badawi : We Will Produce More Rice.

Inflation concerns continue to mount. You can feel the civil unrest percolating and it looks as if full blown strikes and riots will become a norm.

Countries, such as, Mexico, Russia, South Africa and Yemen are all experiencing unrest as the very staples of life have become suddenly unaffordable. Food prices in South Africa are now up 70% from a year ago. At the same time the rand is down 15%. And with the recent power outages, it looks as if electricity costs are set to explode, adding fuel to the fire. Some say electricity prices could increase as much as 50-60% in 2008-09. -So, watch your TENAGA bills! This would be a double whammy and will be sure to maintain inflation in the double figures.

Soaring export taxes on the crops in Argentina recently have lead to rebellious strikes by the farmers. As a consequence, produce and beef are missing from the shelves in the grocery store. Empty shelves make people angry. And Soybean futures hit the roof in CBOT.

This upshot of rising food prices is already being felt in China. Rice is a staple in China and most of Asia and prices have more than doubled. In fact, a quick glance at the Chicago Board of Trade Rough Rice chart rice prices making new high as I write. Just in a week, rice prices are up another 11.5%, as Vietnam has banned export of rice on domestic shortages.

Civil unrest is possible as people in China are eating more rice than is being produced. To counter the effects of higher inflation the government continues to raise the cost of borrowing and imposing price controls on food. Folks in Mexico are in an uproar as the price of corn tortillas goes up. Corn prices are tickling the $6 per bushel level. And the chart is wildly bullish.

We've had a series of higher lows on the monthly chart since August 2007. At the same time, world stocks continue to dwindle. The stocks-to-usage ratio is currently at 13.5%, the lowest since 1973-74. That’s considered a tight market. Remember too, the crop is not even in the ground. A hot, dry summer could be devastating.

Meanwhile, Singapore just registered a 25 year high in inflation. Saudi Arabia is now at 16 year highs and Switzerland is not far behind, at 14 year highs....and Malaysia still in its lala-bolehland! Since Bank Negara is led by the nose, don't expect any surprises coming from cosmetically tame inflation data. And I guess Zeti's measures to counter "significant downturn" is now useless after March 8, 2008!

While commodity prices may consolidate and trade in big ranges for the next few months, the big picture still looks supportive for natural resource plays.