Dear CIGAs,

Up and down, back and forth, in and out; she loves me, she loves me not – after everyone and their mother ran to the hills yesterday avoiding “risk”, today they decided that they had forgotten their underwear and toothbrush and ran back to go and get them once again. RISK is back (at least for today) and when it is, down goes the Dollar and down goes the Yen, up goes the Euro and the Commodity currencies, up goes crude oil, and of course, up goes Ol’ Yeller, i.e. gold.

I have been wondering how much longer the Japanese monetary authorities were going to sit idly by as they watched the insanely schizophrenic speculators bidding their currency to Timbuktu. They finally issued a statement and that was enough to take some of the wind out of the Yen’s sails as any speculator, that does not respect the Bank of Japan has not been out to their woodshed as has yours truly. They can put some kind of “whoopin” on you. Even at that, the Dollar was so out of favor today that the Yen came well off its worst levels of the session.

With that in mind, crude oil did struggle to move higher even as the algorithms had the hedge funds buying it and I think that were it nor for crude’s inability to move beyond the session high of 61.62, gold would have taken out $620. For now, $620 is serving as near term resistance as it was support prior to yesterday’s sharp price decline in the gold price. Now it is attracting selling by fresh shorts moving in to take advantage of a rally to sell. In addition, short term oriented traders (the one minute bar chart geeks) are selling up near that level and trying to book a few dollars in profits.

It is definitely constructive to see gold bouncing from near the lower level of its broad consolidation range so perhaps end users are seeing “value” at these levels. The longer gold can maintain its footing above the $900 level, the more constructive as it will indicate that buyers are becoming “acclimatized” to the price near this region and are not experiencing sticker shock as is often the case when a market shoots sharply higher in a short time. I will feel better about its prospects however if it can close above $920. Until then, the sellers still have the short term technicals in their favor.

Just as gold is chopping around with a longer term upward bias, the Dollar too is chopping around in a consolidation pattern with a downward bias. It has fallen back below all of the major moving averages and after having managed to claw its way above the 10, 20 and 40 day in the previous two sessions. The question for the Dollar is whether or not it can hold above last week’s swing low. If not, its momentum should carry it down toward a test of 79 and more critically, the double bottom near 78.38. With the way these markets have been acting of late, trying to say with any degree of certainty what they might be doing from one day to the day is proving to be increasingly difficult but it generally takes some sort of catalyst to break a market out of a range or consolidation trade. What that might be is of course impossible to say but I suspect that if this chatter out of Washington about another stimulus package gathers any more support, that might be enough to kick the Dollar in the teeth and down through important chart levels. Maybe that is why we keep getting denials from certain officials that there will not be one (which makes me think they want to do just that). If the job situation does not begin to rapidly improve, those in control of the Congress know full well that they are going to get shellacked at the polls next year and as we all know, if there is one thing that a typical politician likes to do more than they love spending someone else’s money, it is staying in office so that they can spend other peoples’ money!

After yesterday’s big rush to safety, the bond market promptly puked and gave it all back. This is exactly what I am referring to when I state that today’s markets are broken and that hedge fund lunacy is destroying their integrity. The wild price swings are indicative of ZERO analysis being done by human beings. Rather what we are seeing is the result of a dog walking its master on the leash. Computers are running our markets and that is what scares the hell out of me. How does a bunch of on and off circuits sit down and do a studied analysis of a market from a fundamental basis? Answer – it does not.

Now you can see why Goldman Sachs has its panties all in a bind about their little ol’ computer program… that is what investing has boiled down to these days – who can get their order in front of the next guy and get it to the exchange the fastest… As a long time speculator I used to be proud of my profession but I must say that this new breed of fund managers and their quant boxes disgust me because it feeds into the notion that we are nothing but a bunch of low-life parasites who produce nothing useful. At least we once did a lot of analysis and provided liquidity and served as a conduit for commercials looking to offload risk. We have now been reduced to a bunch of leeches sucking money out of the hands of those who actually still believe that the markets serve as a price discovery mechanism. Trading/Investing has morphed into a hopped up video game on steroids.

That being said, long term analysis of the type that Monty provides for his customers is perhaps the only way to actually come out ahead unless you want to turn into a one minute bar chart geek. You study the macroeconomic situation, analyze the trend and then allow the lunacy of the hedge funds to provide an opportunity for you to position yourself according to your research.  Then go and enjoy life for the gift that it is.

The bounce in the HUI and XAU is helpful but they both need to take out yesterday’s high to scare out the fresh short sellers. The HUI ran up to the 100 day moving average where sellers promptly appeared. IT needs to get beyond that to encourage the bulls. Just like the comex gold market, the bears have the near term advantage in the mining shares.