Tactical Investor newsletter

June 1 2004 

www.lowrisk.com  

It is evident that the penguins cannot take a stance yet. They continue to keep hopping from the bear camp to the bull’s camp. Looks like the average investor has become brasher to. Several weeks ago a huge percent of them ran into the Neutral zone and since then the percentages have continually dropped from a high of 41% to a low of 18%. This means that the markets will probably need to keep up this wild up down action in order to completely disorientate the average investor.  I suspect we will have one climax wave of selling at which point the market will be ready to put in a firm bottom and start to rally.

Current Sentiment shows Bulls: 42% Bears: 48% Neutral: 9%
Current Perception shows Bulls: 66% Bears: 21% Neutral: 11%

http://www.cbforum.com/crystalball/

 It appears that the average investors thinks his fellowmen are more bullish then they really are. This gives more credence to the theory that we will need one final climactic sell off to scare these chaps into the bunkers. At that point in time we should be able to get some really juicy plays.

A few weeks ago the number of new lows spiked to 800 plus, since then we have been slowly turning around. This action indicates that the market is building strength internally for the next phase of the rally. Usually these turnarounds are followed by one sudden downward spike. This is done to ensure that the last of the weak hands throw in the towel right at the very bottom. We will first flash  a buy signal to our subscribers and later on flash a delayed buy signal to the readers of our free newsletter.

 Important fact

Every single time the price of oil has risen over 80% in a 12-month period, the stock market has corrected pretty seriously and we have entered into a mini recession within 12 months or so.  From May of 2003 to May of 2004 we have had a 70% plus increase; from June of 2003 to June of 2004 the increase has been over 62%. It appears that the chaps in charge are also aware of this and so if there is to be any hope of maintaining this illusionary and fragile economic recovery, oil will have to be dealt with immediately. Perhaps this accounts for the pretty big one-day spike we witnessed last week.

Mega signs of inflation everywhere

Last week I  read an article that stated the price of milk will soon be set at 4.49 a gallon in New York. Less than a year ago milk was selling for about 2.50 gallon.  Strange milk now costs more than petrol. Watch the one-dollar menus in fast food restaurants very carefully. The day they become the 1-dollar plus menus, will be the day you need to start worrying.  

The prices of all necessities are rising drastically in price. Last week, coffee futures really took off, so start to look for higher coffee prices . When the cost of basic goods that have never risen in value for years starts to take off, it is a sure sign that inflation is rearing its ugly head in force.  

Gold will be the last sector to react to these inflationary forces. The reason is simple; the masses still do not understand Gold’s function. You hear all the gold bugs come up with such eloquent arguments and paint such detailed gloom and doom scenarios. What they fail to understand is that the average dim wit out there (the masses) understands less than 5% of their rantings.  So you need to use Psychology here, all the above signs are lagging indicators; the only real time indicator is fear. When you start to smell fear (trust me everyone can smell it, it has very distinguishing smell, if you can’t smell it, you will see it) this will be the first indication that Gold is finally entering the true bull market phase.  

We still think that Silver will by far out perform Gold in terms of % gains. So when we do flash a new buy  on precious metals. We would suggest that you take larger positions in Silver bullion then Gold bullion.

Important fact

Price increases across the board in basic necessities, is usually a sign that inflation is out of control.  The only problem we have right  now is trying to figure out, if these inflationary signals will end up triggering deflation or hyperinflation. In reality hyperinflation is the better of the two as there are more counter measures available. Deflation usually results in a major depression type scenario, where the carnage is extremely brutal.  Based on our indicators and all the present signs, it looks like we will start of with the inflation cycle. This action will prove to be very beneficial to the precious metals sector.

 
Gold 

Gold has always been one of the more complex metals to analyze. This is due to the fact that it is one of the most manipulated markets. If you notice the third and second up trend lines have been breeched. The 400 area now represents a point of pretty strong resistance.  Most likely we will attempt to challenge this range before pulling back again. We also have a pretty big channel formation, the top of which is currently providing support.  This area provided support during the last pull back, it will be interesting to see if this are holds.  The main up trend line provides very strong support in the 360-365 ranges. However most of the time it is quite normal for gold to briefly break below the main support line, before popping up again. So if Gold breaches 375 it seems that we will most likely test the main up trend line and even dip briefly below it.  

Gold is still trading of the dollars woes and is unable to rally in the face of a rising dollar. This means that Gold is still not in a true bull market. Our propietary indicators which we use for in our paid services are still not flashing a buy. When they do flash a buy, we will post that signal here but on a delayed basis as we have to respect the rights of our paying subscribers.  

Palladium 

Palladium is basically in the 1st stages of rallying after it brutally corrected from a high of 1000 dollars a few years ago. However Palladium is a very volatile metal and one has to know what they are doing when taking a position here. The very long term trend is up for palladium, in between we will have some very brutal corrections but the trend should remain up for several years. 

Copper 

When base materials such as copper and Aluminum start to rally so strongly, it normally indicates that inflation is starting to go out of control. If you look at the charts of Aluminum and Copper they look a dozen times better and stronger then Gold's chart.  Copper has strong support in the 110 region a break below will most likely take the prices down to the main trend line.  Aluminum has very strong support in the .75 range. Notice how both Copper and Aluminum broke out of nice long term channels. As we have always stated in the past the longer the channel the more violent the upward move will be ( if the channel has formed after a long correction).

Aluminum 

Natural Gas Index 

Natural Gas and Oil are both in true bull markets unlike their precious metal counterparts. Both of them have been rallying in the face of a rising dollar. This means that higher energy prices are here to stay for a long time. In between we might experience bouts of relief but the over all trend is going to be one of rising prices.  XNG has to stay above the main up trend line or we will test the top of the channel, which currently equates to price of 200 dollars. 

Oil on the other hand  is still holding up pretty well and appears to be very strong. Though it is getting into the very overbought region,so some pull back is to be expected in the future. If we break below the second up trend line we will most certainly test the main up trend line. If this situation were to transpire, then it would represent a bargain opportunity to take new positions in oil stocks.

Oil 

Living stress free in Mexico 

For those of you looking for an Alternative place to call home or for a second home, you might consider taking a serious look at Mexico. This is the first time we have  ever endorsed a Realtor especially one that resides in another country and therefore  this should illustrate  the high level of trust we place in this lady. She is not a native of the country and so is best adapted to deal with your questions  and understand your predicament. She has lived there for over 10 years and is of British decent. 

I am going to put a link, which provides  some information on very beautiful retirement spot in Mexico, together with Susan Martin's contact details. Living stress free in Mexico

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