GML - Where to from Here? Part1 - 28th January 2010

Over the past couple of months I have attempted to anticipate what might be in store for us in the first year of the decade.

Such views are not predictions but are advanced as potential opportunities or problems which will require anticipatory planning before the opportunities or dangers pass us by. The conclusions drawn were far from bullish for this year which falls in line with the first year of a decade often being an unfortunate one. However our investment decisions will not be influenced by observations but will rest entirely upon Gann analysis. For certain I see the necessity to embrace opportunities from ‘all’ markets and not be restricted to the vagaries of any one of them.

…and so for conclusions from the initial analysis for 2010

Subscribers will be fully aware of my reluctance to comment on the years prospects until the early January moves are in the bank. There is now sufficient information to proceed. Over the next week or so I will deal with each market in the following order of importance based upon my current perception of this year’s potential winners.

1 – METAL COMMODITIES
2 – GOLD
3 – SOFT COMMODITIES
4 – FTSE 100
5 – THE MAJOR STOCK MARKETS
6 – DEBT MARTKETS
7 - FOREX MARKETS
8 – EMERGING STOCK MARKETS
9 – ENERGY MARKETS

(If there are any other areas of interest which I have not included please let me know)

1 - THE COMMODITY MARKETS

For a number of years I have extolled the virtues of the commodity markets which once again is the premier area for my portfolio. Our consistency here has been gratifying since we re-commenced concentrating on this market in 2005 following our sensational but emotionally draining experience in the 1990’s. During this period we had drawdowns on occasions as high as 33.33%. Happily these difficult periods were followed with massive upswings. The volatility was due to using ‘signal days’ and ten times gearing but always with solid money management and tight stop losses. Despite keeping to our strict disciplines and producing amazing results subscribers found the going tough and many dropped by the wayside.

In order to have more control I decided in 2005 to use a much more comfortable approach by waiting for trend turns before entry and generally restricting gearing to 2.5 or less. This approach has ensured low drawdowns and resulted in profits each year since 2005. Due to the strict and tight disciplines we follow the results have been well over 10% p.a. Consequently, there has been very little stress over a period of time when most have experienced nothing but stress in the credit, debt, equity and property markets. Contrary to the regulators flawed views commodities do not need to be high risk.

It is a remarkable fact that since 1986 whether we used an aggressive or a more defensive strategy we have only suffered two losing years, in 1989 (-15%) and 1992 (-29%) The reliability of these claims are supported by a professional third party audit for trades prior to 2000 which created the chart prices.

Thereafter all our trades are fully documented and available for inspection on the website. In the view of the Dot.com fiasco of the late 1990’s we directed our attention away from commodities and concentrated upon the stock markets where we made substantial profits from our shorting programmes. We re-commenced analysis of commodities in 2005. Our analysis from 2005 has been based upon our defensive strategy with which we will continue during 2010.

However, if investors would like to take an aggressive flyer with a minimum of £100,000 (subject to loss of capital not being an issue) I would be only too pleased to adjust my analysis to the aggressive approach of the 1990’s. If there is sufficient interest I would again join in the fun.

THE METALS

January movements have highlighted a number of possible profitable opportunities for metals. Our Metal analysis has highlighted the following.

1 - Metals currently on support (CURRENT BUYING OPPORTUNITY)

None

2 - Metals falling to support (FUTURE BUYING OPPORTUNITY)

The chart under for Silver illustrates what we are looking for under this heading. Our calculations are suggesting price support in the 1600 area with a timing date of middle February.

Tin, Palladium, Platinum & Zinc are contracts where we are waiting for weakness to continue with the support levels and timing still a little distance away but being near enough to encourage constant scrutiny.

3 - Metals having risen to upside resistance but supported by a rising timing angle (NEUTRAL)

Aluminum, Copper & US Copper High Grade fall into this category. This places them in a neutral position waiting for either a break above the resistance to consider a buy or a fall under the angle
which would indicate further weakness. The chart for Copper 3 months under illustrates a position where there could shortly be a break either way providing both a buy or a short.

Incidentally don’t think the angle is a chartist trend line as this could only have been established when the July low was formed. Our angle was in position as far back as April of last year due to its relationship with the upper angle. This was a major reason why Gann was able to anticipate major turning dates well in advance.

4 - Metals having risen to upside resistance with the supportive angle broken on the downside (BEARISH)

Lead is a good example of a contract falling from a resistance level but still supported by an angle close by (Neutral at the time) which has now been broken on the downside. This is bearish as our lower angle indicates weakness down to the next lower angle. It also provides a future timing date where it crosses the support level in the 1800 area in late February. That rare commodity patience is now required here.

5 - Metals meandering within a trading range (NEUTRAL)

I find trading ranges difficult to assess and generally put such trades to one side until the support or resistance levels have been reached.

Currently there is only Nickel 3 months falling into this category. The trading band can clearly be seen on the chart between 15000 & 22000 with the current price slap bang in the middle of the range.
It is just a matter of waiting to see whether there is a rise or fall to the levels and angles on the chart.

The prospects from this analysis are promising for Metals as no fewer than six contracts are assessed probable buy signals during February. There are no clear ‘shorting’ opportunities at the moment.

THE GOLD MARKETS

My second most attractive area for 2010 is Gold although the current position is somewhat confused. This is caused by the Bullion position looking bullish whilst a number of Gold Shares look decidedly shaky. No doubt time will clear the confusion. Before taking any strong action caution would seem to be appropriate.

The chart for Gold Bullion is suggesting that bullion should stabilize in the 1060 area accompanied by a wait for a week or so before the time for action presents itself at the angle. This chart is presenting a strong level of support coupled with a timing angle of some significance.

The same certainty cannot be ascribed to the Gold Mining shares.

One of the great features I benefit from using Gann is that I know precisely when I have got something wrong. My recent UK Gold Mining analysis is a good example to illustrate this point. I had calculated a buy at 3015 on the 17th December after a short term trend change to the upside. Everything went well with a fall to 3015. The alarm bells rang on a fall under 3015 but more importantly (Gann says time (angle) is more important than price) the angle was also broken. These breaks warned against any entry until the angle was regained with an upward trend change above the angle. This was not to be, resulting in a rather hefty fall with an anticipation of a revised buying area of 2500. This illustrates that levels are not necessarily buying or selling points but are ‘decision’ points with the market telling us what to do when levels and angles are met.

The same ball game can be seen on the US Gold Bugs Index

A detailed historical observation of Gold mining shares presents the conclusion that individual Gold ining shares can be a law until themselves. On many occasions they go their own way. The current analysis falls into line with this observation with both bullish and bearish possibilities. There are some shares going the way of Gold Bullion support and others falling in line with the bearish sector indices.

1 – Gold Mining shares currently on support (CURRENT BUYING OPPORTUNITY)

These stocks are generally speaking following the Gold Bullion price where we are waiting for support to be confirmed. A good example of a stock in this category having fallen to support and with the timing supportive is Hecla Mining.

Other mining shares in similar buying situations are ASA, Freeport McMoran Copper & Gold, Golden Star and Randgold resources

2 –Gold Mining shares falling to support (FUTURE BUYING OPPORTUNITY)

The stocks under this heading have an established downward trend and are not too far away from downside support. Gold Fields below shows these characteristics.

Others presenting similar buying opportunities over the near term are Agnico Eagle Mines, High River, Iamgold and Ocean Gold.

3 – Gold Mining shares having risen to upside resistance but supported by a rising timing angle (NEUTRAL)

None at the moment

4 – Gold Mining shares with the supportive angle broken on the downside after hitting upside resistance (BEARISH)

These Gold Mining shares were in category 3 due to problems ahead but support from a close rising angle. They then disappointed by failing to maintain the angular support and thus become Bearish from Neutral

Anglogold Ashanti under is a typical example and is accompanied by Barrick Gold under this heading.

5 – Gold Mining shares with the supportive angle broken on the downside coupled with breaking under downside support (BEARISH)

The Gold Mining shares here are showing distinctly bearish features as both the calculated support level and the angle fail to support the price. The expectation here is that they will fall to the next lower calculated support level and the next angle down

A sound example is Newmont Mining under. Other shares with the same characteristics are Coeur D Alene Mines, Harmony Gold, Lihir Gold & Royal Gold.