Thursday, August 12, 2010

Hindenburg Omen: 3rd Time's The Charm

Recently, we've been covering a most off-the-run indicator called the Hindenburg Omen (HO).  For some background, click here  For the indicator to be confirmed, it must occur in clusters within an approximate 5 or 6 week window.  Number 3 just occurred in this morning's trading.

The news gets worse.  Last evening, Cisco Systems' (CSCO) John Chambers, always the optimist, gave a somewhat pessimisstic outlook for the economy on the conference call following the release of Cisco's earnings.

Revenue for the latest quarter fell short of analyst expectations at Cisco Systems Inc., and Chambers said customers were expecting a slowdown in the economic recovery.  Chambers goes on "In terms of the economy, it's mixed signals. ... The majority of my customers believe the economy is going to continue just going slowly going up, but very slowly. Not what they would have said even just three to four months ago in terms of their expectations."

For Chambers, this is tantamount to calling for a Double-Dip Hyperinflationary Depression.  He must be a closet reader of "Marko's Take". 

So, while corporate earnings for the 2nd quarter came in at pretty decent levels, they are irrelevant.  What's important is the outlook, which is mixed at best. 

What's also mixed is the situation with Gold and precious metals stocks.  On the one hand, Gold is holding up remarkably well and should continue to do so.  Even in the oncoming deflationary freight train, Gold may continue to get a major crisis bid as it did at times in the meltdown of 2008-2009.  On the other hand, it is a very liquid and salable asset.  If hedge funds and other investors get margin calls, it is the easiest way to raise liquidity.  Ultimately, as hyper-inflation rules the day, Gold will absolutely sky-rocket.

I continue to be short-term neutral on the precious metals sector.  There ought to be a better entry point, but that is far from guaranteed.  If missiles fly in the Middle East, Gold could jump by $100 per ounce overnight.  If the stock market meltsdown, as we expect, Gold could fall by $100 per ounce overnight.  It could do both on consecutive days.  I would still recommend maintaining some position, just in case, but would be cautious about betting the farm...yet.

The best play, in my mind continues to be certain inverse ETFs.  These are highly volatile, not for the feint of heart, but a great way to hedge, at the very least.  Again, I would NOT recommend betting the farm on these, either.

If you don't like inverse ETFs, fine.  Stay in cash, and be thankful you have some.  Lot's of folks are about to  be wiped out.  Please don't let yourself be one of them.

Stay tuned.
Marko's Take

On Sunday, August 22nd, the California Wildlife Center will have it's annual fundraiser called "The Wild Brunch:  Fawntasia".  If you're in the Southern California area, and wish to come down and support this fabulous cause, tickets can be purchased by clicking here:

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