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I Am Contrarian And So Can You!

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October 14, 2010 – Comments (38) | RELATED TICKERS: GLD , SLV , AGQ

Have you noticed I never get tired of ripping off title's from Stephen Colbert? I had better hope he doesn't take notice.

In all seriousness though, I have made a living off of being contrarian and liking everything you dislike and loathing the popular play. I actually am contrarian and so can you!

In March 2009 no one wanted to be within 100 yards of a stock, yet I couldn't get enough of the tumble. Media stocks were all the rage last summer despite their lack of real earnings and traders couldn't snap them up quick enough, yet I wasn't jumping aboard that sinking ship. Sure enough most are trading below where they were at this time last year. Recently no one wanted anything to do with Chinese stocks and in the last month they have exploded higher. The UltraChina portfolio has been absolutely on fire and is now sitting just a hair outside the top 1% of all portfolios.

Needless to say I'm not always going to be correct in calling a reversal in the overall market, sectors or stocks in general, but I'd like to think I do a better than average job at it as is indicated by my history of recommendations.

Well it's time to ruffle a few feathers - so prepare for the next installment of contrarianism. It IS time to sell sell sell Gold and Silver. Yeah, I know TMFSinch is gathering up the pitchforks and the rabblerousers to argue against me and tell me why Gold is in a big bull market, and you know what....he makes some great points.

The problem with gold and silver is they are a predominantly technical oriented commodity. Sure they will correlate pretty well with action in the US dollar and rise/fall based on the policy changes from the Federal Reserve, but for the most part it's going to rise and fall because a couple heavy hitters using their technical analysis programs are moving in and out of the market.

All I'm really doing here is the same thing I did when picking out a bottom in March of 2009 or when I saw value in Chinese stocks...i'm looking for stupid! A lot of the time stupid materializes itself in the form of a market/sector/stock which is trading way beyond it's normal deviation. I really don't like the concept of moving averages, but they do help us determine if what we're interested in is not trading within it's normal limits. The last few times that gold and silver were trading this far outside of these ranges we saw at minimum of a 15% pullback in each commodity. Based on what I'm using I would call silver about 4 times outside of its standard deviation and gold is nearly at 3 times it's deviation, thus I am more bearish on silver than gold.

Does this mean this is the end of the gold & silver rally? I'm not ready to call that a certainty yet, but I am ready to claim an intermediate top here on both gold and silver - the valuations here just do not make sense and my indicators concur.

What I'm looking for is a retracement on silver to $20.80, on gold to $1244, and I'd be looking for the US dollar index to bounce back above 80. Yes this is a fairly short-term move I'm looking for here so don't consider this a long-term thesis to sell gold & silver and buy the dollar, but at this point in time these seem like the most logical plays.

On a side note, completely unrelated to the tulipmania that has engulfed the gold & silver markets, I go into whether or not it is time to abandon AstraZeneca here. Enjoy!

I welcome to impending empassioned feedback from gold and silver supporters. It's not that I don't see your side of the case, but you've had your move and it's become overextended which makes for the perfect short set-up.

UltraLong

38 Comments – Post Your Own

#1) On October 14, 2010 at 9:24 PM, Option1307 (30.06) wrote:

I'd never bet against gold/silver in RL, but they do look ripe for the picking here on Caps. Short term anyway.

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#2) On October 14, 2010 at 9:35 PM, outoffocus (23.17) wrote:

You may be surprised but I actually dont disagree with you (dont you not hate double negatives?). I've been waiting for a short term pullback and I won't be surprised when it happens (its built into my investing strategy).  And I dont think Sinchi ever said there would never be any pullbacks.  Actually if you look at his last couple posts I think you would see that he agrees with you.

However I will agree with Sinchi that shorting gold and silver right now is kinda dangerous.  The recent runup in gold and silver is a combination of dollar weakness and a seasonal bull market in precious metals. I wouldnt expect to see any real meaningful pulbacks for another month or so.  But then again I'm not expert. lol Good luck. 

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#3) On October 14, 2010 at 10:00 PM, tenasi (68.92) wrote:

Excellent post UltraLong.  I couldn't agree more.  Silver certainly looks absurd.  Both silver and gold are ripe for a pullback.

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#4) On October 14, 2010 at 10:02 PM, 100ozRound (29.39) wrote:

No pitchforks here.  I'm pretty down to earth and I see the reality of the markets.  I don't think that anything can go straight up for an extended period of time without having the occasional retracement - bull market or not.  I'll still hold through any inevitable retracement whenever/wherever it happens and buy on the dip if my cash flow allows it.  I don't claim to be able to time the market and I can't claim to recognize stupid (I'll also claim that I can't recognize when I'm stupid except in retrospect - so there's that too).

As far as the rationality in this most recent extension in gold and silver, there might not be much; but like the old saying  goes "the markets can remain irrational longer than you can stay solvent", I would seriously think twice before opening a short position in either metal.  Trim your positions and take some profits if you hold positions, maybe; but short? Nope!

And your retracemennt projections on both metals sound reasonable so no disagreements from me.

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#5) On October 14, 2010 at 10:37 PM, Harold71 (22.05) wrote:

I like and own the PM's (for the next several years).   And I also think this recent run-up has become absurd -- 35% on to silver in month and a half??  Come on now.  

So, the only problem I see here is that you're not getting any disagreement.

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#6) On October 14, 2010 at 11:06 PM, BillyTG (29.11) wrote:

UltraLong, you are one of the reasons why CAPS is the best thing I know of in the investing world.

I'm long gold and silver until at least a few more economic disasters take place. And we are nowhere near tulipomania.

But I've been hoping for a pullback to pick up more shares on the cheap, and get some more physical. This is also a great time to close some junior miner calls, lock in those gains, and wait to re-enter:) 

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#7) On October 14, 2010 at 11:19 PM, FreeMortal (29.33) wrote:

Mr. T wants you to sell your gold... I think.  Maybe. Wait...
http://www.youtube.com/watch?v=pWAu7FmKbYc

Watching that interview, I wondered if UL might be right about this after all. 

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#8) On October 14, 2010 at 11:26 PM, TMFMileHigh (73.49) wrote:

+1 for the title alone. Of course you provide much more value than that, UltraLong. I just appreciated the laugh. (Grins.)

 Foolish best,

Tim (TMFMileHigh and @milehighfool on Twitter) 

 

 

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#9) On October 15, 2010 at 12:09 AM, dragonLZ (99.36) wrote:

In March 2009 no one wanted to be within 100 yards of a stock, yet I couldn't get enough of the tumble.

Can you please show us that you indeed made the same call in RL like you did here on CAPS (if that is what you are referring to)?

 

Media stocks were all the rage last summer despite their lack of real earnings and traders couldn't snap them up quick enough, yet I wasn't jumping aboard that sinking ship. Sure enough most are trading below where they were at this time last year.

Could you please tell us (or even better show us) why do you think you made a good call on media stocks when all 5 media stocks you mentioned in your "Garbage" post (MNI, GTN, ETM, ROIAK, SIRI) this time last year at least doubled within 3-4 months of your call, and are now approximately exactly where they were at the time of your call.

OK, ROIAK is down approx. 35%, but SIRI is up 200% since your "Garbage" call. Please explain.

And as far as I know, nobody thought media was hot a year ago so why do you say "traders couldn't get enough of media stocks"? Could you please show us what do you base your statement on that you were a contrarian? I actually think you went with the herd, but will accept that I'm wrong if you prove otherwise.

And just so you know, I'm not trying to be difficult. I just want full transparency when it comes to bragging about your good calls.

Other than that, I think you made some freakingly awesome calls and are definitely one of the best here on CAPS.

Good Luck!

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#10) On October 15, 2010 at 12:16 AM, TMFUltraLong (99.95) wrote:

Dragonlz,

My accuracy provides all the transparency I need. You know I've been battling you for a while now over the quality of those media stocks and I still fell they're el junko, and you can quote me on that.

What's the matter, don't like when someone makes a bragging post about their own calls? =)

UltraLong

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#11) On October 15, 2010 at 12:40 AM, dragonLZ (99.36) wrote:

What's the matter, don't like when someone makes a bragging post about their own calls? =)

No I love it. I'm also always very happy for the people who have something to brag about.

(I hope you remember I called your China call one of the best calls ever, based on performane so far).

I think people who get upset about other people's bragging (I call it celebration of one's good calls) are losers in my opinion.

OK, maybe I'm a little bit of a loser here (if I'm just jealous would that make me a loser too?), but that "good media call" you are talking about didn't sit well with me (you should know why).

El junko or not, media portfolio (you know which one) is still outperforming the market. In my books, that's all that counts. 

Once again, Good Luck and I wish you many, many more great calls in the future.

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#12) On October 15, 2010 at 12:41 AM, whereaminow (< 20) wrote:

UL,

I love your blogs and rarely have more to say.  Just a rec and move on.  But I do try to absorb almost everything that you write. 

What I'm looking for is a retracement on silver to $20.80, on gold to $1244 

That's great news!  A chance to buy more =D

Seriously though, doesn't it seem quite amazing when you consider how far the gold bull market (or dollar death party) has gone that a retracement to $1244/oz. is viewed as a bad news for gold investors.  

To flip that, if back in 2007 you predicted $1244/oz. gold by October 2010, you would have been mocked as a gold bug.

Context is important, I guess.

David in Qatar 

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#13) On October 15, 2010 at 12:43 AM, TMFUltraLong (99.95) wrote:

Dragonlz,

Agreed, I may not agree with your calls but you make what you do work for you, and I make what I do work for me. We might dislike each others styles but somehow it works for us....Good luck.

UltraLong

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#14) On October 15, 2010 at 12:44 AM, TMFUltraLong (99.95) wrote:

whereaminow,

Those levels I wrote in there are MINIMUM retracement levels. I think we could see considerably more downside than that, but I think those levels should be the minimum retracement that we see.

UltraLong

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#15) On October 15, 2010 at 1:06 AM, whereaminow (< 20) wrote:

UL,

Fair enough. What do you ballpark as maximum retracement? 

On a somewhat related point, do you think the technical indicators (and excuse any confusion, I don't understand much about TA), can accurately reflect the impact of QE2?

Part of the reason I ask this is because I had a discussion with another blogger about whether or not the market was "pricing in" QE2.  I don't think that's actually possible.  How would the market know how big QE2 will be?  It's a central planning decision, etc.

Anyway, any thoughts on that, or is that beyond the scope of this post?

David in Qatar 

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#16) On October 15, 2010 at 1:15 AM, TMFUltraLong (99.95) wrote:

QE2, a fancy combination of numbers and letters which describe another impending failure of economic policy superceding market laws of demand and supply.

I think the last 4-5% of the rally has been QE2 related but I doubt until we get a realistic number that the market will have it priced in. Could be a buy the rumor sell the news type event but I'm not sold on that idea.

For maximum retracement, a level at which I'd even consider going long based on an overreaction to the downside, I'd be looking for $964 on gold and $14.74 on silver.

UltraLong

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#17) On October 15, 2010 at 1:30 AM, whereaminow (< 20) wrote:

QE2, a fancy combination of numbers and letters which describe another impending failure of economic policy superceding market laws of demand and supply.

LOL, nice!

Thanks for answering my questions!

David in Qatar 

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#18) On October 15, 2010 at 2:46 AM, dragonLZ (99.36) wrote:

UL, have you seen what I had to say on the subject?

I think the trend will continue, just like it did since I wrote the post back in August.

Of course, both S&P and Gold/Silver will correct from time to time, but their general direction will be up. 

Here is the chart S&P vs. GLD vs. SLV from 3/9/10 to date.

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#19) On October 15, 2010 at 2:54 AM, TMFUltraLong (99.95) wrote:

Dragon,

I'm not convinced of their intermediate direction yet (1-3 years). Over the long-term I think they remain a solid buy, but I continue to see better value in a few individual names and less in the actual commodity itself. Gold and silver to me look like a stalemate from this point to 6-12 months down the road. I think if you waited until now to get in, then you waited too late...or you could just wait another few months and get a better long-term entry point.

UltraLong

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#20) On October 15, 2010 at 2:56 AM, dragonLZ (99.36) wrote:

Please also note how I said in comment# 1 of the above linked post how I expect AUY to change the trend of underperforming S&P and IAG.

Here is the chart showing what happened since then (Aug 18, 2010):

p.s.

No, I'm not bragging about my good call, I'm just stating the facts. :)

And sorry I hijacked the post - I'm leaving now.  

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#21) On October 15, 2010 at 3:02 AM, TMFUltraLong (99.95) wrote:

Yamama Gold is one of maybe 4-6 companies in the gold/silver sector worth hanging onto, and as long you're talking about something metal related there's no reason not to post it Dragon, I don't consider it a hijack.

UltraLong

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#22) On October 15, 2010 at 11:47 AM, rfaramir (29.32) wrote:

No raving from the dreaded unhinged gold bugs, yet.  And I don't expect to see it.  With the money supply expanding like it is, so-called gold bugs are the rational and cool people.

 

There's no knowing the trajectory or short-term movements the the PMs will take.  They just have to rise as the dollar (and every other currency) is debased. Rise too predictably and someone will leverage up and bring the price up more quickly.  Then people notice and pile on, raising it further, then it gets "too high" (whatever that means) and some take their gains, the latecomers get hosed, and people like you make a bundle calling a temporary maximum.

 

Unless, of course, you call it too early.  Shorting too early is like going long too late, and you'd be the one getting hosed as it continued to rise.  You would have gotten the shape right, but not the timing.  The market might stay irrational longer than you could stay solvent.  Of course, if these are just CAPS calls, there's no one to call your margins in, so just maybe you can stay in forever.  But even then, if your call is too early, gold may never again come down to this level.

 

Best of luck.  Hope you're right so I can get some more myself. 

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#23) On October 15, 2010 at 12:06 PM, SweetMircha (91.14) wrote:

You've made an excellent post Ultra and, I agree with your synopsis on the gold/silver escapades this year. I don't have any real life positions in either one. I can see in my imagination what chaos will ensue when gold especially, crashes to its former lacklustre glory. The vision will be heartbreaking for sure for all of those people crumbling due to the losses.

Like you , I'm glad that I didn't jump on that bandwagon.

Have a great weekend, Ultra.

Mary

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#24) On October 15, 2010 at 12:16 PM, MoneyWorksforMe (< 20) wrote:

In general I do agree. But that's also to say I would always agree with this post--anything that has a considerable run up should expect at least a modest correction at some point.  But even suppose you get time timing right with this prediction...well actually come to think of it, I can recall you posting a comment on someone's post regarding a top in silver about a week or so ago, and now the metal is up considerably since your initial call...So evidently you are already early if you acted on your initial assertion. But regardless let's say from here going forward you are correct, then you will also have to be correct when it is time to get back in. That is very difficult to do with any investment, nevermind precious metals. If you want to play that game, go right ahead; it's stressful, and extremely difficult. On a correction I'd probably find myself adding to positions rather than trying to time a temporary high and low.

The only real issue I have with your predictions is the move of the USD back above 80. I understand there being a lot of pessimism surrounding the USD but I think it is warranted. In fact I think a lot more is warranted. I think your prediction is more or less based on what we saw happen just recently with the Euro. The Euro's rapid ascent after its low around 1.18/USD was due in large part to a political shift. The Eurozone is embracing austerity whereas the fed is doing the complete oppositie in terms of both monetary and fiscal policy.

I would love to know your reasoning behind the dollar's upward move, aside from technicals and being "contrarion". What are the fundamental drivers behind this move?

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#25) On October 15, 2010 at 5:16 PM, Bays (29.95) wrote:

100ozRound,

I couldn't have said it better myself. 

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#26) On October 15, 2010 at 9:15 PM, 100ozRound (29.39) wrote:

Thanks Bays!

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#27) On October 16, 2010 at 11:07 AM, thomyoung17 (< 20) wrote:

I'm still waiting for it to go to zero, gold will continue to go up and up. The next round of QE2 is the death nail in the currency war. Benny and the Feds are stuck in an interest rate trap. They cannot raise rates so they must remain at zero or even negative, I'm sure Keynes loving Helicopter Ben and Tiny Tim (one of the rats left on the ship) are just admitting failure to themselves (although not telling the dumb downed public), the time is running out. The next bubble will be in US treasuries. Gold is and always will be money. The world knows this and they are buying gold like no tomorrow. All fiat currencies are doomed, well until the IMF steps in as savior with another ponzi scheme, which will be a new international currency the bancor. That being said the dollar may die a slow death, but I suspect sooner than later. Look at silver, it's going to zero too. Wake up and get in gold and silver related assets and commodities in general.

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#28) On October 16, 2010 at 11:13 AM, kdakota630 (29.62) wrote:

UltraLong

For maximum retracement, a level at which I'd even consider going long based on an overreaction to the downside, I'd be looking for $964 on gold and $14.74 on silver.

Excellent blog, and thanks for the insight.  I would LOVE for the maximum retracement that you mentioned, but I'd be pretty surprised to see either get close to what you're predicting.

I'm in total agreement that we're going to get one, and possibly a sharp one, but I'm undecided if it's going to happen now, or if gold could hit as high as $1,500/oz before it does.

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#29) On October 19, 2010 at 9:37 AM, TigerPack1 (86.24) wrote:

First, UltraChina!

Now, a smarty-pants correction call in gold and silver!

Show-off!  LOL

-TigerPack

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#30) On October 19, 2010 at 9:41 AM, TigerPack1 (86.24) wrote:

I have been patiently waiting for sub-$1000US gold for over a year on CAPS and in real life.  My CAPS score includes about 3000-4000 points of embedded gold red-thumb losses.  You will get all the credit as I play catch-up and get back on page 1 of the leader board.

-TigerPack

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#31) On October 19, 2010 at 4:31 PM, Melaschasm (57.04) wrote:

I think the last 4-5% of the rally has been QE2 related but I doubt until we get a realistic number that the market will have it priced in. Could be a buy the rumor sell the news type event but I'm not sold on that idea.

I suspect this could be the case.  Ben is shouting QE2, and I would not be surprised if he ends up printing less money than the market expects this fall. 

From a political standpoint, the dollar can't fall much farther without high oil prices becoming an election issue.  If the US is going to print itself into a banana republic, it will not be until QE3+

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#32) On October 22, 2010 at 12:32 PM, JimBobbly (< 20) wrote:

I live outside the US and was unsure who Stephen Colbert was. I you-tube'd him and found his interview on the o'reilly factor who I believe he satires. Man o'reilly is a scary man!

Anyway, the point of this message was to thank Ultra for his excellent insight and articles which I hold in very high regard and that UltraChina has done me proud! Thank you, thank you, thank you :)

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#33) On October 25, 2010 at 10:16 PM, TigerPack1 (86.24) wrote:

anticitrade is kicking it up a notch it appears...

http://caps.fool.com/Blogs/the-search-for-the-golden/464420

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#34) On October 27, 2010 at 3:49 PM, vchelimella (< 20) wrote:

Off the track My Lord UL whats your take on APOL ???

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#35) On November 04, 2010 at 4:09 PM, MoneyWorksforMe (< 20) wrote:

Ultralong = Ultrawrong

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#36) On November 08, 2010 at 1:27 PM, JimBobbly (< 20) wrote:

Moneyworksforme - lol! I see he has a far better track record than your good self.

 

UL just wanted to thank you for your MCZ pick you made last year, I brought and held after reading your blog and it's doing me proud. TY!

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#37) On November 14, 2010 at 11:24 PM, portefeuille (99.67) wrote:

pretty amazing considering the calls have very little in common (except for the "bullish" bias) ...

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#38) On November 15, 2010 at 5:55 PM, rfaramir (29.32) wrote:

The only ones I found in common between you (Active picks only, as that should show the common shape better) are these:

APWR

DYP

GXDX

RTIX

(And yes, you have the same direction pick for each)

For 120 UL picks and 197 portfeuille picks, I'd've thought you'd have much more in common, given the similarity in the graph.

Guess you two have much to learn from each other... 

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