Thomas
DeChastelain
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posted Jul 16, 2006 at 05:13AM

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The trend-line support is more important to me than the moving averages right now.





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Discussion.

War.

The scope of Israeli military operations shows that this was not thrown together in a few days in reaction to the capture of a few soldiers.

This has been on the books for awhile, just awaiting a pretext to be unleashed. This has all the appearance of being the beginning of "end-game" type strategies, where people try to re-shape the Middle East to their own desires through military force.

The rhetoric coming out of Israel makes it look like they want the conflict to expand to Syria, and they are not shying away from making the link between Hezbollah and Iran, which to me, is the key element in this conflict because of their oil production.

Right now Israel's stated goal is the destruction of Hezbollah. Somewhat ironic in that Hezbollah was created as a response to the last Israeli invastion of Lebanon.

In other words we have the cause of the problem, again posing as its solution. The IDF is arguably the best military force in the world. They are going to kill a lot of people, but in the end I think you will find Israel's position will not have changed much. They will remain a garrison state surrounded by increasingly hostile neighbours, who if they get the chance, would wipe them off the map.

So in this context one can see how the discourse/negotiations over Iran's nuclear program will only get worse.

With this recent action Iran cannot and would not even pretend to appease Western interests in any way. To them it might as well be US airplanes dropping bombs on Beirut.

Although they may not be brash enough to admit that they are now actively pursing nuclear weapons, have no doubt that they would love to have a pile right now and would be more than willing to use them.

Israel has no choice but to believe that this is the case. They cannot even countenance the existance of a nuclear program of any kind, even if it was only for power generation. Again like the US versus Iraq, no amount of verification, inspection or mitigation can satsify them. Iran's leader, a crazed religious zealot, who rose through the ranks by his skill in torturing people, has made it very clear that he thinks the world would be better off without Jews in it. And when people talk like this, you know Israel, with the Holocaust still fresh in their collective cultural memory, has no choice but to take it seriously and interpret his comments literally.

I have long opined that military action against Iran is all but inevitable, only a matter of time. The blowback is something that the current US leadership is pathologically incapable of planning for. Too many of them believe that all that will be required is a raid, similar to what the Israeli's did to Saddam way back when.

Nothing could be further than the truth. All of the player's in this sad story have the undying belief that if you pound people enough with bombs, that they will cower and do what you want them to do, even if the entire history of the region proves the exact opposite.

It is quite simple really. You come back from work to find your home destroyed and your families body parts spread out on the lawn. Are you now going to cooperate with the people who did this, even if their actions were sanctioned by God? No, unless you are a social engineering pacifist who crumbles at the first whiff of second hand smoke...you are going to grab your pitchfork and head off to the beaches to drive the invaders away.

And you won't really care if thier hats are white or black

One could talk about all the permutations possible. But two things are clear. Oil prices will continue to rise due to anticipated, or actual supply shortages. US military expenditures, already at society destroying levels, will only increase, even as they generate lower and lower security returns.

I find it impossible to see how the US Dollar would be seen as a safe haven. Europe, who will probably regret allowing large religously and culturally incompatible Muslim populations into their countries, may not be that much better off, in terms of safe haven status.

In short the Swiss franc and gold, along with oil, could, indeed, should go absolutely beserk to the upside.

All of this is not going to happen tomorrow, but it is coming - and I think you want to position yourself accordingly.

Investment/Trading Thoughts

Ummm....well this is hardly the most optimum technical set-up to enter new positions. It could very well be that those "optimum" conditions have come and gone.

For those who did buy at the panic lows, I would consider loosening your stops appreciably, or set them at break-even. Again everything "depends". I have a very high exposure in oil, and part of me wants to cash out some gold trades, if for no other reason then build up the cash pecentage of the portfolio.

As you know there are still some bumps in the road. You will have downwards pressure from the upcoming 4 and 8 year cycle bottoms, and the synchronized interest rate hikes.

The Housing Index has just broken down, and it is too soon, techncially at least, to say that gold has detached from that measure of market liquidity.

I think oil is due for some backing and filling.

Now previously I was of the mind that there would be a pause then one more upleg before a serious decline in gold stocks took place. That decline would, like past declines, take us back, at least, to the 61% fib support at 255 on the HUI.

That is of course still a possibility but I think the probability has decreased. It is hard to imagine that the situation in the Middle East will not provide some kind of floor on the bid side of things.

So we are most likely still in a "corrective/consolidation" type of environment in the intermediate time scale, but it likely will evolve differently. One, the large triangle consolidation theory certainly is back in play, with the 200 dma acting as rough trend-line support.

Also quite possible is for the HUI to do a running correction very similar to what the XOI has mapped out over the last year. There, one would see the HUI put in an "irregular" top with new print highs but then correct downwards yet again.

Again getting that new entry position is not easy at this juncture. I am always of the mind that any new money should be accompanied by tight stops. The decision of whether to keep them tight or take them off, is always better when your position is in the green.

Market crashes? Deflation scares? It is in our future...but not yet.

Good trading

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