Gold Rises As Traders Take Profit On The FOMC Rally ….. And The EUR/JPY Rises To Near Pre-Sovereign Debt Crisis Level

Financial market report for September 22, 2010

Traders took profit from the recent rally by selling a broad spectrum of rally leaders:

Software, SWH, -2.8

Industrial and Office Real Estate, FIO, -2.4

Nasdaq Community Banks, QABA, -2.3

Airlines, FAA, -2.2

Small Cap Consumer Discretionary, XLYS, -2.0

Semiconductors, XSD, -1.8

Banks, KBE, -1.8

Small Cap Pure Value, RZV, -1.7

Housing, XHB, -1.5

Russell 2000, IWM, -1.2

Leisure And Entertainment, PEJ, -1.2

Real Estate, PSR, -1.1

Residential Real Estate, REZ, -0.9

European Financials, EUFN, -0.8

World stocks, ACWI, traded lower. This despite a higher Euro Yen carry trade, EUR/JPY, which rallied Base Metals, DBB, including Tin, JJT, higher.

The chart of FXE:FXY shows today’s run up in the euro yen carry trade by the currency traders; and suggests that peak efficiency has been or is being achieved in the carry trade. 

Sweden, EWD, rose slightly higher on a strong rise in its currency, the Swedish Krona, FXS. The dark cloud covering in the chart of FXS:FXY suggests that the Swedish Krona Yen carry trade has reached peak performance. 

Australia, EWA, did not rise, even though the Australian Dollar, FXA, rose. The chart of FXA:FXY suggests that peak efficiency in the AUD/JPY is being or has been achieved. 

Mexico, EWW, rose slightly higher on a strong rise in its currency, the Mexico Peso, FXM.

Hong Kong, EWH, soared Timber, CUT, fell lower. Oil, USO, fell lower.

The Euro, FXE, was easily called higher from yesterdays rally, to a stronger level of resistance at 133.3. The Euro had fallen from the region of 135 to 136 at the onset of the European Sovereign Debt Crisis in late April 2010.

For carry trade profits, the Yen, FXY, was called higher to 117.1, which is the area where the Bank of Japan is likely to intervene to stop the rise in its currency. Financial Times reports Moves To Weaken Yen Not Over, Says Kan. The Bank of Japan and Kan have declared war on the currency traders to stop the rise of the Yen: “Japan and the currency traders have scorched the investment skies” … “Welcome to the investment desert of the real” … “We have a new investment matrix” … “We ain’t in Kansas no more” … Kan’s selling of Yen on September 15, 2010, has started global competitive currency devaluation.

The debt deflationary bear market that commenced April 26, 2010 with the currency traders selling the major currencies against the Euro has recommenced, as is seen in the ratio of the small cap pure value shares, RZV, falling more than the small cap growth shares, RZG ….. The chart of RZV:RZG shows today’s bearish engulfing candlestick.

 Bonds, BND, rose with the longer out Zeroes, ZROZ, rising more than the medium duration US Government Bonds, TLT, reflecting in the 30:10 yield curve, $TYX:$TNX, continuing strong today presenting a doji at 1.469. The 15+ Year TIPS, LTPZ, exploded higher.

Soon, the Euro, FXE, will fall lower from the 133, 134, 135 area as under debt deflation, all currencies including the Euro, will be falling lower into the pit of financial abandon, albeit at differing rates, as currency traders and global leaders conduct global currency wars. With the sell of the Yen by the Bank of Japan on September 15, 2010, the world passed from abundant credit liquidity to ever diminishing credit liquidity.

Peak Credit occurred Monday September 20, 2010 with the value of Junk Bonds, JNK, peaking out at 39.71. The Global Credit Bubble has been pricked. The world has gone over the tipping point; it has passed from prosperity to debt servitude. The chart of Junk Bonds, JNK, reflecting the fall of investment liquidity, is the investment chart of the century.

Gold, $GOLD, moved to a new high today as stocks turned lower. Gold is the Soveign currency and storehouse of investment wealth. Gold mining stocks are not physical gold: one is a tangible form of wealth and the other is not.

The following chart information suggests that one might be wise to transfer out of paper wealth, that is gold mining stocks, and into real wealth, that is gold.

The junior gold mining shares, GDXJ, manifested a black filled doji, atop an ascending wedge; the chart of GDXJ relative to GLD, GDXJ:GLD, suggests a top is being made in the junior gold mining shares. x The chart of the HUI Precious Metal Mining shares, relative to US Bonds, $HUI:$USB, indicates that the gold mining stocks, GDX, generally fall lower with Treasuries at market turns lower in debt. 

For those interested in short selling I provide a Chartlist of Stocks and ETFs to sell short in a debt deflationary bear market.

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