wpe50.jpg (1913 bytes)      Tiger Software     2/21/2008    www.tigersoft.com     See 2/4/2008 NEM technical study.

Spot General Market Tops
         by Noting Newmont Mine's Run-ups

                                            by William Schmidt, Ph.D. (Columbia University)
                                            (C) 2008 All rights reserved.  Reproducing any part of this page without
                                            giving full acknowledgement is a copyright infringment.

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Calling General Market Tops
         by Spotting  Run-Ups in
               Newmont Mines and Gold.

         wpe4F.jpg (39247 bytes)
Newmont rose from 24 to 54 in the three months before the DJI's major top in August 1987.
          The DJI then declined 36% in the next two months


         Sharp rises in Gold or NEM since 1987 are usually quite bearish for the market.
          You can see from the data farther below that a quick advance by NEM of more than 27% in 2 to 5
          months is normally reliably bearish for the general market, as represented by the DJI-30...
          When NEM finally does turn down, the general market is already beginning a big drop. 
          Sharp advances by Gold were very bearish for the market up until 2003 when very low interest
          rates over-rode the close link between a rise in gold and a steep decline in the stock market
          soon afterwards.  Below you will see all the key Gold or NEM charts from 1971.  The biggest market
          Crash of all, 1929-1932, is also a notable exception, too.  Gold was then fixed at $32/ounce.

                                            Gold as A Threat To The Economy.
               But speaking of the 1930s, did you know that speculation in Gold against the US Dollar was
          considered so dangerous to the stock market and a national recovery from the Depression
          that Franklin Roosevelt issued Presidential Executive Order #6102 which made it illegal for most
          Americans to own gold, except in jewelry?  See http://www.the-privateer.com/1933-gold-confiscation.html
                                       NEM as The "Angel of Death" for The Stock Market.

                     For many Gold Mining is dangerous, even deadly. NEM is accused of placing miners
         and local peoples living at far greater risk than would be allowed to in the US.  See my Blog
         or http://dte.gn.apc.org/cstd1.htm   But NEM is the angel of death in another way.  When its
         stock goes upl, the stock market often suffers a severe decline.

                     Here are 14 DJI declines of 10% or more since 1987 and NEM's price behavior just before
           the decline.
           1. - in the 5 months before the 1987 Crash, NEM rose 120%.  (See chart above.)
           2, - in the 3 months before the January 1990 Plunge, NEM rose 40%.
           3. - in the 2 months before the July 1990 - October 1990 bear market, NEM rose 33%
           4.  - in the 3 months Feb-March 1994 DJI drop of 11%, NEM rose from 38 to 48, 27%.
           5.  - in the 2 months before the October-Novermber DJI  1994 drop of 10%, NEM rose from 38 to 46.

           6.  - in  the 3 months before the September-October DJI 1997 drop of 15%, NEM rose from 36 to 46.
           7. -   not so
before the  20% DJI decline of 1998.
           8.  - in the month before the August-September 1999 DJI drop of 12%,, NEM rose from 17 to 22.
           9.  - in the four months before the DJI plunged 20% in Jan-March 2000, NEM rose from 17 to 25.
           10. -   not so
before the 12% DJI decline of late 2000.

           11  - in the two months before the early 2001 bear market began, NEM rose from 13 to 18.
           12  - in the three months before the May to September 2001  30% DJI decline, NEM rose from 16 to 24.
           13. - in the three months before the Feb.to October 2002  30% DJI decline, NEM rose from 20 to 26
           14. - in the five months before the Jan.to March  2003 16% DJI decline, NEM rose from 23 to 30
                       Newmont Mining is not quite a surrogate for Gold.  Its movements are related to, but also
          independent of Gold.  That might give us some hope, as NEM has been moving mostly sidewise
          as Gold rises steeply this year.   But NEM's relative weakness may be out of the ordinary
          right now.  NEM's weakness vis-a-vis Gold stems from concerns about its rising costs
          and the growing risks of nationalization in Indonesia and Peru.  NEM is now awaiting
          Indonesia's decision about withdrawing its rights to mine gold there.  See NEM's website -
           http://finance.yahoo.com/q/pr?s=NEM   So, it is unclear if NEM will work this time as our early warning
           system.  The very long rise of Gold must be seen as a warning for the market even if NEM
           is treading water.   Today's earning report for NEM shows how costly its approach to gold
           mining is.  We warned about this: http://www.tigersoftware.com/TigerBlogs/02142008/index.html

                         2/21/08 Newmont Reports Fourth Quarter and 2007 Financial and Operating Results
           (RTTNews) - reported a fourth quarter
net loss of $289 million or $0.63 per share, compared
          to a
profit of $223 million or $0.50 per share in the same quarter last year.  Loss from continuing
           operations came in at $933 million or $2.06 per share, compared to a profit of $171 million or $0.38
           per share in the corresponding quarter prior year.  Quarterly revenues dropped to $1.41 billion
           from $1.42 billion in the year-ago period.  NEM included a $1.12 billion exploration "goodwill
           impairment charge".   

                                 Newmont is currently going sidewise with heavy distrubution..
           wpe54.jpg (65471 bytes)

                                                 Gold is rising steeply.  The DJI is in a downtrend.
          wpe52.jpg (44706 bytes)

                Actually, Gold can rise for some time before the general market turns down.  NEM seems
          to follow gold's advance, but may lag for some time.  That's what makes it such a good predictor.
          We see this in 1985-1987 when Gold advanced from $200 to $500. Only when NEM doubled in
          mid-2007, was the DJI set up for a big decline.  In the chart below, you can see that Gold has risen
          steeply since December 2000.    Its advance in 2001 and 2002 did warn of a bear market.  But its
          rise from December 2004 to now, from 450 to 950, has seen only one decline DJI decline of more
          than 12%.  Gold has been able to rise this long, from 2004 to 2008, without a big general market decline
          because the FED has kept interest rates low.  Unlike now, in the 1970's, the FED responded to inflation
          by raising interest rates sharply and that created a number of sharp sell-offs, which also
          may have set the stage for the big bull market after August 1982.
            ------------------------------------ 28-Year Chart of Gold: 1980-2008 -----------------------------------------------------
          wpe53.jpg (65564 bytes)
           (source: http://www.the-privateer.com/chart/gold-pf.html )

                        Gold Is A Commodity. Gold and The DJI - 1970s.

           Usually Golds rise means commodites rally, too.  After the  US Dollar stopped being convertible
      into gold in the early 1970s, non-oil commodities tripled.   Then from 1980 to 1985, commodities fell
      and the stock market rallied very strongly.  In the chart below, you can see how the bear markets
      of 1973 and 1974 were preceded by sharp advances in Gold prices.  The last rally in Gold in 1975
      did not bring a bear market, only a 10% dip in the DJI in the second half of 1975.

                                        Gold and The DJI: 1971-1975
             goldchart.gif (12684 bytes)   

                      Gold 1976 - The rally in gold from 105 to 135 after September 1976, set the stage
             for the bear market of 1977 in the DJI.    The DJI fell from 1000 in January to 800 in October.
             wpe50.jpg (27839 bytes)
                                                                 DJI - 1977
             wpe55.jpg (34802 bytes)


                       Gold had two big advances in 1977.  They were soon followed by
              the biggest DJI declines: July to October and November to March 1978.        

             wpe51.jpg (27966 bytes)
             wpe55.jpg (34802 bytes)


                      Gold's steep advance after July 1978 led directly to the October 1987 market
             massacre when the Fed boosted the Discount Rate.

             wpe52.jpg (27599 bytes)
             wpe56.jpg (47745 bytes)

                              The steep rise in Gold after June 1979 served as warnings for the market sell-offs
             in the Fall of 1979 and in March 1980.
                      wpe53.jpg (25822 bytes)
                                                                     DJI - 1979
                      wpe57.jpg (51777 bytes)

               wpe54.jpg (29549 bytes)
                                                              DJI -1980
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                        Why Does Gold Often Move against The General Market.

          A sharp rise in gold may be a sign of rising international tensions, rocketing oil prices, a
          falling Dollar and rapidly advancing commodity prices.  The Federal Reserve usually raises interest
          rates when inflationary signs appear and that sends the market reeling.  Many economists
          feel that inflation is better defined by the falling purchasing power of the Dollar than the US
          government's distortion of inflation, the CPI.  See my Blog of November 19, 2007.
          Since Gold moves opposite to the Dollar very often, it predicts inflation better than the
          Government's closely watched CPI.   

             Newmont rises of more than 25% in five months or less are distinctly bearish for the general market.  

                            Stay Tuned                   

           Note - I wish to thank James Dines for getting me to think about the relationship
          between gold and stock prices.  I have to say I have found most of his political views
          startlingly retrograde and his advocacy of nuclear power a direct insult to what I had
          learned about the dangers of low-level ioninzing radiation from doing research in
          the 1970's in New Mexico.   The Federal Government, for example, and Tbe Bureau
          of Mines would not release epidemological data showing how deadly uranium minimg
          was to uranium miners in Grants, New Mexico and those down-wind, as far away
          as Albuquerque.  This will make a good topic for a later Blog.   Now the truth is coming
          out.  See http://www.ratical.org/radiation/CNR/RIC/NEJM.html   .    



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