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gently gently away


June 6, 2004


Nikkei:      11,057.19

*April low:   7,603.76


*- See March 31 & May 3, 2003 reports, along with April 10, 2003 ROBtv interview (5 min.) on homepage.




The May 1, 2004 letter concluded: “A correction in the broader indices could follow a Dow collapse. This would potentially create highly profitable buying opportunities that precede another run-up, before a still broader correction.”


From that point, the Dow’s correction led to the Nikkei’s decline to 10,500, which created buying opportunities in individual names. The anticipated broader correction referenced above would lead, I suspect, to that additional bit of correction in Japan that would allow for the completion of buying programmes.


With this view in mind, it is unlikely that foreign managers will allow Japanese stocks to fall too far, due to the under-investment of US pension funds, who should now follow the foreign investors’ leaders (the hedge funds) into Japan, as prospects wane domestically. The following indicator technically expresses this.







From the May letter: “This spread has begun a massive secular bull market (from the 1.0 area), from which there are several ways to profit.”


This assumption carries serious implications. For short-term traders, this indicator may help identify the inflection point at which the Dow recommences rolling over to the downside. For long term investors, there are serious risks and opportunities implied by the fact that this relationship, which was as high as 14 in 1989, has based and is forming a very bullish bowling pattern out of secular support around 1.0.





Jimi Hendrix’ timeless medley of same title as this report, had a different object in mind but there is a common sentiment: It is time to go and the stars have divined it, just as the tides of the Elliott Wave prepare to wash away the memory of what had to end. Whether it takes more time or less, the fact remains that the Dow peaked in February and, as long as that is the case, the matter is but one of time (simply, we’re rolling over). 


Due to calamities around the world (SARS, Mad Cow, etc.), profits and economic growth were diverted US multi-nationals (the Dow). If the calamities are treated as one-time affairs, given the maintained bearish view on the global (non-Asian) economy, one would be concerned about any premium built-in to the Dow, versus the other major Western indices.





On May 1, SKC offered: “Considering the price pattern similarities to the Dow Jones that large cap gold stocks have, and given the enormous compounded gains that SKC has enjoyed over the past fifteen months by moving in timely fashions from small caps to mid-caps and then to large caps  (which themselves include 50% - 100% returns, over the past year or so), it is wise to use equity strength to liquidate positions (into countertrend rallies).”


·        “A rally into the low 400s in gold should be used to liquidate stocks.”







The notion of lightening up on gold stocks was borne largely of two considerations. Firstly, gains have been substantial, while gold stock prices, in many cases, recently came to discount metal prices ($430?) that might not be exceeded in the intermediate term.


·        “The intermediate term has shaped up in such a way as to suggest that one should use a pullback in the US Dollar to take up to a 30% position in that currency. However, the Yen should not be sold. USD allocations may come from gold and the Euro. “


Immediately thereafter, the USD did pull back before a strong spike up. Through it, the Yen was able to retrace its month’s losses.



*The next regularly scheduled commentary is set for the first weekend of July.




Sid Klein


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