GOOD AS GOLD

Yesterday, it was buy stocks, sell gold till your head caves in. What a bizarre inversion of reality -- a gusher of pent-up stupidity! Next thing you know, there will be a huge stampede out of U.S. Treasurys. That would sound the "All clear!" right around the time nuclear-tipped inbounds start showing up on the Fed's Erector-set radar. The exuberance that greeted yesterday's 379-point surge in the Dow recalls the frolicking of Munchkins after Dorothy's house dropped on the Wicked Witch of the East. As you may recall, they celebrated for all of about ten minutes before the even Wickeder Witch of the West showed up.

We give this short squeeze another day or two, ending just as CNBC's benighted minions start piling into such oversold value plays as GM at $2 a share, Fannie Mae at 50 cents, and Goldman Sachs at $90. Investors will be loaded for bear at that point, only to find the forest inhabited by nothing larger than squirrels, skunks and rabbits. Incidentally, the rally was not difficult to foresee, as indeed we did with this tout sent out to subscribers Monday night: "Monday's chat room buzz had it that a strong rally could erupt at any moment. Perhaps, but there's no use cluttering our minds with such ugly speculation unless the futures pop through the three peaks show in the chart without drawing a breath." As it happened, the futures popped through those three peaks, allowing us to capture a fair piece of the rally with some timely trading guidance in the chat room 30 minutes into the session.

Comex Gold Target

Nor had the weakness in Gold been unanticipated. We'd forecast a $35 drop in Comex April Gold, to around $881-$885, and the futures got about 60% of the way there with Tuesday's selloff. That's about as bad as we can see for now, although we'd need to take another look if the selling takes the futures below 875.70 by week's end. At $881, though, Gold will have fallen 12.5 percent from its recent high near $1007. That's the kind of selling we should like to see: nervous nellies dumping gold into strong hands. One day soon, when the latter make their move, you can bet they'll thank the sellers with a vengeance.