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Saturday, January 28, 11:30 a.m.
Gold spiked up to new record highs in September which had the cheerleaders on financial TV excited about gold again, sure that $2,000 gold was just days away.
But I said not so fast, and warned it was short-term overbought above its important 30-week m.a. again, and our momentum indicators were indicating it was due for a pullback at least sufficient to retest the support at that m.a., which would be a decline of $200 an ounce or so.
It did pull back to the m.a., and when it seemed to successfully find support at the m.a. again I issued another buy signal to subscribers in October.
But I was early and gold declined again to the m.a. and then plunged below it for the first time since 2008, which certainly got our attention.
But we stayed with the buy signal.
As I showed you in this free section of the blog, the 30-week m.a. itself was still rising, and the decline was hardly a blip in the long-term secular bull market for gold (next chart) that began in 2001 (when the stock market entered its secular bear market).
And our technical indicators had remained on the buy signal,
I said the key would be when gold attempted to rally again. Would it fail at the m.a., potentially establishing the m.a. as overhead resistance for a further decline, or would it be able to break back above the 30-week m.a. again, which would signal its bull market was intact.
Meanwhile, the short-term technical indicators did a pretty good job of foretelling the short-term gyrations from short-term oversold to short-term overbought that were keeping investors nervous.
And now in its $200 rally back from $1,538 to $1,738 gold has broken back above its important 30-week m.a. again (top chart), indicating its long-term bull market is intact.
At some point a brief pullback to the m.a. and successful test to confirm the support there for resumption of the bull market would be good to see.Conservation of Capital Still of Most Importance.
In writing my newspaper column yesterday I got into a couple of Warren Buffett’s famous quotes about not following the crowd.
As I noted in both of my books, it’s probably the most important requirement for long-term investing success not to let the ‘crowd’ bearishness at market lows and excess optimism at market tops overcome your own observations and ability to read the signs and indicators.
But it’s also probably the most difficult requirement, to be bullish when all about you are bearish, or to be cautious when all about you have become euphoric and confident, and even more difficult to identify when the sentiment has reached a dangerous level, because it varies from cycle to cycle.
The use of technical analysis to identify potential overbought or oversold conditions, potential support and resistance levels, potential money-flow or momentum reversals, recognition of where the market is within its dominant seasonal tendencies (monthly, annual, cycle-wise), etc., sure does help.
But even then there is still the important question of how to apply risk management.
With intermediate or longer-term sell signals there’s no question in my opinion. Take profits and position for downside gains in ‘inverse’ etf’s or short-sales.
But is it wise to lighten up when all you expect is a short-term pullback of 5 or 6% and then a resumption of the upside, or better to simply hold through whatever comes along, risking that it could turn into something worse?
The market went nowhere last year on a buy and hold basis. The S&P 500 flat for the year, the Nasdaq down 2%. Those who made gains for the year did so by periodically taking profits. Okay, let’s say the naughty words, by engaging to a degree in shorter-term trading, not only in the stock market but in bonds and gold.
The volatility of this market and the potential stumbling blocks at some point ahead from global debt risks and the anemic economic recovery, also need to be considered.
This is not a 1990’s style secular bull market supported by government budget surpluses, and a surging economy.
But we have another quote from Warren Buffett, this one in regard to taking risk. Several years ago he said, (probably at one of the times when his holding company was down double-digits and investors were bailing out on him) “If you can’t handle your portfolio periodically being down 50% you probably shouldn’t be investing in the stock market.”
That statement just blew my mind. A multi-billionaire might be able to remain calm when his portfolio has lost 50% of its value. It doesn’t inflict any damage on his standard of living unless the remaining $25 billion is not enough to live on.
But the statement also reflects on the $multi-billion size of each of his holdings and the fact that he doesn’t have the flexibility most of us have of being able to move in and out of risk with a simple phone call or a couple of computer clicks.
Our Seasonal Timing Strategy has a long-term record of handling the volatility and risk management decisions the easiest way, by simply being in the market in its favorable season when it’s most likely to make gains, and out in its unfavorable season when it’s most likely to have corrections. It was up 15.8% last year, and its worst annual loss was 4.2%. Click here to see its 13-year record since being introduced.
But for those not following a seasonal strategy but a strategy of diversification across a mix of holdings, like our non-seasonal Market-Timing Strategy, as I noted in my newspaper column yesterday, it might be time to make one of those short-term risk management decisions.
To read my weekend newspaper column ‘Let’s Not Get Too Click here.
Subscribers to Street Smart Report: There is an in-depth ‘Gold, Bonds, Dollar, Inflation’ update in the subscribers’ area of the Street Smart Report website from Thursday. The new issue of the newsletter will be out on Wednesday.Yesterday in the U.S. Market.
A down day for blue chips, up-day for the Nasdaq and Russell 2000.
The Dow closed down 74 points, or 0.6%. The S&P 500 closed down 0.2%. The NYSE Composite closed down 0.1%. The Nasdaq closed up 0.4%. The Nasdaq 100 closed up 0.3%. The Russell 2000 closed up 0.7%. The DJ Transportation Avg. closed up 0.8%. The DJ Utilities Avg closed down 1.3%.
Gold closed up $10 an ounce at $1,738.
Oil closed down $0.03 a barrel at $99.67 a barrel.
The U.S. dollar etf UUP closed down 0.7%.
The U.S. Treasury bond etf TLT closed up 0.3%.Yesterday in European Markets.
European markets closed down. The London FTSE closed down 1.1%. The German DAX closed down 0.4%. And France’s CAC closed down 1.3%.Global markets for the week.
Another positive week for most markets.
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To obtain access please click on the ‘Subscribe’ link. It will take you to an information page on subscribing to Street Smart Report, a subscription to which includes access to the premium content area of this Street Smart Post blog.
Next week’s Economic Reports:
Next week will be a very heavy week for potential market-moving economic reports including the Chicago PMI, ADP Jobs Report, ISM Mfg Index, Factory Orders, and the Labor Department’s Employment Report for January. To see the full list click here, and look at the left side of the page it takes you to.
To read my weekend newspaper column ‘Let’s Not Get Too Click here.
Subscribers to Street Smart Report: There is an in-depth ‘Gold, Bonds, Dollar, Inflation’ update in the subscribers’ area of the Street Smart Report website from Thursday. The new issue of the newsletter will be out on Wednesday.
I’ll be back with the next regular blog post on Tuesday morning at 9:25 a.m.
Non-subscribers: How are you doing? Time for a New Year’s resolution to improve on your investment returns in 2012? We believe we can help, and at very reasonable cost!
Our portfolios were up an average of 9.4% last year, our Seasonal Timing Strategy up 15.8%, in a flat year (S&P 500 unchanged for year) when many, if not most, managers and funds were down for the year. We were on Hulbert’s Ten Best Newsletters of the Year list for the 2nd time in 4 years, and #4 Long-Term Market-Timer in Timer Digest’s rankings. And we are off to a great start this year.
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