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A discouraging week. Are the Dogs back?

18 Dec

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Looking back a couple of weeks and the expression of my vain hope that the market had changed character for the better, it is clear now that  it was either a temporary respite or the markets had conspired to make an absolute liar out of me.  I suppose that it matters not other than to my ego, but we are once again in an unhappy place in the markets, where, apparently, we cannot hold an open to the upside.

Although my IntersectionX list (those stocks on both the IBD and ST 50s) held its own this week versus the other watchlists, the performance of the two main watchlists was pretty dismal.  The percentages of losers completely overwhelmed the winners.  12% winners in the IBD and 16% in the ST50.  The overall markets also bested not only the lists but also their top-10 choices.  The Christmas Silly Season is upon us as well, so I will be watching my stops like a hawk and sitting the rest of the year out, with the exception of monitoring opportunities in gold.

As I write, I am unseasonably pessimistic about the immediate prospects for the markets which I think may just give us more of the same with volatility.  It is time, I think, to dust off some of my options textbooks.  Otherwise, the sidelines are looking pretty good right now.

I have posted my thoughts on gold separately, so I will not repeat them here.  I will say that running through the charts of the commodity ETFs, it is clear that there are substantial opportunities building,  just not yet.    One metal that is attracting my attention for a future purchase is platinum.  I am not much interested in its industrial alternate, palladium, as I think there is too much retail interest in PALL which, in my opinion,  has recently contributed to its volatility.  Platinum is currently cheaper than gold and has sold off substantially this year.  It probably has some room to the downside but PPLT is on my watchlist. I check it every day.

Looking at our Vanguard ETFs which we use as proxies for various views of the market, our sector winners were certainly in the defensive end of the spectrum.  REITs topped the list and made a strong showing from Wednesday morning, adding 3.4% from Tuesday’s close:

The interesting action though, at least to my eyes, was in what I call the segments.  High yield dividend stocks were the clear winners and not by a small margin.   This is also apparent in my watchlist of dividend ETFs where ticker FDL, First Trust Morningstar Dividend Leaders ETF has lost least since December 7th, with Wisdom Tree’s high yield dividend ETF, DHS,  hot on its heels.  I started my self-directed investing life way back with the Motley Fools when they were pursuing a dogs of the Dow strategy, and I have been thinking for some time that that Dog may be about to have its day again.

Value is back in vogue on the style side. Looks to support the high-yield argument.

I may miss next week, so in case, a Merry Christmas to you all.

 

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Whither gold?

14 Dec

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The chart above contains the nub of my observations about gold.  I tend to invest in gold through iShares’ ETF, IAU, rather than the ubiquitous GLD, which is why you see that chart above.  This commentary contains both general observations about gold, but also my personal goals for it, because our personal goals color how we view the market.

I am a long term (> 10years) bull on gold and plan to have ~10% in gold and other precious metals in each of my two long-term portfolios, one of which is tax deferred, the other being taxable.  I was not fully invested in either portfolio and was about even in my gold holdings, having taken most gold profits in August (see earlier posts).  It will give you some idea how quickly this market has changed in that yesterday and today leave me with very different price tartgets.

Yesterday, I had hedged out 50% of the position in my taxable account with a 25% portfolio value position in GLL. (ProShares ultrashort gold).  I was seriously mooting buying $16 puts (for profit and portfolio protection) and selling $15 puts both to reduce the cost of the $16 puts and because I would be quite happy to purchase IAU at $15/share.  My thinking has been that I have been prepared to see IAU sell off to ~$15.20 and still remain in the bullish channel it has inhabited since late 2008.  Although I still expect long-term gold to continue in that channel, short-term, I think we may certainly go to ~$14.60 a share for IAU.

I do not usually place order to execute at the open but today I did and it was a good call.  I fully hedged my IAU position in the tax-deferred account with GLL, sold half my long position in the taxable account and matched the remaining long position share for share with GLL.  So I am positioned short, effectively.  As it turns out, good call.  The 200-day SMA provided no support to IAU at all.

One reason I placed orders at the open was because looking back to the gold sell-offs in August and September, the sell-offs were precipitous.  Matching the price drops in those two sell-offs in the current market takes us right to the base of the current Fibonacci retracement.  While we may yet see a move sideways at around $15.20, I think there is a good chance IAU goes to ~$14.60.  I have marked those price ranges on the TC2000 chart above and marked them with the curved arrows.

So, what to day about the put spread?  I am still toying with the strikes on that one.  It’s almost buy at $15 and sell at $14 tonight, same reasoning as outlined above.  I will probably execute those option trades in GLD options though as there are more strike and expiration options in GLD.  Putting those prices into perspective, if the support at $14.60 didn’t hold, next support is in the mid $13s.

Summary opinion if you are long gold for the long term: Still bullish, actually over the next twelve months.  Worthwhile hedging or protecting positions though, and picking some gold up at cheaper prices in the coming week or so.  If you have missed the boat so far to the downside you must make your own call on whether to step in now, but my humble opinion is that some hedging — either with inverse ETFs or put options — will not cause you too much buyer’s remorse.

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Gold is OK

23 Sep

I seem to have a knack for being right about metals.  Hit it on getting out or stopping silver hard earlier this year, and I honestly think our posts on moves in the gold price have been correct since August 8th.  Yesterday we posted suggesting that gold’s reversion to its 50-day SMA was entirely normal and expected.  In fact, we also said that it would be a reasonable expectation for gold to hit the trend line we had drawn through the tops of its recent ascent.  It did that today, and a tad more to the accompaniment of a great wailing and a gnashing of teeth from the financial pundits, particularly on CNBC.

I have written that sometimes longer period charts, for example weekly or monthly tell a clearer picture than the dailies.  This is certainly true of gold, represented here by the physical ETF, IAU:

Had I purchased gold at the August peak, I too might be indulging in a bit of the old sackcloth and ashes right about now, but I didn’t.  As we can see from these two monthly charts, gold has reverted to the top part of its bullish channel.  It could actually fall quite a bit further and still be in the bullish channel that dates back to 2008.  Still a gold bull here, particularly now the prices have normalized.

I just wish people would shut up already about the “collapse” of gold.

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Quick comments on gold: This was expected.

22 Sep

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I don’t pick on the good folks at CNBC as often as some others do but they did ruffle my feathers a bit today.  Early in the day one of the talking heads opined that he was shocked at the fall off in gold prices.  Later in the day, after the close we had to endure a comment about the “collapse” of gold.   Excuse me?  Sometimes I wonder if these folk really do engage brain before opening mouth.

On August 10th, we asked if gold was turning into silver, that is, was it setting up for rather preciptitous fall?  Using exactly the chart set up with the same indicators, this is how gold (here in the form of the physical ETF IAU) looked tonight:

As gold has pretty much tracked its 50-day SMA until it started to run away in July, I would say that today gold is EXACTLY where it needs to be.  Right around its 50-day SMA.  Full disclosure, I went long today with one-third of my desired gold position, to replace my holding that stopped out in early August.  That’s not a recommendation, just disclosure.  I frankly will not be surprised to see gold drop further.  If it goes to the trendline I drew in August, which traces the highest prior highs we will be at $16.34.  It could go lower than that.

Looking at the Bollinger bands we did push through the bottom envelope today.As I write gold is open in Hong Kong and the Globex and looks to be holding steady.  We’ll see what tomorrow brings.  Ready to accumulate profits or add to positions at the trendline.  I remain a long-term gold bull, particularly under the  market circumstances.

Will the 50-day SMA provide support? We’ll see.

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Is gold a “bubble”? Wells Fargo thinks so. Our take on it.

16 Aug

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In a story that has hit many news wires, but you can read the substance of here from Bloomberg, Wells Fargo has stated that gold is a, well, “bubble”.   I am getting tired of the over-use of the “B” word personally, but let’s see if there’s any substance to their alarm.  Here are the daily and weekly charts of my preferred physical gold ETF, IAU or the iShares Comex Gold Trust:

From the daily chart you can see the froth and volatility that led to reserve requirements being increased on gold ( see Is gold turning into silver? from 8/10).  Notably the reserve increase did not lead to that much of a dent in gold’s price, merely, say, a “hiccup”.

The real story’s in the weekly chart (as it often is).  From this we can see that over the last few years gold has enjoyed decent support from its 40-week SMA, which it periodically returns to and not always in an orderly fashion.  IAU had also set a nice resistance trendline which it breached at the start of this month. Were we to be sticking to that resistance line, IAU would be selling at $16-$16.20, however, instead, it closed today at $17.44.  Were gold, and consequently IAU, to return to its 40-week SMA, IAU would be selling at $14.40.

So there is a potential downside of between 7% and 17%.  These are hardly Earth-shattering numbers given the equity volatility we’ve seen the last few weeks. How you react to the numbers would, I suppose, largely depend on (assuming you are long gold):

  1. When you bought your current position, and, consequently
  2. How much you paid for it. And,
  3. What your investment horizon is, and
  4. Why you are long gold in the first place.

If you have held gold for a while and have a decent accumulated profit, take a longer-term view (investing not trading) and particularly if you are holding gold as a longer term hedge, I think one might reasonably take a somewhat sanguine attitude to Wells’s  headline grabber. On the other hand, had I bought in towards the peak I might be looking to my stops or puts right about now.

It is my opinion that this is a relatively short-term problem, if indeed it is a problem at all. Perhaps it will turn into a buying opportunity.  It is hard to persuade me that we will not see dollar-denominated gold at $2,000/oz and in not too long either.  As I am wont to say, whether we will get there in a straight line is another matter.

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Is gold turning into silver? Reserve requirements up.

10 Aug

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I was thinking today how gold’s chart (represented by the physical gold ETF IAU above) is starting to look like silver’s did earlier in the year.  Volatility is spiking too, witness the ATR in the above chart.

Apparently I am not the only person to notice since the CME has just jacked up the reserve requirements.

I would be polishing off my stops on the shiny stuff, if I were you.  While the demand’s there it’s hard to say gold’s expensive, but that chart’s calling out for some position protection.

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Two commodity ETFs to consider: Sugar SGG, Copper JJC

1 Jul


I think I have written before that one of the most productive ways I pick an entry position is to set up various watchlists in TC2000, which I come to like more the more I use it.  I scroll through my watchlists where sometimes, charts stand out.

One that stood out a while ago is SGG, or Sugar.  This started an uptrend a while ago, I went long on June 9th (a bit late) at $80.585 and closed my position yesterday at $88.242 (+9.5%).  There has been an increase in volatility since SGG crossed its 200-day SMA, so I’m content with the decision, but I may re-enter the position if SGG settles down and resumes a steady uptrend.  Although the grains rebounded some today there is nothing else I see of interest in the agricultural or soft ETFs right now. (click on image for full-size)

At the same time I closed my SGG position I opened a small position in copper JJC.  Copper has been dogging for a while but crossed its 200 and 50-day SMAs this week on better than average volume which belies the otherwise low market volume this week.  I will look for a continuation before taking a bigger position.

Palladium (PALL) also crossed its 50-day SMA this week but then sold off on much lower than average volume.  While I have made money in PALL in the past I lost on my last position.  As both PALL and JJC should reflect industrial expectations I will be keeping my eye on PALL but want a clear signal to go long again.

I am working on a somewhat faster version of our Paladin 50/200 system that will work with non-leveraged commodity ETFs and will advise if and when I arrive at a good model.

Commodity action for profit now (currencies too)

7 Jun

Jim Cramer likes to say that “there’s always a bull market somewhere”.  While he may be a bit loud for my tastes, in that, he is correct.  In a difficult market it takes work to turn a profit and right now one of the clearest opportunities is in the commodity corner.  I have some commodity ETFs set up in a watchlist in TC2000, which has become a real tool for me, so much more than a charting tool.  I have set an indicator which clearly shows me which symbols are above their 50-day SMA, and how far above their 200-day SMA they are.  It’s a quick and easy visual screen:

I set most of these mock positions up on May 22nd, so the gains for PALL (palladium) and SGG (sugar) at +9.84% and +8.62% respectively are nothing to sneeze at for eleven trading days!  I’ll take those numbers any day.  PALL has the more spectacular chart, has cleared its 200, 50 and 20-day SMAs and broke resistance today.  There may be another 5% to be made here:

Perverse as I am in these matters, I actually like SGG’s chart a little better. Nice steady march upwards and with a greater upside potential in my opinion.  The commodity traders almanac tells us that historically sugar starts a 32-day bull run on or around June 15th so maybe we started early this year.  Also remember that like corn, ethanol has tended to push sugar prices up.  Still below the 200-day SMA so it looks as if SGG has room to run. Closed at $78.14 today, SGG was at $40.60 a year ago.  I’m telling you that so you’re mindful of setting your exit and stops.

In closing, let me add that you should not ignore currency ETFs right now either.  I put real money, equal dollar weight into FXE, FXS and FXF two trading days ago and am up 0.39% so far.  Big deal you might say, but I am on line for my 1% a month that compounded will work for me. (Don’t forget I’m also earning interest on two of these on top of capital gains.  Not much, but it all helps.)

 

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Follow-up on silver, commodities and stops.

5 May

I will take being lucky over being good any day of the week but I have to say I have been batting a good average on silver this year, based on my chart analyses.  As you know, I issued about as strong a warning as I know how to set stops on silver on Thursday April 28th.  The rot set in the next day and we have seen silver free-fall ever since.  SIVR is now down nearly 29% in a week.  Talk about a falling knife!  Some newsletter writers make a living for a year out of a call like that.

What finally tipped the scales against silver?  I think it was the increased margin requirements set by the exchanges that did the trick although it’s all in the chart too.  I saw a similar thing happen to palladium (but not as severe) after margin requirements were raised on that metal a few months ago. Click in the body of the chart below to see it full size.

A good question right about now is where does the buying opportunity begin?  Before the fall I figured $35 would look like an attractive number but it doesn’t any more.  Given the pace of the decline, the volume, the implied volatility in the options market on silver ETFs………….  and the fact that lately the Fibonaccis have been working for me, I am thinking $26 or $27 is an entirely possible price — we’ll see what tomorrow brings.  We may get a dead cat bounce along the way.

If we needed a lesson that stops are your friend and greed is dangerous to your wealth this week is it.  I spent a few hours Sunday and Monday nights calculating and setting stops to preserve profit with regard to the volatility in the individual security on every one of my investments.  Emotion is out of the game.  My oil is gone, BNO a few weeks ago, DBC went today, I still have gold and DBA.  As I have realized a profit well above where these instruments lie now, I am happy.  You know that I think commodities should play a significant role in a well-balanced portfolio so I will be plotting my entry points this weekend.

I truly hope you all set appropriate stops in your portfolios and are now observing the market action with interest, not fear.

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Stating the obvious: watch your back in silver

28 Apr


[Most Recent Quotes from www.kitco.com]
Never let it be said I missed an opportunity to state the obvious.  But while I am still confident in a $50 price for silver — it almost seems inevitable just now, the market the last few days has looked particularly frothy.  For the record, I am out of silver.  My tightened stops on AGQ triggered before I left for my overseas trip.  Left some money on the table, but also took a decent profit so no worries there.  My tightened stops in SIVR triggered Monday; I will take the profit, hide and watch for a while.  I have day-traded AGQ a couple of times leaving with several hundred dollars to pay for my trip to the Money Show in Las Vegas — volatility can be your friend sometimes.  Let’s take a look at today’s chart for my preferred non-leveraged silver ETF, SIVR (if you click on the chart it will open in a separate window so you can better see the detail:

First stop is the average true range graph which is showing significantly increased volatility on increasing volume.  This makes it tough to set meaningful stops.  Next take a look at today’s candle, which I interpret as a long-legged doji.  If I am correct this signifies indecision in the market.  I know a lot of commentators have been suggesting caution in the silver market for a while, but until the last day or so, I haven’t seen any real red flags in the charts — even if I knew they were coming.

The issue is, what to do?  Well, it’s easy for me, I’m out of the market.  One advantage for me is that i let my stops do their job so I kept emotion out of the decision process.  It’s probably a good time to remind ourselves that having an exit strategy is as important as an entry strategy while also remembering that pigs get fed but hogs get slaughtered.

This market could have some to go, but I think caution overrides profit just now.  The absolute range (high-low) today was $2.24 or 4.7%. The 14-day ATR is $1.61 .  For someone with a substantial profit accumulated, who wants to hold on to their holding rather than realize a taxable gain AND who has a longer term view I think a 2x absolute range or 3x ATR14 would be a good place to start on a trailing stop.  To make it a nice round number let’s call it 10%.  Less of a gain built up, want to protect the gain and not too bothered about realizing the gain? 2x ATR14 calls for a bout a 7% trailing stop but to be honest, I wouldn’t fault you if you set it at 5%, with the understanding that your stop may trigger quickly in this volatile market, so don’t feel bad about your profit in that case.

Interesting times in the silver market….  For up-to-the-minute data and opinion I recommend Kitco Silver.

Disclosure: No long positions in silver.  I may take day-trading positions as dictated by the market, most likely in AGQ.

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