Friday, January 22, 2010

Technical Update on the Dow

If you missed that initial shorting opportunity, don't fret too badly - there should be plenty of good entry points to short-sell in the coming months and we'll try to hit you up with some of the better ones.  I just pulled a chart of the Dow about 20 minutes ago and posted my analysis of the price movements since yesterday.

**Click the chart for a closeup**

We should see either one more further break of the bottom channel line (which would then act as support on a retracement), or a small corrective move higher to finish out the counter-trend move.  A possibility in the coming week or two is a few very strong down days pulling the price far down from its trend, followed by several days or a week of consolidated sideways movements.

It's tough to say exactly at this point the gritty details of how it will all play out, however we are not so much concerned with how far DOWN the market is going to go until we are ready to close out our trade - what we are concerned with is the extent of the counter-trend rallies which will offer key entry points and position-building points.

Either way we'll keep you posted.  The Precious metals look to be correcting inside of a smaller pattern within this downtrend movement.  Silver has had a pretty broad trading range so far of $.68 / oz (4%), while gold is consolidating tightly - this should also be a theme with gold where a large move is followed by consolidation and then another decent move.  However, if and when the dynamics of the move change we will keep you updated, and of course will begin letting our readers know when these trends are expiring and the optimal time to go long on PM's and stocks (and short the USD inadvertently by converting it to alternative assets).  Expect volatility in Precious Metals to move to extreme heights over the coming months.




The first note I would like to make is about general investor psychology - bear markets always seem to take everyone by surprise even though someone can reliably predict them if they keep a detached mind - i.e. don't listen to the hype about stocks "always going up" and that perma-bull mumbo jumbo.  Remember, the people telling you that are usually 90% + invested (mentally bought in) to the idea, or they are trying to sell you a product like a fund.  These guys can't survive if they are bearish, it's just plain bad for business.

As such, bear markets by their very nature are far more "exciting" than bull markets as they seem to emerge from nowhere and wreak carnage with breathtaking speed.  As a good example, consider this:

The Past 3 Trading Days on the Dow have taken prices all the way back to November 9, 2009 - erasing almost 6 weeks of gains in such a short span.  Who could have seen this coming?

Well, you already know the answer to that...

I try to be as clearheaded about my investments as possible - I don't live in any major financial centers or even in a very densely populated city so it's easier to avoid the general social mood that comes with heightened stock markets.  Draw your conclusions from the data, not the data from your conclusions - you will have a much stronger approach that will net gains consistently and leave everyone else chasing the mood-wagon in the dust.

If you cannot keep this sort of attitude about investing then it is in your best interest to find someone who can do this for you that has these attributes.  Hard to find, I know, and even harder to really quantify or prove.  But that's one of the ways Investophoria can help.

We do offer proprietary investments but I only work with people in my city who I can meet in person regularly with and develop strategies.  However, we are going to be setting up a full blown website with some study guides for beginner investors or those who would like a refresher, a few trading resources, a model portfolio (which will be an exact mirror of mine), and a weekly or monthly publication.  If you are interested in something like this or you as a potential customer have an idea, feel free to send them my way via the email button on this page.

And to wrap things up for the weekend, here's exactly how the Dow finished off the day:


Have a great weekend everyone.


Thursday, January 21, 2010

The Big One Could Finally Be Here.....

This week, we are witnessing something that should become fairly "as usual" over the coming months:  Broad based price declines in virtually every major asset except the USD.

Gold is down about 3% for the week so far, silver is down about 6.5% for the week, and the USD is up (according to our analysis there really isn't much chance of it going anywhere else for the next while).

But here's the interesting thing - finally, after 5 weeks of watching gold top and begin its bear market decline, and the major stock indexes make new highs, we might have just witnessed the turning point in all "risk assets".

And that is really one of the keys, and one thing we have been saying for several months now.   Whenever the precious metals are treated as risk assets for the purposes of capital gains, they are not in a bull market but in a false rally.  The psychology that drives this sort of rally is hope-based, completely mood-driven, and ultimately comes unwound like the thread in a poorly knit sweater.

What we are looking for, here at Investophoria, is despair.  Until we see such a thing in the precious metals we cannot recommend buying them.  If we did without it, we would be advising you to get in line and be "the sucker" who is willing to pay a higher price.  Being dedicated to a philosophy is one thing (i.e. Gold = economic freedom and real possibility for growth), but being blindly glued to an asset of any kind will leave you wondering "how could this happen?" when the psychology unwinds around you.

Our position on metals stays the same - gold is in a shorter-term bear market than silver and should bottom long before the white metal.  We are hoping to have a subscription letter available for when that time comes so that our subscribers will be the first to know when to convert those USDs back into the real money.

The other thing of note (which is far more broad-based in terms of effect) is that it looks like maybe, just maybe, the major indexes have put in their all-time high for this bear market rally.  Perhaps more than a simple "maybe", as the probability of that scenario just increased again this morning.

All things considered, the Dow has followed our forecasts very well thus far and we feel that the safest bet for conservative investors is to close out all long positions and hold cash - for the more experienced traders and investors, a maximum leveraged short position with a stop set about 30 points above where the minor channel line and major trend line cross is an excellent trading opportunity.

I have received several emails from readers this morning who were absolutely shocked at the declines in precious metals over the past several days - as I said in my last silver article, there were several great opportunities to sell your silver stocks and paper positions at >$18.75 over three trading days.  Those who did not take that opportunity will be hard pressed to find another good exit opportunity above $15.00 / oz.

The next leg down in both gold and silver should be very fast and will take many more by surprise who have run to them seeking to make back the losses they sustained in stocks in the last bear-market leg.  If you have been following my recommendations (and actions), you will be able to sit on the sidelines and be at ease, or be in a solid paper short position and earning money while the crowd loses.  A word of warning about short positions - another anticipation we have is that this decline is going to be so broad based and so fast that you may attempt to close it out and receive a message from your brokerage saying they cannot process your transaction due to sheer volume.  Try to find lower-volume (i.e. flat or mild counter-trend) days to exit positions as the probability of having your transaction processed will be highest.  Make sure you are trading with a broker who has the appropriate facilities to accommodate such scenarios.

Again, I will re-iterate our big-picture position.  We are in a deflationary era.  As such anything based on credit or its availability will first and foremost be pommeled.  There is absolutely no safe place to hide except in cash or its nearest equivalents.  All assets in all classes are going to lose value - some more and some less - while cash increases its purchasing power as total money and its velocity shrink and slow to a crawl.  We are in cash, 20% LEAPS, and watching the action with a feeling of peace.

I wish you all the best.

Derek Blain.