Gold and silver train

The gold and silver train are slowly pulling out of the station. Are you on board? I am looking for every opportunity to purchase gold/silver related stocks. I'm hoping we will get a pullback... It would not surprise me that we drop from here to shakeout the jonnie-come-latelys only to resume its uptrend.

Looking at the behavior of the GBP lately has me really excited. Despite all the bad news for the dollar and other major currencies rallying against it, the GBP has stagnated. It has the smell of a good short. Two ways that I envision playing it out. One an outright short of it (or puts). The second way is to initiate a bearish spread trade with options.

Perception shift

Since my last post, I have noticed a subtle but important shift in the market. Namely that the market has started to react less favorably to bad news. Prior to this, any kind of bad news was shrugged off as the market climbed a wall of worry. But not anymore. With the release of the jobs number this morning the market is opening down. I think the S&P500 can easily test 1000 from here.

Speaking of job numbers, how can anyone be surprised that it would be negatively adjusted? How can anyone be surprised by retail numbers coming in lower than expectations? Economist/analyst are still blinded by optimism. But it seems like they are finally coming around to reality. The third quarter earnings releases around the corner might be another reality check.

Is the Fat Lady singing?

I've been reading news stories about how Bernanke and others believe the recession is now over. Really? Since when has Bernanke been right? He was wrong about the extent of the housing crisis. He was wrong about the severity of the banking crisis. For that matter, he was wrong about everything so far. So is the economy really improving and is the recession really over? Or is Bernanke really right this time around? I wouldn't bet on this.

I'll layout the primary reason why. In the first quarter of next year, we will have one of the highest reset of option ARM. These are the type of mortgages where individuals pay a small fixed monthly payment initially but will start paying in most cases a higher monthly payment after their interest rate resets. We've already seen what a catastrophe these types of loans have been and the number of foreclosures will only increase as another wave of loans are reset to higher rates. Consumers will not be opening their wallets anytime soon. i.e. The economy will not pickup without an increase in consumer spending unless of course, people decide to go on another credit spending spree. But we all know the credit has dried up. Majority of home owners have no equity in their house and can't refinance. It's seems like it's a death spiral slowly spinning out of control. I don't see how the economy can improve with the next wave of foreclosure looming.

I hate to be the bearer of bad news. But the recession is not over and the Fat Lady is not singing.

Changing of the guard?

Just as I wrote my post this morning on the strong mkt action, we get a reversal near the end of the day into negative territory. Could this be a changing of the guard? Sure this is but one day among many positive days. But it's enough to have me at least go to a more a cautious stance and initiate shorts again for my swing trades so that I am at least a bit more hedged.

Market continues to climb

I have a system in which I initiate swing trades. Normally lasting about 5 days on average. Just looking at the stats, it's obvious that the longs are profitable while the shorts have not been for the last months.

In trading the hard thing to do is usually the right thing to do. Despite my opinion of the market being overbought and climbing against bad fundamentals, I need to respect the market action and stop shorting. So now I only initiate trades on the long side until the market tells me otherwise. Perhaps this is signaling the top just as I recognize this about the market!

How I made $2,000,000 in the stock market

This is the title of a book I read a long time ago. The author, Nicolas Darvas, followed a system of buying stocks that won him a fortune. It's particurlarly amazing as he was a dancer and wasn't an expert in stock investing like Buffet or Soros. Also considering the fact that he started with $25,000 and turned it into six figures in the 1950s is even more amazing.

Nicolas happened to apply a strategy of buying as stocks went higher. Another words, he bought strength. When stocks proved that they were being accumulated, he bought more and continued buying at higher prices. Reminds me of the trend following strategy employed by the Turtles. This obviously only works in a bull market where prices continue to trend far longer than most people believe.

This brings me to the point of my blog today. I believe we are coming to the point where this strategy will work again in the stock market. No I'm not talking about the market in general. I'm talking about resource stocks - particularly mining companies. With gold testing $1000, we are entering a new era in which miners will zoom onward and upward. Are you ready?

This book is a good read and offers insight to how anyone can systematically build a fortune in a bull market.

Till next time.

All aboard! The gold train is taking off!

A colleague of mine has been quite happy with trading resource stocks - in particular the gold miners. He said that he's been buying a particular stock at a price of $33. As soon as the stock reaches $36, he sells. He waits for the stock to fall back to $33 and repeats the process. He's been quite successful at this and has been ringing the cash registers a couple of times this past year as the stock has been bouncing around like a yo yo.

This strategy will obviously work in a sideways market. Gold has been range bound for the last year. However, I believe this will change going forward. Gold is finally testing the big psychological price of $1000. This is the final hurdle before it takes off to new heights. Anyone not recognizing this and continues to execute strategies according to a range bound market will be left behind when this train leaves the station. They will look at the price of gold in frustration as it continues climbing higher without them.

Be forewarned... We are entering a new phase in this bull market for resource stocks.

All aboard!