Saturday, November 3, 2018
Saturday, January 20, 2018
Some of you may be familiar with the 200-day moving average ("DMA"). This indicator is considered a rough gauge of the market's long-term trend.
During bull markets, stocks tend to spend most of their time above the 200-DMA. During bear markets, they spend most of their time below it. And perhaps most important, stocks rarely stray too far from this line in either direction before returning to it.
The following chart of the S&P 500 Index shows how it works. As you can see, since stocks moved back above this trendline following the financial crisis in 2009, they have rarely traded below it...
You'll also notice that whenever stocks have rallied significantly above this line, they have eventually come back to "test" it – touching it or even moving below it briefly – before continuing higher.
Which brings us to today...
Right now, the S&P is nearly 12% above the 200-DMA. And it hasn't "tested" it in more than a year.
This is unusual... In fact, the market has only been this stretched above the 200-DMA three other times since the rally began. And each of those cases preceded a sharp correction over the next few months.
As always, we never recommend making investment decisions based on indicators alone. And like the RSI extreme we mentioned earlier, this is not a precise market-timing tool. Today's extreme could become even more extreme in the near term.
But history is clear: It's simply a matter of time before the market returns to its 200-DMA. And like a rubber band, the further it stretches, the sharper that move is likely to be.
Again, none of these warning signs are a reason to panic...
As we've discussed, several other indicators continue to give the "green light" today. This suggests the next correction is likely to be another buying opportunity rather than the start of a true bear market.
But even if a serious crisis is approaching, selling your stocks now could be a terrible mistake...
Now... I've done my best to show you the macro framework as I see it... I hope you understand why it's particularly important this year. But honestly, it really shouldn't matter all that much to your investment strategy.Why not? Because you can't know if I will be right and a bear market will develop soon. And even if I'm 100% right, you could still easily make your biggest gains of this cycle in the final few months of the bull market.In other words, even if there is a bear market and even if the markets as a whole end up down for the year, you could still make a lot of money by simply following your trailing stop losses and hanging on as long as you can.So while I think you should be aware of these macro risks... and while I believe they're even more important this year than they have been in more than a decade... I think it's far more important that you simply follow sound investing principles, rather than try to time the market.
Posted by tjfire at 3:13 PM
Wednesday, January 17, 2018
Oil Is Too Expensive
Is it time to sell oil? Is the recent rise too bubbly? Can it rise even more? Well, it can rise more, but it is too frothy at the current moment.
Last week, West Texas Intermediate ("WTI") crude – the U.S. benchmark for prices – passed $63 for the first time since Porter issued +his warning in 2014.
The latest highs followed news that U.S. oil inventories fell for the eighth straight week. They now sit at their lowest level since August 2015.
While this suggests that OPEC's plan to reduce the global glut has been working better than expected, there are now signs that it may have gone too far.
Most important, at current prices, almost all U.S. shale producers can earn a profit...
So we'd expect to see both production and "hedging" to lock in higher prices begin to ramp back up. And that's exactly what has happened...
The oil "rig count" – the number of rigs actively drilling for oil in the U.S. – has been rising again. U.S. firms added 10 oil rigs last week, for a total of 752 active rigs, according to oil-services provider Baker Hughes. That's the biggest weekly increase since last June.
Meanwhile, news service Reuters notes that U.S. shale firms added more than 144 million barrels of oil to their hedges over the last quarter. According to the U.S. Energy Information Administration, this all but guarantees total U.S. production will rise to a new all-time record of more than 10 million barrels per day this year.
But that's not the only reason for concern...
Today, traders are incredibly bullish on oil again.
Regular Digest readers are familiar with the Commitments of Traders ("COT") report. This report is published weekly by the U.S. Commodity Futures Trading Commission, and shows the real-money bets of futures traders across dozens of asset markets.
And according to the latest COT report, speculative traders are now more bullish on crude oil than ever before in history.
As we often say, if there's one constant in the financial markets, it's this: Popular investment ideas are usually losers. Whenever the "crowd" is heavily betting one way, it's often a good time to take the other side of that bet.
In short, we now have similar conditions to those that led to the last plunge in crude...
In its quest to stabilize the market, OPEC has thrown a lifeline to even the most troubled U.S. shale firms. They can now ramp up production again – thanks to hedging – continue to produce even if prices begin to fall.
Meanwhile, speculative traders have gone "all in" on oil, and will likely rush for the exits at the first sign of trouble.
It's a near-perfect recipe for lower prices.
Posted by tjfire at 3:26 PM
Thursday, June 15, 2017
Monday, May 22, 2017
Wednesday, May 17, 2017 saw the biggest drop in the stock market so far, this year. Here is a reason to be optimistic Below is a message from expert Steve Sjuggerud:
|After a one-day fall of 1.8% or more, like we saw |
This was based on data going back to 1950. But looking closer, I noticed that most of the recent occurrences were clustered around turning points in the market.
So I ran the numbers again, using 1980 as the start date. (Also, 1982 or so was the start of the "great bull market" that lasted until the year 2000, so the returns for "all periods" starting from 1980 will be better than they were in the table above.) Take a look:
When you change the start date to 1980, the picture changes a little…
The story stays the same for the one-month and three-month periods… Stocks outperform over the next one to three months after a big one-day fall.
But then the outperformance disappears over the longer run.
So should you be worried? Not at all. The financial media might make noise about one-day falls like this… But as you can see, the results from similar events in the past 30-plus years are far from frightening.
It seems that a one-day occurrence by itself is nothing to worry about… Stocks have typically outperformed in the months following a big, bad, one-day move.
Wednesday's move scared a lot of people… Don't let it scare you…
Steve, the stock market outperformed over the next year. Take a look:
Wednesday, February 8, 2017
Is It A Good Time To Buy Gold?Gold is all the rage this year. It currently is surging ahead after a major fall in November 2016. But did you know that there is a huge gold mining facility that is ready to explode in value? This company (Northern Dynasty Minerals) is poised to open what is regarded as the largest gold deposit in the world. Development has been held back because the Environmental Protection Agency (EPA) halted their efforts in 2014, due to potential harm to the world's largest sockeye salmon fishery in Alaska. Over 500 million dollars has been spent on this project.
This year, Northern Dynasty Minerals is expecting a turn-around. Though they are limited in expertise and finance, they expect to find a new partner by October, this year (2017). They are also pushing for the EPA to reverse it's stance, allowing development of the gold deposit. With most millionaires and billionaires in a wait-and-see mode, now is the time for us regular guys to invest and beat them to the punch. Once they jump in full speed, the stock price could jump to as high as $10 per share within the next year or two. As of this blog, the price is around $3. That's right. You could triple your your money in the next 2 years or less. However, this is speculative investing. Use your own judgement. In the meantime, if you are thinking about investing in gold, keep an eye on Northern Dynasty Minerals (symbol: NAK). Happy investing!