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Archive for February, 2016

goldwatch

time to watch gold

I made a lot of money on gold’s massive run from 2008 to 2011.  Unfortunately, I unnecessarily gave much of it back because I had not yet been introduced to technical analysis.   Technical analysis of price action allows you to identify and trade along with trends.  Without this knowledge, you are essentially trading blind.  You might as well be gambling.

Gold peaked in 2011, went sideways in 2012 and started heading lower in 2013.  It’s been trending down ever since, going from a high of nearly $1,900 an ounce in late 2012 to a low of  $1,045 in December of last year.

There is no compelling reason to buy (or even own) something in a downtrend if you are trying to make money.  Sure, you could happen to buy in at the exact bottom by pure luck, but do you really want the success of your trades to be reliant on luck?  Trying to pick exact bottoms and tops is a fool’s game.

It’s much smarter to put the odds in your favor BEFORE risking your hard-earned money.  If buyers are gaining control of an asset over sellers we WILL see it in the price action.  That’s our cue to start paying closer attention.  Don’t worry, there’s usually plenty of meat in the middle of a move for us to profit on.

We are starting to see signs that the down trend in gold is possibly coming to an end.  Gold is up 16% year to date, breaking the down trend line of lower highs for the last two years.  Price is well above the 50 week and 200 day moving averages, both of which are starting to turn up.

gold is breaking the down trend line in place for the last two years

gold is breaking the down trend line that’s been in place for the last two years

Gold is currently extended to the upside.  With the possible exception of buying physical coins as “insurance”, I would not chase it here.  However, I believe consolidations above the 200 day moving average are buyable for a trade.  Watch $GLD, $GDX and $GDXJ for low risk 821x buy signals.

It may finally be time to take gold out of the penalty box and start keeping a closer eye on it.

bear hug

embrace a bear, in cash

The 821x system is a trend following system.  However, it’s not enough to know the direction of the trend for a trade idea.   We also have to stay in touch with the direction of the market as a whole.  We always want to have the wind at our back.  This is even more important in a down trending market where even “good” stocks gets dragged down with the “bad”.  Very few stocks make it through a bear market unscathed.

So what is the evidence that the market is currently in a primary downtrend?  First off, the S&P 500 is below a DECLINING 200 day moving average.  Furthermore, the definition of a downtrend is lower highs and lower lows.  The market just made a pronounced lower high and lower low that is visible even on a monthly chart.

no one rings a bell at the top?

nobody rings a bell at the top?

By the end of the first week of trading in 2016, my retirement account was almost completely in cash as my remaining positions flashed 821x sell signals one by one.  By the middle of the following week, my IRA was completely in cash as our model 821x trade at the time triggered a sell.  There is no absolutely no sign of an end to the current down trend.  It may take MONTHS for the market to heal and the primary trend to reverse.  I am thankful that the 821x system has moved my money out of harms way.

Many beginner DIY Investors feel like they have to stay fully invested all the time because “their cash isn’t growing if it’s on the sidelines”.  It’s important to remember however, that when stocks go down, the value of your cash is actually increasing in that you can buy more and more shares.  In fact, market declines are what set up some of the biggest and fastest gains as the downtrend comes to an end and the market reverses back up, refreshed.

When looked at this way, one starts to understand that maybe we should embrace a bear market.  This is obviously much easier to do when most of your money is safely in cash.

 

Before I finish, it’s important that I ask and that you answer the following questions honestly:

  • Do you know how to identify a potential market bottom?
  • Would you know when it’s appropriate to start aggressively buying stocks again?

Unless you can confidently answer yes to both questions, you absolutely should NOT put your retirement accounts in cash.

why average investors should not "flip to cash"

why average investors should not “flip to cash”

If you are on this site, I generally assume that you are a do-it-yourself investor or at least an aspiring DIY investor.  You are someone who wants to take an active role in growing your investment accounts by executing smart, higher probability trades.

However, when the market starts tanking, average investors start freaking out and do stupid things that hurt them in the long run.  Just in case any of these people have stumbled in, I want to make clear that average investors SHOULD NOT be flipping their long term retirement accounts into and out of cash.  They will likely miss the resumption of a bull market which would put their long term financial goals at risk.  Know thyself.









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Model 821x Trade

stock quote day % change total % change
YRD
23.38