Invest on the Correct Side of the Long Trend
by Martin Goldberg, CMT
Investors would be well served to maintain those positions that are on the correct side of the long term trend. This is simple common sense. In spite of this simple theme, investors are bombarded by the much-espoused philosophy to invest in stocks for the long term and stay diversified. This philosophy is being tested as baby boomers bear down on impending retirement with their assets largely tied up in the US market. This philosophy is at odds with the trend US stock market which is in a relatively new down trend. These folks are extremely vulnerable in my view. With the only first hand experience of these people being the most powerful bull market in history – 1982 to 2007 – there is nothing in their personal experience for them to do anything other than what has worked over that same time. They haven’t studied history. Stay the course! This is the conventional wisdom.
With that said, a good and logical case can be made for a different philosophy that has investors’ long precious metals and precious metals stocks and out of most US equities. Those arguing that case have to be in direct conflict with a generation of history and conventional wisdom. I wouldn’t expect to sell you on this by a simple read hereon. Who acts simply on the words of an article they see on the internet? Who acts on what charts are telling them? We are all adults here. Do your own research, and ask your own questions. Choose your own experts. If I help to question the conventional wisdom which is broadcast on all the major news outlets, then I’ve done my job.
Look at a long term chart of the S&P 500 below. Ask yourself the question, “Is this going up, or is this going down?” It looks to me like it is going down. Also look at the climatic volume in recent months and ask yourself, “Could this climatic volume be signaling a long term change in trend? Is there anything that you can think of to suggest that this index can’t go a lot lower than it is today?” To be sure and accurate, the possibility for short and sharp rallies is always characteristics of bear markets. We could be getting one that started on Wednesday. Markets don’t crash all at once; at least they haven’t so far. There will always be these exciting rallies; especially when there are many large money speculative interests who know when to schedule the rallies to their best advantage. The stocks-for-the-long-term crowd is full of highly educated and credentialed individuals, even Ivy League professors. There are a lot of media types (think that glib morning guy on financial cable). Look at the chart again and ask yourself, “Do you really trust these folks? Do you trust them more than you trust me?”
Now look at the chart below of the Gold Bugs Index, an index containing many gold stocks. Forget about the numerical notations on the chart which are the stuff of technical analysts. (Those interested can follow this link for a technical explanation: http://www.financialsense.com/Market/goldberg/2006/1130.html) Ask yourself the question, “Is this going up or is this going down”. To me, it looks like it is going up. Yet by and large, practically nobody is invested in the stocks that make up this index. Practically zero of the parade of media personalities and experts is suggesting that you should be invested in these precious metals stocks. At least not yet.
The two charts above at the very least make a case for apportioning a significant portion of your long term wealth in precious metals stocks. Sometimes it pays to follow the charts and this one is going up. Sometimes it pays to break from the crowd and this is one such time. Question the experts. Question the personalities.
I’m wishing you the best of luck in all your investments.
The market rallied today, and gold and gold stocks flashed a buying opportunity to those with a long term view. Two important stocks that will help diagnose whether this 2 day rally has any staying power are Best Buy (BBY) and Nordstrom (JWN), with key short term technical levels resistance being 40 and 30, respectively. This was former support, which was broken apparently decisively, in the recent market swoon. Now the former support levels are now being tested as resistance as these levels are being approached from the bottom on low volume.
Have a great evening.
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