This Sector Shows A Level Of Conviction
Sitting down to carve
out an article in the present environment leaves little to discuss
from a day trading standpoint. At most, I am doing 5 trades and few, if any,
are HVT. Trying to position for some trend
follow-through has been the only way to stay active, and luckily it is paying
off. However, anticipating that action to share in this column is a little
tough, it is more a process of taking the market’s temperature throughout the
day and drawing conclusions.Â
So that being said, what does the market look
like going forward. Well, first off, until this range is broken there will not
be much in terms of forecasting. As mentioned in a piece last week, the are
signs that the economy is indeed gaining strength; simultaneously however, there
are other signs that continue to flash red. I suspect that this is part of the
reason for much of the market’s current malaise. The one sector that seems to
be showing some level of conviction are the gold stocks. I have been monitoring
the gold sector for a few months now and in fact have been accumulating some
select issues along the way. Unlike my past experiences with gold stocks, where
they are in favor one week, and out the next, this time shows more of a stealthy
accumulation. Consider this comment from David Fuller:
“Gold’s ‘first step above the
base’ consolidation is now in it latter stages. I have previously described this
as a stealth bull market, because most people haven’t noticed or don’t want to
acknowledge that gold is under accumulation. A very large and powerful financial
industry is wishing either bond or stock prices to move higher, or both
simultaneously. In their hearts and minds, gold is the uninvited guest at the
party — a spoiler. This is a fantasy, of course, encouraged by some gold-bugs
who have long predicted disaster for everything but the yellow metal. . . .
“Today gold is slowly working its way back into the investment community’s
consciousness. Knowledgeable investors want a hedge against credit creation and
the bubbles it continues to create. Gold is cheap relative to most stocks,
bonds, currencies and property. However, this will change, judging from the
chart. Gold is currently ranging in its first step above its base formation.
These patterns can take many months to form, and we have seven and counting.
Nevertheless, the overall pattern of rising lows since 2001, and with gold
continuing to rally more quickly than it falls since December 2002, the present
consolidation maybe only several weeks from completion. In terms of its secular
trend, I maintain that gold today is where the S&P 500 was in 1982.”
Â
Source:Â David Fuller, FullerMoney
What I like about this analysis is that it leaves
out the emotional aspect associated with gold. Many gold bugs preach the
virtues of gold due to dollar decline, budget deficits etc., and while that may
be true, the big question is timing. When I read an purely technical
observation like the one above, I believe it offers a pretty convincing argument
for the virtues of some gold stocks in ones portfolio.
While our economy may in fact be on the mend, a
lot of the research I sift through every day seems to indicate that the
sustainability of the recovery is still not real clear. The main reasons cited
are the budget deficit, value of the dollar etc. If in fact the big money views
these as realistic threats, the action in gold make a lot of sense. The end
result, if gold becomes more mainstream, will be wonderful intra-day trading
vehicles. For those of you new to the business, chip stocks back in the
mid-90’s took on this same “personality”, and in fact still exhibit some of the
speculative fervor as seen in 2000. There will always be an area of solid
investment followed by extreme speculation, gold shares may just be that
sector. The latter phase is where traders can clean up. Naturally, it may take
quite some time before we get there, but in the meantime, there are some
compelling reasons for gold shares as an investment.
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As always, feel free to send me your comments and
questions.
Dave