Saturday, November 28, 2009

The Commodity Party – Time to Leave

Experience has taught me one thing for certain about investing – that is when something is certain, it us usually not certain. What I mean is, when we all know for sure – the “for sure” thing is not for sure. Right now we all know the U.S. dollar is going to zero and commodities are going to the moon – so keep selling the dollar and keep buying those commodities.

Experience has taught me to avoid over-crowed trades – to always be on the lookout for sheep-like investment behaviour. Right now too many sheep-like analysts love Baah Baah Rick Gold (TSX-ABX) and so I bailed last week at $47.

Our very long term chart below illustrates the cyclic path of the current secular advance in two of the important commodities – gold and crude. A secular trend (up or down) is a long term advance – usually 12 years – that is interrupted by shorter bull and bear cycles. The structure of the secular advance can be seen when broken into 5 cycles

Cycle (1) is the recognition of survival cycle wherein the market anticipates the survival of many smaller O&G producers and mining companies. The fundamentals are still weak. Cycle (2) is the big “money” cycle wherein anything you own in the sector goes up. Cycle (3) is the disappointing cycle when investors discover some headwinds such as squeezed profit margins and environmental concerns. Cycle (4) is the sheep cycle, the speculative bubble. The fundamentals are strong but divergences appear as not all components enjoy the bullish stampede. Cycle (5) can be a bull trap or a bear market rally that may or may not make new highs. Clearly the lower fruit has been picked – leave the higher stuff for the sheep.

6 comments:

RRST said...

What ever happened to "the trend is your friend"? Sometimes when you leave the party early you miss all the fun. Follow the technicals with your finger on the trigger .... if the 10 day SMA crosses below the 20 day SMA sell half the position .....

Sean said...

Bill, can you comment on the final stages of a bull market and the "blow off top" normally associated with the final stages? I don't think we've seen the "irrational exuberance" in gold yet. When we see line ups at the bullion dealers at 7am and people pushing little old ladies out of the way, we will see the final top....

dh12 said...

I think your correct on gold. On a long term chart gold is showing parabolic spikes (trend line exceeding a 45 degree angle). Would be unwise to buy gold now rather let it pull back to it's 200 day moving average ( if it hold the 200 day moving average ) on a pullback which undoubtedly will happen.

Gettingtechnical.com said...

Thanks for the comments on the gold complex

The trend is your friend and the trend in gold has been upward since March 2001 – and I have enjoyed most of the larger advances. The gold party at 8 years is now quite old and I prefer to seek out new parties. If I used the short 10 and 20 SMA I would have sold in August of 2002. As far as irrational exuberance is concerned last night my TV viewing was interrupted by three competing “bullion dealers” offering to buy jewellery for quick cash. Every one I speak to is long gold stocks – the talking heads on BNN all love gold – and finally the news of Barrick Gold removing the last of their hedges just has to be a sell signal - Bill C

Ben said...

Sold all my gold stocks, will wait to re-enter is gold/crude spread goes into correlation or gold corrects to about $900 - will add to positions if comes lower. Japan, China etc are pissed off that the USA has been getting a free ride by devaluing their currency, all countries prefer their currency to be the weakest. Also, I believe the rise in the USD will trigger a bankruptcy in the USD, then appearance of a N American currency.

Sell your bullion now and be happy.

Gettingtechnical.com said...

Hello Fellow Bloggers

It is possible for bullion to trade down to the $900 level and not violate the current up-trend. The key is the yield on the US 10-year T-note currently running over 3.5% rising rates will boost the US$

On the materials space the AGRA or soft commodities look good - I like the COW, the HAU and the MOO

Bill Carrigan