Thursday, January 19, 2012

The Bull Market is confirmed

A technical analyst will ever rely on one indicator to make a technical call. The key is to use other unrelated studies – so if you use simple moving averages do not use the MACD and if you use a simple rate-of-change to not use another momentum study and so on

The technical evidence to support the call for a new 2012 – 2013 bull market is compelling. Long term cycle work and the simple 50 and 200 day MAs are positive. The short 2011 bear has completed a perfect Fibonacci retracement of the 2008 – 2011 bull and now we have the NYSE advance decline line breaking out. So don’t listed to those doom and gloom idiots – get long and enjoy and most of all avoid those gold bugs

Tuesday, January 17, 2012

Covered Writing Nonsense

Here is what Horizon ETFs say about covered call writing, “The Investment Manager of HEX will generally write short-term, slightly out-of-the-money call options on the entire portfolio. Covered call options provide a partial hedge against declines in the price of the securities on which they are written to the extent of the premiums recieved.(misspelled). Historically, during strong bull markets, where the underlying stocks are able to drive through the strike price on a frequent basis, buy-write strategies have lagged. And even then, investors would still have generally earned moderate capital appreciation, plus dividends and a call premium. During historical moderate bull markets, range-bound markets and bear markets, a covered call strategy tends to generally outperform its underlying stocks.”

Let us now name a strategy that compels us to hold declining stocks and if they go up we have to give them away. I guess we would call that a covered writing strategy. We can see from our HEX vs. XIU (TSX60 index) there is no partial hedge with both losing about 11.5% from February 2011 to date – this is with income on both products included. The extra income on the HEX is offset by a greater capital loss. The real test for this failed strategy will come if the markets advance over the next several months. To be continued for sure. 

Friday, January 6, 2012

Barrick Gold and Positive Divergence

I am sure we all recall the Gartman Letter published late last month when Mr. Gartman said he was out of gold, based on a belief that the rally in the yellow metal over the past decade is ended.. He said China has been buying gold aggressively over the past several weeks, which should have sent the price surging. Instead gold has fallen almost 10% since the beginning of December. “One of the oldest rules of trading is simply this: A market that cannot or does not respond to bullish news is a bearish market not a bullish one,” In response Peter Grandich called Gartman one of the ‘three stooges of gold forecasting’’

OK let them go at it but in the meantime why not look for a trading opportunity and I think I see a Barrick Gold trade here. Note our Barrick vs. Gold chart. The support line at (B) was broken in the recent GLD correction, but Barrick posted a higher low – bullish divergence. Note now the pivot level at (A) with the GLD still below and yet Barrick is trading above the relative pivot at (A) this is a display or strong relative performance. I look for Barrick to run up to the old highs of last September