Weekly Grail Report

May 032010
 

I’ve spent roughly 64 years studying the stock market on a daily, weekly and monthly basis. I’d say that 80% of the time I was perplexed or unsure of my stand. I know in the advisory business you are always expected to know exactly what’s going on and where to place your money. In my experience, the more cock-sure the advisor, the bigger the quack.

One problem is that the stock market isn’t always talking, and when it isn’t, many advisors create scenarios so they can carry on the illusion for their readers that they, at all times, know what is happening.
– Richard Russell

Russell says he was perplexed or unsure of his stand 80% of the time. Even though he didn’t say so, I’d bet that it was the other 20% — when he apparently was more sure — that he was the most wrong. That’s the way it works. If you ever get to thinking you have a handle on what’s going on, watch out. That’s usually when Mr. Market is about to show you who’s boss.

So in a perplexing and unsure way I’ll timidly say that it sure seems like the mining stocks are about to do something pretty exciting, doesn’t it?

The gold ETF (GLD) — owned by the Long Term Timing portfolio — is up a very nice 4.63% over the last 30 days. But the junior miner ETF (GDXJ) — owned by the ATR Trading portfolio –  more than doubled that performance, up 9.78%.

And Silver Wheaton? Goodness gracious…

SLW –  also owned by the Long Term Timing portfolio — is up 20.35% in a month. In fact, SLW is making new all-time highs.

By the way, I haven’t written about it in a long time, but SLW has a great business model. The company doesn’t own or operate any mines. Here’s what happens –70% of of all silver production is a buy-product of precious metal or base metal production (Which is one of the exciting things about silver, but that’s another story in itself). So Silver Wheaton makes deals with mining companies to buy up to 100% of their silver production at a pre-determined price of about $4 an ounce.

The company has no capital expenditures. No production costs. It only has about 20 full-time employees. It’s a cash flow machine is what it is. SLW has been my favorite “mining” stock for a several years. It’s good to see it making its move.

Oh, I shouldn’t have to remind you, but I will anyway. Don’t think that mining stocks are getting expensive. On the contrary…

The gold/xau ratio is still well over 6. When it gets below 4, then we’ll start talking about the mining stocks being too expensive. We’re a long way from that happening.

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Weekly Grail Report

Dec 212009
 

“The most important rule of trading is to play good defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down.”
– Paul Tudor Jones

As we move toward the last few trading days of the year the year, let’s look at how some key markets are trending as measured by the longer term 200-day moving average.

The S&P 500 index (SPY) is clearly in an uptrend and has been since late summer. It’s about 13% above its 200-day moving average (blue line), which is pointing higher. And even though it has done nothing but move sideways since early November, it’s also above its volatility stop (orange dots).

There will be much written about the prospects for the stock market going into 2o1o. It’s fun to talk about, but all of it is pure speculation. All we have and all we need is price. And right now the price says the trend is up.

Gold (GLD) is also in an uptrend with its 200-day moving average pointing higher. Like the S&P, the price is also about 13-14% above the average. As long as the trend is up I see no problem in owning gold.

It just so happens that right now gold  is below its volatility stop. So, although the Long Term Timing portfolio still owns GLD,  the ATR Trading portfolio has been out of it since December 7.  I won’t get interested in buying it in trading accounts until it closes above its volatility stop.

The U.S. dollar has been rallying through most of December. It’s above its volatility stop but below its downward pointing 200-day moving average. Therefore, all we can say about it at the moment is that it looks like a bear market rally.

I don’t know if it will or not, but the greenback could move all the way up to its 200 DMA (79.54 as of Friday’s close). If it does, it will probably run into a brick wall and turn back down. And, of course, the direction of the dollar is usually important for the direction of gold.

Crude oil reached a peak in October at over $80 a barrel. Since then it traded down to about $70 before bouncing this past week. However, the trend is up and until the market decides otherwise I’m expecting higher oil prices.

Agricultural commodities (DBA) have been moving sideways for a couple of months. But the price is above the the 200-day moving average and the average is beginning to point up. That tells me that the next significant move may be higher. With the exception of Jim Rogers not many people are talking about agriculture right now, but it may be forming a base for an upside breakout.

So I’ll be reading all the 2010 predictions along with everyone else. However, I’ll be reading them for entertainment value only. The only thing we know for sure is what is before our eyes. The stock market, gold, oil and agriculture are in longer term uptrends. The U.S. dollar is in a counter rally within longer term downtrend.

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When To Sell Gold

Nov 182009
 

A lot of talk about gold being overbought, in a bubble, time to sell, etc.

For intermediate-term trading it’s simple from my perspective. I’ll get out of gold …

Chart

when GLD closes below the orange dots. And that hasn’t happened since June.

Speaking of overbought, Bespoke has an interesting item. Gold is reaching 20% above its 200-day moving average. Pretty pricey. Unless you compare it to 1980 when at one point it reached 136% above its 200 dma.

Don’t try to pick tops. Just stay with the trend until it bends.

Why Gold?

Oct 302009
 

Member question: Larry, you seem to really like gold. Why? Also, what’s the best way to buy it and how much should I own?

Read the answer

Glittering gold

Sep 052009
 

Chart

Gold was the star performer this week and attracted the usual attention that anything receives when it makes a big move. And as I noted in a previous post, the action began on Wednesday. There was another advance on Thursday. There was a minor attempt at a pullback on Friday, but by the end of the day the metal was back close to its highs for the week.

So what now?

Gold made its all-time high in March of 2008. It then got caught up in the wholesale liquidation of assets that affected most markets for the remaining of last year. It made a rally attempt at the high in February of this year that failed. That failure is understandable since it was a “v-shaped” rally off the low made in the latter part of 2008. V-shaped rallies often fail.

Now it appears to be heading for another test of the all-time high. But I think this one holds much more promise than the February rally. It’s not v-shaped. Gold has been moving sideways all summer. So it has formed a nice base. The breakout this week came out of that base. It’s been my experience that breakouts out of a sideways pattern have much more potential for a sustained move than what we saw in February.  It also moved up on good volume even though it was a slow week before a major holiday.

All that is good for gold. However, we won’t know if this rally is for real until it gets back to the March ’08 high (just over 100 for the gold ETF, GLD). If it clears the high on good volume and stays above it there is nothing to keep it from moving much higher. But that’s still a big “IF.”

I think there are two reasonable strategies for those who own gold (I’m talking about the liquid forms of owning gold, like GLD, not the physical metal with high transaction costs). One is to just enjoy the ride as long as it lasts, with your previously planned exit strategy in place. The other would be to take a little off the table on this rally — holding on to the rest of the position — and wait and see if gold does make new all-time highs.

If you don’t own gold, but you would like to, you may very well get another chance to buy it. Healthy, long-lasting breakouts will usually give you another chance to buy on a pullback closer to the breakout area.

But you shouldn’t even be making these decisions after the fact. You should already have a plan before you enter into a position. You should already have a system, an exit strategy, a positions sizing strategy — all the things we will be talking about at Grail Investing.

I’m merely walking you through the thought process of one experienced investor.

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