You can see from the following chart the number of stocks trading above the 50 day moving average has reached such depressed levels that even in the last bear market these kind of skewed levels have led to sharp rallies.
Now I'm not saying we are in a bear market yet. For me to go that far I would need to see the pattern of higher highs and higher lows broken. That just hasn't happened yet.
We also didn't get a Dow Theory non-conformation at the recent April top. That tends to happen at the majority of major bull market tops. And we certainly don't have a Dow Theory sell signal yet.
That can't happen until the market puts in a secondary low and then that low is broken by BOTH the industrials and transports.
The market is in the process of putting in the secondary low right now. We would need to see the rally out of the impending bottom fail and both averages break to new lows before a sell signal could be issued.
However as I've pointed out a move below the February yearly cycle low would be a big negative and would push the odds in favor of the market breaking below the now due secondary low.
But as of this moment there's no sense in doubling down on the short side into these kind of oversold levels. Even if the market is rolling over again we should see a bounce.
A safer strategy would be to sell into the rally.
However as long as there is a bull market still intact I consider it a waste of time and capital trying to fight with a bear market. Let's face it the second greatest bear market in history only racked up a 58% decline and the odds aren't good that anyone managed to rack up anything even close to that during the volatile bear.
If someone managed to catch even 75% of the move they were doing great. However in less than half the time it took the bear to run its course mining stocks quadrupled or more those kind of gains.
The mathematics of the short side prevent one from making the big money. The reality is that the most one can make on the short side is 100% and even that isn't possible if you are shorting the indexes.
The potential in a secular bull market is typically many multiples of that. Most big bulls tend to move 2000% or more from beginning to end. Realistically one isn't going to get rich on the short side. They may get an ulcer trying to wrestle with the bear and the Fed but they won't get rich.
Those who can ignore the daily wiggles and ride the bull will get rich and a big plus is Ben will do everything he can to help you has he tries to fight the bear.
Gary - I couldn't find your email, but I wanted to show you a site I'm a part of, a database and screener for mining stocks: miningalmanac.com
ReplyDeleteIt shows all resource, production, ownership and cost data for every property that each company owns, and a lot of tools for value analysis and comparisons. You can screen for stocks by 40 different datapoints. There are 750 companies now, and we'll have well over 1000 within a few weeks.
The site will be free for the foreseable future, if not forever (we were toying with the idea of charging for access to resources data, but are leaning against it). It would be great to get some feedback, as we're still in beta and adding features every week.
Hope you like it and don't mind me posting here. Cheers. -Mike
info@mining______c.com
Blah blah blah....rinse wash repeat...
ReplyDeleteWell for me personally I don't try to guess which companies the market is going to reward.
ReplyDeleteI either just buy ETF's, or a basket of stocks (like my basket of juniors).
Gary- 2000% in bull markets? Are you sure about that? Have you discussed your basket of junior miners anywhere?
ReplyDeleteFrom the 74 bottom to the 2000 top the Dow rallied about 1800%.
ReplyDeleteThe last secular bull market in gold rallied over 2300%.
These big bull markets always tend to rally way further than anyone expects.
Fair enough, Gary. Thanks for the reply.
ReplyDeleteThis is with patient capital...Capital you don't need to live with, capital you can wait forever for to eventually hit. As we know gold got crushed in the 08 demise, unfairly...but even hedge funds were forced to bail. Leverage will kill you when this happens, and since I don't trust miners, I prefer holding the "real stuff". Every time gold falls, I go look at my gold and say "yup...still there." In part Gary's strategy is using leverage...in terms of operating leverage in miner companies...miners are subject to energy cost, and may get smoked if oil surges past 140 again, or if the gov's start to tax like the Aussie's are doing. Not to mention the confiscation risk if you truly run into a severe currency risk...only physical metals will protect. I ain't no gold bug, but there is no other bull market where that allows the opportunity to own the "real thing"...stock market bulls can't do it(small timer has no control..ie you don’t really own the company)...oil bull markets, can't do it for the small timer....metals though, first one.
ReplyDeleteWon’t say Gary’s strategy is wrong….just saying the physical route will be better suited for those that want to catch the bull, but don’t have the stomach for ups and downs and have little patience for roller coasters. Further, the GLD and SLV might seem like good options…but if you are holding throughout this bull, why not buy the physical instead? You will avoid the temptation to mouse click in a trade, and if any of the rumours are correct about the GLD or SLV, you will avoid that too.
I say this because I think about 90% of the readers here would bail on another 08 demise(that includes myself), lose their positions and never touch metals again...despite what they say in this blog.
What would cause another gold demise...potentially a vaccum demise in the stock market, that yet again takes the good and the bad down. At that point buy'ere up, but even if you want to hold through such a demise, leverage will kick your ass right out.
In another 10 years gold will most likely be at around $5000..a 5x is not a bad return.
SWF
The reason I want to be invested in miners is because the gold:XAU ratio is still too cheap.
ReplyDeleteBut you are correct for the vast majority of people they aren't going to be able to weather the volatile moves. We've seen quite a few get knocked out just on the pitiful little correction over the last week.
For those people physical is a much better option.
Ingenious perspective - - couldn't agree more.
ReplyDeleteThe timeliness of this article couldn't be more perfect.
My sentiment, excitement (but with great caution).
Buying right before the close of today - then to short again during the 2nd week of June.
Personally I just can't find any compelling reason to short a bull market at great risk for small profits.
ReplyDeleteI'll just sit tight on the gold bull :)
Gary, the way we're up so nicely today, do you think that we've finally successfully backtested and the run-up to parabolic highs is beginning (as per the charts on your previous post)? TIA
ReplyDeleteI think the daily cycle low is in. We would need to see a weekly swing low before I would be comfortable calling an intermediate low.
ReplyDeleteBut as long as one can weather drawdowns if their timing is off they could take a position today based on the daily cycle bottom. Just be prepared to hold on if the weekly cycle still has further to go.
If we get a down open in the miners, or pm's they can be bought with impunity!
ReplyDeleteGary, I would not view the $125M in purchases of SPY today as 'buying on weakness.' Maybe it is institutions nibbling, as you put it, but my sense -- developed over three years of shorting this market, on and off -- is that the PPT uses both futures and SPY to moderate end of day drops.
ReplyDeleteJust food for thought.
I put about as much credibility in the PPT as I do in the gold manipulation theory.
ReplyDeleteThe Fed's charter makes it illegal to buy stocks. It simply isn't happening. The PPT nonsense is just traders convienent excuse for why the market didn't do what they want it to do.
Jeez if there was a PPT then we would never have another bear market we certainly would never have just gone through the second worst one in history.
And if gold was being successfully manipulated it would never have rallied above the 1980 high of $850.
Gary, if you put the $spxa50 chart on a log scale it seems that we can fall a lot further before we reach the oversold levels of yore. Wouldn't that be a better measurement?
ReplyDeleteI'm not sure it's really appropriate to massage the scale to get the answer one is looking for. BTW all we are talking about is the difference of about 22 stocks. What's the point of adjusting the scale to make those 22 appear to take on more significance?
ReplyDeleteThe fact is we are at the very bottom of the historical range.
On top of that sentiment levels are stretched to similar extremes.
It's dangerous to be short at this point based on past history.
Gary, the Fed is responsible for full employment.
ReplyDeleteThey fail at that also, in addition to, at times, 'saving' the stock market.
So, just because they fail in their attempts does not mean that they fail to attempt.
Futures are down 18 points as I write. More opportunity for 'buying on weakness' by institutions, guffaw.
If we break the February lows then the odds will go up tremendously that the bear has returned. When that happens then we can say with confidence the cyclical bull has expired.
ReplyDeleteI don't understand the urgency to call the bear before it has clearly declared itself.
You most certainly can make more than 100% in a bear market using derivatives (I only trade futures). In fact, I shorted Nasdaq futures at 2012.00 on April 19th. At a current price of 1776.00, that is $4,720 per contract in profit - a return of about 135% on my initial margin of $3,500 in just over a month.
ReplyDeleteThe reason it is more difficult to make money in an equity bear market is that they generally don't last as long (but they are usually sharper, so the opportunities are there).
I do thank you for your chart today, though. It looks like the time to cash out (and reenter later) is rapidly approaching.
The big problem with leverage is if you get caught in a bear market rally you end up losing a ton of money.
ReplyDeleteSo while it's easy to say one can make a lot of money in a bear market the reality is it's damn hard to do.
"The big problem with leverage is if you get caught in a bear market rally you end up losing a ton of money."
ReplyDeleteRisk management is important. No disagreement there. The risk/reward looked good in April when I put on the trade. By the way, I closed out the Nasdaq futures short with exactly a $5,000 per contract profit.
"So while it's easy to say one can make a lot of money in a bear market the reality is it's damn hard to do."
There are always unlimited opportunities to make (and lose) money. As always, it is important to get things right. :) I'm not saying that's easy, but people who don't will not survive long in this business.