I was on BNN’s MarketCall yesterday, where I gave my usual 3 top picks. Here is the clip of the opening comments regarding my view on the markets:
One of these picks was the iShares Global Gold Producers ETF (XGD-T). We don’t own it in our ValueTrend Managed Equity Platform yet—but we are considering a purchase. The ETF is basing – and that is the kind of setup that may be attractive upon one of the following conditions playing out:
- A trade off of the lower half of the trading range
Currently, XGD is basing. It’s been stuck between roughly $7.50 to $9.50. That’s not such a bad trade if you can catch a move off of the bottom, or lower part of the range. Given the relatively negative correlation of gold and the producers to the S&P500, it wouldn’t be too much of a surprise if the producers (and gold) sold off in a temporary market spike. Quick thinking traders might want to consider taking advantage of a trade should this ETF move near the bottom of its trading range.
- A breakout from the range, and the downtrend
Gold, and the producers, have shown comparative strength against the S&P500 of late- although the longer trend is still flat (see the middle pane demonstrating comparative relative strength). However, the greater trend for the sector and the underlying commodity has been bearish. I’ve drawn a trendline on the chart above (dashed pink line). That trendline actually extends back to 2011. A break in this trendline would be a double-hitter. That is, a move through $9.50 would punch through the longer trendline, while simultaneously punch through the near termed base described above. Intermediate termed investors might consider such a move, should it occur, to be bullish for the coming months.
Longer termed cycles suggest caution
I have noted a bearish longer termed cycle for commodities. Here is a blog on that cycle.
If you agree that the longer termed trend and cycles for commodities remains questionable, I might suggest that any trades on gold, or most other commodities, be viewed in terms of weeks or months, not years. For that reason, and others, I continue to remain longer termed cautious on the TSX, per this blog.
Next seminar: Oakville, Ontario for the Canadian Society of Technical Analysts
Wednesday February 10, 2016. 7:00pm. Admittance is free for first time CSTA attendees.
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Good comments on BNN. Thanks for this analysis on gold. I agree with your thoughts and also remain short term in my trading. I was wondering about the mining ($SPTMN) index and in particular the copper producers for a short term counter trend trade. They are at the bottom of the BB on a weekly chart, and on the daily charts, there is positive momentum divergence and early signs of money flow returning. They are seasonal as well (though I’m not sure that means much if we are in a bear market). The miners are contrarian in this time of news releases about China slowing etc., but in the short term, what do you think of them for a counter trend trade. Maybe you can keep an eye on them and do blog. Much appreciated, Ron.
That is a good idea for a blog–thanks Ron
I also enjoy watching you on BNN and, as of late, have been following your blog with quite a bit of interest. I was curious about your comment on BNN (hope I heard correctly) on managing two kinds of portfolios, a trading portfolio and a more long term dividend portfolio. I was wondering if you could elaborate more on this approach. How can do-it-yourself investors structure their portfolios for a more nimble and organized approach for trading, especially at times of higher volatility?
Joe–this is a timely question, as I just did a Globe & Mail interview surrounding sector rotation and how an individual investor can do this kind of thing on their own.
My comment was this: anyone can invest on their own. But its like athletic training. I race a bike–racing is different from fitness riding. For racing, I train every day, 7 days a week. I have structure, and it is outright painful and difficult at times. I am constantly learning. I eat differently than when I “just rode”- its all about discipline. This is a mindset that some people are better than others–discipline. If you are mentally hardwired to be a disciplined type, you can be a great trader. If you are less dedicated, you will fail miserably. Like in athletics.
Investing on your own while trading on opinion or the latest guru’s comments on BNN (including me) will NOT work. You need to spend time learning–might I humbly suggest reading my books (SmartBounce and Sideways). From there, just like athletic training, you have to put the time aside every day to run through your charts and apply the discipline you have learned. And you have to stick to it–some times it will appear to fail you–but you have to stick with it anyhow. That’s because we work on probability within a trading system. Not absolutes.
Re: our two structures. We have a more passive income model which holds about half equity, half fixed income. You will note on the performance page it has had low returns. Thats because we don’t trade it much, we don’t charge much for it, and we simply use it as a cashflow vehicle for clients who need liquidity and income.
The equity model is our meat and potatoes. Its very active. Something like 300% turnover. Sector rotation, macro cash/equity allocation decisions, etc. The returns on it have been beating the market with less risk for years. But its a different beast.
Hope that helps.
Keith, there seems to be some rotation out of techs and healthcare and perhaps into utilities.
Ive noticed stocks like Emera, Transcanada, Brookfield Renewables, Northland Power all outperforming.
Regarding the Euro play. I was waiting a bit because (I thought) I heard Draghi was considering another round of QE, which might support your thesis of a strengthening Euro. The Euro seems to be holding up against the rising dollar while most other currencies are still depreciating against the dollar.
So far so good. And yes–there is a “risk off” environment in the air!
Although I have been subscribing to technical analysis newsletters for many years, probably before it was ever popular with retail investors, you are right to remind me of the central importance of discipline. During good times It is easy to get lazy or be lulled into a false sense of security; and during downturns, be frozen by fear. I will continue to follow your blogs and perhaps even pick up your books to remind myself of the importance of discipline.
Thanks for your detailed reply.
Thanks Keith for your suggestion on Gold. It’s moved up dramatically over the past week. Do you think there’s a chance of a short-term pullback? I am considering getting in to ride the wave up but not sure the best entry point. Thanks much in advance for your thoughts!
Yes it is quite overbought via stochastics and RSI on the daily chart–likely due for a pullback which suggests an entry