Wednesday, November 19, 2008
Blood in the Streets again - Buy!
Tomorrow and/or Friday may be the last chance to board this train before the next intermediate trend, which will be up, not down. Trying to call an exact bottom is a mug's game, but we're VERY close. Not only gold stocks, but all stocks will rally for at least a few months, and it should be fast and furious.
Remember, the fastest, craziest, and highest percentage positive gains over the short term occur in BEAR markets, not bull markets. Yes, it's counter-intuitive, but history repeats and this year has been no exception. Gold stocks are the best fundamental buys out there, but if you're stuck in the ol' company 401k with 4 shitty mutual funds to choose from, you're still going to make some of your money back over the next few months, so sit tight and don't sell everything at the bottom.
To the charts, yo. The put to call ratio over the last 6 months is shown, which looks at the ratio between people betting for the market to go down versus those betting it will go up. When the chart is high/up, people are heavily betting on a further decline. The herd is usually wrong when it goes to extremes.
Next up, the VIX/Volatility index or the "fear" gauge. When it's high, people are scared and the market is going down. The concept of declining momentum takes a while to get comfortable with, but it helps predict trend changes before they occur.
Commodities have been crushed and will be "done"/in a bear market for as long as deflation lasts. However, no market moves in a straight line and this one has had a straight line trajectory toward zero and is due for a fast and furious "relief" rally. This relief rally may well be good for a 40-50% gain within a few months once it starts.
Remember, gold is schizophrenic because it is lumped together with commodities (unfortunately for my portfolio), but it is also the world's safest currency. This means it will outperform commodities (and already has by losing less than other commodities like oil) and revert to its role as money if deflation persists. The gold play is not based on it being a commodity but being a safe currency that cannot be debased by the government (though confiscation is always possible, which is why gold bugs often also like guns, but we'll save that story for another day...).