June 8, 2016
Today I’m copying over exactly what I said in the Jan. 27, 2016 outlook. There are 3 charts included – the Dow, agriculture ETF, symbol RJA, and gold – GLD. Please refer to them when you read this post. The charts should help give you a better perspective on the January outlook and also on today’s follow up.
Knowing the Trends
Howdy Gents,
Over the course of this year, I’m going to continue sharing some insight into my approach to markets. The only way to be successful as a trader/investor is to have a very specific method of judging supply vs. demand, and nothing is more important than knowing the TREND. The very best way of accomplishing this is thru the understanding of the interaction between price and volume on a chart. Richard Wyckoff was the master of this.
https://en.wikipedia.org/wiki/Richard_Wyckoff
Two other books to read – “Popular Delusions” and “Reminiscenses of a Stock Operator”.
Now the markets.
In my outlook from last November, for the first time in many years and with stocks right at their all time highs, I recommended shorting stocks. And yes, it’s likely stocks are going much lower.
How much lower? The Dow of 12,000 – 14,000 or lower. And a possible time frame of March, 2017. However, in the short term, after one more selling wave, we are then set to have a substantial rally right into the next Fed meeting in mid-March. We might even see slight new highs. That’s when the most serious decline so far should unfold.
After this brutal bear market in commodities over the last 5 years, there can’t be more than 10 people on this planet that are still bullish. However, over the next 60 days, I expect many commodities to have hit their major lows for this cycle. I’m becoming especially bullish on agriculture. And although I personally don’t eat grains, any selloff into the March timeframe is a tremendous buying opportunity. Food prices are set to soar beginning in 2017.
In the December outlook, when I recommended buying gold, – that was the first recommendation in 7 years. If any listeners bought some gold into weakness at $1050ish, you did well . Presently gold is near a short term top, but gold is in the process of putting in a major low. A new low below $1043 is still possible, but as of Sept. 2015, the selloffs in gold are buying opportunities.
Lastly, being a perma bull or a perma bear on any market is very dangerous, and that has been and will continue to be clear to all, as the volatility in markets continues to ratchet higher. Any one without a skill set of being able to both buy and to SELL, will not survive these markets. Especially as the biggest bubble in the world blows sky high. And that is the bubble in the confidence in central bankers. I have received some excellent correspondence from listeners. Let me know if I can help. tomhn25@gmail.com
Today’s Update:
So as you can see we have had a powerful rally in the Dow from the late Jan./early Feb lows. So now what am I doing. With the “freedom” to be able to explain myself in greater detail in this blog without having to take into account Patrick’s time constraints for the show, let me expand on what I wanted to say about the Dow back in January. My belief was that we would have a big rally in stocks into the mid-March to mid-April time frame, where we would begin to see the first signs of the next topping process unfolding. And that process could last well into the summer. And yes there is still a chance of a marginal new high in the Dow. The all time high that you can see on the chart was on 5/20/2015 at 18,350. The high so far on this rally was on 4/20/2016 at 18, 170. I do believe that this is a large topping process in stocks and I am shorting rallies into the resistance areas. Resistance areas are the areas above a market where they formerly traded before turning down. As you can see on the Dow chart all thru 2015 there was a broad flat area of highs before it turned down sharply in July and August. And then a rally into another set of highs into December before another selloff. Those areas now become resistance areas. These then becomes the lowest risk areas to begin to sell short as the market moves back up. But when I sell short, I only do active shorting. Selling short carries much more risk than does buying, because when you’re short the market you have unlimited RISK. The market theoretically can go to infinity, so to speak. So active shorting is a technique that I developed to help manage RISK. And in markets, there is absolutely nothing more important than MANAGING RISK. Even the greatest traders lose money at times. So active shorting for me, as opposed to sitting passively short like most folks do, entails being quick to pull out partial profits out of a total short position on ensuing price weakness. Thereby, reducing RISK, adding up profits, and using some of those profits ( free money, so to speak), to redeploy on the next price rally into the resistance area. And if/when the market does turn down hard, you have a decent sized short position. It’s exactly the strategy that I was using into the December highs and then covered/bought back completely into the January lows, which I talked about at the time in my outlooks. Got it?
And quickly on commodities and then gold. For several years with Patrick and Andrew, I repeated that the bear market in commodities would not end until the spring of 2016. And as we got closer, I told the two Gents that agriculture in particular would bottom in March. That’s pretty much what happened. As you can see from the second chart of this particular ETF, which covers 5 years, that RJA bottomed on March 2nd and there’s been quite a nice rally. I continue to believe that the overall commodity market put in a major bottom this spring, and if I’m right Jim Rogers will probably be thrilled. However there should be one more good buying opportunity later this year, as the US $ has one more rally, possibly the final top before the terminal decline in the $ unfolds. But I still haven’t worked thru that one yet.
As to gold, long time listeners to Real World know what I’ve said about gold over the years The lovely Sharon has archived a good portion of what I’ve said for those who want to go back and read previous outlooks. There isn’t a lot for me to add. I’ve been very confident over the years about my gold outlook and now that I believe that the long term TREND is back up, there is only one thing that I know to do in a bull market. That is to ignore all the chatter and all the geniuses with all of their opinions. And just focus on patiently waiting to buy at support, which is the exact opposite of shorting into resistance. If you look at the third chart – GLD, which is a proxy for gold itself, you can see the support areas below the market, meaning the very lowest RISK places to buy. For gold to me that means the first area that I would consider adding on is around $1140. And for me regarding gold going forward, I don’t care who the President is, what Yellen says, what the useless unemployment numbers are, blah blah. I just care that it’s a bull market.
Any thoughts or questions, let me know.
This post was originally published on One Radio Network
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