On 1/4, the “Power of the Pattern” suggested that “challenges were ahead” in the metals complex. (see post here) What has happened in the past 10 days per the metals? See below for an update.
CLICK ON CHART TO ENLARGE
Of these four, Silver looks the most vulnerable to sizeable declines. In this post last week I shared that the Silver stock ETF (SIL) was breaking key support, which was suggesting further downside action in this complex (see post here)
Game Plan….The patterns suggested on 1/4, that if investors were long this complex, to establish very tight stops to protect values. 10 days later, nothing has changed.
Gary…Thanks. I was referring to an even fancier idea, say using something like a 200-EMA line. Some mechanical tool to help you harvest when prices are high and avoid the big decline. The study you discussed is for sure true, yet I haven’t met too many that have been able to avoid “individual days” this study discusses, yet for sure I know and have experienced it isn’t that hard to capture 70% of major uptrends and avoid 70% of major downturns.
Chris, great comment about how despite 3 massive rallies, most investors have nothing to show for due to a lack of selling strategy. Barry Ritholtz did a very interesting post yesterday (link no longer available) showing how avoiding the 10 worst days more than made up for missing the 10 best days in the Dow over 1900-2010.
$100 invested in 1900 in the Dow would have returned $25,746 by 2010. Yet if you missed just the 10 best days of that entire ride your total pot at the end would be $9,008, almost two-thirds less than a buy & hold strategy. Miss the best 100 days and you’d have earned just $87. Now, if you missed the worst 10 days of Dow losses you would have seen your total rise to $78,781. Miss the worst 100 and you would have earned $11,198,734.
Source:
Black Swans, Market Timing, and the Dow
Javier Estrada
IESE Business School November 2007
Kevin, I think you should really ponder this advice from Chris. You might be right about your fundamental thesis in favor of precious metals. But then again, you might be wrong… You seem so utterly convinced of your thesis (that is your interpretation of the macro-economic situation), that the even slight possibility of being wrong could prove to be very dangerous… Having a very neutral look at charts can be a good antidote for that…Do take Chris advice: ” I don’t mind being wrong, I mind being wrong for long!”
Kevin…I am a fundamental guy for my first 18 years in this business, with my hero, mentor and educator being Sir John Templeton. In the late 90’s he suggested that “at best the market would move sideways for up to 20 years. That hurt to hear that. It was at that point that I moved towards TA for the main guidance of portfolios. I don’t think fundamentals are broke or that you shouldn’t use them, its just that it can take a long time for the fundamental picture to come true.
The metals patterns suggest at least a breather. I am not a bull or bear on them or any product. My macro goal, is to inflate portfolios, regardless of market direction. I know the pattern will be wrong a third of the time, yet I also know I will not be wrong for long. The 500 index has given people a 100% rally in the late 90’s, another 100% from 2002 to 2007 and another 70%+ since March of 2009… why don’t most investors have much to show of these massive rallies? IMHO….a lack of a selling strategy. They are not willing to harvest. Bulls make money, bears make money and Pigs go to the BBQ! 😉
Don’t be afraid to harvest some of a portfolio when you have some good gains. Good luck and one thing I know for you, no knucklehead at the other end!!! Have a great 3 day weekend and Thanks again.
Chris
Thanks again Chris. I appreciate you taking the time to more fully explain your thinking. It’s a great help to those of us learning.
I like to keep a core group of holdings that I just flat out don’t touch. 10-years ago it was oil/energy stocks. They worked well over the haul. With the macro-factors cropping up in the last few years and all the political upheaval, I switched that pile of money over to PM’s.
Given your experiences, I understand you’re a big fan of TA and Fibbonacci’s, obviously, but do you feel they should be weighted more heavily than fundamental matters? The reason I ask is I’m getting better at seeing chart patterns and other TA stuff (the more I learn, the more I see I missed, LOL!), but in my head at least, at certain times, fundamentals seem like they would trump some scribling’s I make on a chart? Maybe I need to get better at my scriblings (or I’m seeing things that aren’t there, drawing them incorrectly, etc.) I’m trying to gauge a balance point between technical and fundamental analysis, and find it difficult when the head and the heart don’t agree. The precious metals market is probably not the best place to flesh out an understanding, but if ever there was a case for fundamentals…. But I’ll be damned if this price action the last 3 months doesn’t have me stumped. If ever there was an argument for a manipulated marketplace…
Thanks again for taking the time to reply. There’s at least one knucklehead out here in neverland that appreciates it.
Kevin….be willing to harvest at resistance is my main suggestion. On the opposite side, I suggested to buy the “base metals” etf (DBB) this week, due to what I could see is a pattern breakout. Even though gold and silver are down today, DBB is doing ok. As I shared earlier, you need to be willing to see a 30% loss in your silver position due to these patterns and a normal fib retracement! I am just not willing to go through that kind of a decline, long-term or not.
Awesome Chris, thanks for the informative reply. I’ve been trying to get my head around all the PM chatter lately, as the fundamental side of the coin has me scratching my head over how low the current prices are! Good thing I’m long-term on those holdings (but man, the beating on the bottom line makes it tough some days!) Thanks again!
Kevin…Thanks for the viewership, kind words and quality questions. Per PM, the patterns are just suggesting that some key resistance is at hand. Silver is up what 70% in no time! It could remain inside a bullish channel, yet give back a 38% fib retracement of that rally. 38% of a 70% rally is just more than I would want to give back. I am not attempting to inject anything more than the TA side to these patterns and suggestions.
Just attempting Kevin to harvest at resistance and buy on support. Some like to score on defense, so I am also attempting to find low risk places to enter into these type of positions.
Mr. Kimble,
Thanks for sharing this information, I’ve been following your website recently and am very impressed w/ the information you are sharing with everyone, thank you!
However this chatter about PM’s and such declining significantly has me concerned. Not only due to my portfolio’s weighting, but, well… I just don’t get it. The fundamental story is stunning in my opinion, and while I respect and am trying to learn TA…. Well, I just don’t understand why PM’s haven’t gone to the moon yet, so suggesting they’re due for a significant decline simply blows my little mind out of the water.
I’ve read many people suggesting a significant correction is imminent, but frankly, don’t buy it in the face of the fundamental factors affecting precious metals. Is it strictly TA and chart patterns suggesting a crash in prices soon, or is there something else to this side of the story I’m missing?
Thanks again for sharing, I appreciate you trying to help lemmings like me learn more about this stuff.