Gold And Growth With SafetyDo you feel comfortable and in control of the markets, or are they in control of you?
You are looking at a very basic chart of the Dow Jones Industrial Average. It's a weekly chart that shows the RSI indicator is falling. MACD is on a sell signal.
Rather than wondering if the Dow might crash, simply prepare yourself to buy it inside the crash zone. The dividend yield on the Dow is currently around 4%. Getting paid 4% a year to wait for quasi-hyperinflation that could send the Dow skywards is a fairly good deal.
That's a chart of the Dow Diamonds ETF, DIA-nyse. The high at $120.66 that I've highlighted with a blue circle is the first HSR (horizontal support & resistance) area that I would buy, but the amount of risk capital I would commit there is negligible.
The reason for my caution at that price is that the Dow has rallied about 100% from the lows of 2009 without a significant correction.
A much more interesting entry point is the HSR at $106.45. That price on the "diamonds" is equivalent to about 11,258 on the Dow.
A decline to the 11,200 area on the Dow would likely be accompanied by a significant amount of fear and very bearish news. The best investors establish beachheads in the Dow at prices where most investors are selling. Don't guess when investors might sell; just be ready to buy when they do. Once you've established your beachheads, you can begin to have fun by shorting the market occasionally.
The big question that gold stock investors are dying to ask is, "what happens to our gold stocks if the Dow crashes?".
Gold stocks have already experienced a 1929-style crash numerous times in this crisis. I think they are at the lows of one of them now.
I think the Dow probably is about to crash, but the crash will be against your gold stocks more than against the dollar.
That's a weekly chart matching the Dow against GDX-nyse.
The Dow looks terrible. Technical indicators and oscillators are having a veritable fist fight to see which one can show the Dow as most ready to tumble.
If the Dow crashes, this chart indicates that gold stocks are likely to soar.
I believe that just as retail investors sold their stock market holdings into the lows of 2008 and bought bonds, investors in the gold community have recently sold their gold stocks in despair, and bought gold bullion.
The gold community's version of the "growth with safety" play is understandable, but those who engaged in it should probably reverse course very quickly.
To understand why they should reverse course, please view the chart below.
That is a weekly chart of gold against GDX. It indicates that gold stocks look set to give gold bullion a severe beating. Note the disintegrating volume as gold rallied against gold stocks from early January.
Most of the weekly chart indicators and oscillators are on sell signals. In my professional opinion, it doesn't matter if the $1525 area lows represent the bottom for bullion or not. Regardless of what happens to bullion, gold stocks now look set to dramatically outperform the dollar, the Dow, and gold itself.
GDXJ is a well-known junior gold stocks ETF. As good as the senior gold stocks look, the juniors look even better.
That daily chart suggests that GDXJ will almost immediately begin to outperform GDX.
Gold could break the lows near $1525, and fall towards $1432 or $1266. While that happened, I still think gold stocks could stun investors by soaring.
I call this chart my carrier strike group map. It's a monthly chart that covers the entire gold bull market. I view the major HSR zones like carrier strike groups, because I view the market as a war.
As the price of gold declines to the outskirts of these enormous support zones, it's critically important that investors in the gold community are ready to buy.
Note the support areas at $1432 and $1266. There's nothing to be afraid of. $1432 and $1266 are significant support zones that will support you in your battle against the "dollarbugs".
That's the same monthly chart of gold against the dollar, with an emphasis on the technical indicators. It doesn't look good for gold right now in the battle against the dollarbugs.
I have little interest in seeing investors try to call exact tops or bottoms. Instead, I think investors should focus on accumulating the highest quality assets when they appear to be undervalued at significant HSR zones. Liquidate a modest portion of your holdings when they appear to be overvalued.
For those who are interested in calling tops and bottoms, I don't think a case can be made that gold has bottomed now, but a strong case can be made that it offers superb value for accumulators. In contrast, a very strong case can be made that gold stocks are making a generational bottom!
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:
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