For the chartists

derryb

While I recognized their value for historical record, I don't put a lot of faith in charts when it comes to determining future price direction. It's because I really don't know how to. But experience has taught me that it is very possiblle that seeing something in a chart is a lot like reading stars or tea leaves and that a chart is most often used to "confirm" a preheld opinion. In other words, one sees what one wants to see in a price movement chart. Case in point:



From this chart it is obvious what the trend is, but putting fundamentals aside the trend could change at any time. I guess that's why I'm a fundamentalist/trend fortune teller in lieu of a hard core chartist. Your thoughts on using charts? Do you actually use a chart to make future price determination or do you really just use it to confirm a preheld opinion that is based on other factors such as fundamentals?

jmski52

I feel the same way. "you don't need a weatherman to know which way the wind blows....." Bob Dylan

cohodk

I think 99% of people ONLY look at charts to back up a preconceived notion. First they get a thought in their head about an asset, then do fundamental research to enforce opinion, then look at charts as the final "convincer". And since most people believe charts are a form of voodoo, the image they see is taken lightly or wholly. That is, if they like what they see in the chart, they are convinced beyond doubt of the correctness of their opinion. However, if they dont like what they see, they ignore it, thinking charts are hogwash and continue to do more "fundamental" research. In fact, not seeing what you want to see in a chart oftentimes reinforces the preconceived notion.

The chartist first looks at the chart, then does fundamental analysis. He too can form an opinion and ingore what he sees in the fundamental and make a bad trade, but the difference is that he does not start out with an opinion and then do fundamental and technical analysis. He removes one layer of preconditioning.

In the above chart, I see an asset that has made a 6-700% run over the last 8 years. I would compare this chart to other assets that have made similar runs in similar time spans. Then look to see how those charts were resolved over the next few years. There are really only 3 possible scenerios. Gold goes higher, lower, or sideways.

Lets assume Sinclair is correct and gold goes to $4500. Thats a triple from here. But is it really? Lets take a look at the final days of the 1980 run.




Gold in 6 days went from 650 to 900 and in the next 5 days from 900 to 650. When would you have sold? Were you lucky enough to get 900, or 850 or even 800? Would you have sold at a price 20% lower just 2 days after gold peaked? So my point is that even if gold were to follow a similar pattern and spike to $4500 as a result of what Sinclair describes as people selling their children to buy gold, will you be nimble enough to sell at the top. Remember, the top will probably only be a few hours. On either side of this you have 20% cliffs. Would you sell your gold at $3500 when it was $4500 just 2 days earlier? And if you did sell at $3500 does it really matter if it hit $4500? What if you waited a few more days for a bounce and watched gold drop 35% to $3000? What would you do?

So if realistically, if gold went to $4500, most likely you would be selling in the $3500 range--if you sold at all. From current levels this is only a doubling in price--not the triple that Sinclair wants you to believe. And is a double worth the risk? Are there other assets that could/will perform better with less risk? How will you liquidate your holding? Will your dealer "honor" his check that we wrote at $4000 when the next day it is worth $3000. Will the refiners "honor" their word to your dealer? Dealers WILL go bankrupt on the final death run. How secure is yours? Are you sure?

Or is there no risk?

cohodk

Or, in looking at the chart, and knowing that PMs often peak in April, do you have all your stuff togther to dump en mass in about 7 months?

What will happen in 7 months to cause such action?

jmski52

Gold in 6 days went from 650 to 900 and in the next 5 days from 900 to 650.

I sold all of my contracts at about $725 on the advice of Terry Zeigler, my broker at IPMC. He got me out at a great time, and I had sense enough to believe him at the time.

I love math and I understand most charts pretty well, but they make me nervous if I try to make them into decision points. Almost every significant trade I've ever made was "timed" in a way, but not based solely on charting. I weigh my own financial position every time I buy or sell anything important.

OperationButter

<< <i>Or, in looking at the chart, and knowing that PMs often peak in April, do you have all your stuff togther to dump en mass in about 7 months?

What will happen in 7 months to cause such action? >>



Our problems will last more than 7 months. I do like your analysis, very insightful.

Technical analysis is a tool. Its one form to affirm or deny other indicators/analysis. It would be foolish to only invest by what a chart "says". With that said, there is something to note about seasonal trends in the market. Jay Kaeppel has written an excellent book and has a very interesting "blog" that he posts on optionetics.com that I enjoy. If any of you are into the technical analysis side, you will enjoy Jay's research and analysis.

From his last post:

"Gold stocks have a terrible track record during most of the month of October. Specifically, gold stocks tend to perform very poorly between the close of September Trading Day #21 (or the last trading day of the month if there are less than 21 trading days) and October Trading Day #19. As with any other seasonal trend, it is far from 100% accurate. All told, FSAGX has declined 16 times during this period over the past 23 year, or 70% of the time.

Still, all told, an original $1,000 starting in 1989 has declined to $254, for a net loss of almost -75%. There is no reason that gold tocks cannot rally between now and 10/25 (October Trading Day #19), but these results should at least give one a little bit of pause."

Linky

cohodk

<< <i>Gold in 6 days went from 650 to 900 and in the next 5 days from 900 to 650.

I sold all of my contracts at about $725 on the advice of Terry Zeigler, my broker at IPMC. He got me out at a great time, and I had sense enough to believe him at the time.

>>




Great that you traded paper, but how would you have sold physical? Physical carries a much larger emotional component. For all the stackers out there, this is important.

jmski52

So my point is that even if gold were to follow a similar pattern and spike to $4500 as a result of what Sinclair describes as people selling their children to buy gold, will you be nimble enough to sell at the top. Remember, the top will probably only be a few hours. On either side of this you have 20% cliffs. Would you sell your gold at $3500 when it was $4500 just 2 days earlier? And if you did sell at $3500 does it really matter if it hit $4500? What if you waited a few more days for a bounce and watched gold drop 35% to $3000? What would you do?

I remember the situation fairly well. The gains during the runup gave you an "unreal" feeling, and each day you could book gains that you thought you'd never see. After a period of gains like that, the spike felt just as unreal as most other days, so there was really no motivation to sell simply because there had been a spike. The fleeting moment when gold hit $850 didn't matter because, as you said - nobody could really take advantage of it when it was already over.

I also had silver, and for my silver contracts I waited to sell until after the downside move was well underway. I don't remember the price, but it was still jumping around $30 when I sold my silver contracts. In retrospect, I should've taken the cue when they raised margin requirements and interest rates at the same time. That was a pretty clear fundamental.

I kept my physical silver for a long time after it bottomed around $10.80, but it never got below where I bought it. I had 2 bags of 90% then - one mixed and one of Morgans. I don't even remember when I sold those, but it was probably in 81-83. I tiptoed back into silver with 3 100 oz Sunshine bars in 1986, but sold them when it became "boring". I should'a been buying BU rolls of 1982 & 1983 clad quarters back then, if I'd had any brains.

jmski52

Great that you traded paper, but how would you have sold physical? Physical carries a much larger emotional component. For all the stackers out there, this is important.

I bought 2 rolls of gold sovereigns with the proceeds at the time, and I sold that a few years later in order to buy an a-frame on a lake. The emotional component resolved itself when I found a desireable use for the money. I've never had an issue finding a market for gold coins.

It was harder to get rid of the resort property a few years after that than it was to sell the sovereigns. In all fairness, the real estate market was in a down mode during the mid-'80s.

renman95

Does that green arrow point to $8,000?

I'll sell gold when the following* begin to occur: 1) Digitizing/printing program ends, 2) Congressional budget to include spending cuts, 3) National debt ebbs, 4) Double digit interest rates, 5) "McCarthyism," 6) B-BA...

*In no particular order, combination and by all means not a complete list.

jmski52

Does that green arrow point to $8,000?

I'll sell gold when the following* begin to occur: 1) Digitizing/printing program ends, 2) Congressional budget to include spending cuts, 3) National debt ebbs, 4) Double digit interest rates, 5) "McCarthyism," 6) B-BA...

*In no particular order, combination and by all means not a complete list.

I'm guess'n that means $8,000+

roadrunner

From his last post:

"Gold stocks have a terrible track record during most of the month of October. Specifically, gold stocks tend to perform very poorly between the close of September Trading Day #21 (or the last trading day of the month if there are less than 21 trading days) and October Trading Day #19. As with any other seasonal trend, it is far from 100% accurate. All told, FSAGX has declined 16 times during this period over the past 23 year, or 70% of the time.

Still, all told, an original $1,000 starting in 1989 has declined to $254, for a net loss of almost -75%. There is no reason that gold tocks cannot rally between now and 10/25 (October Trading Day #19), but these results should at least give one a little bit of pause."

I don't think the past 23 yrs has much in common with the past 10 yrs of the gold bull market. We should only really be looking at what gold stocks have done the past 10 yrs as
they're still in a gold bull market. Another factor to consider is the fact that so much money has bypassed them to go into the bullion ETF's like GLD. In any case, the last 10 yrs
show a much different story than 70% odds of declining. One must also consider where gold has been (ie stiff 13 month correction) before deciding which of the past 10 yrs has the
most in common. Of those 10 Octobers, 4 were down significantly, 3 were up significantly, and 4 were zig zags that ended up flat start to finish. 40% downside, 30% upside, 30% flat.
But what is most obvious from the trends is that October tends to be a bipolar month. Those 4 "flats" are often a result of a big 2 week move, followed by a reversal. Certainly being
on the wrong end of the short side (or long side) would get you into big trouble. If gold is coming out of a deep correction it could perform more like the up Octobers of 2003, 2006,
and 2007. October 2009 and 2010 saw a big rise into mid-month, followed by a similar large decline. If one is judging gold from 2006 onward, the odds of an up move into mid-month
is the norm. The only exception was 2008 where gold bottomed hard on October 23rd in a complete washout....similar to what it did back in May/July. Don't really think we're going to
see an October 2008 this month since we already visited those extreme oversold multi-year levels on miners. On the surface this guy's "stats" make sense. But dig a little deeper and
you get a Jeckyll and Hyde month that for 5 of the last 6 yrs has tended to rise into mid-month. How October rolls in the first part of the month will depend on what gold and liquidity
are doing. QE3 was just announced. Election time is still 6 weeks away to keep the pedal to the metal. Gold and miners are still pretty overbought. Based on miner's OX occurring on
the 19th, I'd sort of expect miners to succumb to the typical bashing in the last 2 weeks of the month? Could they rally all month like 2003, 2006 and 2007? Possibly, as 2012 is similar
to those years (esp 2007 which followed a year long consolidation). Only question is what do they do for the next 2 weeks? My own guess would be for them to go higher into the 15th
and then start faltering, following the scenario of the past 5 out of 6 yrs. But, they've come so far already that heading down for another week or so is certainly possible. One Citibank
analyst has already written about the similarity between Aug/Sept 2012 gold action and the same period in 2007.

When considering Sinclair's $4500 gold vs 1980 also consider that he doesn't feel gold will collapse in a heap as it did in the early 1980's. If the otc derivatives do end up hammering
financial systems and currencies, gold will likely come into play as part of a new basket of "currencies." There was no call for that in the 1980's as gold returned to commodity status.
This time around it may be needed. And even if our favorite politicians say it isn't needed, it's becoming clear to the people of the world (as well as the CB's) that it still functions as
money/final debt extinguisher. JS has stated that while gold will pull back a significant amount from its final peak (20%? 30%?) he doesn't expect the type of washout seen in the
1980's. We only get to destroy the nation's financial systems every 120 yrs or so. Gold is usually left to help pick up the pieces. The last time was in 1894.

jmski52

Another factor to consider is the fact that so much money has bypassed them to go into the bullion ETF's like GLD.

This is a key point. Sinclair points out that gold mining companies are generally dependent upon a strong market for gold and that they tend to sell significant amounts of current and future production in order to finance their projects. I tend to agree that the creation of ETFs was another ploy by the bullion banks and major gold holding companies to control gold production and gold mine ownership by attacking the funding of the exploration groups and smaller miners with the removal of an important stream of direct funding - private investors.

In the 1970's, the gold mining stocks provided their own kind of built-in market multiplier when the price of gold was on the rise, so it was a leveraged play without having to take out a margin position. This is simply because of the financial structure of most gold mining companies at the time - they were valued on the basis of their reserves in addition to their current production. In today's hard world, the reserves are significantly discounted because of the uncertainty of financing in the face of blatant market manipulation. This is a point that Sinclair has made before. That being the case, there is not nearly as much built-in "leverage" in owning a promising gold exploration stock, or a small gold miner these days.

In fact, Sinclair's Tanzanian company is his own effort to change the financial structure back towards what it was, and what it should be in a free market. One of his recent posts was celebrating that a major South Korean industrial company (offhand, I forget which one) is now linked up with a gold producer in a funding deal. This will weaken the stranglehold that banking has on the finances in the whole industry, especially if the venture becomes more and more profitable.

roadrunner, please feel free to correct any of my observations if they are off.

So, what makes a gold mining stock attractive now? Will they regain the type of financial traction that they had in the 1970's? Is that the only consideration? Since I don't keep up with the industry as much, I'm still poking around for further justification.

derryb

<< <i>So, what makes a gold mining stock attractive now? >>


Same thing that always has, metal demand and metal price outlook.



<< <i> tend to agree that the creation of ETFs was another ploy by the bullion banks and major gold holding companies to control gold production and gold mine ownership by attacking the funding of the exploration groups and smaller miners with the removal of an important stream of direct funding - private investors. >>


If the metal is actually being held in the ETFs as claimed, the mining companies and explorers are benefiting from the increased demand for metal. Getting higher prices (better earnings) for the metal is probably as good as getting captial investment. Besides, capital investment goes to privately held companies as increases in public stock value go to the stock holder. Public companies can get injections of cash with new equity offerings and high metal demand affords them the opportunity to do this. ETF demand has probably provided a great benefit for mining companies both public and private.

Since the major metal ETFs are managed by major banks, those banks are more than likely using the metal for shady dealings which could result in the metal not being there but instead being loaned out or sold multiple times over. Won't know until the music stops when metals enter a serious bear market and sellers greatly outnumber buyers with EFT players all running for the exit at once. The size alone of these ETFs will empower SLV and GLD to be major price movers that can accelerate a major sell off. Once a bear trend surfaces anyone in paper metal should get out if not already out. As a paper player myself this is something I have to constantly remain vigilant about. As long as the music is playing the party is in full swing and I'm dancing with the rest of the drunk fools. Those who sober up quickest will keep more of their shirt.

roadrunner

Good points jmski52. Makes perfect sense to me. Most junior miners have not been profitable along with continued delays in getting their projects into production. And even at
the very low share prices seen this past year, very few deals were made by seniors to acquire these juniors. After seeing Barrick, Kinross, Goldcorp and others all get hurt badly by
overpaying for recent acquisitions, the whole field is gun shy. Maybe they are going to wait until those juniors are in bankruptcy, as Great Basin Gold is right now.

While miners have performed poorly over the past 1-1/2 to 4 years, this is a cyclical thing. They also did fabulously well from 2001-2006 and very well from 2001-2008. As poorly
as their recent performance has been, I think the next couple of years will be a period of overperformance. Of course they still have the same issues of rising costs, geo-political
and labor risks, staying well funded, as well as a dozen other risk factors. They probably will never recover the influence they had in the 1970's when gold grades were 3X higher
and costs far less on a percentage basis. Today they mine 2X to 3X as much ore, at far deeper or higher elevations to get the same amount of gold to market. There will be some
big winners coming out of the pack in the next several years, but those won't be easy to spot w/o first hand information of mining sites and potential resources.

jmski52

roadrunner, you've just described an industry in which the best investment candidates have higher cost structures than ever before, which makes a capital-intensive operation even more vulnerable to finance. Given the situation on the ground in South Africa, this would portend higher gold prices (maybe much higher), lower production and fewer viable companies overall.

I'm not so sure that having the gold itself wouldn't be a better bet. How much of a "pop" did some of these companies get during their last run higher?

streeter

Well,
The guys who put little credence to make money in charts are #1 & #2 in the investment thread.

and,

The chartists are waaaaaay down the list or not participating.

Does that tell you something? It tells me that 'GUT FEELING' and past experience plays a more important factor than many people want to admit.

Jinx86

So your saying my slabbed pandas are just going to be worth melt.....huh, good thing I bought them at melt. Ill have to try and sell them soon for more volume in my stash.

cohodk

<< <i>Well,
The guys who put little credence to make money in charts are #1 & #2 in the investment thread.

and,

The chartists are waaaaaay down the list or not participating.

Does that tell you something? It tells me that 'GUT FEELING' and past experience plays a more important factor than many people want to admit. >>




Not exactly. Since I am waaaaaaaaaay down the list and a chartist, I will explain that my trade was either going to result in a 100% loss or a 500+% gain. It was an all or nothing trade. The basis is that I thought CMG was going lower in 2012. The Dec 31 close was 337.74, closed 9-29-12 at 317.54 or down 6%. I easily could have said just short the stock and I would be well into the upper half of participants. But since this is just some fantasy game, I figured why not go for it. I appear to have been "counted out" on that thread, when in reality it is possible I could be up 300% on Monday.

BTW--I actually own my pick, do you own yours?

I also dont think anyone is disregarding experience or gut feeling. There are many tools in the investing toolbox. Chart analysis, fundamental analysis and gut feeling are all tools in the box. All of which if used incorrectly will have negative results.

cohodk

Regarding etfs, I believe PMs are priced higher now than if there were no etfs. Metals have DEFINATELY benefitted, while the miners may have been hurt.

streeter

coho, don't be so sensitive. You see yourself in my comments and are quick to take to the pen.

DK, I prefer land and buildings actually.

I did own Sprint(out now) and collectible 2 1/2 libs-- not generic ---but they were so beaten down they had no where to go but up.

I thought Essex was on an upward trend due to rental increases and I happen to have worked with the founder and it's a good company with a quality asset base. I never owned it. I now am leaning toward the opinion that upper end west coast rentals being at the top of their game and am seeing the ownership housing market bottoming on the west coast. It may dredge along for a few more years but the good stuff is getting multiple offers with the weak properties still flatlining.

For you, wait til next year I fear. I hope you do well with Chipotle but they seem to draw a crowd in SoCal and have a good customer base. With their business around here--I would never have thought to short them. It was a good pick but one I would never go for. I make money steadily not in huge chunks. Big paydays are for younger people who need a jumpstart. Us olde farts don't need windfall paydays and I wouldn't have a use for the money if it came en mass. In the tortoise and the hare, I pick the tortoise.

BTW, Dave ...my senior term paper at Cal in Stephan Roulacs Finance 133 was on the NYSE. I may have been born at night, just not last night. And I don't play Vegas style investing with my money like some people like to do. I earned it with blood and sweat and some nimrod trader is going to have to pry it from me.


I already have my pick for 2013 if Baley plays the game and can cajol Wingsrule into free labor again. You'll laugh at the pick and I will laugh to the bank

jmski52

I easily could have said just short the stock and I would be well into the upper half of participants. But since this is just some fantasy game, I figured why not go for it. I appear to have been "counted out" on that thread, when in reality it is possible I could be up 300% on Monday.

Never count the cohodk out.

However, you can count the jmski out because he got confused and made his picks as if it were real life, hedging 3 good bets into one good bet that has no beta.

cohodk

I'm not sensitive but don't see how I could not see myself in your comment. Its ok. I got 3 more months and only need one day.

You did make solid picks. I was looking at S myself and traded it late last year.

I also have my pick for next year, that is if it doesn't get taken private before then.

roadrunner

Charting and chart patterns to me are far more useable on an hourly, daily, and weekly basis. Trying to make money with them months, never mind 1 yr out is not easy. You
could have the trend right, be several months off, and lose your shirt. I don't see the logic in trying to pick one flyer vs. an entire sector. No one is going to invest their life
savings in one pick and risk it all on one bet. It's a marathon, not a sprint, with many battles along the way. I picked miners for 2012 and never expected the secondary washout
they experienced from March-May, one of the few market areas to revisit fall 2008 oversold levels that was independent of the gold price. In that respect, from May-December this
year, they'll probably be one of the best performing sectors. To answer Jmski's question, the miners >doubled up on gold on this last move up from $1588-$1790. I listed the
results in the trading thread a few weeks ago. Miners leveraged up quite well considering. But they leverage down too. GDXJ came close to a triple. Nugt and Ugld are both 3X
ETF's. Nugt outperformed Ugld by 2.52X...better than the 2.31 leverage of GDX to GLD. After the beating miners took in the spring, they are now back to about even for the year.
Even with all the financing obstacles, I'd expect world gold production to continue to increase over the next 3-5 yrs on the order of 5-15% over that time. Not enough to make much of
difference either way. There are more than enough newer projects coming on line to balance out the ones that are consistently delayed and to offset the declining South African model.

July 23rd to Sept 13th

GLD up 13%

GLDX up 29%
GDX up 30%
SLV up 30%
GDXJ up 35%
SIL up 42%
UGLD up 44%
AGQ up 68%
NUGT up 111%
USLV up 113%

streeter

When I saw CMG as your pick, I perused analysts opinions on the company. Your pick was the only company that I investigated.

I know why I only listen to my inner voice. One analyst downgraded CMG because Taco Bell is changing their menu to compete ...only problem is Taco Bell is a junky drive through joint with a bunch of derogatory nicknames out here on the west coast. Completely different clientele.

The enemy of CMG is the economy but since it is not a red meat restaurant they are not taking the big hit on revenues. I wish I had their profit margins. The stock heads south when earnings are not 'quite' up to expectations. Oh My!

It does seem priced into the stratosphere however. Same could be said for AAPL. Buying cotton candy on that baby. I just can't believe my eyes how they have capitalized on their 'CULTURE'. Nice products, overpriced stock. Gang bangers in L.A. with Iphones & tablets. Go explain that to Cupertino.

And while you're at it, explain Cal losing to AZ St.
Ouch. Is there a chart for that?