Gold Bulls.
Gold has had a bit of a bull run recently. Quite a vertical run, in fact. Which is quite a change from where it has been languishing for the last year.
Looking back over the last 10 years, we can see that it has long periods of going sideways interspersed with short periods of rapid climbs.
Gold has always been known as the ‘flight to safety’ – when the market is going up people desert gold as there is better money to be made in stocks, but when the market is going down, or when people are fearful, then people dump stocks and buy gold. This can be seen in the following chart, where there is a ‘mirror image’ effect (the dashed blue line) between 2005 and 2018 and then again between 2019 and 2022.
That seems to not be working in the last 2 years – here’s a close up:
Is this significant? Has it happened before?
Having Gold was Illegal
Well, historical research was a bit limited as it was illegal for American citizens to own gold between 1933 and 1974. (apart from rare coins, industrial use, and jewelry / artwork).
What happened was that in 1933 Roosevelt issued an executive order whish required all US citizens to deliver all gold coin, gold bullion and gold certificates to the Federal Reserve and they were paid, in paper currency, $20.67 an ounce.
Failure to comply had severe penalties – a fine of $10,000 or up to 10 years in prison. (Dall-e (image generator) is getting better, don’t you think?)
Shortly after, in 1934, the gold was transferred to the US Treasury, who also changed the price of gold from $20.67 to $35. Quite a few people would not have been happy.
How To Buy Gold
I am not suggesting that you run out and buy gold – just giving you some information. Personally, I’m not holding gold – I got fed up with it at the start of the year and sold all my options. Brilliant timing of course – just before it took off! Such is life.
If you want to buy gold the ETF is GLD, and it is a spider, (SPDR Gold Shares). Unlike some other ETFs it reflects the performance of gold bullion, not gold miners, hence is more closely correlated with the price of gold. It has been going for 20 years now, and actually holds physical gold. Again, emphasizing I am not recommending – just giving some information. And if you want to check the gold spot price, Kitco.com is a good source.
To the markets
Well, Friday was a nasty surprise. A combination of bank earnings and the threats from Iran, I suppose. I was braced for the futures to be showing another drop, but surprisingly they are positive. Sometimes you just can’t work the market out. The only things we know for sure are what have already happened.
SPY Charts
SPY has well and truly dropped out of its trading range and seems to be heading towards possible support at $500. We are still a long way off a death cross, with the 200 day SMA currently on $465, but rising steadily at around $10 per week. As we got into the trade at around $433 there is no way that we can lose money on the trade, but it will be annoying if it happens.
And on the weekly chart it hasn’t broken the uptrend, but is resting right on it.
SPYG Chart
Like SPY, SPYG is right out of the trading channel, but still in the Darvas box. Every week I just make it longer! It has now been in consolidation for two months and it is getting a bit boring. Still, better than dropping, I suppose.
The Darvas box is happening just below the previous high of $73.48 which happened in December 2021. Just as we predicted, it is having a hard time piercing this resistance level.
We are still well of a death cross, and having got into the trade around $55, with the 200 SMA currently at $64.5 and increasing around $1.50 per month there is no way that this trade can lose. Of course, we would much prefer that it broke out of the box and headed up. Let’s hope.
You can clearly see this hesitation in the weekly chart. Sometimes I wish I wasn’t right!
QQQ Chart
The QQQ chart is very similar to the SPYG chart, with a long Darvas box showing that consolidation has been going on for two months now. How long can consolidation go on for? In past blogs we have examples of it going on for many months, but not usually in such a tight range as this. If it is still in this box next week, I will do a post on consolidation and what we can expect.
SPYG Chart
And the hesitation can be seen clearly on the weekly chart:
VIX Chart
The VIX has popped up sharply, and there have been several ‘doom & gloom’ articles recently. However, historically it is still low (anything under 20 is considered ‘low’)
ITMeter
The week ahead
The news will be dominated by the situation in the Middle East, but both sides have signaled that any further action would not be immediate, so markets have heaved a sigh of relief. How long that will last I have no idea. Earnings season continues, with mostly financials reporting this week. They are often seen as a proxy for the state of the economy. The fireworks will be when the technology companies report I expect!
The futures are looking positive, but its still 10 hours to market open.
Fingers crossed for a better week than last week!
Heather
13 Responses
Hello Heather, I really enjoyed your books. I am a portfolio manager for a trust company. I’ve been in finance for 10 years and to be honest, you are one of the only people that tell the truth about the market in general, but more importantly, you are beating 99% of “professional” investor gurus and even the clowns on financial news networks. Looking forward to receiving your updates and thank you!
Justin
Thank you Justin – really, really appreciate this.
x
h
I am so glad your In the Money Bull Market Strategy is offered for free with my Amazon Kindle Unlimited membership! I would have been too cheap and not smart enough to buy it. I’m 75% through reading it. I think the Bear Market book is also on Amazon Kindle Unlimited, but if not I will be buying it next!
Jerry
Hi Jerry
glad you enjoyed it – The Kindle unliited gives me $0.0000000000009 per page read, but it reaches a wider audience so I still keep it there.
The Bear book is there also, hope you enjoy it.
h
I am afraid the old market is no longer in a bull phase. Could be wrong and have been wrong many times but objective analysis, letting the Market tell me what it is doing now, really does not look good. Was hoping for more, this being an election year. Sy Harding, a Newsletter Writer and author, in his books and Newsletter put, justifiably, a lot of faith in the Seasonality of the Stock Market. If memory serves me, and it may not, he modified the Sell in May and go away, until October or the Fall using MACD and past history. I think he said the signal to get out had not come earlier than April 19th of any year. Maybe this year violates that date. He also justifiably, put a lot of faith in Presidential election years being very strong. Maybe the Market has spent all its strength already this election cycle?
Hi Tommy
I have to say it IS looking very dismal at the moment. I have previously backtested the ‘sell in May and go away’ advice (its in one of the blog posts, I really ought to have put tags on them!) and found that it didn’t hold up to actual data.
It originated (from memory) in London in the 1800s when rich financiaers used to go to their country estates to get away from the heat of the city (in England?? Go figure!), and the full saying was ‘Sell in May and go away, come back on St Leger’s day’. In mid September there used to be a big horse race on St Leger’s Day.
Re Presidential election years being very strong – I’ve just gone back to 1984 and here are the results starting at 2020: 7.25%, 13.42%, 7.26%, -33.84%, 3.15%,-6.17%, 26.01%, 4.17%, 11.85%, -3.47%. Not sure that this shows any trend? But here’s a link so that you can check it out for yourself: https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart, choose the ‘By Year’ tab.
I looked up Sy Harding – he has not published anything since 2015 ? is that coorect? His last article that I can find is in 2015, here’s a link: https://www.forbes.com/sites/sharding/2015/03/13/sorry-but-this-is-not-1997-for-the-market/?sh=1906b36224a5 when he was predicting the end of the bull market.
So – to your question – has the market spent it’s strength? I don’t know, I don’t predict other than looking at what has happened in the past and try to be objective. Whenh we get the 10/200 death cross I will definitely be selling!
Hope this helps
h
Sadly Sy died some years back. His system was not perfect but he called the dot.com bust big bad bear to a T. I really appreciate the info. The Strength in Presidential election years seems to be real to me. There has to be exceptions to everything in the Market so that is why my opinion means nothing. I always try to remember what someone said, “The Market tells its own story best.” Thanks again for the info.
Hi Heather,
My name is Thad and I recently purchased your books ITM Bull and the bear one as well. I just completed the Bull book but am going to read it again so I understand it better before reading the bear one. I have a quick question about ITM and how it relates to my current financial status. I technically have a little over 25k in individual stocks and some additional 10-15k in index fund. I was wondering if you recommend that I liquidate the stocks and start on the full blown ITM or if maybe I should just sell some of my positions and do the smaller ITMS strategy that your book details. The market has been red past couple days and I hate to sell because some of my positions are under water right now. Would really appreciate your advice.
Thank you so much for the time and effort you put in to writing your books and engaging your community. I can’t wait to put the ITM strategy to work once i am confident I have learned it well enough.
Hi Thad
I have never recommnded trading in individual stocks simply because their individual circumstances mean that they can behave in unpredictable ways – plus, when I did stock picking I never made a lot of money. Re liquidating your position, which you hesitate to do because they are underwater – that is standard investor behaviour. I did a post on it (propsect theory and the Disposition Effect) a couple of weeks ago, in ‘Riding the Bull’ on 25 March.
I can’t give advice, not being a financial advisor, but pooint out that people in general hold onto losing positions and cut short their winning ones. Right now, that is cold comfort, as the market has been horrible for the last week – having a bit of a tantrum because of the Fed not reducing interest rates.
So, to your questions: I would always recommend holding SPY over individual stocks. Whether or not it is a good time to sell / buy is not so clear, other than to say if you sell your positions when they are ‘low’ you will also be buying SPY when it is ‘low’. Whether the market is going to go down or not is something that I cannot say, other than to point to the backtesting that says sty in while the 10/200 SMAs are above a golden cross.
Hope this helps.
h
Heather,
I bought both of the bull and bear books and finished the first time reading. The only thing I’m not very clear is that when will you roll up with the 60% ITM for the bull and when will you roll with the 35% for the bear?Should I start to go the bull now or better to wait the market to pull back more? Thank you!
Sarah
Hi Sarah, rolling up should be done when either (a) you are now too deep in the money (e.g. if you are doing the 60% strategy then if you drop below 50%) or (b) when you are 30 days to expiry.
Re when to enter: yesterday was a horrible day, and the SPY looks as though it is going to test around 500 for support. I would wait a day or 2 – if it drops through 500 then I would hold off, if it bounces then that would be a good time.
Hope this helps.
h
Hello, I haven’t purchased your ITM books yet, but am very interested in your method. What is the minimum account size to begin to trade this way, because even the SPYG options seem to take several thousand dollars. I want to start small until I gain confidence and understand the system. Thanks!
Hi Michael, to start with ITMS and SPYG options you need around $3k. If you want to gain confidence while you save up, then I suggest that you use a demo platform (most brokers have them) so that you can do ‘real’ trades with play money.
Hp[e this helps
h