One of the comments I received on last week’s column was “But, it is too late when something has happened!” This was in response to my comment in the column: “The stock market is not about what might happen. The stock market, if you are an investor, is all about what ACTUALLY has happened. The one and only thing that is important to your portfolio is what has actually happened! Once you know this, then you can take steps to protect your portfolio values.”
The implication from the commenter is that it was “too late” when the “ACTUAL” has already happened. Let me elaborate a bit on my comment to put to rest the concern implied by the question.
Charts go a long way in predicting the future. How? A chart traces out all sorts of repetitive formations. These formations are not just chronicling what is going on, they also forecast what may be about to happen.
Take my column of August 26, 2008 to which I referred last week. I said I saw a formation called a “head and shoulders” formation that forecast that the Dow (then at about 12,300) was going to drop to 8,000, well below my SUPER CHART KEYLINE. How did I know that? Well, several old time chartists, Robert Edwards and John McGee (first edition 1948) wrote a book (Technical Analysis of Stock Trends) that looked at all sorts of formations (over 55) and presented analysis on what each type of formation could lead to, as far as future price action was concerned. With the head and shoulders, they explained how to spot the formation as it formed and then how to measure its implication as to future price goals. I had a nearly two month jump on the crash of the market and even had a specific price to look for, which I published in August, while the price was still way above the Dow 8,000 predicted goal.
Now, not all formations give you the luxury of a very specific measure to turn to. Some only indicate that the market is strengthening or weakening. McGee and Edwards said that by studying their book, you would learn, with experience, how to read even these more ethereal formations. They were right.
Now, I am a purist as a chartist. I know practically nothing about the fundamentals of a stock or index when I first look at its chart. But, I can tell at once if I should forget or pursue that stock by what I see on its chart. And to help you get a bit of a grip on how these other formations work, I will, from time to time, describe other formations in this column so you can become more familiar with them, as well, and learn for yourself what potential impact they could have on your portfolio. Hope you find this future exercise of interest, too.
But, back to the present! I am including my latest S&P Super Chart Keyline this week. It has been several weeks since I included it and I want to update the, yes, head and shoulders formation that it has carved out since last October’s crash. As I told you in October, this head and shoulders formation is the opposite of the one in August 2008. That one was a “down” head and shoulders, meaning the prediction was for a drop in prices. The current one is for a up move and its formation told us last July 25th to Buy, committing one-half of the portfolio money allocated for stocks.
It is true that some analysts said to BUY in April, just after the hard drop in March. That was on a possibility (dubious to a chartist) of a “V” bottom to the market might form. But, my experience told me that trading a “V” bottom is only about 35-40% reliable. Knowing that, I chose to wait until I saw a formation that I can rely upon 70% of the time or more. Thus, I waited until the head and shoulders gave its partial BUY signal at S&P 970 and, of course, the October 8th All-In BUY signal at S&P 1070, signaled when we crossed up the Super Chart Keyline. Granted, it did not catch the exact bottom. Chart formations very seldom do. But, they usually catch the middle 75-80% of a move and you can do very, very well with that kind of progressive gaining. We closed Friday at 1093 on the S&P, by the way. OK, so far.
Now, a few words about the S&P chart below.
First, note that the close last Friday (11-13) was well above the Super Chart Keyline at 1093.48 (the Keyline is currently at 1061). That was welcome news to me, as holding below the Keyline would have been a very worrisome development. And we were also back above the “Headline.” As I said in the 11-2 column, crossing below the Super Chart Keyline after crossing above it is a development that had not occurred since 1975 and one that could have spelled an ominous future – rare though it is. But, having crossed back above the Super Chart Keyline, for now, I consider that all is well.
The target of the head and shoulders formation remains S&P 1220-40 on the cash index (mid-11,000 area on the DOW). So, while I will be watching closely, consider that to be the next stop of major importance.
Might we still fail before we get to 1220 or so? Sure. But, again, the chart will give us plenty of warning before it fails big – barring some completely unexpected catastrophic event moving the markets, of course.
I am also including the Bond chart this week (30 year cash index), as it continues somewhat weak, even though its price is still above the Super Chart Keyline. It is a chart that needs to be watched closely in here.
The major point of interest to me, as a chartist, is that the Momentum Section shows the fast stochastic (the green line) starting to approach the 40-50 level (it uses a scale of 0-100) and that as the green line has risen a bit recently, the Bond price has pretty much stayed the same. That can be a warning to be very alert to possible future weakness. The chart needs some more time to call that one.
We need, especially, to watch for any break below the Super Chart Keyline (now at 116.31). The Bonds closed at 119.19 last Friday, still three points above my Keyline, but on weak momentum moves, as I said. So, any crossing below the Super Chart Keyline here means the future will most likely hold higher interest rates. Since the Bond market is one market the Fed CAN’T control, a prediction of higher interest rates coming would adversely impact the stock market and that is very, very important to us. Be assured I will be watching. If a special report is needed on a Super Chart Keyline break, I will have it at this web site, at once. When we get the new subscription web site up, I would be sending you a direct e-mail of warning. More on that as it unfolds.
Other than that, last week was basically quite uneventful. There were several important numbers reported, most important being the import-export numbers and the consumer confidence report. The confidence numbers slipped more than expected and imports surged by a record percentage of 5.8%, while exports increased only by about 3%. So, we lost ground again in that arena, not a good sign. But, remember these numbers are all a “look back” not a “look forward” and the market is much more focused on the “look forward” items, just now.
Gold continued to rally last week, but I expect that we will see a lot of ups and downs over the next 3-4 years in gold, eventually ending up somewhere in the $2-3,000 range, by then. Only a huge political change would avert that outcome.
So, buy gold? You bet. Every portfolio should be at least 15% in gold, at this point. If your concern is greater, I am even happy to see 20-30% in gold. I expect a huge “blowoff” one day in the gold market – that means a huge run-up of price. Lots of reasons why, but the dollar is the prime reason. When? Haven’t a clue. But the charts are not lying. That day is coming. Patience dear heart, patience.
That pretty much wraps up this week. Next week, I will have a broader spread on Gold and Oil. And I will be looking at the interest rate markets on the international level a bit. Some not so good signs out there in that realm.
So, as always, do have a good investing week. And you keep in touch. I do! See you next week.
Closes as of Friday 11-13-09 (cash index)
DOW Indu. 10,270
S&P 1093.48
NASDAQ 2,167.88
30 YR BONDS 119 14/32
GOLD 1116.70
OIL (Nymex) 76.35
*The name Super Chart Keyline is a registered Trademark of Max Whitmore.
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About BawldGuy
Max,
I am considering gold, but I have some questions.
1. What would cause the $US to turn, causing gold to drop?
2. I believe that $147 oil was due to speculation rather than fundamentals. Could this be true for gold? We know what happened when the oil specs disappeared.
3. Is GLD a good way to invest or do you prefer hard assets?
4. Should I buy on dips? Dollar cost average?
Thanks for doing a great job!
How is the new site coming?
Hey Mark — The new site is coming along fine, but per usual, more slowly than anticipated. We’re sloggin’ through the ‘Devil’s in the details’ concept at this point.
Bottom line? I think it will be up in a matter of days.
Hi John H,
Hi John H,
Hi John H,
You ask some interesting questions. Regarding #1, Look up what is called the “carriage trade” use of the dollar. Google will help. Folks borrow the dollar and buy Higher interest paying investments around the world. As long as interst rates say low, this will continue. When U.S. interest rates start to rise, the “carrage trade” will buy dollars to cover their borrowing and the dollar could surge as that happens. Check out Japan over the last few years to see how their “carriage” drama ended to see what i mean. As for #2, Spec money requires that the market, overall, have a very low “short position” for the item which is the target of the spec. Note that the short position on gold (mostly created by the gold producers as hedges to their production – see exchanges data)is at an all-time high. Yet, gold continue to climb. Yes, there will be ups and downs in gold to shake out the “weak” hands holding gold. But, my outlook, according to my Super Chart Keyline, currently says 3-5 years out gold could be at $2-3,000 or higher, unless some major political changes take place. As for #3, I can only give you my personal preference. I think 15-25% of the portfolio should be in gold coins, as they are the easiest to buy and sell. Some use the exchange traded GLD and CEF. Both are OK, but I like the CEF, as it gives holders a periodic six month independent audit that the gold backing the shares is really there. And your last thought – I don’t give personal recommendations, but I will tell you that over my 40+ year a broker, analyst, writer, etc., I have yet to find a system that beats dollar cost averaging. You need to begin this kind of invesing early, by age 30-35 or so, to make it work really big, but nothing has ever bested its outcome over time. And thanks for your kind words. I will look for you as a regular at the new web site.
Best regards
Max
Max, Thanks for the insites! What do you think of Northwest Territory Mint to invest in gold? A while back I bought some shares in a ETF (call letters UYM) not knowing what ETF’s were but just taking the advice of someone. It has been a good investment so far but wonder if when the charts show a pull back if we should continue or move this investment into a safer place. Could you explain what ETF’s are and why they are so risky and if they are a good bet in this market. We are near retirement age and could use some help with our strategy. Thanks!! hc
Max – I’ve enjoyed your writing so far, and I’m curious about the Super Chart Keyline. Is that your own proprietary indicator, or is it a standard selection in software like Tradestation? Also, how does the “carriage trade” you mentioned above differ from the “carry trade” they talk about repeatedly in the media? Thanks!
Hi HArry,
Hi Harry,
Sorry to be a bit slow in responding, but a cold made it a long weekend. But, to your qustions. First off, as you may know I don’t give personal investment advice. I am glad to answer general questions or to respond to questions that are general in nature, such as what is an ETF, what is UYM, other questiosn that ask my general opinion, but short of becomeing your personal advisor. That said, I know UYM and here are a few things you should know. Information about UYM can be found at this web site: http://www.proshares.com/funds/uym.html. It is a fund, as you know, but it is an ETF or a fund that is trsded on a major exchange just like a stock. Most general funds you buy from a broker or from the fund itself. Not ETF’s. This one is listed on the NYSE ARCA exchange. This exchange is a combination made in 2007 between the NYSE and EURONET in Paris. It lists many, many world stocks, including many ETF’s. UYM being a fund holds a number of stocks As of 11-20-09 it held 10 of them (the web site shows these. To save you going there right now, they are 1–Freeport McMoran,2-Dow Chemical,3-DuPont, 4-Praxair,5-Newmont Mining,6-Air Products 7 Chem,7-Alcoa,8-Peabody Energy,9-Nucor Corp. and 10-Ecolab Inc. Some of these you know, I am sure. The fund does changes holdings, so what you see today could be different next week, month, etc. My own opinion is that at about $34-35 a share UYM runs into a lot of what is called overhead resistance. If it were mine I would take that into consideration if I were making an investment decision. UYM is currently below my Keyline which is at at #37.64 today, not too far from the overhead resistance. One point about risk. I like ETF’s because they do spread risk over a number of stocks in the ETF. That means that if one goes bad, the fund doesn’t nosedive usually, so long as they keep their investments relatively equal percentagewise i.e. 12 stocks with each stock representing 8% of the funds money;5 stocks and each stock representing 20% of the funds money, and so on. If I had a good profit in UYM, I might consider taking profits at $34-35 and findig another place to put those funds to generate income for retirement. But you should see your own financial advisor to make those decisions. I can tell you what I think, but only you know all the many details of your financial position to come to a decision. But I am glad to have you onboard and do hope that you will become a regular subscriber. Our website will have a lot of very useful tools to make finacial decisions, my weekly Keyline Report, the use of my Keyline on all the Dow stocks, the use of the Keyline on the stocks that make up the top 10 industry sectors, and, of course, special reports as needed on the market including immediate notice when my Keyline says to Buy or to Sell and get out of the market. Its last three signals were: Sell on Feb 8, 2008; Buy using 1/2 of the portfolio money allocated to stocks on July 25th 2009 and full investment of all stock allocated funds in your portfolio on October 8, 2009. So far so good. Plus the Keyline goes all the way back to 1965 and has never had a buy signal that has lost money. Be aware that that doesn’t mean it won’t someday. Just up to now, it has’t. Take care
Best
Max
Hi John K
Thanks for joining us. To answer your two questions, the Keyline is mine and was developed by me over a number of years back in the 1970′s. It has been a trusy friend to me ever since. And as to the carriage trade, yes, it is the same one they talk about on media. It used to be that with the low interest rates in Japan, japan was the main carriage trade target. But today, it is us. Oh me. But, again, thanks for joining us. I will look forward to seeing you as a regular subscriber on our new web site. Take care and Happy Thanksgiving.
Best
Max
Thanks Max your insights are very much appreciated!! hc