Blog Title: For those about to DIG (We Salute You)... For all those Gold Bugs out there...
All apologies to AC-DC fans out there...
I can't wait to dig into my topic this week in relation to GOLD & SILVER. In my past I courted many online forums (I don't touch them now... to distracting) and there was always a contingent of hard core Gold 'believers'. There are many who would state that it is the only true currency in the world today.... our gold backed currencies should never have been discontinued in the 70's. Whatever the case... gold is truly just another commodity to trade and make money from. Why do you always need it in your portfolio? Why would you hold anything that has been in a downtrend? You do have stops in place do you not? Oh boy....
Never forget the first rule of trading. Make money. Do you want to be 'right' in your calls? Or do you want to be 'wealthy' from your calls?
If you truly think gold is a valuable asset you must have in your portfolio, then I have a few suggestions to possibly make it more profitable. But, alas... yes... you still have to work for it.
So before we delve into that, it seems to be a common theme for me to review the past months' general market action. So, lets continue with that for a brief moment. It appears the S&P and Dow are right on the cusp of breaking out for a good 20% gain on the upside shortly.
First a medium term look at the S&P500:
When I'm just browsing the markets I love my Fibonacci lines. They are uncannily accurate, but darn hard to trade in a systematic way. You can see from the lows of 2011 and lining up our % lines we could have a good 9% gain still to come for the S&P to reach the 1875 mark. This is all well and good, but lets go back to my long term Dow chart:
This chart reminds us of the long term channel we have been in and with the punch bowl not yet running out of good rum (AKA: thank you FED), we could see the breakout of this resistance channel line. Forecasting a Fibonacci grid again shows us we could have a 20% breakout potential... But wait, didn't we say we only have a 9% gain achievable on the S&P500?
That's the danger of using only certain time frames. Lets look at the longer term chart of the S&P:
From the 2009 low of the markets we stretch the Fibonacci grid 20% higher than the current price of 1720 (1720 X 1.2 = 2064). Notice how it all 'fits'... (always makes me suspicious when it's too obvious...)
Long story short, with the Federal Reserve stating to hold off on their 'tapering', this could give markets just the last bit of juice it needs to extend it's rally... Before it all goes to hell.
Ha... Couldn't resist. Really, no one knows what will truly happen, but does make me consider the future... What if the long term multi-decade channel reasserts itself? Does that mean if it does breakout will it just have further to fall as prices start drifting into the channel again? And what negative day it would be when it does break below the top trendline? Profitable for some...
I've heard many times how portfolio managers would welcome a little bit of gradual pull back. This would make sense to stay within our channel and ride it slowly up through the next few years. If though we truly hit this 20% increase soon, this may just mean we could have a decade of sideways consolidation. Truly a depressing thought for savers who have AGAIN put their faith in markets that will entice them further in the near term for long term depression... Great for our Kinship Fund Systems though as we are negatively correlated to the markets in general (which is why we are not doing as well this year in comparison to past years). Where there is fear, there is opportunity... Point is... Diversify (and protect yourselves...)
OK, enough with the depressing stuff... Lets have some fun... Gold and silver have a very unique relationship. In fact it is very rare to find two markets that are so similiar but different. Both are affected by many of the same things, US Dollar, economies, currencies, et cetera. It is important to stress that there are very, very few who share the same type or relationship as Gold & Silver, maybe Apple & Microsoft?, DOW& NASDAQ? Hard to say as I really haven't tested those.
My point is for those who just have to hold a precious metal in their portfolio. Why just stick to Gold? Why not hold either Gold or Silver depending on what could be more profitable?
Here's a chart to get us started:
Here is a long term chart of Gold & Silver (Gold at the top, Silver in the middle, and the ratio of them at the bottom). If you are an long term investor consider utilizing ratio charts to buy silver when gold is too expensive and buying gold when silver is too expensive (in relation to past history). For example holding silver instead of gold from late 2002 to the middle of 2006 is much more profitable than holding gold. Here are the results of this strategy in comparison to holding gold:
So it is interesting to note how it is much more profitable if you are able to formulate systematic trading parameters to hold EITHER silver or gold when either is cheaper compared to the other. You can see utilizing the opposite trade is much less profitable, even though the general trend during the same time frame may be up. You may say, "GREAT! That's all I need to know". Aah, not so fast..
What happens when gold and/or silver is MUCH more expensive for extended periods? Take a look at the very long term chart of these two (Thanks to Greg Schnell for the chart):
It is obvious previous to the 1990's that Gold was indeed more expensive than Silver (from today's standard) for a few decades. This is when a systematic system can come in handy. What rules do you include that would change your 'switch' levels? Would you monitor the opposite trade? This is the work long term investors need to contemplate. If you aren't able to work for your money, then your better off handing it to a qualified portfolio manager and have him or her handle your long term investment. Long term trading at this level is not for the faint of heart or of low convictions.
One other consideration is what happens in a long term bear market? You still run the risk of loosing a lot of money, albeit less than holding the opposite trade. What parameters would get you out? What is your, "I give up" point?
Very important considerations to ponder, but the premise of ratio rotation trading has it's merits. Feel free to comment in regards to other symbiotic markets that may do well with this strategy that you are interested in and I will hit them in future blogs.
Next Month: Canada, our home and native land.... of OIL.
All apologies to AC-DC fans out there...
I can't wait to dig into my topic this week in relation to GOLD & SILVER. In my past I courted many online forums (I don't touch them now... to distracting) and there was always a contingent of hard core Gold 'believers'. There are many who would state that it is the only true currency in the world today.... our gold backed currencies should never have been discontinued in the 70's. Whatever the case... gold is truly just another commodity to trade and make money from. Why do you always need it in your portfolio? Why would you hold anything that has been in a downtrend? You do have stops in place do you not? Oh boy....
Never forget the first rule of trading. Make money. Do you want to be 'right' in your calls? Or do you want to be 'wealthy' from your calls?
If you truly think gold is a valuable asset you must have in your portfolio, then I have a few suggestions to possibly make it more profitable. But, alas... yes... you still have to work for it.
So before we delve into that, it seems to be a common theme for me to review the past months' general market action. So, lets continue with that for a brief moment. It appears the S&P and Dow are right on the cusp of breaking out for a good 20% gain on the upside shortly.
First a medium term look at the S&P500:
When I'm just browsing the markets I love my Fibonacci lines. They are uncannily accurate, but darn hard to trade in a systematic way. You can see from the lows of 2011 and lining up our % lines we could have a good 9% gain still to come for the S&P to reach the 1875 mark. This is all well and good, but lets go back to my long term Dow chart:
This chart reminds us of the long term channel we have been in and with the punch bowl not yet running out of good rum (AKA: thank you FED), we could see the breakout of this resistance channel line. Forecasting a Fibonacci grid again shows us we could have a 20% breakout potential... But wait, didn't we say we only have a 9% gain achievable on the S&P500?
That's the danger of using only certain time frames. Lets look at the longer term chart of the S&P:
From the 2009 low of the markets we stretch the Fibonacci grid 20% higher than the current price of 1720 (1720 X 1.2 = 2064). Notice how it all 'fits'... (always makes me suspicious when it's too obvious...)
Long story short, with the Federal Reserve stating to hold off on their 'tapering', this could give markets just the last bit of juice it needs to extend it's rally... Before it all goes to hell.
Ha... Couldn't resist. Really, no one knows what will truly happen, but does make me consider the future... What if the long term multi-decade channel reasserts itself? Does that mean if it does breakout will it just have further to fall as prices start drifting into the channel again? And what negative day it would be when it does break below the top trendline? Profitable for some...
I've heard many times how portfolio managers would welcome a little bit of gradual pull back. This would make sense to stay within our channel and ride it slowly up through the next few years. If though we truly hit this 20% increase soon, this may just mean we could have a decade of sideways consolidation. Truly a depressing thought for savers who have AGAIN put their faith in markets that will entice them further in the near term for long term depression... Great for our Kinship Fund Systems though as we are negatively correlated to the markets in general (which is why we are not doing as well this year in comparison to past years). Where there is fear, there is opportunity... Point is... Diversify (and protect yourselves...)
OK, enough with the depressing stuff... Lets have some fun... Gold and silver have a very unique relationship. In fact it is very rare to find two markets that are so similiar but different. Both are affected by many of the same things, US Dollar, economies, currencies, et cetera. It is important to stress that there are very, very few who share the same type or relationship as Gold & Silver, maybe Apple & Microsoft?, DOW& NASDAQ? Hard to say as I really haven't tested those.
My point is for those who just have to hold a precious metal in their portfolio. Why just stick to Gold? Why not hold either Gold or Silver depending on what could be more profitable?
Here's a chart to get us started:
Here is a long term chart of Gold & Silver (Gold at the top, Silver in the middle, and the ratio of them at the bottom). If you are an long term investor consider utilizing ratio charts to buy silver when gold is too expensive and buying gold when silver is too expensive (in relation to past history). For example holding silver instead of gold from late 2002 to the middle of 2006 is much more profitable than holding gold. Here are the results of this strategy in comparison to holding gold:
So it is interesting to note how it is much more profitable if you are able to formulate systematic trading parameters to hold EITHER silver or gold when either is cheaper compared to the other. You can see utilizing the opposite trade is much less profitable, even though the general trend during the same time frame may be up. You may say, "GREAT! That's all I need to know". Aah, not so fast..
What happens when gold and/or silver is MUCH more expensive for extended periods? Take a look at the very long term chart of these two (Thanks to Greg Schnell for the chart):
It is obvious previous to the 1990's that Gold was indeed more expensive than Silver (from today's standard) for a few decades. This is when a systematic system can come in handy. What rules do you include that would change your 'switch' levels? Would you monitor the opposite trade? This is the work long term investors need to contemplate. If you aren't able to work for your money, then your better off handing it to a qualified portfolio manager and have him or her handle your long term investment. Long term trading at this level is not for the faint of heart or of low convictions.
One other consideration is what happens in a long term bear market? You still run the risk of loosing a lot of money, albeit less than holding the opposite trade. What parameters would get you out? What is your, "I give up" point?
Very important considerations to ponder, but the premise of ratio rotation trading has it's merits. Feel free to comment in regards to other symbiotic markets that may do well with this strategy that you are interested in and I will hit them in future blogs.
Next Month: Canada, our home and native land.... of OIL.
Protect yourselves,
Lee MacFarlane
Derivatives Trader - President
Kinship Investments Ltd.
office (250-385-9132)
fax (250-385-9134)
Derivatives Trader - President
Kinship Investments Ltd.
office (250-385-9132)
fax (250-385-9134)
check us out on 
Legal:
Past performance is not necessarily indicative of future trading results.
Lee MacFalane is a derivatives trader trained under the Canadian Securities Institute and is working toward his CMT designation under sponsors with the CSTA (www.csta.org). He manages Kinship Investments, a Private Managed Fund (working under the Capital Raising Exception Act of the BCSC). Kinship Investments is not an advisory service and does not provide investment advice. This blog represents Lee MacFarlane's opinions only and is not intended to be used as investment advice. Lee MacFarlane and Kinship Investments may or may not hold securities that are discussed in this blog. Please contact lee@kinshipinvestments.com for further information or go to www.kinshipinvestments.com/trustfund.html to view our latest results.
Lee MacFalane is a derivatives trader trained under the Canadian Securities Institute and is working toward his CMT designation under sponsors with the CSTA (www.csta.org). He manages Kinship Investments, a Private Managed Fund (working under the Capital Raising Exception Act of the BCSC). Kinship Investments is not an advisory service and does not provide investment advice. This blog represents Lee MacFarlane's opinions only and is not intended to be used as investment advice. Lee MacFarlane and Kinship Investments may or may not hold securities that are discussed in this blog. Please contact lee@kinshipinvestments.com for further information or go to www.kinshipinvestments.com/trustfund.html to view our latest results.
No comments:
Post a Comment