Saturday, June 28, 2014

Bonds and Stocks - Interesting Relationships

Somebody once told that the truth is in the bond market. Well, let me look at some of these markets to find whether there is any relationship.

I will look at the corporate bonds and junk bonds. As everyone knows, junk bonds are associated with a high risk while corporate bonds vice versa. When investors feel that something wrong is in the making they escape into safe instruments. It means that if such is a case, they should prefer to own less risky corporate bonds to junk bonds.

Let us look at the chart below:


The charts show three markets: stocks (S&P 500), junk bonds and corporate bonds. Below the charts of these instruments you will find the chart showing the relative strength of junk bonds against corporate bonds. As you can easily spot, before any major correction in stocks the corporate bonds were stronger than their junk friends. The most interesting thing is the last junk bonds' relative weakness lasting from September 2013. It has been the longest weakness since 2007. Prudent investors are escaping into less risky instruments and they have been doing that for quite a long time .

Wednesday, June 11, 2014

The Trade In PM Exploration Companies

In my May 16 article I presented a simple strategy for playing gold miners stocks. Today a quick update of that trade plus one relevant modification:

As you see, the trade is still active and buying GDXJ on May 16 would have bring a profit of $2.5 per share till now (7.1%).
But, for those risk averse players, this deal could be a little bit different. Because this is a play between big PM miners (GDX) and junior PM exploration companies (GDXJ) it could be less risky to go LONG GDXJ and go SHORT GDX - smaller profit but smaller risk as well As you like.

But generally the trade is still on...

Monday, June 9, 2014

Positive Set-Up For Gold In The Making

Gold is a story about two markets:
  1. Far East (mainly China and India) - this is a physical market - people there do not care about the gold price - they just want to hold gold in coins, bars etc. Why? Because for them gold is money and everybody wants to have money...
  2. West - this is a paper market - nobody cares about holding physical gold; the price of futures contracts is the only thing which counts.

In other words: the Far East holds gold and the West speculates, trades etc. What is more - in a silent and slow process the Far East is taking gold from the West. In my opinion, the paper gold market is going to vanish. Simply, the Far East will take gold from the West so in some time the Western speculators in gold will have nothing to speculate on.

But for the time being the speculation is still on. Looking at one of the main flag ships of gold trading, SPDR Gold Shares (GLD), we can spot interesting thing these days. Generally, the price of gold mirrors the changes in the flows of gold in GLD. Let us look at the chart below:

When there are in-flows of gold into GLD, the price of gold (and GLD) is going up. And vice-versa.
Presently, we can notice that there are inflows of gold into GLD (the last red circle).

Saturday, June 7, 2014

Silver Is Also At a Decision Point

Silver, as gold, is also at its decision point. Let me show a few charts:

As the chart shows, silver is still in its long term bull market.  Presently, it is also at its medium-term support at $18. This is a decision point. The speculators, seeing this situation, are neutral at the moment. But looking at the history we can spot that nearly all the time since 2006 they have beem optimistic about silver - this means they have been long silver all the time. Now they are the least optimistic about silver.

This lack of optimism we can spot at the chart below - the sentiment is standing nearly at zero. This indicates there is too much pessimism so the most probable move for silver is UP (in most cases when this indicator was flashing zero, silver was starting marching up).

As you see, these days will be crucial for precious metals.

Friday, June 6, 2014

Timmins Gold Corp. - Technical Situation

Here is a link to my last article on Timmins Gold Corp (NYSE: TGD; TSX: TMM).
Below you will find  a chart showing the present technical picture of these shares:

Wednesday, June 4, 2014

NASDAQ 100 Has Printed A Record But It Does Not Look Healthy At All

Nasdaq 100 is marching higher and higher but less and less stocks lead it. This has been a common pattern since May 2013.
But today this pattern went to its extremes. We have a record - 3,743.59 points but there were more shares recording new lows than shares recording new highs. Well, I have never seen something like that. The market is very ill.
Let us look at the table below:

Gold or Stocks - That Is A Question

These days we are at the Decision Point. Look at the chart below*:
* - $DJW is an index copying the behaviour of stocks around the world

Since 2007 there have been two periods:
  • July 2007 - September 2011: staying in gold was a better idea than having stocks
  • September 2011 - today: having stocks was a better idea than investing in gold
Today, we are at the Decision Point. Mr Market should decide whether it is better to have stocks or to be in gold.
I am curious as well.