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January 5, 2010

Less is More

There are a few cobwebs in here. Maybe I should show up a little more often! Well, I hope everyone had a relaxing holiday season and managed to find time to perform a post mortem on 2009 and get some strategies put together for the new year. I ended the year with a 40.1% return on my trading accounts, which is a little disappointing considering gold was up 25%, and the Gold Bugs Index (HUI) actually beat me by a few basis points. Being a gold bug, it seems a 40% return (or higher) could have been had for a lot less work. The truth is, actually, I would have posted a far higher return had I stuck to just precious metals trading. My repetitive failures during summer and early fall to beat down the stock market were the main drag on performance. I lost not only cash, but many, many hours slaving over my computer trying to get a handle on the equity action.

So, I intend to attempt a "less is more" strategy this year by watching the markets less during trading hours, and focusing on the markets I seem to trade best. The change fits in with my changing lifestyle, as well. I will cease to be single next Saturday and, as I mentioned sometime last month, I plan to focus more energy on my long-time desire to bash my keyboard for creative purposes.

As for today's markets, the typical gyrations of the year's first week are in play, making extrapolation dicier than usual. Instead of pouring over technicals, I would like to perform an experiment. I am going to run through charts of the usual suspects sans trend lines or oscillators, without respect to cycles, and ignoring confluent indicators. Rather I will spend 5-10 seconds staring at each chart and then just draw the first vision that comes to mind. If I don't miss too badly, I might even bring the experiment out again at the beginning of Q2! Okay, here goes.

gold chart

us dollar chart

s&p 500 chart

s&p 500 weekly chart

us treasury bond chart

While the S&P daily chart gives me a slightly different vision than the weekly, I still see equities rolling over later this year, probably spurred lower by an erosion on bond prices. I expect the decline to be an 18-24 month drip, as opposed to the waterfall decline we got in 2008. What will surprise traders, I believe, is the fact that the dollar will continue to drip lower along with stocks over the next bear leg. It will be the vicious rip higher in commodity prices, along with rising rates, that will guide stocks lower rather than the weak dollar guiding them higher.

Okay, I won't leave you without at least a short-term word on gold since I'm sure a lot of folks... including mtself, by the way... are trying to get a handle on the potential end of this correction. Let's just say that previous mid-point corrections in gold's parabolic runs lasted no more than five weeks. If you choose to count the week gold set its high and then closed as a bear hammer, then our five weeks are behind us and we should be off to the races. More importantly, even if this week reverses to close lower, it should mark the end of the correction. So, we are very likely close time-wise to a bottom if it is not already behind us. When the next leg of this run begins in earnest, it should be explosive, so missing the bottom by 50 bucks one way or the other should not be a concern for those who are only concerned about the price in April or May.


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