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I
listen to CNBC sometimes. Usually when I'm running around or working
out or something. Not for the opinions of the traders, which I find
more entertaining than useful or informative. Mostly for the news:
earnings reports, profiles on new products and companies, etc.
They do an okay job of covering major financial news stories of the
day, even if they tend to be biased towards whatever is hot at the time and
over-hyped (which also makes CNBC an interesting sentiment gauge).
One of
my favorite things from an entertainment perspective is when one of the
hosts turns to one of the traders and says: "What trades did you
do today"? And usually whoever the trader is gets all fired up and
gives some glossy rationale for why the trade they just put on is awesome and
should make a bunch of money. I find this behavior amusing in multiple
ways but what would be great is if just one day the trader would say:
"You know I didn't do anything today, there wasn't anything to
do."
These
people act like the market gives you big opportunities on a daily basis.
In reality the daily opportunities are all about squeezing profits out
of little minuscule moves in the markets often using excessive leverage.
And when the market gets volatile and choppy this excessive leverage
often works against you and causes you to get stopped out trade after trade.
This causes your account to get "chopped up" as the small
losses start building up and also effects your psyche in a negative manner.
Markets
give opportunities after
sell-offs or bear markets, and after periods of dis-interest generated by
choppy, sideways action. The problem is few people have the patience,
emotional fortitude, and open-mindedness to wait for these opportunities and
take advantage of them. If you think about when the two big
opportunities were in the last 5 years in the stock market, they were in
early 2009 after a horrible bear market, and in late 2012/early 2013 after a
sideways bear market. During both periods I remember distinctly how
oppressive the bearish sentiment was. In 2009 it was the financial
crisis and in late 2012 the fiscal cliff had people scared of the markets.
Coming
into 2014 the U.S. stock market had a historically high
cyclically-adjusted P/E ratio, and was coming off of a multi-year bull run
where investor enthusiasm recently hit multi-year highs. That
didn't sound like a big opportunity to me when the year started. But if
you took a contrarian look at commodities, bonds, and some foreign markets
coming into the year that was where potential opportunities lay.
I'd
like to emphasize the word "potential" because one of the key
things I've learned from the gold market in particular over the last couple
years is the idea of letting
bear markets run their course. It's very tempting to call a bottom
in a bear market and try and get positioned for a bull run. But bear
markets have to run their natural course, and will have false rallies on the
way down that will frustrate those that aren't willing to accept that they
occur.
The
opportunity in the gold stocks is that they are trading at low P/E ratios,
low P/B ratios, and there is investor dis-interest and apathy after suffering
such big losses in a bear market. The problem with gold though is it's
fighting against overhead resistance, as sellers that are locking in losses
are about at equilibrium with buyers looking to "buy the dip".
This is what creates
the conditions for the Stage 1 base that we
are in now as shown in the chart below.
 
We need
to see gold breakout of this Stage 1 base on an increase in volume to show
that this opportunity is real and not just another failed rally. That's
why they say patience is a virtue and as a market participant it pays to wait
for the big opportunities.
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