|
It is
interesting to note just how complex investment advisors and investors can
make their market analysis. When it comes to analyzing the markets we
do enjoy “chewing” on a lot of data, but often good old fashioned
simplicity and common sense are the most effective strategy.
We
don’t believe in an indefinite ‘buy and hold’ strategy nor
do we concern ourselves with daily short term movements. We are
interested in two main objectives:
1)
Catching Macro Bull Market moves such as the 1970’s
commodities bull, the stocks bull move from 1980 to 2000 and also the current
2000’s commodities bull.
2)
We also strive to identify “intermediate term
trends” in order to help us determine when to add to new positions or
lighten up on existing holdings within the bull market.
When
we look back at the Silver bull market, since 2001 we can see very distinct
periods of price consolidation followed by trending advances.
The
red portion of the above chart highlights the periods of consolidation in the
price of silver and the green highlights the trending advances. When
viewing this chart we notice a few things:
1)
A fairly significant correction followed the first three green
advances.
2)
It would likely be beneficial to avoid adding to positions near
the end of a green advance. It also may be beneficial to lighten up on
positions at the end of a green advance.
3)
It would likely be beneficial to add to positions near the end
of a red consolidation period. It may not be beneficial to exit
positions at the end of a red consolidation period.
4)
From the end of the consolidation period the first three
advances were short in duration. The current advance has lasted
significantly longer.
5)
From the end of the consolidation period the first three
advances from bottom to top were smaller than the current advance.
One
may conclude that at this time there is considerable risk in adding to new
positions as the current green section has advanced higher and lasted longer
in duration than previous moves. This does not mean that prices cannot
go higher from these levels but it does suggest that a pullback may be
overdue.
The
above chart clearly illustrates how many more months the current advance
has lasted relative to the previous three advances during this bull market.
The
above chart clearly illustrates how the percentage price increase has
climbed higher than the average of the previous three advances.
The
above three charts all help clarify that the current advance has lasted
longer and climbed higher than the previous three advances. Based on
this simple analysis one may decide to exercise caution instead of being
aggressively bullish going forward.
The
chart above helps illustrates the seasonal pattern tendencies in the price of
silver since 2002. The green circles and red arrows help illustrate the
usual drop in the price of silver around the fall months. What we find
interesting in this chart is that September 2009 did not follow this usual
pattern. Given the regular history of this pattern we tend to be more
cautious when we are faced with such unusual and unpredictable price action.
To be
clear we are extremely bullish on the price of precious metals in the long
term. We are also not predicting that silver or gold must drop in price
in the near term. Anything is possible in these markets and near term
higher prices would not surprise us. However, in the world of investing
we like to keep things in perspective and exercise caution when it is prudent
to do so. Unfortunately too many investors will chase performance and
continually buy when a market is up and sell when it is down.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is
the President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments.
Investmentscore uses a unique scoring system as a visual guide to assist
investors in making lower risk / higher reward trades.
|
