The Correction, Finally?

by JDH on January 23, 2010

Last week I gave my thoughts on the The Dines Letter 2010 Annual Forecast Issue. In the interest of fairness, yesterday I posted my detailed thoughts on Doug Casey and Casey Research. I’ve posted it as a separate commentary, so today’s comments will be brief, and will be confined to what’s happening on the markets.

Before we leave Dines, based on the comments I’ve received, both on-line and offline, it appears that most of you agree with my general impression that Dines may be good at spotting tends, but his lack of substantive fundamental analysis leaves him as nothing more than a “pump and dump” artist.

On the Buy High Sell Higher Forum, sidewinder had this to say in response to last week’s commentary about The Dines Letter:

JDH there is no way you were too harsh to this peddler of “Newsletters” in fact, you were quite fair in my estimation. I make no bones about my attitude towards him as you may well know.

As to the “original Rare Earth” bug business, someone brought this up a couple years ago I think on this forum. Michael Berry has been touting Rare Earth companies for some time and the same companies which Dines “suddenly” discovered, Berry has actually visited and posted photos in his morning reports long before. So the old Blowhard now is staking claim to being the “original Rare Earths bug”. Disgusting self promotion.

Unsophisticated, Inexperienced investors with money seek the knowledge and advice of experienced, sophisticated advisors. When it’s all said and done the one with the experience has the money and the one with money has experience.

Wow. I wouldn’t want to get on sidewinder’s bad side……

Now, on to the pressing matters at hand. Has the long awaited correction started?

Well, duh:

A 4% drop in a week, and over 2% on Friday alone, certainly looks like the start of a correction. The Dow is now down almost 2.5% on the year. Most troubling is the decisive drop below the 50 day moving average.

As the chart shows (click to enlarge), the 50 day moving average has provided support, particularly in October and November of 2009. As the circled section shows, we did break below the 50 day moving average for a period of time back in July, but the market recovered, so this may not be fatal. But who knows. A break of the 50 day moving average is never a good sign if you are a bull.

What about gold? Same story:

Gold is now more than $100 below the 50 day moving average, and depending on how you draw the uptrend line it can be argued that gold is now down to the uptrend line support established back in November and December of 2008.

What are my thoughts on gold?

Looks like a great buying opportunity. Gold has gone from just over $1,200, to just under $1,100. That’s a big discount, and since nothing fundamentally has changed, something that was a good buy at $1,200 is now an even better buy at $1,092. The RSI, which was up well over 80, is now down to a much safer level of 40, which is traditionally an excellent buy point. As well, while the general market got hammered again on Friday, the big cap gold stocks held up quite well.

We know from the past that when the market gets creamed, everything gets creamed. Investors sell their good stocks to cover their margin calls on their losers. If there is further weakness, I have no desire to jump in to quickly. (I was the guy who predicted the DOW would fall to 9,000 by March 31, 2010).

So, my plan this week is to place some stink bids to pick up some bargains, but I will remain largely in cash in anticipation of further weakness.

Thanks for reading; see you next week.