Was That The Market Top?

by JDH on May 1, 2010

Welcome to the month of May. (And no, I am not going to talk about Sell in May and Go Away, since you already know my thoughts on that subject). I will, however, return to my thoughts on Fibonacci retracement levels, and once again show the chart I first published on March 27:

The S&P 500 peaked at around 1,561, and then dropped to around 683. A bounce back by 61.8%, which is a key Fibonacci level, would bring the market back to somewhere in the range of 1,225 to 1,230, depending on the exact data points you use. We got close this week:

On Thursday the index peaked at just over 1,209, less than 20 points away, a fraction of one percent, from a very key level. But that was it, and it was all downhill from there. What does that mean? It means, in my books, that we do not yet have a confirmation of the great “rally”. I am not betting on great things until I see a close decisively over 1,230. 1,230 is a massive resistance level, and since we haven’t taken it out, it could be that the top is in. (Or not. I’m just showing you the numbers. You decide).

So does this mean I’m saddened by the 1.5% correction on the U.S. markets on Friday? Not at all. I don’t own the U.S. market. I own gold stocks, and they are doing great, thank you very much.

This chart of the leading gold stocks over the last three months what we market technicians like to call an “upchannel”. (I’m not really a technician; I’m just some guy who writes a blog, but that shows you that you don’t need to be a genius to see an uptrend. Just look). Obviously April was a great month to own gold stocks, and I did, so I’m happy.

I am currently 75% invested, and 25% in cash. More specifically, I am 25% in cash, 65% in precious metals stocks, and 10% in other stocks.

My other stocks include PBG.TO – Petrobank Energy and Resources Limited, obviously an energy play, and it’s holding it’s own. The real profits of course have been on the gold side, with blue chip winners like

Of course the speculative stocks have done even better, with my two biggest winners this year being BBR.TO – Brett Resources Inc. and CMK.TO – Cline Mining Corporation.

(As an aside, I no longer own SSO.TO – Silver Standard Resources, Inc.; I’m not happy with management, and the stock has lagged others in the sector, so I’m out of it. Sorry, Mr. Dines, you may still like it, but that ship has sailed for me).

What’s next? I don’t know. After a run like we’ve had over the last two weeks, a pullback seems inevitable, so I may start doing some covered writes to lock in profits. Or not; I haven’t decided.

I will re-iterate my long held belief that we are not out of the woods, economically, yet.

Fair disclosure: I am a Canadian, working and writing in Canada, so my perspective on the world may be biased. I come from a “socialist” country (you know, public health care, etc). Here in socialist Canada the maximum you can qualify for unemployment benefits is about 52 weeks. That is in direct contrast, of course, to my capitalistic neigbour to the south, the USA, where you can apparently qualify for benefits for 99 weeks.


Here’s the problem: More than a million U.S. residents are getting close to the limit, and may lose jobless benefits soon. Congress has increased the length you can receive benefits three times since December 2007, and it’s unlikely they will do it again. That means in the next few months as benefits expire, consumers will have less to spend, and that will hurt the “recovery”. The commercial real estate market is contracting, and the residential construction market is also contracting. Federal stimulus programs are running out, so what will save us now?

My question is rhetorical. Our problems are baked in the cake, I’m afraid.

So, this weekend, I will continue planting in my garden, I will continue holding my gold stocks, and I will not be making any investments in the general market. It’s worked to this point, so let’s let the trend run.

Thanks for reading; see you next week.

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