Interesting Week

by JDH on January 25, 2014

The markets got hammered on Friday, with the S&P 500 down 2.63% on the week, and the DOW lost even more, down 3.50% on the week and down 4.21% year to date.

DowJan24-2013

The DOW is back down to it’s mid-December 2013 level, and is trading below it’s 50 day moving average for the first time since mid-October.  The picture for the S&P 500 looks the same.

Canadian markets were also down on Friday, but the TSX is still up .71% on the year, and the TSX Venture Exchange is still up 3.79% on the year.

What does this mean?

Not much, I suspect.  The Relative Strength Index for the DOW is now down below 34, which last happened in mid-October, and was followed by a rally from 14,800 to the high for the year in December of around 16,600.  That was a 12% rally in two months, and it would not surprise me in the least if the money printing machine got cranked up to make it happen again.

Gold

GoldJan24-2014

Gold has out-performed the market this year, up 1.3% on the week and up 5.47% year to date. I’m pleased with that performance, because my gold stocks are up by more than that on the year, so it’s a good start to 2014.

However, as a quick glance at a three year gold chart shows (click the images to enlarge), gold remains firmly stuck in bear market territory.  The close on Friday of $1,264 is enough to touch the most recent down-trend line extending back to early 2013, but we would need a decisive break through $1,400 and then $1,700 to convince the world that gold is heading higher.  I expect that to happen, but not imminently.

As I predicted at the start of the year, I expect the markets to strengthen for a while yet, before we get the big correction.  That’s still what I expect.

So, I let my gold profits run, and cover as appropriate.  I also have lots of stink bids in place on more stocks I want to own, so a few more “bad” days like Friday will give me some great buying opportunities.  Works for me.

Finally, an interesting discussion on Black Swans over on the Buy High Sell Higher Forum.  Are we headed for inflation or deflation, and what will it mean?

I have no idea, but I do know that hard assets are good to have in either environment.  Gold may go down in a deflation, as may land.  So what?  A piece of land is still good to own, as is a shovel, regardless of the dollar-denominated price of the item.  I will give this issue some thought, and if I have anything intelligent to add to the conversation, I will share it.

For now, keep your seat belts fastened, we may be experiencing some turbulence…..