Should I Be Pleased, or Worried?

by JDH on February 1, 2014

We have now completed the first month of 2014, and I must admit that I am somewhat perplexed.  In my 2014 predictions I predicted that gold would drop to $1,000 by the end of the first quarter, while the DOW would increase for the first half of the year, closing on June 30 at 20,000.  The trend is the exact opposite of what I predicted.

For the first month of the year the DOW is down 5.3%, declining from 16,576.70 to 15,698.85.

Gold has moved in the opposite direction, increasing 3.51% from $1,202.30 to $1,244.50.

So, should I be pleased with this unexpected turn of events, or worried?

I am heavily invested in precious metals stocks, and as a result for the month of January my overall portfolio was up over 7% in January, so I’m quite satisfied.  However, if we are already off to a roaring start, does that imply that the markets have gone too far, too fast, and are due for a pullback?

DowJan31-2014

Probably.

The DOW is rapidly approaching it’s 200 Day Moving Average, the exact support level reached in mid October that marked an intermediate term bottom.  From there, the DOW went from under 14,800 to about 16,600, a 12% run in less than two months.

A pullback was inevitable, and with the RSI now down under 34 a rally is quite likely.

For the last two years every rally has lead to new highs, so that will be the question this time: will the market run to new highs.

I suspect so.  Why not?

The new Fed Lady will keep printing.  Talk of slower printing has hurt the market, so by printing again everything will be fine, or so the theory goes.  Printing it is.

Gold-Jan31-2014

The gold chart looks much more orderly.

The level between $1,220 and $1,260 looks to be a relatively strong base, so unless gold drops considerably in the next month or two it would appear that the bottom is in.

China keeps buying, there is very little physical left, so the inevitable will eventually become the imminent.

For now, I’m holding, I have my stink bids placed to deploy in the event of market weakness, and we shall see what February will bring.

Thanks for reading, and have a good week.