Now It’s Getting Interesting

by JDH on December 5, 2015

Let’s look at some charts, starting with the S&P 500:


I drew lots of lines on it to make it look pretty, but the basic gist of it is this: the uptrend channel, in blue, appears to have run out of gas in the spring, which started a period of consolidation before the dump in September, which was tested and held in October (a double bottom), but the subsequent recovery has not (yet) made it back to the pre-correction highs.

Will it?  I have no idea, but a series of lower highs (the horizontal red lines) does not look promising.  The MACD doesn’t look promising either, but the RSI looks decent, and the index is above the 50 and 200 day moving averages, so all is not lost.

(Yes, I know, that was about as useless a paragraph as there could be, so for all who don’t like it I’ll give you your money back on what you pay for this blog. But seriously, my point is that we are at an inflection point).

Take gold, for example.


Here’s the chart of RGL.TO – Royal Gold Inc..  You will recall that Royal Gold suffered an epic collapse back in early November, and it’s not exactly out of the woods yet.  However, there are some positive signs:

First, since the bottom in the middle of November it’s had a nice run, and was up over 5% on Friday.

The MACD looks good, and the Relative Strength Index (RSI) looks perfect.  The ideal time to buy a stock is typically as it is breaking through the 50 level on the RSI, which may happen very soon.

Even better, the dividend yield is 2.43%, so buying now gives you a much better than cash rate of return (unless the stock crashes again).

Of course if you are a speculator there are much more impressive gold stocks, like SAS.TO – St Andrew Goldfields Ltd., which has been on quite a nice run of late:


Will it continue?  I don’t know.  The RSI and MACD are looking very toppy, so a pullback would be expected at this point, but volume is picking up.  Someone is buying (not me this month; I already own some) so I would let your profits run at this point, with perhaps a buy order placed in the low thirties to increase your position on a pullback.

Silver is interesting.

Here’s the chart of SLW.TO – Silver Wheaton Corp..  The long down trend that started in late January continues, but we are at an inflection point.  Another good week and we could see the end of the down trend.

Or not.

You can see that in mid October it appeared that the down trend was over, but apparently that was not the case.

Again, the MACD and RSI look decent, so let’s keep our fingers crossed and see what happens.

One final chart to review, and this one is the most interesting:


This is the chart of TLT – iShares 20+ Year Treasury Bond ETF, a bond fund that is a play on lower (or stable) interest rates.

Like gold, and silver, and the SPX, the top was at the start of the year, and the down trend has continued all year.  That’s the red line.

But you can also draw a blue uptrend line started in mid October 2014, and that pattern also remains valid.

This battle between up and down has intensified since the summer, and we are now at a very clear inflection point.

A stock can’t both go up and down forever.  It’s one way or the other.

My guess, as I have said repeatedly, is that interest rates are going down, not up.

And yes, I know, the jobs number was “good” this week, and that gives the green light for the Fed to raise interest rates this month.   So if that’s the case, why was a bond fund up 1% on Friday, the day these good numbers were released?

Bonds move inversely to interest rates, so if interest rates are going up, bond funds should be going down.  What gives?


It could be that the rate increase is “priced in”, so it didn’t impact the stock on Friday.

Or, it could be, that interest rates inevitably will head lower, so a bond fund is still a good buy.  That’s my bet.  It’s quite possible that the Fed will use some terrorist attack or mass shooting or some other exogenous event to switch course and NOT raise interest rates in December.  That’s what TLT is indicating.

Or it’s possible that they raise rates by some token amount in December, just to say they did it, and then in early 2016 they lower them again, for more stimulus.

Either way, I’m not selling TLT.

I will, however, be doing a lot of covered writes this week, because after the big gains in all of my stocks a pullback is likely, so while I don’t want to sell, locking in some gains will be prudent.

More next week.  Thanks for reading.