Interesting Start to 2016

by JDH on January 9, 2016

Interesting.  The DOW and S&P 500 had their worst “first five days of the year” performance in history.  Yeah, I would say a 6 percent loss on the week isn’t great.  Apple was down almost 8 percent on the week.  The Dow and Nasdaq are more than 10 percent below their 52 week highs, which would suggest a bear market.

Dow-5years-Jan8-2016The five year chart of the Dow still looks good, sort of.

Drawing an uptrend line from the lows of October 2011 through the lows of last summer still leaves the bull market intact, but just barely.

A drop of a few more hundred points and that line is toast.

A closer look is much less pretty.

Dow-2years-Jan8-2016

Looking at a two year chart shows significant damage.

My greatest concern is that the all time high for the Dow was 18,312 reached on May 19, 2015.  It’s now down 10.74%, but more importantly that top was made 234 days ago.

234 days without a new high is not a bull market, no matter how you slice it.

Is it time to buy, or sell short?

It’s hard to make an argument for buying now.

Gold

Gold-6years-Jan8-2016

Gold is interesting.

Here’s a six year chart, and it’s easy to see the direction: down.

Gold was a horrible investment for the last five years, which explains the lousy returns in my portfolio over that time.

The only nice looking chart I can give you is FNV.TO – Franco-Nevada Corp..

FNV-6years-Jan9-2016

Not too bad.  It’s in an uptrend, unlike gold, and is doing well.

Status Update

So where am I at?

In my Canadian dollar portfolio I own FNV.TO – Franco-Nevada Corp. and RGL.TO – Royal Gold Inc., which had a good week.  On the year I’m up 3.3%, which is fine.  However, I’m not expecting this gold rush to continue, so I’ve done covered writes on both of those stocks, expiring January 15, so I can preserve some of those gains on a pull back.

Given the weakness in the Canadian dollar I have transferred a significant portion of my funds into US dollar accounts, and those accounts are down 0.3% on the year, which isn’t surprising given the 6% drop in the Dow this week.  My main holding continues to be TLT – iShares 20+ Year Treasury Bond ETF, on the assumption that interest rates will not be increasing, and may even drop.  It pays a small dividend, but I increase the returns by doing a slightly out of the money covered write every week, which has worked well.

To protect against further weakness I own SPXU – Proshares UltraPro Short S&P 500, which is an ETF that has three times leverage, so a 1% market drop should increase the ETF by 3%.  Time will tell whether or not this was a prudent investment.

Dines Annual Forecast Letter

Our old friend James Dines issued his Annual Forecast Issue this week, and it was remarkably for it’s lack of clarity.  Like everyone else, he has no idea what’s coming.  His main recommendation is cash.  It may be time to start buying after the crash, but it’s too risky now, he says.

He may be correct.

For now, I’ll ride the gold, and hold lots of cash in my US dollar account.

Prediction

If you want a prediction, here it is: the S&P 500 will drop to a support level, either around 1,875, or 1,825, or perhaps as low as 1,750.  That probably happens in the next two weeks, at which point it’s time to go long, and watch as the Boyz pump the markets to new highs.  But I could be wrong.

Thanks for reading; more next week.