Despite a 2% gain on Friday, Gold and Silver indices moved down over 8% over the last two weeks. The culprits being the bank of Japan flying to the rescue by issuing notice of further quantitative easing, improving U.S. jobs numbers and a very good U.S. earnings season so far.
But this should not mask the fact that the commodities market specifically precious metals have bee moving lower since 2011.
Remaining in both stocks and precious metals is a diversification that means your portfolio will be seriously limited in its growth. Being able to use technical analysis to assess the direction of the major market enables you to invest wisely in the overall trend, whether that trend is influenced by governments, macro economics or industry specific factors is crucial.
Let’s take a look first at gold. The markings on the below chart are the results of an algorithm written by myself to define whether to go long or short on a particular market.
Gold is a good example, no technical analysis is 100% perfect, however the major trends are identified and held for long term gain. The Buy flag indicates one should no longer be bearish and should buy the index, the Short flag indicates to sell all long stock and go short. As you can see, despite three shakeouts over the past eight years it is relatively straight forward to detects the direction of the long term trend in gold.
Gold and Silver are thought of as safe havens against economic ruin and indeed they are, but in the eyes of the institutional investors in the U.S. and further afield the risk of economic collapse seems further away than ever. Knowing when to switch between stocks for the best returns and then making the choice between investing in physical gold or silver or shorting the stock markets as they turn sour is the key.
Right now the world of Wall Street and the markets is looking good, all time highs all around and bearish precious metals markets mean all seems good.
But to me the the market seems a little over extended, but it is not what I think that is important, it is what the big money players in the market think that is important. The market will tell me when it is time to switch but right now, I am long 95% of my capital in the QQQ Nasdaq 100 Index Tracking EFT and the ONEQ Nasdaq Composite ETF.
Enjoy the LONG ride home, who knows how long it will last.
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