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Wednesday, March 13, 2013

Greed And Fear Means Most Investors Chase Direction

Jim is correct.  Buying fishing lines or selling hooks in markets displaying 'extreme' leveraged inflows (gold, bonds, Canadian dollar, etc) and outflows (Japanese - chart ), respectively should be the basis of everyone's investment discipline.

Chart 1: Japan Equities (EWJ) And Nikkei Diffusion Index (DI)


Gold and gold shares continue to sell-off because the investment world (most things in life) are driven by emotions on the margin; only the real pros remove emotion from decision-making.

The 'chasers' buy strength and sell weakness because it feeds the monsters called greed and fear.  The declines ends when paper fuel runs out (see above) and momentum turns.  Momentum turns when the price stick changes from yellow to green and the dominant downtrends are broken to the upside.  Until then, the chasers chase the chasers until they're the only ones on the short side of the trade.  Then the trend reverses unexpectedly; wiping out most of the chasers.

Chart 2:  Gold to S&P 500 Ratio:


Chart 3:  Gold Miner's Index to S&P 500 Ratio:


Chart 4:  Junior Gold Miner's Index to Gold Miner's Index (Majors) Ratio



I feel strongly that it is extremely unwise to sell any good gold company shares that have mineable ounces, low costs, cash in the bank, multiple 43-101s, and forward looking management.

The share prices of many good issues have been reduced to levels that are totally illogical and without reason other than baseless fear.

If you must sell, I firmly believe you will get a significantly higher price at which to sell assuming your holdings meets the criteria of "good" as above.

Remember from now on that you buy gold anything when the weekly chart looks like a fishing line, and you sell 1/3 when the weekly chart looks like a rhino horn. It is just that simple.

Respectfully,

Jim

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Headline:  Think Gold Slump Is Bad? Bullion Stocks Is Worse

While the "great rotation" into riskier assets has triggered a 4.3 percent fall in the price of gold since the start of the year, this is just a fraction of the losses seen in the shares of gold miners, which have fallen 15 percent on average over the same period.

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