Saturday, October 13, 2012

Don't Be a Lemming—Roger Wiegand's Method of Precious Metals Investing

The major financial markets are dominated by large funds that behave like lemmings—follow the herd and suffer the consequences. Investors should not fall for the commonly held myth that all professionals have an edge over smaller institutional and individual investors. In this exclusive Gold Report interview, Roger Wiegand, editor of Trader Tracks Newsletter, discusses the criteria he uses to select the best mining and exploration companies. He then explains how moderate trading within a mostly buy-and-hold portfolio can lead to superior returns without the downsides that lemming behavior can cause.

The Gold Report: We are going to talk about "lemming investing," the theme of your most recent newsletter. Who or what are lemmings and how does their behavior drive the market?
Roger Wiegand: The lemmings that drive the market primarily are the big funds, typically mutual funds that manage 401(k) and individual retirement accounts. Most of those funds are set up on a buy-and-hold basis. There are hedge funds with lemming behavior as well, but the hedge funds are more often traders. They are creating a track record of lemming investing as well because of their huge size—billions and billions of dollars. The other sector of the market is the retail investor, with approximately 30% of the market.
"We think the old paradigm of buy and hold forever is not a good way to go."
The lemming investor market would be most all of the funds and all of the smaller investor's money. The large funds primarily invest money for the smaller investors (being the lemmings). They really control what's going on, and they compose 70% of the market. And they do, in fact, establish the trend. Non-lemming investors are those with large accounts who trade for their own pockets and the pockets of the seven figure and larger trader/investors. This is the sector leading/driving the market with mutual fund managers investing lemming money.
TGR: In your recent newsletters, you discuss commonly held investment myths. Near the top of the list was that the largest "professionals" always have special insight unavailable to smaller professionals and individuals. Is that what you're stating here?  (more)

COT Report Is Short Term Bearish For Gold

By Financial Tap

The Gold Cycle looks fairly easy to read; once you strip out any biases you may carry.  Quite simply, it’s screaming Investor Cycle top and warning of a significant decline.   Sure when viewed through the idea of endless printing and world crises’, one could easily suggest or envision much higher prices before any significant pullback.  This type of thinking is actually what drives IC tops, an unrelenting belief that a Cycle will continue higher based on short term speculative interest and a fear of missing another move.
But the facts are that we’re very deep in the timing band for an IC top, we have a very bearish COT report, extreme (bearish) sentiment, and a series of technical indicators and oscillators that are at levels seen during IC Tops.  Whenever these sets of conditions have presented themselves together, it has almost always resulted in a significant top.  The only exceptions have been the 5 blow-off C-Wave tops, and that’s very far from where we stand with this Cycle.    Could it be different this time?  Certainly it’s possible; I tend to steer clear of absolute statements or beliefs.
Now on Day 11, it would be highly unusual for Gold to make a new DC high this late in a 5th Daily Cycle.  The longest a (5th) Cycle has gone before a top is just 12 days, so based on this history we can assume that the high set on Day 7 at $1,798 will remain the 5th DC top, and therefore the Investor Cycle Top too.  With this in mind, at the very minimum a Daily Cycle failure is expected (below $1,738), with an expectations of greater declines, likely below the $1,700 level.

The miners are following the script I’ve outlined for some weeks now.  Since the weekend report, the 10 and 20 dma were lost on a closing basis and the lower trend-line was breached.  The miners are closer to showing a Cycle failure than gold is, as a move below the Sep 26th lows would set the scene for a decent drop into an ICL.    

I really do not have too much more to add regarding our gold framework, I believe I have presented over many weeks a very clear and consistent framework for a coming ICL.  As members of this service you all need to plan and act accordingly, I have provided you with a road-map of how I plan to trade this coming period.  In the event the framework is wrong and a new upside move above $1,800 takes hold, then a) We still have a decent positions to profit from b) I will likely initiate new trades very quickly above $1,800.

Congressional Budget Office Can’t Keep Up With US Debt Growth / By SV /
George Mason University has contended that the Congressional Budget Office, even in the age of supercomputers, just cannot keep up with the national debt. In other words, the growth of the national debt moves quicker than does the technology used to measure it.  In 2009, US debt was half of the country’s overall revenue, 10 years ahead of the 2019 prediction made by the CBO in 2007.  So, we are in fiscal wonderland floating about in a dazed fit of economic and exchange oblivion. Only US debt growth is the drug.  According to the CBO, the national debt is set to increase to 80 percent by 2014. But, it keeps moving its figures higher year after year.  This is five years nearer than the 2009 projection, and thirteen years ahead of the 2007 projection. 

Do 20% Of Firms Cheat On Earnings?

It may come as a surprise (until very recently) to many who watch the flashing red headlines spewed forth by Bloomberg and Reuters terminals as each and every firm manages to coincidentally report earnings within a smidge of guidance (and maintain their 'near-perfect' records of 'sustainable' growth) when all around the signals seem to point to an economy in malaise. However, earnings quality - that ephemeral view of just how manipulated the end number really is - remains critical (in the medium-term, if not the short-term thanks to the headline-reading algos). To wit, Bloomberg notes a recent paper (below) that finds 20% of CFOs will "manage earnings to misrepresent economic performance" with 93.5% admitting it is to influence the stock price. 'Red flag's include EPS inconsistent with cash-flows, unusual accruals, or an industry outlier. Amid pressure to maintain stock prices (and keep a career going), 60% of earnings 'management' is to increase income and of course 66% of CFOs hope for fewer accounting rules going forward.  (more)

Turk – Expect A Massive Short Squeeze In Gold & Silver

from King World News
Today James Turk told King World News, “This is a battle between the sellers of paper-gold and the buyers of physical gold.” Turk also warned, “… we could soon be seeing a massive short squeeze in gold and silver.” Here is what Turk had to say: “Gold and silver are getting very close to an all-important upside breakout, Eric. When gold breaks above $1780 and silver hurdles over $35, both metals will rocket higher. I think we are getting very close to that moment, and I expect that the jump in precious metal prices will be something spectacular.”
James Turk continues:
Continue Reading at…

Beware: 5 Indicators Point to Correction Ahead

Currently, a number of indicators favor the downside in the overall stock market. Today, we'll focus on the Nasdaq 100 for a trade that sets you up to profit twice as much as tech stocks fall.
Successful trading requires an understanding and analysis of a variety of indicators. Many indicators will tell traders the same thing because they are calculated in similar ways. Looking at indicators that are too much alike can create a false sense of security in a trader.
As one example, stochastics and the Relative Strength Index (RSI) both use the same concept in their calculation and both are designed to identify potential tops and bottoms. Using both to find an overbought or oversold market will not add any new data to an analysis.
Diverse indicators should be used in a way that technicians call a "weight of the evidence" approach. When most of the evidence points to a decline, a bearish position should be taken. In general terms, there are indicators that:
1. Follow the trend, like moving averages
2. Assess the strength of the trend, like MACD
3. Identify potential price reversal areas, like stochastics
4. Demonstrate the enthusiasm of traders, like volume
5. Show what history reveals is the most likely course of events, like seasonal patterns
There are other indicators within each category and there are additional categories, but one from each of these five is usually sufficient to get an idea of where the market is probably headed.
A weekly chart of PowerShares QQQ Trust (NASDAQ: QQQ), an ETF that tracks the Nasdaq 100, is shown below with four of these indicators. Moving averages have been omitted because they follow the trend and will not generally provide information about potential tops or bottoms until after the fact. For now, prices are above all major moving averages.
QQQ Chart
The price is shown with the election cycle overlaid. That indicator points downward. Elections have consequences for traders, but the outcome can't be assessed until the results are known. In November, traders will learn who is spending the next four years in the White House and, equally important, what the next Congress will look like.

South America Holds the World’s Best Kept Secret / By Evaldo Albuquerque / October 10, 2012
Last time I came here, back in 2006, this place was a dump. If someone asked me to describe it, the words “ugly” and “dirty” would certainly come to mind.
Although I knew it was a third world country, I was still surprised by the level of poverty in some parts of Lima, the capital of Peru.
I was not expecting to see huge piles of trash accumulating on the streets. In other parts of the country, I couldn’t walk five minutes without being stopped by a beggar.
After six years, I’m back in Lima visiting my wife’s family. Although I haven’t seen piles of trash like the last time, the streets remain pretty dirty. My impression is that not much has changed … the signs of poverty are everywhere.
But the truth is, Peru is going through a deep transformation. The kind of change Brazil went through in the 1990s, before the economic boom. And these changes present a lot of opportunities for us as investors … especially if we get in early.

How to Find Silver: The Art of Drilling

from Endeavour Silver:
A fascinating look at the techniques and methods used to explore for silver and other precious metals. We look at prospecting, operating a drill rig and the various challenges involved with mineral exploration.