The primary decline in the earlier "correction" of markets that began late February this year can be defined by the 9 trading sessions beginning February 21st and ending March 5th. Over those 9 days the US S&P500 declined 5.86% on a closing basis. The Precious Metals--Gold and Silver--declined quite similarly. As measured by GLD (Au) and SLV (Ag), the US ETF's, Au declined 3.64% and Ag 9% (I have documented elsewhere in this blog how Silver regularly displays a higher "beta" than Gold--that is, Silver declines deeper and rallies higher relative to Gold). An average of these two PM's giving a 50% weighting to each would create a composite PM decline of 6.32% Very closely matching the decline of the S&P500 during that same period. This was a trying period for many of the PM's most ardent bulls. In fact, most of the first half of 2007 has been a challenging period for investors focused on the Precious Metals. Has something changed now though?
Flash forward to the market correction beginning in these last days of July. Measuring the decline in the US S&P500 beginning from July 18th and ending as of the market close on July 31st, the decline so far has been 6.08% in stocks. This time around, GLD and SLV have held-up much better based upon this admitedly narrow comparison. Over the same 10 trading sessions the PM ETF's have essentially been flat. GLD gained 0.06% and SLV lost 0.10% Creating a 50/50 weighted composite average of -0.02%
Something would appear to be different between these two "market corrections" in the first 7 months of 2007 when viewed from the context of the relative performance of Au and Ag. Expect the unexpected.
Tuesday, July 31, 2007
GLD (Au) & SLV (Ag) during a stock market correction
Last week (trading dates July 23 - 27, 2007) witnessed the second significant stock market correction this year. The precious metals experienced some declines like most asset classes and I thought a quick comparison might be in order.
Since my last blog post here (July 18 on Fool.com blog) through last Friday, July 27th, the Dow Jones Ind. Average lost approximately 5.05% GLD lost 0.52% and SLV lost 1.51% SLV once again showing it's higher "beta" relative to GLD--a basic observation and assumption behind this Allocation System here.
Compared with the broad (but shallow) market correction in February of this year, Au and Ag showed good relative strength to this most recent correction in equities which is noteworthy. Interestingly, this Allocation System also then signaled a second "buy" confirmation as of last Friday (27th) that we should be fully invested in the Precious Metals including Silver during this period of time. When the System generates that second buy confirmation signal (it often does), it is also an early indication that we will likely want to take some profits soon.
At this point during this latest cycle, we may not have much in the way of profits except in selected metals mining stocks but we also have outperformed the broad domestic and international stock market indices.
Expect a sell signal here soon.
For the most aggressive and short-term oriented traders, this second Ag buy signal as of last Friday, July 27, could be interpreted as a signal to make short-term speculative buys in the PM's and/or select PM mining stocks. As any market watcher knows however, now are some of the most precarious times in markets that we have witnessed in a long time. Speculator beware! Please heed any and all disclaimers and warnings I post on my site here.
Since my last blog post here (July 18 on Fool.com blog) through last Friday, July 27th, the Dow Jones Ind. Average lost approximately 5.05% GLD lost 0.52% and SLV lost 1.51% SLV once again showing it's higher "beta" relative to GLD--a basic observation and assumption behind this Allocation System here.
Compared with the broad (but shallow) market correction in February of this year, Au and Ag showed good relative strength to this most recent correction in equities which is noteworthy. Interestingly, this Allocation System also then signaled a second "buy" confirmation as of last Friday (27th) that we should be fully invested in the Precious Metals including Silver during this period of time. When the System generates that second buy confirmation signal (it often does), it is also an early indication that we will likely want to take some profits soon.
At this point during this latest cycle, we may not have much in the way of profits except in selected metals mining stocks but we also have outperformed the broad domestic and international stock market indices.
Expect a sell signal here soon.
For the most aggressive and short-term oriented traders, this second Ag buy signal as of last Friday, July 27, could be interpreted as a signal to make short-term speculative buys in the PM's and/or select PM mining stocks. As any market watcher knows however, now are some of the most precarious times in markets that we have witnessed in a long time. Speculator beware! Please heed any and all disclaimers and warnings I post on my site here.
Vacation Mode Update on Au & Ag
July 3rd this System signaled to be back in Silver (50%) for conservative investors who had only been in Gold until this time. For more aggressive investors that signal indicated to be 100% in Silver and/or to buy in selected Precious Metals Mining stocks. These changes were made in the market upon opening July 5th.
Earlier, June 1st was actually the last signal to sell all Silver holdings but the unrefined Allocation System did not confirm that timing. Further work identified that sell signal and will be tested here going forward.
Since the buy signal July 3rd, SLV has outperformed GLD approximately 2 to 1. Over the same 10 trading days, the AMEX "Gold Bugs Index" (HUI) has returned approximately 7% as has the PM Miners ETF, GDX.
A signal to take profits/protect gains and sell at least 50% of Silver holdings is expected within the next two or three weeks.
This post was first published via my Fool.com blog on July 18th and can be viewed via the link below to confirm its authenticity and accuracy in time (I was on the road during the month of July so maintaining multiple blogs was not in the cards. In such situations I use the Fool.com blog first since bolg posts there are not editable once posted so it easily creates an objective record of the timing of my entries and market calls):
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=11817&t=01009161890852769770
Earlier, June 1st was actually the last signal to sell all Silver holdings but the unrefined Allocation System did not confirm that timing. Further work identified that sell signal and will be tested here going forward.
Since the buy signal July 3rd, SLV has outperformed GLD approximately 2 to 1. Over the same 10 trading days, the AMEX "Gold Bugs Index" (HUI) has returned approximately 7% as has the PM Miners ETF, GDX.
A signal to take profits/protect gains and sell at least 50% of Silver holdings is expected within the next two or three weeks.
This post was first published via my Fool.com blog on July 18th and can be viewed via the link below to confirm its authenticity and accuracy in time (I was on the road during the month of July so maintaining multiple blogs was not in the cards. In such situations I use the Fool.com blog first since bolg posts there are not editable once posted so it easily creates an objective record of the timing of my entries and market calls):
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=11817&t=01009161890852769770
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