Author Archives: ltmanager

Miners Short Term Correction & Recovery

Once again its been a while since I’ve had a chance to write blog update.  I have been posting brief updates to my twitter account along the way.  If you are on twitter, follow me.  If you aren’t on twitter, you can still get my updates as text messages by texting “Follow LTETFInvestor” to the short code 40404.  Please also join my newsletter to keep updated when I have the time to write these more detailed updates.

So what’s been happening since my last post 10 months ago.   Well… the miners have seen some serious swings.  The gold miners appear to have hit their bottom at the end of 2015, which I was fairly close to calling in October of 2015 on this post: Calling a bottom in the precious metal mining sector.

The blue dot in the chart below is where I made the bottom call in October of 2015, a little under a year and a half ago. As you can see I wasn’t far off from what is currently the final bottom.

Chart showing where I called the bottom on October 5, 2017

FYI: I tend to write about the VanEck Vecor Junior Gold Miners index fund which is traded as GDXJ on the NYSE.  I write about it because I believe it has the biggest potential for the highest long term gains and also because its a very large, high volume fund that is highly representative of the overall market sector.

Since the current bottom, we’ve seen GDXJ post over a 200% gain.

GDXJ max gain since current final bottom

The peak of that 200% gain came in the middle of August 2016.  The month before, in July, I tweeted there would need to be a 20%-30% correction at some point.

GDXJ tweet about potential correction in mining sector

Did I back up what I was saying by selling?  No.  The long term trend from here is upwards.  I’m a long term investor that believes you can’t make gains by trying to trade in and out of the market with short term trades.  The short term movements are too random.  People with money in the market think they can trade in an out in the short-term to increase their gains.  Whether or not they realize it, all they are doing is spending a lot of time to do nothing.  Short-term trading is almost the same as playing blackjack at a casino.  You can win for a short while, but at some point, in the long run, you’ll go cold and give it all back.

… Actually Black Jack is a little worse, with the difference that short term markets are random (nobody’s guaranteed to win; if you are lucky, you’ll break even), but in Black Jack, the odds are on the house; no matter how good you are, you are statistically guaranteed to lose in the long run.

Sidebar: I live in Las Vegas and don’t gamble… I live here because I love the weather and the gamblers pay my state income taxes – i.e. Nevada has no state income tax.

Back on topic: Nevertheless, as pure short-term luck would have it, I did end up looking like a prophet as the correction came not long after my tweet.

But realize the psychology if I had sold my positions and the market did continue to go up after I called a correction.  If I tried to trade on my tweet, I might have watched that bump up happen without my money in the market, gotten nervous that I was missing something, bought back in trying not to miss yet another big spike (short term mind-set), and gotten crushed when it did correct.

Regardless of the noise, it did end up correcting.  And it corrected hard!

That correction dropped GDXJ about 45% from that most recent peak in August (remember, as GDXJ is representative of the sector, the sector had relative corrections as well so this analysis goes for all metal miners).  This is where a lot of short term bull traders probably got crushed (shorts probably did well, but will get beat in some reverse fashion as time averages them out from the randomness in which they live).

GDXJ correction off peak

Finally the bottom of the correction came on December 22nd.  A few days later, I posted an update on my twitter account that the correction was in and it was a great time to start getting involved in this sector if you hadn’t already started.

GDXJ correction after big short term run

Even if you did buy in August around the recent peak, before the 45% correction, if you decided you were in for the long term and purchased as it went down (I will someday reveal my major/minor buy technique to do this effectively), you’d still be in a good position for the long term.  Believe it or not the precious metal miners are still down in the muck.  While the miners do get a little press here and there, they are still relatively forgotten.

After the correction, and my call that it was a good relative time to enter, GDXJ came back 50% to where it’s now sitting at just under a 150% gain from the current bottom.  Again, these types of swings happen in the muck.

GDXJ current gain off long term bottom

Sidebar: If you are keen enough to keep score… yes the miners corrected 50% and then came back up 50%, yet after the 50% return, they aren’t back to the same peak as before the correction.  That’s math.  You’d think if you go down 50%, then come back up 50% that you’d be at the same place.  But that’s not true.  Percentage money math is interesting.  I’ll write an article about it someday.  Join my newsletter to get notified.).

All of the above is a pretty wild ride for just over one year!  And with all the political turmoil and change happening after the recent presidential election, the roller coaster ride will definitely continue.

But the roller coaster ride does not matter to me, as I built my portfolio in this sector in a strategic way.  The way I bought into the sector in my portfolio is important.  With a strategy, I have been able to hold through lows that were even lower than I thought they could possibly get, while even increasing my portfolio size to be in a position to reap massive gains when the market finally realizes how its undervalued the precious metal miners, returns to an acceptable valuation, and subsequently begins its excessive irrational exuberance phase.

That could be soon or even years from now.  I don’t know when it’s going to happen, I just know that it will happen, because that’s what markets do. I’m a long term investor that uses a method that allows me to eliminate my emotions, stopping myself from making bad decisions when I feel like my world is coming to an end, and hold to make large long-term gains.

Where will things go over the next few months or even the next year?  Well, I’ve done a lot of work in the article to point out the accurate calls I’ve made in the relative short term.  Can I do this on a regular basis?  No.  I’ve just been right in the relative short term as the long-term tides seem to be finally turning.  But the tide-turn is still short term and I wouldn’t be overly distraught if the miners dropped back down to make new lows because I’ve invested with a long term strategy that has prepared me to weather such movements.

Beyond the short-term volatility, for many reasons I’ve written about in the past, I still thoroughly believe gold is just starting out in long term bull market. The fundamentals are too overwhelming for it not to happen.  And the irrational exuberance that is always somewhere in the market is currently in another sector, but it will return to the mining sector at some point as well.  Both could come soon or not happen for a while.  I don’t try to time it and I will be there catch the massive gains when it happens.

Long term, it’s not a bad time to start getting involved in the precious metals sector so long as you do so cautiously with a long term plan so that you do not get spooked out of the market but instead add to your portfolio and increase your future gains if there’s another 20%, 50%, or even bigger drop.

If you haven’t perused my blog yet, read some more articles, including this important article I wrote over three and a half years ago: Why are the values of gold and silver mining stocks going so low?. Its all still relevant because its all long-term strategy.

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Gold – Did you catch the bottom?

Wow… I’ve been so busy working, getting set up in our new house and raising our 3 year old, I haven’t had a chance to write about what’s happening.  Its been six months since I last posted and that’s too long.  I’m sorry.  I’ve failed you.

Anyway, gold likely hit its bottom at the end of 2015, which I pretty much called in October on this post: Calling a bottom in the precious metal mining sector.

Since then the miners have been on a rebound terror.  GDXJ is up over 77% from its very bottom as of yesterday and that was before today’s nearly 7% gain (I’m writing this article 4/11/16).

Tides are turning and and surprises are to the upside.  Like today’s big 7% gain, even after a 4% gain the trading day before.

Once the ball really gets rolling and things go exponential, I’m expecting there will be days of unexpected 15% gains (See my post on Why the Precious Metal Sector Gets So Over/Under Valued).  That come as the media starts to report on the sector with non-stop upside stories, after which  prices will get out of control to the upside.

That could be months to years.  Who knows.  It’s definitely not happening yet.

What I do know is that I used methodical framework for “buying down” as gold – and subsequently the miners – dove into nothingness; causing their prices became relatively and staggeringly cheap.

Now, the miners are up 77% in less than three months from their very bottom, and that’s a huge gain.  That’s a whopping gain off the bottom. But realize that its not probabilistic for someone to be able to catch those type of gains on a regular basis; though every investor and adviser will often try to tell they can do it; or they’ll brag about the time’s they’ve done it, leaving out all the times they’ve lost the same amount on other bad decisions.

If you caught the 77% gain, congrats to you… you are lucky!  You probably hit this one, but lost a similar amount on another short term purchase.

The next tier are those that were buying over the last 6 months.  As it dropped and they kept buying, they’ve averaged about a 50% gain.  Those that are buying for the long term in this category have done well.  But likely anyone that made that type of gain in the short term is going to sell and move on to the next thing, likely losing 50% somewhere else along the line.

Another tier back, are those that have been buying over the last few years.  You guys are averaging about even.  Some are down a little, some are up, depending on when you started purchasing and if you kept cost averaging down.

Worst of those are the people that were buying heavily in early 2013 when the miners were already down 50% and it seemed like that was already ridiculously low such that it would likely be the bottom.  You’ve taken a beating and could still be down anywhere in a wide range from 20-70%.  That’s how much of a killer the Q1 of 2013 was to people buying heavily during that period.

If you didn’t keep averaging down from then until the beginning of this year, you probably instead sold and got out; taking your losses.  You are likely an emotional trader.  I bet you are looking at prices now and kicking yourself telling yourself if you had just caught that bottom, or if you had just held on, you would have been ok.  And as such, you are likely going to ensure yourself that you missed the bottom and will buy in again as you try to catch the big gains currently happening.  One big surprise to the downside and you’ll jump out, living in fear of your past mistakes, blah blah blah.

Don’t Invest like this.  Very bad.  You are a step below a day trader (I personally believe the market is random in the short term; to be explained in another article, yet to be written).

So what’s left after the short term trader, the emotional trader and the day trader?

Well there are long term investors like me.  I look for long term opportunities to buy into counter trends while using a methodical frame work for which to eliminate emotional losses.  Emotional losses are one of the bigger ways many traders reduce their gains, and/or cause their own losses.

Now, I’m the guy that saw the beginning of this HUGE decline in the mining sector back in 2011.  I even started buying cautiously back then.   I did start purchasing a little too early as the sector continued to plunge even further form there.  But I continued to average down using my method of “major” and “minor” milestone buys.   The majority of my buys were in 2013 with my biggest volume purchases in late 2014 and during 2015 near the bottom.

If I had jumped in heavily when I first saw the big decline, I’d have gotten crushed. But I used a method that gave me stability and a plan to focus on.  I’m still using that plan and will continue to use it.

But here’s the rub.  I’m now at a point where I’m heavily invested; probably with the most of my portfolio I I’ll ever put in this sector and my gain is still slightly negative.

So.  You could put all your money in right now and be just about where I’m at; maybe a little ahead, as the sector continues to go up over the long term.

But the difference between you and me is that I have a method and I’ve used it through the lows.  And I will use it through another low should this sector miraculously head down to another low.  Personally, I believe the bottom has been set, but this sector has been soooooo beaten up, I wouldn’t be surprised if we miraculously erased the 77% plus gain and saw a lower low.

We are down in the volatility of market nothingness. The forgotten zone.  …Well, we were… before the beginning of this year.  The media was not talking about this sector; other than to report the usual dismal drops, with a discussion here and there, from an analyst on how much longer it can continue.

Things are picking up, but its not at the point where everyone is talking about the sector, so its not going to get overblown just yet.   Though it could happen at any time.  Again, you need to understand that anything can happen in the short term and to be in the right position when the long term trend kicks in, because it can kick in so fast that you may not have a chance to respond or you may not even notice it until you look back.

Thus, if you put in all your money right now, you don’t have a long term strategy and you are likely to dump and take a loss if we go back down.  If you get a quick gain, you’ll probably sell and move on, finding another place to trade your gains and losses in and out.

I’ve weathered the storm.  I have seen my method have significantly negative short-term results, but I didn’t jump ship because I have a long term plan.   I know that long-term this sector is going to go ballistic.  I just don’t know when.  So I’m positioning myself for when it happens and just letting it happen when it does.  I’m not trying to game the market.  I’m investing.  Investing for the long term.

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Calling Bottom – Miners Follow Through After Big Gain

Last Friday the unemployment numbers came out and it caused a spike in the mining stocks.  Today, those gains were held and even increased.

People are starting to realize that the FED will not get to raise interest rates anytime in the near future, though they keep saying they are going to do so.  Friday’s jobs report was not strong.

Our current economy is built on the low interest rates.  Just a little spike in rates, spilling over into the mortgage rates, will cause a massive slow down.  The only reason builders can build right now is because home loan rates are so low (I just got a home loan a few months ago for 3.75% with no closing costs – that’s insane!).  Home building (jobs & materials) is one of the major factors helping drive our economy; it will be too detrimental for it to slow down.

On Friday we saw large gains for the miners, ranging from 6-8% in SIL, GDX, & GDXJ.  In the past few months, there have been a bunch of days with big gains, but they have always been negated the following day or two with equal drops.

Today was the first time there was a strong follow through on the whole group with the mining stocks up another 2-5%.

I see this as a sign that the census is beginning to turn and you’re going to start to see money come back into this sector which has just been hammered over the last few years.

Now this doesn’t mean you should go “all in” on this sector.  It could still bounce around with large percentage ups and downs for quite a while.  But in the grand scheme, it is at a bottom.  Look at the chart for any mining stock (I hope to find time to include some screen captures in this post soon) over the last 3 months and you’ll see a definite low point that no matter how many times the stock tries to reach below, it can’t.  It keeps getting bought up.  Arbitrage says the miners are just to cheap to get any better of a deal (unless we have a major market meltdown, in which case everything will go down en masse).

Just make sure you start getting involved in this sector and read through my past posts to garner tips on how to do so.

Also, join my newsletter for when I start teaching my investment methods.

 

The Bottom?

The mining sector has really been beaten up.  I’m still swamped but I’ve been buying into the significant downside using my major/minor buy technique.

The last few days have seen some major resurgence.  It could be a “dead cat” bounce, but I think we are in for a near-term big rebound.  That’s not to say one should go “all in”; you never should.

GDXJ made its way back up to $22.26 from $18.40 on Aug 5th.  That’s a quick 21% gain in just 5 sessions from what could have marked the bottom.  SIL and GDX have had similar resurgences.

As I said previously this sector of the market seems to have hit its “capitulation” stage where many people felt as though the downside would never end and they have sold out of their positions, adding to the plunge down.

Its funny that when people invest they see trends and extend them out forever.  When they see a stock going up, they assume its going to keep going up for a long time at the same rate.  And when it goes down, they assume its going to go down at the same rate for a long time (see my post about why mining stocks see such extreme lows for details).

These are great buying opportunities for a long-term counter-trend investor like me.

As happens, the volatility of these mining stocks is so high, they don’t bottom for long.  I think we are going to see another big bump up in the near term.

Unfortunately I’m still swamped, but if I had time, I would do another update to my rebound trend charts to show that this next one is likely to be at least 60% from the bottom.

Long term, we are at a once in a lifetime buying opportunity, but again, you can’t just buy all in.  You need to invest your portfolio in an intelligent and calculated way to be successful in the long run.

It will likely still be a few years before my this blog proves to be correct and I wish I had more time to go more in depth about my process, but I will ultimately discuss what I’ve done in the aftermath.

Please join my newsletter to keep updated and have the chance to learn my techniques once I have time to teach them.

 

 

 

Capitulation – Huge buying opportunity!

I don’t have enough time to write down all my thoughts and create the graphs… I just want to put in writing that I think we’ve hit the “capitulation” stage.  Everyone is throwing in the towel and the shorts are making it worse.  Prices are exponentially dropping.

This is a huge buying opportunity.

GDX = $13.96
GDXJ = $19.11
SIL = $6.89

Possible Mid-Term Scenario

The fed (Yellen) recently announced the stock market has high valuations which some are taking as a indication the fed could likely move forward with its rate hikes later this year.

When the fed increases, initially it is likely to cause both the stock market and gold (including metal miners) go down.  The increased rates will make it more expensive for businesses to borrow money, therefore lowering their profits.  An increase in rates is also associated with hampering inflation; hence gold will suffer.

However, if the fed increases rates and after the initial decrease of both the stock market and gold occur, should the market rebound strongly it would be a sign of overpowering inflation; for if a rate increase doesn’t hurt (gigantic) businesses, then that means they are able to charge more for their products, hence creating inflation.

With all the money printing that has happened, inflation has to rear its ugly head at some point.  It could be years away, maybe not until the next big yet-to-be-forseen boom (or bubble) happens.  Its my suggestion that you think long term (10 years) and get yourself positioned now.  For it will quietly happen and if you don’t start positioning yourself in the near term you’ll be chasing the trend in the long term, potentially missing out on the biggest gains which happen early.

So watch for this potential scenario to play out.  Look for the rate increase and both the market and gold to head down.  If you don’t believe gold (and related investments) are already at staggering lows, this scenario would be something to put on your radar for your long term buying opportunity in gold and gold related investments (ie gold miners).

 

Hang in there

Life has gotten very busy.  The miners are still down in the muck.  They bounce around record lows and up 20% from there.  Every time there is even a slight scare they shoot up 5-10% before later falling back down due to current lack of interest.  But the jumps show how much this area can gain in a short time when even a little interest sparks.

There are incredible gains to come in the long term.  Keep buying more as the miners dip lower.  Don’t try to trade in and out.  Get yourself in and buy more as they go down.  If they pop up, don’t buy more.  Sit and wait.  Don’t be in a hurry, its not likely that any huge gains will be made in the short term.  Build a strong position.

Hopefully I’ll get more time for a real update in the near future.

Miners are down in the muck!

My father was out visiting back in early October and while he was out here he asked me what I’m currently investing in.  I told him I’m weighting in on the mining sector as it has been absolutely getting crushed.  He asked me to send him an email with the ETFs we discussed (GDX, GDXJ, SIL).

In the email I sent him, I made sure to comment that although I am confident that the miners will have vary large gains in the long term future from where they are now, they are currently down in the muck and suggested they could easily lose another 20-40%.

I gave him specific instructions, that because this sector is so far down in the muck, not to put all the money he intended to invest into the sector right away, even though I think they are currently dirt cheap.  I gave him a plan to purchase into the declines as the sector would potentially continue to get beat up.

I sent that email on October 4th when the price of GDXJ was at $32.  Over the last 2 months, there have been incredible daily swings, with a 2-month low of $22.71.

If he listened to my instructions, he would currently have 75% of his investment for the sector invested at an average price of $26.60.

If another friend or family member were to come to me with the same situation, I would give them the same investment plan, but not with the same numbers.  The plan I would give that person would not be geared toward the sector or any specific price target.  It would be based on that person’s timing and entry point.

I get so frustrated when I read investment newsletters where the “guru” gives specific buy and sell points based on his own “guru” portfolio. People are always frustrated and I’ve rarely seen anyone actually achieve the results the “guru” gets.

If you come in late to the “guru’s” game plan, that investor may have a long term gain, but because you got in late, you lost money as the “guru” lost 20% in the last X amount of trades which were the ones you were involved in.  So the “guru” claims success while you lose.

In the future, I plan to release a membership section to teach my strategy that is built on creating success for your individual situation based on your individual timing and investment funds.  Join my newsletter to stay up to date and get notified when it comes out.

 

ETFs create shares for shorters to borrow; exponentiating downside

In many previous articles I have pointed to one particular previous post that attempts to explain why stocks (and ETFs) get drastically over sold.  I recently came across an article which pointed out that ETFs are able to create shares that traders can borrow to take short positions in the ETF, which in effect exacerbates the downside.

That’s because during times of stress, certain ETF dealers can create additional shares to satisfy demand for short sellers, who need shares to borrow and sell.
– Excerpt from this Barrons.com article

So not only are the underlying stocks being shorted, dragging down the price of the stock and therefore the ETF, but the ETF as a basket can be shorted itself with shares “created” out of thin air, exacerbating the down side (as well as the upside when a rally starts and shorts have to cover) in the ETF.

Read that excerpt from Barrons above again!  Not only can ETFs be shorted like regular stocks, but the EFT managers can, in times of stress, create EXTRA shares for shorters to sell, which creates exponential downward pressure on the value of the ETF.

This creates an opportunity for arbitrage, as the ETF, in the short term, differs from the value of the underlying total values of the funds individual stocks.

Like a stock, ETFs can be sold short. Those provisions are important to traders and speculators, but of little interest to long-term investors. But, because ETFs are priced continuously by the market, there is the potential for trading to take place at a price other than the true NAV, which may introduce the opportunity for arbitrage.
– Excerpt from this Investopedia.com article

I believe this is happening right now to an absolute EXTREME in the metal miner ETFs like SIL, GDX, and GDXJ.

This is yet another reason to get in while these ETFs are getting hammered down as it all has to come flying back with a vengeance at some point.

At some point, when I get more time (yeah.. right!), I’d like to look further into what happens with the money that is made from lending those extra created shares for the shorters to sell, as a shorter has to pay a fee to borrow a stock/ETF to short.  I would think those fees should ultimately go to the fund increasing the value for those of us holding long term, but for me, it remains to be discovered what really happens to those fees.

Update: GDXJ – Getting CRUSHED! Start/Continue Buying!

Wow!  Gold and the miners have absolutely gotten crushed.  As I predicted in my last update, once the sector crossed past the short term uptrend of creating lower lows (see pic), they got hammered all the way down to the previous low and are shooting past creating new lows.

GDXJ junior minors creating new lows

This is all happening because the Fed recently “stopped” its stimulus program which is causing the value of gold to continue its decline.

As I’ve stated in my previous article about how the market tends to overshoot, I believe this to be an amazing opportunity if you aren’t already involved in this sector. During panic phases like this, are a great time to start buying.  If you have already started buying, continue to purchase on these massive dips.

I’m not saying to throw your whole portfolio at this sector.  It could be years before it comes back.  But long term, these current events are great opportunities to start building and/or strengthening your base.

Gold is getting crushed because we are all getting into the relaxation that our economy is doing well, picking up from the great recession.  According to the feeling we get from the FED’s moves, we no longer even need stimulus.

Our economy is not doing this well, that the market should be at its all time highs.  Its all smoke and mirrors.  The majority of people are making less money, not working full time, etc.

This is absolutely a euphoria phase.  However, like the housing bubble which lasted for years, this euphoria could last for quite a while longer.

At some point, and it may be years from now, another bubble is going to burst. I’m not smart enough to predict exactly what is going to pop this market bubble, but something is likely to trigger another recession, which will take all this euphoria money being pumped into the big cap stocks and move it into defensive positions (ie Gold and Miners) which will bring this sector back up and through to all time highs.

It may take another drastic event (9/11),  or I’m thinking we’ll see some drastic action happen if we elect a Republican president in the next election. Or we could suddenly start showing inflation higher than the fed’s objective of 2% and the market will panic that massive inflation is about to set in, as an overshoot from all the stimulus, and all that funny money stimulus liquidity that’s out there from the 5 years of stimulus will storm out of the major corporations and over to the inflation protection areas like gold and the miners.

Be prepared for Gold and Miners to continue down in the near future, but in the long term, we are at a point of incredible purchasing opportunity.

I hope to write more in the near future, however I’m swamped with work and family.