Update: GDXJ involvement opportunity

In my previous article Update: GDXJ – Potential End of Long term Decline I discussed the recent uptrend of the junior minors fund. Since that time the fund has had a significant decline and is now approaching a major inflection point.

As you can see in the chart below, the fund has been in a near term rise, trying to break from from its long term decline. The latest peak was (just barely) higher than the previous (and first) peak during the reversal (top green line).  Each low in the uptrend has also been higher than the previous (lower green line).  So technically GDXJ is still in a near term uptrend.

GDXJ nearing inflection point

However, at its current position after this most recent decline, the fund/sector is headed towards the previous low (the blue line in the chart above).  If, going forward, GDXJ crosses the previous low of this near term uptrend, it will break the uptrend and will therefore likely head down (due to market forces) to create new lows.  If it doesn’t break below the previous low, it will likely start heading upwards for a new higher high.

So the next phase of this market segment will be interesting.

What do I think will happen? … I have no idea.  The market is random in the short term.

I do think this is a great time to start getting involved in this sector, if you haven’t already.  If the sector/fund does create a lower low, the day traders will likely short it down to a new low, giving you opportunities to work on increasing your position to build a solid long-term base.

If it heads back up from this point, you’ll have gotten involved at a great entry point, as in the grand long-term picture, this sector is highly undervalued and should get some fantastic long-term gains.

 

Update: GDXJ – Potential End of Long term Decline

In a previous article on the Rebounding Trends of GDXJ, I discussed how the bottom of each major decline of the stock/sector has been followed by a growing percentage increase in the subsequent rebound.  In the second half of that same article I showed a chart which indicated that the precious metals mining sector (as represented by GDXJ) was still in a long term decline.

I wrote that article in the middle of March, and over the last 4 months, a new supporting trend is beginning to form which may indicate the sector is turning the corner into a long-term-gain trend.

The chart below indicates two major trend change indicators currently materializing.

GDXJ mining sector shwing potential long term trend change

First, I have shown how the pattern of lower highs and lower lows has been broken, both on the low and the high side.  This is indicated by the declining red lines and arrows changing to the up-trending green lines and arrows. Notice that the June low was higher than the previous low around December, and the current high is just topping the previous highs from March. This situation hasn’t happened in over 3 years!

Second, in the bottom half of the graph, I’ve indicated the strong increase in volume, which if not caused by massive robo-trading (an article I need to write to explain), indicates a strong resurgence in popularity of the sector/stock (see “mob mentality” section of this previous article).

I don’t put a lot of weight in the technicals indicated above.  Like a Rorschach test, you tend to see what you want to see when performing technical charting.

If I did believe strongly in the technicals, I would probably choose this point to start risking large sums of money, trying to catch the long term bottom as the indications of a turn around seem to really be adding up.

However, if the above analysis were not to be the full story of the end of the long term decline, should the sector drop back down to new lows, I would probably again get overly emotional and sell for a loss at wherever the actual bottom may end up being.

Don’t play these head games!  Investing like this is just gambling!

I have developed my own proprietary method of investing that allows me to achieve significant long term gains by taking advantage of long term market sentiment and inefficiencies in a way that keeps me from making emotional mistakes while helping me stay with my profitable investment plan.

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Watch List: Biotech Sector Pullback

The biotech sector has had an extensive a run over the last 3 years, more than doubling its 2011 average price.  Recently, however, as you can see in the chart below, it has pulled back about 25% to $130 from its peak of $170.

xbi price pullback

As part of its decline, this sector also recently crossed the upward trend line of “higher lows” as can be seen in the chart below.

xbi biotech trend line

Breaking such a long term trend line is a fairly big deal and further decline is likely to come as technical traders start to weigh in on the negative side by shorting the stock until it hits lower “resistance” zones.

In the chart below, I put percentage drop markers at two areas of resistance beyond the recent drop.

SPDR S&P Biotech ETF recent pullback

I’m looking to start investing in this sector, should it drop into those resistance areas between $105 – $120.  I’d like to see it get back to the $90 range in the long term and that’s where I would start adding stronger positions as part of my purchasing technique.

Another Reason Why You Should ALWAYS Contribute To Your Retirement Accounts!

One huge piece of advice I would give anyone just starting out investing would be to tell the person to ALWAYS contribute to as many retirement accounts as possible. Max out your contributions every year.

Obviously the tax advantages are a majority of the reason to contribute to retirement accounts, but I also make sure to do so because it makes my tracking/accounting needs virtually non-existant should I do any trading or sell to lock in any gains, as you don’t have to report individual trades from retirement accounts on your yearly taxes.

At my current stage in life, I am much more of a long term investor; hence the subject of this blog.  I used to trade more (but not to the level of day trading) and at the end of the year I might have anywhere from 10-30 trades that, if traded in a regular non-retirement account, would need to be reported on my 1040 when doing my taxes the following April.  Because I was building my retirement accounts, many of those trades took place within my retirement accounts and my gains/losses from individual trades didn’t need to be reported on my yearly taxes.

So not only are retirement accounts a tax shelter, they are an accounting shelter as well! And this either saves you time or money on your taxes, depending on whether you do them yourself or pay someone to do them.  Currently I have an accountant do my taxes, and I was able to negotiate a lower rate because I have done things like this to simplify them.

It has been over 10 years since I started contributing to my retirement accounts (mostly ROTH and SEP accounts), and I now have enough capital in them that virtually all of my stock purchases take place within those accounts. I am well diversified, in that I have free cash for life’s emergencies, physical property and stocks.

If you find my advice helpful, please join my email newsletter or follow me on twitter to keep updated.  At some point I intend to open up a membership section to help my followers more wisely invest their money.

UPDATE: GDXJ rebound trend

In a previous article, I discussed the increasing size of each rebound attempt the Market Vectors Junior Gold Miners (GDXJ) makes.  GDXJ is on its fourth major rebound in the last 2-3 years, but this most recent rebound appears to be to be struggling to provide the strength to beat the previous rebound as the last two rebounds have done.

gdxj-rebounds

The most recent rebound of 55% was quite close to the previous of 59%, it just needed another couple percent from its high of $44.83 to beat it.  But instead, it pulled back, most likely due to profit taking, to where it currently sits at the lower end of a consolidation zone that ranges between $40 and $44.

It will be interesting to see what happens over the next few months.  If the miners continue to drop back down even a little further, we’ll probably see more shorting come in to enhance the drop even further.  If that happens, the sector will have continued the pattern of lower highs.  And if there’s enough technical traders pulling their weight, they’ll likely continue to short the stock down to a new lower low (orange arrow) as the technical trend indicates should happen.

lowerHighsAndLowerLows

I don’t trade on technicals to try and beat the market, but I do like to know what the technical traders are thinking to help me determine where we are in a sectors momentum.  Currently we are still in a long term decline.  But the recent consolidation shows, the sector is fighting between breaking out to its first higher high (starting an uptrend) and dropping back down to create a new lower low (continuing the long term decline).

Implementing my strategy that I’ve been developing for years to consistently produce long term gains, I had a major purchase that was very close to the most recent bottom near the end of last year.  And based on that strategy I won’t be purchasing any more of this fund, unless the fund drops below that previous buy to where my next minor buy is scheduled.

I’ll be amazed if the miners do drop down to newer lows, but I’ve already been amazed over the last couple years as they have done so a couple times.  My strategy doesn’t follow my conjecture or amazement, it just continues, without emotional involvement (which is tough), as I continue to follow the rules I’ve created to purchase in a long term decline that allows me to develop long term profits.

To learn more about my long term investing techniques, which I’ll describe in a membership section in the future, join my mailing list or follow me on twitter.

ETF Watch: REMX – Market Vectors Rare Earth/Strategic Metals

Just a quick bulletin to note that I’m starting to look into the “Rare Earth” and “Strategic Metals” ETF, REMX.

From the REMX ETF prospectus:

The Rare Earth/Strategic Metals Index is comprised of companies primarily engaged in a variety of activities that are related to the producing, refining and recycling of rare earth and strategic metals and minerals. Such companies may include micro-, small- and medium-capitalization companies and foreign and emerging market issuers. The fund is non-diversified.

REMX-performance

REMX is a thinly traded ETF having daily volume only in the thousands (as opposed to bigger ETFs like GDX, GDXJ or SIL which have daily volumes in the millions).  In my experience, due to the lack of liquidity, thinly traded stocks tend to be a bit out of whack from the market in the short term, either leading or lagging.  REMX appears to be lagging the commodities sector, so this may be a good time to start getting involved with the ETF, especially if you’ve missed the recent uptick in gold and silver miners.

As you can see in the chart above, REMX is only up about 5% over the last 2 months, whereas the junior gold miners and silver miners are up 46% and 37% respectively.

Even if you look at the minimum ($34.20) to maximum ($36.08) percentage change of REMX in the chart above during the time period, it is only up 6.5%, so it hasn’t yet participated in the commodity uptrend.

Looking at the longer term chart below, you can see that this ETF does tend to have the same outcome as the other commodity miners in the long run:

REMX-longer-term-performance

Sticking with your investment plan

As the gold miners are once again posting a larger uptrend gain than previous rebounds, I’ll soon be doing an update to my previous post on the increasing size of major rebounds in the mining sector, specifically the small cap gold miners exchange traded fund GDXJ.

UPDATE: I did write an update on the most recent update on the GDXJ rebound trend.

For now, I’d like to discuss the emotional impact of these rebounds and how I have to force myself not to get emotional and stick with the plan.

I have been investing into the miners as they have fallen with my own proprietorially developed technique that has served me very well.  With the recent rise, my losses have been nearly evaporated and I will soon be posting a gain.

While sticking to my technique through the recent bottom, I was able to make a “major” purchase just before the most recent bottom, which is one of the biggest goals of my technique (With my proprietary technique, I make “major” and “minor” purchases at various predetermined levels – to be discussed in my future membership section – join the newsletter to be notified when its available).

As I purchase down in a pyramid of-sorts fashion, I can get discouraged as the un-realized losses add up.  However, I know that I’m investing in a sector which is out of favor and tends to have multiple combined reinforcing forces acting against it, and I have faith in my technique as it continually proves to be profitable for me.  So I have to keep a level head and stick to the plan.  I never put money in the market that I will need in the next 10 years, so I never sell for a loss.

Then, when a reversal finally comes and I get back to where my total investment in that sector/ETF is basically even, I tend to get a surge of energy to exit the plan and sell.  There’s this instinctual emotional relief that causes thoughts to sell and walk away with a “No harm, No foul” attitude.

Where I’ve made my biggest mistakes in the past is when my account starts to show un-realized gains and I decide to exit the plan and realize my profits.  My biggest missed gains have been in this area.  When this happens, I tend to lose sight of the bigger picture.

This has actually happened to me in the recent past.  I will write a more in-depth article on the subject in the future, but I was investing in the solar alternative energy sector and sold for an early profit.  I really missed the recent exponential upside and cost myself some major profits.  Going from the an entrenched downside to a minor gain, I allowed my emotions to get the best of me and I sold for only a modest gain.

So now as a similar thing is happening to me again with the mining sector, I have to make sure to keep my emotions away from clouding my ability to follow my own well proven investing technique and force myself to stick to the plan.  I know from experience that, while it can be difficult at times, sticking with the plan and staying on track with the technique will allow me to achieve incredible gains.

Investing In Gold Isn’t Only About ‘Dooms Day’ Scenario

Most gold investors will tell you that you need to own gold because they believe US dollar is becoming a fiat currency due to all the money “printing” by the Federal Reserve in the Quantitative Easing (QE) programs.  They believe all the money “printing” is going to cause the economy to crash after the world realizes that all the “printing” is not really helping and gold will be the only currency to survive the devastating world economic crash.

I somewhat agree but mostly disagree with this esoteric point of view.

First, the Quantitative Easing programs don’t directly cause inflation.  The programs are intended to help banks square up their balance sheets so that they’ll feel more inclined to loan money. It isn’t until the banks actually loan the money that the subsequent inflation kicks in.

In simple terms, you can think of it like your credit card.  Your credit card company gives you credit to go an buy things, which is your individual money “printing”.  But that credit doesn’t change your life (or effect the economy) if you leave the card in your pocket and do nothing with it.  Once you actually go out and buy stuff with your credit card, that’s when the money “printing” gets put into play and subsequently affects you and the economy.

Since the banks are mostly hoarding the money the Federal Reserve is loaning them (keeping their credit cards in their pockets), Quantitative Easing is not yet causing massive inflation.

So the gold investors are missing a major step in how things would likely play out.

The economy has to really take off to the point where banks are back in the business of heavily loaning money for massive inflation to set in and gold to subsequently follow along with inflated pricing.

So from this point of view, if you are investing in gold, you are investing for the economy to continually pick up to the point where this massive inflation kicks in, and that means that the economy is running in high gear (or more accurately in overdrive since the QE is masking the faults in the engine).

Now gold investors do have it partly correct that if the economy crashes, gold will increase in value.  But it will be a short lived increase if we really head into a depression, as depressions cause deflation and even gold goes down in value in a depression.

I say there will be a “short lived” increase for gold as the fear of a coming depression will cause money to scramble from the highly inflated stock market into gold as overall market investors look for temporary safe-havens. If the government then steps in and prints even more money, the fear of inflation will kick in with even greater ferocity, causing gold to rise with equivalent vigor.

So investing in gold at this point has a double upside potential.  If the economy continues to pick up, inflation will ultimately set in, and gold will follow along by going up in value.  If the fear that Quantitative Easing is not helping the economy instead sets in, gold will rise from the demand, as money moves into gold as a protection.

The way I see the economy right now, we are headed for an overly-stimulated economy with heavy inflation, but we aren’t there yet.  It’s still years away.

In the mean time, QE is supporting the economy making us all feel safe, which is why gold has seen a dip for the last 2 years.

At some point (possibly as long as 5-10 years from now) the economy will pick up (likely due to some new invention on the scale of the internet revolution) and once it gets going, all that extra QE “credit card” money will get put into play and things will take off in a parabolic fashion.  That’s when gold will most likely go through the roof as massive inflation sets in.  The Fed will have to drastically raise interest rates to slow the economy.  If the takeoff in the economy is simply due to excessive exuberance (as opposed to new invention), that would be the time to move your money from gold related holdings into high interest vehicles as a crash will be likely to follow.

With all the above said, I don’t necessarily put much of my investment money into gold.  I don’t like paper gold (gold funds traded on the stock market) and it’s too much of a pain to keep an investment amount of physical gold safe.

I invest in gold mining companies, which see exponential effects, partly directed by gold’s change in value.  Currently, in the long term point of view (there has been a recent run-up), the miners have been beaten up badly and are highly undervalued (see my article on investing in Gold Miners over Gold).

I am currently heavily invested in the mining sector (gold, silver, etc.) with a proprietary technique that I have developed over my many years of investing.  I plan to open a membership section where I share my technique to help you invest your money wisely.  Join my newsletter to be notified when I open up the membership section.

Miner ETFs VS individual stocks

Depending on where you look on the web, you’ll find a different average cost for miners to pull gold out of the ground.  Whichever amount you choose to believe, you can fairly estimate that gold is currently selling at or below the cost to mine it.  Thus, the miners are not likely to be profiting.  Hence, their stock prices are currently trading at a significant discount (see my article on Why stock prices for mining companies can go so low).

I like the miners because when the price of their respective commodity drops significantly, they can scale back operations and go into more of a survival mode, by cutting production and lowering expenses until the commodity price starts to re-elevate. Once the commodity hits a price that becomes more profitable, they can kick things back into high gear while having learned a few lessons in efficiency due to the downturn.  Their biggest objective during the downturn is make their debt payments.

And that’s why I like holding ETFs over individual gold stocks.  Since I don’t have the time to investigate each of the miners and learn how each manages its debt (as well as many other business factors), I know that by buying an ETF, I’m buying the average.  Some companies will do well, and some will not do so great.

In fact, some companies will do so poorly with their debt that they may go out of business.  Since the actual mine is the collateral of the loans, what is likely to happen should a miner go out of business?

Well, the debtor would come in and foreclose on the property.  But the debtors can’t do anything with those mines as they are in the lending business, not the mining business, so they would just turn around and sell the mine to another mining company (or more realistically, one of the better managed miners will first step in and buyout the company/debt for a discount).

Thus, if you are in an ETF that holds many mining companies, you are likely to get that mine back through another company in the ETF.  So it sort of all comes out in the wash, which is another reason why I like holding an ETF over an individual stock at this point in my life (see about me page).  For every company that significantly under performs, another company is likely to significantly outperform.  You do give up the chance for even greater gains but you gain security of knowing you didn’t pick a catastrophic company (see my article about knowing your risk tolerance.)

I have developed a proprietary investment technique for stable investing which I’ve developed over my many years of successful investing while going through major life changes. Having the knowledge above alone is not enough. You need to implement a stable, intelligent investing technique to get substantial, stable gains while protecting yourself from losing money.  I intend to release my technique in a membership section in the future. Please Join my mailing list to be notified when it will be available.

 

Should you invest in Bitcoin?

Bitcoin is a new digital currency that is gaining quite a bit of notoriety lately, especially since the Winkelvoss Twins (of Facebook fame) started promoting their involvement in the cryptocurrency by reportedly owning a significant amount of the virtual coins and also trying to bring to the stock market, a way for investors to easily purchase shares of Bitcoin value in an ETF.

I started researching bitcoin to learn more about what it is and how it works and it didn’t take long before I realized its not likely to be a long term, stable investment that I would put my money in for one big reason.

No… my reason is not that Bitcoin is not backed by something of physical value, like gold, as many other articles have pointed out.

If you read the original white paper that introduces the Bitcoin peer-to-peer financial network concept, you’ll continually see references that make statements like, “The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.”

In my opinion, once there’s enough value to be stolen, there’s nothing stopping a well funded terrorist type group from attacking the integrity of the system by taking control of the system by overpowering the “honest nodes” with “dis-honest nodes”.

Also, I don’t like that the inventor of the protocol is a pseudonymous developer (named Satoshi Nakamoto).  It doesn’t sit well with me that the inventor(s) have chosen anonymity.  They seem to be pretty clever to have created such a brilliant scheme, but how do we know that their brilliance doesn’t go beyond what they are showing.  Maybe they have a secret, undisclosed, hard to discover, technique within the protocol to make a small amount of CPU power act like a lot of CPU power, such that they can easily take control and overpower all the “honest CPU” power on the network.  As the inventors are anonymous, they could easily watch the value of their invention skyrocket and cash out into real money before crashing the system and anonymously walk away with a huge amount of value.

Also, with something so new and untested, some form of a loophole will likely someday be discovered that allows someone to control the network in a negative way.  I haven’t delved into the encryption strength that Bitcoin uses within the system, but I do know that as computing power continually grows, we continually need better and better encryption technology.  There was a time, in the early internet days when 40-bit or 56-bit encryption was considered safe enough for financial transactions (https connections).  Now advanced 128-bit is considered the minimum.  So if the encryption strength is not easily modifiable over time, there is a likelihood that years down the road, someone will be more likely to be able to hack your Bitcoin encryption keys.

With all that said, I will not avoid using Bitcoin.  I hope it becomes as ubiquitous as PayPal.  I like the idea of it.  I own a couple small online storefronts and may soon start taking bitcoins as payment.

However, based on the potential network takeover possibility, I don’t plan to invest or store any significant amount money in the system as an investment.

As a final note, I’m not predicting that the value of Bitcoins won’t exponentially increase.  In fact, based on the growing hype, and especially if ETFs get created where big money can easily flow into and cause massive inflation within the Bitcoin system, a short term investor could make some decent gains, especially if one was to get in before the ETFs start showing up (it may be too late already).  However, I am a married man with a family who invests for the long term, and based on the discussion above, Bitcoin investing is too risky for me to have significant involvement.