Jeff Diercks'  Instablog

February lived up to its reputation as a tough month to gather performance after a big January, which we just had. The S&P 500 officially gained 1.11%, but I got to tell you it was tough to find performance during the month as just about every asset class was all over the map.

The good news is February is behind us. Although I believe we could see some weakness to start the month of March (post the first few trading days), I believe global stock markets will move higher into March and possibly April. Of course, this is just an educated guess and anything could happen in this Fed induced market.

So what went right in February? Obviously, the S&P 500 made money which is a good thing. This benchmark was pushed higher by strength in utilities, consumer staples and health care. These are all defensive names and should be enough to tell you how professional investors viewed the month that just ended.

(click to enlarge)

You can also see that the S&P 500 easily led the mid and small caps and the Nasdaq to the upside during the month. (I apologize the returns don't quite match up, but the best I can fine turn this chart is for the period of January 28th- February 28th.)

(click to enlarge)

The performance of our Stock-Signal.com indexes were mixed in February as you might expect by viewing the chart above. Note how the Nasdaq Index (QQQs) underperformed again in February. The only glimmer of hope I see is this index did outperform in last week of the month, but still its performance has really hurt our sample portfolios.

Our best performing index signal was short (or inverse) gold, which produced a +4.59% return in February. Our worst performing index was our high yield signals which produced a monthly loss of -1.12% while the underlying benchmark gained +.49%.

Our equal weighted portfolio (see below) lost (.18%). While our very broadly allocated Global Opportunity portfolio (see below) gained just .22%.

Here is the Stock-Signal.com performance for the period, year-to-date and prior two annual periods. Please keep in mind this has been a tough period for trend following strategies, like Stock-Signal.com, and if you have a contrarian mindset, now is the time to start following our signals as they are bound to take off as the markets likely top out sometime in 2013.

(click to enlarge)

(click to enlarge)

I hinted above that I believe the powers that be continue to juice this market higher into April after some possible weakness to start the month of march. It is possible we head lower over the next few weeks and the test 1460-1475 on the S&P 500 before charging higher into the end of March and April.

Of course, events in Europe or even political indecision and fighting here in the U.S. could derail a perfectly good melt up. In any event, if you are a subscriber, we will attempt to keep you on the right side of the trade no matter what happens around the globe or here at home.

Maybe now is a great time to get a Free 30 day trial of Stock-Signal.com? You can cancel at anytime without your credit card being charged during the trial.

Disclosure: I am long QQQ, SPY, EFA, HYG.

The price of gold has continued to consolidate for almost eighteen months now since peaking at 1923.70 an ounce in September 2011 Given the reckless money printing by Central Banks around the world and the emergence of a middle class that wants to live a better, more prosperous life in many developing countries does this make sense that gold should be consolidating here?

It is no secret that money managers around the world are nervous at the amount of central bank money printing that is occurring not just in the U.S., but around the world. Money Manager Bill Fleckstein recently stated in an article on MSN Money that:

"They are then going to use this literally worthless paper they have conjured up to buy the bonds of an organization that is backed by the same insolvent entities that are issuing the paper that it intends to backstop. The whole concept is rather comical, but to me this one act is a perfect illustration of where we are in modern-day finance.

The fact that the gold market doesn't go berserk on a daily basis just shows you that an enormous chunk of the G-7's population is still oblivious when it comes to this sort of lunacy."

The Business Insider recently reported that Central Banks around the world bought 534.6 metric tons of gold last year. This is the highest level in more than 50 years.

However, they also reported that a drop in consumer demand more than offset this buying as you can see in the chart below, courtesy of The Business Insider and the World Gold Council. This chart shows gold demand in tons and also the price of gold (the gold line).

(click to enlarge)

So why is consumer demand for gold declining? Why aren't consumers following the lead of the central banks who obviously know how all this money printing is going to end (badly)?

I think the answer is gold got ahead of itself. It was a another bubble!

When the price of gold rises in value for over a decade without a significant consolidation, you should certainly expect a correction or consolidation at the very least! That correction or consolidation you would expect should last years, not months on a run of such length.

The rise in gold started in 2002 with gold at roughly $300 per ounce. At is peak, gold hit $1,923 per ounce in 2011 that is a rise of $1,623 per ounce or 640% in just shy of ten years. Now that is a big move!

(click to enlarge)

I believe consumer demand is off due to a perceived feeling by individuals and money managers that the worst case scenarios have been taken off the table by world governments, either right or wrongly perceived.

In the case of money managers, they have rotated to where they believe they can get better short-term returns. No manager can afford to have too much of his or her portfolio is an asset that is just moving sideways in price.

My opinion is gold is not going away. In fact, I think there is a pretty good chance it heads much higher. The real question should be one of when will this current consolidation end?

So here is my guess (and I do mean guess)!

(click to enlarge)

If you look at the current two year chart for gold and you extend the current consolidation ranges, you have what we call in the business an asymmetrical triangle (black bold lines). Now the book on such triangles according to StockCharts.com ChartSchool is that they are continuation patterns. This means that if the consolidation occurred after a significant rise (i.e. gold), the price pattern generally continues in that direction (i.e. upward).

So if this is true, the next question has to be when?

Now here is where the guess work comes in. If you look at the current chart, above, this pattern has a finite amount of real estate with which to travel. My experience is that such patterns rarely continue to the point of the pattern. So my guess therefore is gold must rise and break out of this pattern sometime in the next 12-16 months.

On a more immediate basis, gold is near strong support at 1550-1560. It may take a few weeks, but chances are gold is travel toward the upper black pattern line sooner rather than later if it can hold support in this area. If it cannot hold support, well then we do have a problem and one that could lead to much lower gold prices.

So bottom line…..gold is still a must own in many portfolios. It has been dead money since late 2011, but will likely perk up in the next few weeks and breakout to a new uptrend in the next 12-16 months. So be patient, gold may yet have another day in the sun!

Stocks moved up dramatically in January as near record fund inflows came into the equity markets. Investors on the sidelines seemed to have all gravitated at the same time into the equity markets driving markets into overbought territory by month end. However, this is a seasonally strong time of the year for equities and stock markets have a tendency to ignore traditional measures of market breath and excess enthusiasm during such periods.

If you recall this same thing happened last year. It began in Mid-December and despite my feelings that markets were too rich in January, the rally lasted all the way to the end of April. Quite frankly, as I learned last year with in our advisory firm, if you are sitting on the sidelines waiting for the right time to get in, you may never get it. I also learned to follow the trend until it ended, don't try to pick a top. These moves tend to go further than anyone would imagine!

As I reviewed this current period in comparison to that period, here is what I see. This current rally began earlier than last year's by about 1 month (mid-November 2012). Last year's rally lasted four full months. Assuming history repeats, that would give this one the possibility of lasting through February and into mid to late March.

Well the S&P 500 finished the month up 5.04%. Not a bad way to start the new year! The Nasdaq finished up 4.06%, while the EAFE index finished up 3.73%.

Our Stock-Signal index signals generally performed in line with market indexes. The significant exception was the Nasdaq index model which started the month net short (inverse) before finally moving net long at mid-month. This needless to say was a drag on performance for that index and for any sample or actual portfolios holding the Nasdaq signal model.

You can see this drag's effect in our sample Equal Weighted Portfolio of the Nasdaq, S&P 500, EAFE and High Yield indexes (below). This portfolio returned 1.98% vs. the 5.04% you would have received by buying and holding the S&P 500. However, lest we forget, this same portfolio beat the S&P 500 over the last quarter of 2012 by +1.5%. So it was due a period of underperformance!

Our sample Global Opportunities Portfolio returned 1.38%. The portfolio holds 15% of all our indexes excluding the U.S. dollar (a 10% holding). This portfolio's returns were held back by positive, but lower returns for gold, the U.S. dollar and commodities in January.

Please note the disclaimers related the sample portfolio and index returns below and remember that past performance is now always indicative of any future returns.

Here is the performance by index and sample portfolio for the period:

(click to enlarge)

(click to enlarge)

I think I already hinted at what I expect in February and March above. As much as it pains me to admit, we could well see a continued melt up over in February and March. Why pain? It just means that traditional indicators (other than price) become less dependable.

Now having delivered the possible good news, here is the bad news. I do envision is much greater volatility of returns during this period. In fact, I would not be surprised to see the market string together periods of decline only to miraculously recover to even higher highs.

This possible rally continuation also lines up with the likely period in early April where Congress has to again take up austerity, budgets and the debt ceiling. This now annual right of Washington is traditionally a drag on the markets. If you factor in strong seasonality that traditionally ends in April, you have the makings for a rally continuation (like last year).

The Stock Trader's Almanac tends to back up this possible bullishness with its statistical case for a strong 2013 based on a strong January, three consecutive January gains and the fact the market returned north of 5% for the month. You can read their analysis called the Curse of Round Numbers if you want more information.

I would caution you to not just "set it and forget it" as Ron Popeil says about his now famous Ronco roaster. You need to stay vigilant!

I still believe we could see a top for the market in late April or May and as I said earlier, the easy money has been made in the short-term. Any additional returns from here will likely carry a few more sleepless nights and a more volatile trend.

If you are subscriber of Stock-Signal.com, you have it easy. Just sit back and wait for the signals. We will keep you out of trouble.

If you are not a subscriber, why not give us a try? We offer a free 30 day trial!

So now it is your turn? How long do you think this current rally will continue and why?

Disclosure: I am long QQQ, SPY, EFA, HYG.