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Began his investment career in 1981, first as a Floor Trader and then as an Investment Advisor for a major securities firm. During that time he acquired several securities and options licenses and became registered as a Commodity Trading Advisor (CTA). He also co-founded a venture capital... More
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  • Silver Analog

    This week two investment firms came out expressing their disbelief that silver has any more upside, so investors may start getting nervous and begin asking the same question. Back on Feb 11, 2014 I wrote an article titled "Coffee to Outperform Precious Metals" and within the article I stated that Coffee looked to reach $1.75 per pound - today it reached $1.78. I had recommended buying the Coffee ETF - JO @ 23.28 and selling it at 32.99 for a 47% profit in 21 days. What I did not mention in that article was the interesting similarities between the charts of Coffee and Silver.

    Often times you can get what is called an 'analog', which simply means a representation of data that is similar when compared to data of a different origin. Coffee and Silver are the two sets of data of different origin that are being compared in the chart below, from year 2001~2014, with coffee represented by the orange line and silver by the black line. The coffee price scale is on the left side of the chart and silver on the right.

    What is most interesting, is that of the 7 paired bottoms (coffee=red arrow:silver=blue arrow), coffee bottomed before silver 6 times during significant moves, which coffee subsequently followed. You will no doubt notice that the most recent move in coffee has been one of the most significant advances during the last 13 years. This begs the question, is silver next?

    The coffee price has almost reached its 38% Fibonacci retracement of the entire 2 year decline. For silver to achieve the same level, it would have to go to just over $30 per ounce. Although I have never been a big fan of analogs, given that so many commodities are rallying strongly, there is little reason for silver or gold to be excluded.

    (click to enlarge)Silver (black) over Coffee (orange) - Weekly

    Tags: SLV, JO
    Feb 28 4:03 PM | Link | Comment!
  • Coffee To Outperform Precious Metals

    Many investors become fixated or lock on to only one or two equity classes due to either personal philosophy or because they become comfortable with them. The analogy, I suppose, would be to always have meat and potatoes for dinner. This can become a stale strategy however, particularly if your dinner was precious metals for the last two years. Not only that, this might cause you to miss out on something that tastes spectacular. For my palate, I like a variety of investment meals, but how I select the best meal at that time is by analyzing the food selection by using my style of relative strength analysis. Ok, enough with the analogies.

    On Dec 12, 2013, I recommended the Coffee ETF - JO at 21.95, stating that it could outperform the precious metals, and after being stopped out on Jan 15, 2014 for a 5% profit, I recommended JO a second time at 23.28, again stating that it would outperform precious metals for the next year. The chart below shows my entry points in green and exit in red.

    Coffee ETF - JO - Daily

    (click to enlarge)Coffee ETF - JO - Daily The next chart demonstrates why coffee should outperform the precious metals. The top panel shows the coffee price in brown, the second panel shows the relative strength ratio of coffee to silver and the third panel is a momentum indicator of the relative strength ratio.

    The Coffee/Silver ratio clearly shows a very large declining wedge pattern beginning in the 1990's, that broke above its downtrend line in Jan 2014, while the underlying indicators breakout preceded the price by a few months. This ratio can also be read as an overbought or oversold indicator of coffee to silver, with the horizontal line being fair value. A return to fair value would likely take coffee back up to approximately the 1.75 / lb. area, or about 36.00 on the JO etf.

    Coffee - Coffee/Silver ratio - Monthly

    (click to enlarge)Coffee - Coffee/Silver ratio - Monthly This is but one example of a commodity and its underlying ETF that will outperform the precious metals. However, there are a couple of more ETFs that are just lining up to do the same, which you can find out about on the InvestorKey blog. Gold and Silver are not the only food in town and sometimes better profits can be found at a different restaurant.

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    Tags: JO, GLD, SLV, coffee, gold, sliver
    Feb 11 5:09 PM | Link | Comment!
  • DOW Spells DOW-N

    Our Blog started to recommend short positions on select stock market sectors starting on Jan 16 through Jan 23, because we believed that a shift was taking place that would reverse existing trends that have been in place since 2011, and possibly even 2009. Our premise finally starting being acknowledged by a few at the beginning of February, although a lot of analysts are still suggesting the bull market will continue after a required period of correction. We beg to differ and we will use the three popular Dow charts - Industrials, Transports and Utilities - to demonstrate our thoughts on this matter.

    First, the Dow Jones Industrials in the weekly chart below has developed a large bearish wedge pattern (as have most other market indexes) beginning back in 2009 from where this cyclical bull market began. You will note that the trendline from that 2009 bottom has been broken during the recent decline, as well as a minor horizontal support level at 15,800, that now becomes resistance. More importantly, the underlying momentum in the second panel of the chart failed to confirm the Dec 2013 new high, and it formed a head and shoulders top pattern that has now broken below the red dotted signal neckline. This implies that the Dow Industrials will move down to the next support neckline on the price chart, which current sits around the 14,700 level. After that, I would expect at least 3~4 months of consolidation as we develop a right shoulder of what looks like will be another head and shoulders pattern that takes us even lower.

    (click to enlarge)Dow Jones Industrial Average - Weekly Next, we have the Dow Transportation Index, which also clearly shows the rising bearish wedge pattern since 2009. The price has not broken the major uptrendline since 2009, but it has broken a smaller (dotted blue) trendline beginning in Nov 2012. Currently, it is resting on minor support at the 7000 level that could hold it here for the month of February - beware of the Ides of March? Again, the underlying momentum indicator did not confirm the Jan 2014 new high and it has broken below the dotted blue up trendline from late 2012. We expect this will take the Transports down to the solid red line that will likely be around 6500 some time in the future when this happens. The Transports is behaving as the strongest of the three indexes discussed.

    (click to enlarge)Dow Transportation Index - Weekly

    Finally, the Dow Utilities Index also has the bearish wedge pattern, with the difference here being that the Utilities Index made its final high back in May 2013, and that it has a very clear 5-Elliott Wave pattern completed, whereas the same wave pattern is not so clearly identifiable in the prior two index charts. Another thing readers should be aware of, is a common rule that interest rates (ergo Utilities) often peak prior to the stock market and that the stock market nearly always makes a top within 12 months of that happening; it has now been 7 months to the Dec 31 top.

    In this chart we do not, however, have a head and shoulders top pattern, rather it seems to be a triangle consolidation that has formed. During the last 3 days the price created an intraday head-fake by appearing to break up and out of the consolidation, only to fall back and decline. That action should mark the last gasp for the Utilities. The long red dotted trendline looks to be the next important line in the sand, as we have already broken below the long wedge trendline from 2009. The next levels of support lie at 465 and the 445~450 level as indicated by the horizontal red/green line and thick dotted blue line. The underlying momentum has a similar line that matches the troughs in price and you might say a head and shoulders pattern could be implied to exist from the end of 2012 through today.

    What is disturbing about this chart is the suggestion that interest rates will start rising and with momentum behind them. Now is not the time to be complacent and believe the rhetoric that "the government will never raise rates", perhaps the market will now determine what the rates will be moving forward.

    (click to enlarge)Dow Utilities Index - Weekly

    Feb 06 8:02 PM | Link | Comment!
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