All three major indices closed about 1% higher thanks to a late day surge. This marks the 3 straight day of gains. No real reason for the rise except that we are working off recent oversold conditions(mission accomplished). Right now the markets are in no-man's land and are bouncing up and down with little clear direction. The real test for this market will be what it does at the 200 DMA, which for SPY is around $110. Personally I am waiting for a test of the 200 day before I make any new trades. It has hard to make trades when there is a lack of trend and choppy action. Because we are below the 200 day I am going to be taking a bearish stance if or when the market gets close to testing the moving average. The trade will be relatively simple--short high beta names and place a stop loss at 8%. If the market breaks convincingly through the 200 DMA I will cover shorts and go long.
The only other trades I am looking at right now are gold and gold stocks. I happen to believe that gold is going to fall back down to $1050-1100 level which will present a great buying opportunity. I am somewhat cautious on gold stocks because of their anemic performance against the yellow metal. This situation cannot last forever and I expect them to surge higher eventually. The only question is when. I was reading a piece from Pierre Lassonde (chairman of Franco-Nevada) in which he said now is the time to stock up on gold stocks because they will deliver strong near-term results. He notes that energy prices have stayed low (as compared to gold) which should boost mining profits and serve as the catalyst for higher prices. I hope so. Over the last 3 years gold stocks have largely disappointed.
Black Swan Insights