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Trade review + current outlook 21.12.01
Review of recent trades
In the past 2 months, I wrote these posts:
Bearish inflation trade / bullish bonds (Nov 9). Since then: DBC -11%, TLT +5%. Success.
Bullish US large-cap growth vs. value, foreign, small-caps (Oct 27). Since then: QQQ +2%, SPY -1%, VEU -5%, IWM -6%. Success.
Bullish gold miners (Oct 7 & beyond). Since then: GDX -3% from average entry price of 31.70. Failure.
Bullish farmland (Oct 4). Since then: LAND +28%. Success.
Again, all of the above can generally be tied together by this one intermarket chart:
Review of GDX trade
For the trades that worked, I won’t go into detail as you can find the reasoning in the original blog posts linked above. But I do want to review the trade that I got very wrong: Gold miners.
Since Oct 7th, I gradually scaled into a GDX position with an average entry price of $31.70. Today, I exited that position for a roughy 2% loss.
The reason for exiting is that GDX failed to hold its 50% and 61% fib retracements of the rally from late Sept. Supports are also failing on the venture stocks I discussed in the previous post (Nov 23).
We have to be very careful not to get married to an asset class/sector, otherwise that’s how large drawdowns happen in the portfolio. Remember my post on keeping the ego in check?
In hindsight, given the gold sector’s weak momentum, I should’ve exited when GDX failed to hold the 33.50 level shown in the above chart. Lesson learned.
The long-term quarterly charts for gold and select miners do still look good (see Nov 23 post). When would I get interested again in this sector? I want to see stronger momentum and breakouts. For example, WPM needs to show a breakout on this weekly chart:
Here’s the latest ETF leadership board:
As we can see, leadership is getting very thin. More and more ETFs have been entering the laggards area and breaking down:
The inflation trade continues to face pressure while bonds rally:
Bitcoin (a risk-on asset) broke down a few weeks ago:
The message? This is not the time to be bold.
What’s holding well during this market weakness is TLT and LAND. I continue to hold them both.
Another area that does well during market weakness is the Yen. Here we see it rallying off 6-year support and with Smart $ having their largest long position in 3 years!
Within the tech sector, big tech is holding well but most of the small-caps have gotten crushed.
More than a quarter of the 80 names on the leadership chart above are making new 52-week lows. A quarter are off more than 50% from their 52-week highs.
That’s all for today. Respect risk and stay safe!
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.