By Ryan McGuire
For Gold Avalanche
The Dow Jones gave a buy signal, as it has confirmed the Transportation average's move to new all time highs. The next pull-back is the time to get in, but make no mistake it will take nerves of steel to do this!
There are many many signals flashing counter to Dow Theory right now - finding conviction is difficult, if next to impossible to muster. The RSI for the S&P as well as the Dow indexes is through the roof, which could mean that a top is being put into the market, and we have featured many articles from Scott Pluschau and Toby Connor warning us of the dangers of this low volume melt-up market. In fact, Toby predicts that this is all part of a complex topping pattern which will see the markets eventually fall dramatically. Scott's "Up the stairs and out the window" post was an eye-opener as well, reminding us that there is real danger ahead, and we would do well to invest with conviction based on real evidence, rather than just on ethereal theories or fancy ideas.
On the other hand, interest rates are so low that retail investor's don't currently have much choice, and institutional investors aren't favouring Gold (our preferred method of capital preservation). So, right now the options are to either be satisfied with terrible yields on bonds, or to buy back into stocks and stock funds, thus taking on the many risks of the current economy and stock market.
It feels a lot like being given the choice to be shot in the foot with a magnum or a glock.
Alas ... The record inflow into stock funds this year, despite the real (abysmal) state of the US economy, demonstrates the kind of thinking that may be dominating the herd. And the funny thing about herds is that they are never wrong (even when they are wrong) because it's the herd that dictates the trend.
One potential key to investing is to thus identify fundamentals, buy based on that, and wait for the herd to catch up. As we saw with how long it took Gold to march from 300 to 1900, the herd can take a long dang time to catch on to things. That's why real investing takes patience.
Big Choices ...
Ryan
