Gold Correction

Gold is one of the few assets in the world which is in a primary bull market, meaning that the asset is rising overall, despite periods of downward movement. We're in one such period now, which is going to act as a brake on all gold-related assets, including mining stocks like Seabridge Gold SA which I've recommended.

I still think the stock is a long term win, but I must say that it's likely it will go into correction mode (in fact, it already has fallen $6 or so from its recent peak, a 20% decline). Those with a short-term frame may think about selling, even at a loss, in order to get back at a lower price.

Since I expect the overall market to begin another period of decline, I like a stock that will move inversely to the market, like DXD. (Remember, DXD is for short-term trading only; it has mathematical characteristics that make it a poor long-term investment.)

I suppose I now have to break my 10 grand bit into two groups: long term and short term. Long term, stay with Seabridge, even though you're down right now. It'll come back. Short term, take the loss and move into DXD while you wait for SA to bottom out.

Stocks Fall

The Dow has, as of this moment, taken a big hit. It feels like the rally is over.

I expect that there may be an upward movement tomorrow, but I think the rally is basically out of steam.

Seabridge took a big hit today, falling to $25. I expect it will go up to $29, but then follow the market down. I think gold may have a big day tomorrow, as a new wave of fear washes investors out of stocks and into the safety of gold.

I'm going to try to sell SA at or around $29, and get into DXD at or around $45.

As Treasuries Swoon and the Dollar Falls, Gold Advances

Gold has been on a tear the last few days, taking back its role as the bomb shelter of financial assets. During the tail end of the boom years (2006-2008) gold began to move in tandem with stocks. The market would be up, and so would gold. That was unusual.

Now gold is back to moving inversely to markets. As I wrote yesterday, US Treasuries are falling, causing yields to rise. (Check out ^TNX) As I write this, the market is experiencing a bounce as it absorbs the activity of the last few days. The dollar is also falling, and has breached the psychologically important 80 level.

Seabridge Gold (SA) is now up to $30.66. If you bought Seabridge Gold back when I said, your money would've grown to $11,927 by now. I see SA going to $40, so hold on to what you've got. I also own Exeter Resource Corp (XRA). Exeter is a small-cap gold mining company from Canada, which is home to many such mining companies. Many of these are unsound, and will get shaken down by the movements of the gold price, but Exeter is one that will remain, I think, as they have very low levels of debt and they seem to have a solid business plan.

It's a good idea to have some GLD, the exchange traded fund that holds gold bullion, as well as some SLV, and some physical gold and silver in your possession. Another good way to invest in gold is through Goldmoney.com.

10 Grand: Sell DDM, Buy SA

The time has come to sell DDM (for now). I recommend Seabridge Gold (SA). Seabridge is a "resource hoarding" company, and their resource of interest is gold. They do no mining, but rather they buy the best gold mining land they can.

If you sold your 370 shares of DDM now, (for $29.45) you'd have $10,912.42 (assuming your trades cost $9.99; that is what I pay over at Ameritrade.) If you buy SA at $28, you can afford 389 shares (assuming you don't use margin, a wise move in these difficult times). You are now up 9.1%.

Only invest what you can stand to lose.

Stocks Continue to Rise

The Dow had a good day today, rising 101 points to break the 8500 mark.

If you bought 370 shares of DDM at $26.93 when I recommended it, you'd now have $10,807, an 8.3% return after trading fees (assuming $9.99 per trade).

It feels like the conventional wisdom is that the market has bottomed, and a new bull market has begun. A substantial minority opinion holds that the Dow is in a bear market (or "sucker's") rally. But the big money seems bullish, judging by a recent Barron's survey finding that 59% of money managers are either "bullish" or "very bullish". Since big money drives the market, it is wise to heed what the big money managers are thinking and feeling. As the rally continues, their doubts will fade, and bullish sentiment will increasingly dominate.

The strategy I'm proposing is a risky one, requiring some vigilance to carry out. I believe that the primary trend of the market is bearish, so this strategy looks to the secondary trend, which is even less predictable than the primary trend. Use caution, only invest as much as you're willing to lose.

At some point, when the market rally is nearing its end, we'll want to switch to DXD, which moves inversely to the Dow.

New Forecast for the Dow, New Feature for the Blog

In a previous post, I gave a prediction for the Dow to rise to 8300. Given what has now happened, I'd like to revise that. The Dow has just broken through its most recent high mark (of Apr 17th), and I now see the rally taking the Dow back above 10,000.

Which brings me to the new feature of the blog. I give my calls, and we'll see how a hypothetical $10,000 invested as I say will do over time, assuming a trading fee of $9.99.

Since I see the market rally continuing, I'm taking a position in DDM, which is a leveraged ETF (exchange-traded fund) that returns twice the daily performance of the Dow. I'm going to start the clock now, even though I bought DDM a few days ago. I'm going to say you can pick up DDM at its current price of $26.93, you can get 370 shares. (More if you're on margin, but let's keep it straight.)

I don't believe the bear market is over. I think the Dow will still fall to the 1000 range or below. (In a previous post, I called for 400). The reality is that the stock market has been on an outrageous tear for 27 years. That kind of growth is not corrected by an 18-month bear market, even one of this severity.

Once this rally has tapped out, I'll call for taking the opposite side, with an ETF called DXD, which moves double the inverse of the Dow.