If you paid attention to the markets last week, you know gold and gold stocks had a bumpy ride. The worst of it came yesterday, when the gold price dropped more than 2% and GDX (the most popular ETF of gold stocks) fell more than 5%.
Now, those may not sound big. But for a sector like gold that rarely experiences big daily price swings, they’re eye-catching. And they wiped the smiles off many gold bugs’ faces.
But faithful readers of Jeff Clark saw it coming.
On Wednesday morning, Jeff warned his Market Minute audience…
The gold sector is on the verge of generating its first sell signal since 2016.
Then on Thursday, before the market opened, he cautioned them again…
Buying into the gold sector right now is a mistake. You’ll have a better chance to do so in the weeks ahead.
Let’s be clear… Gold stocks are in a new, long-term bull market. They will be higher several months from now than where they are today. But, in the short term, they’re most likely headed lower.
If you’re interested in learning more about how Jeff profits from gold – no matter which way it’s trending – 5 or 10 times bigger gains in the gold market… in a fraction of the time.
Now let’s kick off today’s mailbag with a pair of questions for Mr. Clark…
Reader question: I am a non-subscriber but find your commentary exceedingly insightful.
Friday (08/23/19) delivered the largest number of 2 CRLs (Two Close Reversal Lower – a new high with a close below the prior two closes) I can recall. Ominous. Something must be screaming at you. If you could, please comment.
– Kenneth G.
Jeff’s answer: There’s almost always something screaming at me. But, it’s usually a family member, not a technical indicator.
It’s important not to place too much importance in any one technical indicator or pattern. I’ve never known one to be 100% accurate. Rather, it’s when many indicators line up all on the same side that the odds shift in favor of one direction over the other.
For example, you point to one indicator (2 CRLs) as being an ominous sign. And, there are probably a few more warning signs out there as well. But, many of the indicators I follow are actually leaning bullish for the short term. So, really, the only way to resolve this conflict is to look at the weight of all the evidence rather than looking at just one indicator by itself.
Reader question: Hello, can you explain why investor sentiment is a contrary indicator? You recently made the statement, and have many times in the past, “Investor sentiment – a contrary indicator – is extremely bearish. So, there’s lots of tinder available to fuel a breakout rally.”
Am I missing something? I would think bearish sentiment would lead to bearish actions and the market would go down.
– Keith K. (Legacy Research member)
Jeff’s answer: People’s actions today discount what they believe will happen in the future.
So, for example, if you think stocks are going to fall in the days ahead, then you’ve probably already sold your positions and added some short exposure. In other words, you’ve already acted on your bearish belief before you announced your bearish belief.
The same is true of bullish sentiment.
So, when public investor sentiment is extremely bearish, then the public has already sold/shorted their stock positions. There isn’t anybody left to sell to push the market lower.
And, as the sentiment shifts from bearish to bullish, the public investors will gradually cover their short positions and buy stocks. That’s what provides the fuel for a breakout rally.
And here’s one more for Jeff Clark…
Reader question: I’m a Delta Direct and Jeff Clark Trader subscriber and am loving your services. I have a question about silver. Gold and gold stocks are clearly overbought, and we’re waiting for a pullback. Silver and silver stock charts look the same, but the gold-to-silver ratio is still very stretched at 86.
Do you expect a near-term consolidation in silver as well?
Thanks, looking forward to the Legacy Investment Summit!
– Heather N. (Legacy Research member)
Unfortunately, we didn’t have time to get an answer from Jeff on this last question before going to press, but we can help clear things up…
Check out Wednesday’s edition of The Daily Cut – “Expert Predicts Silver Will Deliver Bigger Gains Than Gold in Next Stage of Rally.”
Next up in the mailbag… more Jeff.
But this time, we turn to Jeff Brown – our tech expert extraordinaire – for some insight into the different ways he invests…
Reader question: I noticed that Jeff Brown recommends ■■■■■■ ■■■■■■■■ in Early Stage Trader and in Exponential Tech Investor, but at different buy up to prices and stop-loss prices. Why is that?
– Sheryl P. (Legacy Research member)
Jeff’s answer: Great question. And I should clarify up front that there will be very few stocks recommended in both services. This particular company is an exception. It just happened to fit the criteria for both services, but for different reasons in each.
The reason we are using different buy prices and stop-losses for each service is a matter of time frame and investment objective.
In Exponential Tech Investor, our mission is to identify small, and sometimes micro-cap, companies that are poised for exponential growth and breakout profits. We get into these companies early… before Wall Street catches on.
At the very minimum, we are investing in companies that have the potential to double or triple within 18-24 months. That’s my expectation for every recommendation I make. Our aim is to buy and hold each position for long-term capital gains.
Because we are investing for the long haul, our buy range can sometimes be wider in this service. If the company continues to execute on its vision, it is not unusual that I increase the buy up to price overtime. I do this so that investors who have not yet established a position in the stock can get exposure to what is still a great investment opportunity.
After all, if we expect a stock to go to $100 within two years, investors that bought in at both $25 as well as $35 are still going to do extremely well with their investment returns.
And our results with this strategy have been excellent.
Our top two positions in the portfolio right now are up 228% and 131% respectively. And over the last 36 months, we have booked gains of 256%, 136%, 156%, 95%, 221%, 239%, 97%, and 100%.
With Early Stage Trader, our time frame is much shorter. We place trades in small, early stage companies ahead of major catalysts that will boost the stock prices… And we plan to sell our position typically in the weeks that follow after the catalyst, once we feel that the short-term gains have been realized.
Because we are speculating on short-term catalysts, it is important that we establish positions within a specific buy range. We only expect to hold a position for a period of months, not years, and our objective is generating short-term capital gains.
For our last question of the day, a reader wants Teeka Tiwari’s thoughts on the cannabis industry…
Reader question: I have a cannabis/hemp stock question.
Nobody seems to know how this sector will fare through a market crash. We have already seen a bit of a bloodbath in cannabis/hemp stocks. The market itself looks close to a near-term top and should face an ugly downside in the not-too-distant future.
How will cannabis stocks fare through a market crash?
The sector hasn’t been around long enough for there to be a historical basis. Appreciate Teeka’s thoughts in particular on this matter, as he is currently in some of these stocks if I remember correctly.
– Brendan V. (Legacy Research member)
Teeka couldn’t be reached in time for a comment, but we’ve got the next best thing…
William Mikula, Teeka’s chief analyst on Palm Beach Venture and Alpha Edge, has the insight…
William’s answer: It is a great question… As you point out, the industry hasn’t been around for past market crashes to do a complete backtest and compare it to market and other industries.
The current disconnect is: The best cannabis companies (like the ones in our portfolio) are bringing in more money than ever, yet share prices have been heading lower. This disconnect won’t last.
So to extrapolate further… in the event of a market crash, the question that I think about is: What does that do to cannabis sales – the ultimate driver of revenue and earnings?
Do medical marijuana customers stop filling their medical cannabis if the economy or market turns south?
In the places where it’s legal, do recreational cannabis users stop buying cannabis?
I don’t think so. I see sales continuing, because cannabis is a “sticky” product that has to be replaced after each use. Good economic times… I see sales growing. Bad economic times… I still see sales growing.
I wouldn’t group cannabis in with so-called “sin” stocks, like alcohol and tobacco, due mainly to the medical aspects. But I do feel that the habitual, repeatable purchases are similar. And while share prices might fall in the event of a market crash, they should bounce back (and perhaps quicker than the overall market) as double- and triple-digit sales increases – and eventually profits – pour in.
*With the disclaimer being there will be cannabis companies that go bust, even without a market crash. That’s why it’s important to focus on best-in-breed operators with high cash levels relative to debt, scalable growth, increasing sales, and operations in favorable jurisdictions. Just like the ones we target in our advisory.
That’s all for the holiday- and hurricane-shortened week.
Have a nice weekend.