I will be rolling the data on my precious metal stock timing model later in the day tomorrow (or maybe Saturday depending on my schedule), but I wanted to provide an update on my recent portfolio moves and thoughts.
Although I continue to believe that the Federal Reserve will stand pat in the September meeting, I also think that minutes from the last Board of Governors meeting (which I commented briefly about here) does suggest that the probability that nothing happens is less than certain. My belief continues to be based on the changes in money supply and the S&P 500, but also on loan growth to a lesser extent. I look at a host of factors when gauging the probability of monetary actions but I tend to focus on money supply and the stock market, as these measures are all encompassing.
The above graph shows the path of the annualized 13-week change in money supply and stocks. What is plainly obvious is that growth in the market and money supply has accelerated upward over the last month. I think this places the Fed on the sidelines for the time being. However, my model derived certainty is tempered by the comments from Fed minutes, which I note took place when money supply/market growth was positive and showed some signs of acceleration. Specifically, I focused on this passage "
Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery". I would also note commentary was more focused on non-traditional monetary actions. In addition, the Fed seems to have shifted its focus to the employment rate, apparently the Fed wants to jam the employment rate to a rate below 8%. This makes me believe that a blanketing QE approach is probably off the table, but some other non-traditional juicing of the market is not.
I any event, I increased my precious exposure in yesterday's trading, albeit only half of the trading capital I had planned to invest was allocated. I invested only half of allocated trading capital due to (1) wanting to gain exposure on increasing technical strength (2) offset somewhat by prudent risk control.
The two charts above show the Marketvectors Gold Miner ETF (ticker GDX) and the Spider Gold Trust (ticker GLD). In Wednesday's trading the GDX completely engulfed Tuesday's candlestick and closed at the high of the day, on volume. As for the GLD, the GLD traded towards the 200-day MA in Tuesday trading, but surged with conviction on Wednesday. The GLD is showing signs of accelerating price and volume trends, a positive signal. Wednesday's surge in the GDX and the GLD occurred after the 2 pm release of the Fed minutes and suggests that investors have increased their probability that the Fed moves at some point in the next few months. I would, however, note that both the GDX and GLD are overbought on the stochastics, and have experienced some sizable gains since the bottom in July. This is one reason I am hesitant of going all in.
The second reason- I would want a stronger buy signal on my precious metal stock timing model, shown above. At this juncture, the timing model is suggesting better-than-average performance in precious metal stocks. However, the current reading is between -0.5 and 0.7 and stronger signals are generated below -1. That said, a buy signal is a buy signal and I thought it was prudent to up my exposure considering the strength in the markets. However, this optimism is tempered by overbought conditions and the likelihood of increased volatility around Fed actions. I would probably use weakness to add to positions.
Although I continue to believe that the Federal Reserve will stand pat in the September meeting, I also think that minutes from the last Board of Governors meeting (which I commented briefly about here) does suggest that the probability that nothing happens is less than certain. My belief continues to be based on the changes in money supply and the S&P 500, but also on loan growth to a lesser extent. I look at a host of factors when gauging the probability of monetary actions but I tend to focus on money supply and the stock market, as these measures are all encompassing.
The above graph shows the path of the annualized 13-week change in money supply and stocks. What is plainly obvious is that growth in the market and money supply has accelerated upward over the last month. I think this places the Fed on the sidelines for the time being. However, my model derived certainty is tempered by the comments from Fed minutes, which I note took place when money supply/market growth was positive and showed some signs of acceleration. Specifically, I focused on this passage "
Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery". I would also note commentary was more focused on non-traditional monetary actions. In addition, the Fed seems to have shifted its focus to the employment rate, apparently the Fed wants to jam the employment rate to a rate below 8%. This makes me believe that a blanketing QE approach is probably off the table, but some other non-traditional juicing of the market is not.
I any event, I increased my precious exposure in yesterday's trading, albeit only half of the trading capital I had planned to invest was allocated. I invested only half of allocated trading capital due to (1) wanting to gain exposure on increasing technical strength (2) offset somewhat by prudent risk control.
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