One thing I have to say is that I was completely blindsided with the data this week. First, the Gold Miner Index (ticker GDX) went into a tailspin. Although I warned of a potential decline in last week's post (here), I had not expected precious metal miner stocks to fall by by nearly 10% in the week. This is outlier event. Precious metal stocks have only experienced similar declines in about 3% of the weeks since the early 2000's.
Second, money supply rocketed upward, at least in terms of weekly changes in money supply since the early 1980's. (As a side note, the z-score for the most recent week- calculated using the rolling three-year average and standard deviation- was 2.38. Since the early 1980's, there were only 14 instances out of 1,500+ with a z-score over 2.3). The most recently released figures showed a gain of 1.5% or $152.9 billion of a dollar basis, settling in at $10.33. I have to admit, that I am, in a way, excited to see what comes of the money supply figures in the weeks ahead. The most recently released figures, remember money supply is reported with a two week lag- were an outlier with the growth trend for the last three years. Outliers can be a harbinger of a change in trend. That said, I still intend to use a series of linear regression models and some judgement to estimate money supply for the two weeks between the release date and the present, but will watch carefully if money supply is entering a new phase.
So, would I buy precious metal stocks here. The answer is no. At least not yet. There is too much technical damage done to the precious metal stocks, noting the acceleration of volume as the GDX broke the 200-day moving average.
I also think the current price/volume dynamic suggests some overhang in the stocks, and that without a sign of strength any increase in price will be met with selling pressure. I am also worried about the high volume low on August 1, which in some cases can act like a magnet for stocks, funds, and other investments. I am also worried that the outlier growth in money supply renders the timing models susceptible to error.
That said, we are getting very close to a buy point here. The entry point will largely be determined by the path of money supply growth, the change in the price of gold, and the price/volume dynamics in the GDX and precious metal stocks. As for the models, despite reservation resulting from outsized gain in money supply, are in a weak buy or hold/market perform range. Here are the models as they currently stand.
3-month- presently -1 assuming money supply of $10.4 trillion
6-month- currently measuring in at a -0.11
1-year- ending the week at a -0.46
Second, money supply rocketed upward, at least in terms of weekly changes in money supply since the early 1980's. (As a side note, the z-score for the most recent week- calculated using the rolling three-year average and standard deviation- was 2.38. Since the early 1980's, there were only 14 instances out of 1,500+ with a z-score over 2.3). The most recently released figures showed a gain of 1.5% or $152.9 billion of a dollar basis, settling in at $10.33. I have to admit, that I am, in a way, excited to see what comes of the money supply figures in the weeks ahead. The most recently released figures, remember money supply is reported with a two week lag- were an outlier with the growth trend for the last three years. Outliers can be a harbinger of a change in trend. That said, I still intend to use a series of linear regression models and some judgement to estimate money supply for the two weeks between the release date and the present, but will watch carefully if money supply is entering a new phase.
So, would I buy precious metal stocks here. The answer is no. At least not yet. There is too much technical damage done to the precious metal stocks, noting the acceleration of volume as the GDX broke the 200-day moving average.
I also think the current price/volume dynamic suggests some overhang in the stocks, and that without a sign of strength any increase in price will be met with selling pressure. I am also worried about the high volume low on August 1, which in some cases can act like a magnet for stocks, funds, and other investments. I am also worried that the outlier growth in money supply renders the timing models susceptible to error.
That said, we are getting very close to a buy point here. The entry point will largely be determined by the path of money supply growth, the change in the price of gold, and the price/volume dynamics in the GDX and precious metal stocks. As for the models, despite reservation resulting from outsized gain in money supply, are in a weak buy or hold/market perform range. Here are the models as they currently stand.
3-month- presently -1 assuming money supply of $10.4 trillion
6-month- currently measuring in at a -0.11
1-year- ending the week at a -0.46
No comments:
Post a Comment