November 29th, 2009

Rewind to Some 2009 Highlights

As you read this, my wife, our dog, and I are cruising down I-95 so I won’t be spending much time following the market. However, I will be switching back and forth between Bloomberg and CNBC on our Sirius radio connection. In the meanwhile, I thought you’d be interested in highlights of just a few of the 157 posting so far this year (there were 259 postings covering the difficult 2008 crash).

And what a year it’s been. Many of the articles were informative, some prescient and some, regrettably, disappointingly off the mark. But if you’ve been a regular reader here since the beginning of the year, I can say with some pride, generally you’ve been guided along a cautious and, basically, profitable path.

Over the next several days, as I’m trying to avoid the troopers’ radar traps, I’ll highlight and comment about some of the more memorable posts. I expect to return to full operation by Thursday so, in the meanwhile, come back daily and reminisce with me and learn from the events of the past year.

January 29, 2009: “Cramer’s Take on Gold and Gold Producers

Because of the current obsession with gold, it might be interesting place to start this journey at one of the five articles in January I couldn’t help but make defending technical analysis from Cramer’s derision. In this piece, Cramer compared an analysis of AEM (Agnico-Eagle) from one of the technical analysts from theStreet.com) with his own fundamental analysis. As reported in the MadMoney transcript, he said:

The stock [AEM] held firm after hitting its 200-day moving average. Then last week, AEM broke out of its trading range on a high-volume rally, which was further confirmation for technicians. Chartists like AEM all the way down to $44.
[I], on the other hand, need more than Agnico-Eagle’s sudden popularity to recommend the company. Favorite stock in the sector or not, and AEM is his top pick, there’s no fundamental reason for hiding in gold, a traditional hedge against market chaos and inflation. If anything, it’s deflation that’s the problem, with virtually every other asset losing value. And while you could definitely call this market chaotic, investors who buy now will be doing so at too high a price. Think about it: AEM is trading at 80 times earnings.

If you own Agnico-Eagle, cash out. If you missed the trade, don’t bother trying to catch up. Just wait for a pullback – down to under $44, actually….The technicians’ sell price is [my] recommended entry point. Only then does AEM make sense as a defensive play against market volatility.”

My view was “the miners have performed similar to the rest of the market but have a long way to go to maintain relative parity with the price of gold…..The fundamental issue is whether the factors driving the price of gold are different that those driving stocks? If yes, will there be a reversion to some parity and, if so, will gold price drop or stock prices rise? If not, will gold producers continue to outperform other stocks to be more in line with the price of gold?

As it turns out, of all the gold miners, AEM was 41 out of 48, seventh from the worst performer. While GDX, the gold miners ETF has increased 48% since the end of January and the typical gold mining stock has appreciated 100% over the period, AEM has increased only 11%. It merely underscores that pouring over financial statements, listening to conference calls, looking at analysts ratings and reading their reports rarely lead to the best performing stocks and definitely have nothing to do with decisions about the timing of a purchase.

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  • Minnesotalee

    Gold's GLD could use a pullback; but don't count on it. Goldcorp GG relative to GLD is a better way to play it. GG today gave an important BUY signal with a PO of $64. As long as $US momentum continues to be bearish as predicted by its chart pattern (PO of $63), GLD and GG are good bets. From a RS perspective GG is stronger than the underlining price of the yellow.

  • Minnesotalee

    Now that we have the TRANS above 4100 (a major buy signal), it joined the DJ30 and the SP500 and confirms the continuation of the bull martket. Don't fight the tape and don't let the pullbacks scare you out of the equities. Keep buying un til the next signal of 1295 is reached.