Wednesday, November 14, 2012

Should I Buy Stocks Or Gold Today?

There is usually a surge in traffic to the site here when there is a pronounced sell off in stocks or a large upward move in gold. The reason is that longer term readers know that a central theme here is the over-valuation in stocks and the under-valuation in gold found in the markets today. Recently there has been both a large sell off in stocks and a large rise in gold, something we have not seen since the summer of 2011. This has brought people here to find out the all important.....why?

I tend to write less when these type of events are occurring because unlike the mainstream media I do not view the markets as some sort of daily cause and effect mechanism where stocks fell today because of "........" Or gold rose today because of ".........."

Stocks are in a long term secular bear market that began in 2000 and gold is in a long term secular bull market that began the same year. My focus has always been to beat the table as hard as possible to the potential danger when stocks are rising rapidly (when investors want to buy the most) and to beat the table as hard as possible to the potential opportunity when gold and silver fall rapidly in price (when investors want to sell the most).

The goal has been to discuss why we are in secular bull and bear markets, where we are in those cycles, and to try and keep investors safe from their own emotions during the counter cycle trends.

So unfortunately, if you want to read why stocks are down you will not find it here today - we already talked about it in depth as stocks were close to new highs and euphoria was manic. See US Stock Market Prices & Sentiment Soar: Shorting Opportunity? Here we look forward, and if you can look forward and make the correct investment decision while looking forward, it should always feel like you're making the wrong decision at that specific time.

Does that make any sense? I hope it does for some of you.

Let's apply that to where we are right now at this moment. Stocks are over-sold in the short term. Does that mean you should buy American stocks tomorrow? Absolutely not.

What is means is that I would not apply short positions tomorrow morning - after the market has fallen now for a full week. Applying a short position today and capturing some of the downside momentum and pessimism entering the market now feels like the best possible move. This means it is the worst.

I would not be a buyer of gold tomorrow morning. Does that mean you should sell? Absolutely not. It just means the pessimism that was in the market a few months back, when I was pounding the table to buy, has subsided. Now you just hold on and wait for investors to panic again.

I'm not a day trader who looks at charts so I'm not trying to provide trading advice. I'm trying to open your mind to discarding the daily noise and just focusing on the big picture while being able to feel the short term optimism and pessimism move in and out of the market.

As we move forward I will continue to discuss why stocks are going lower and gold is going higher in the long term. 

If you are looking for stocks to add to your portfolio today I would recommend you look at China. I will be covering this topic in detail soon (especially if shares continue to fall in price - magnifying the opportunity). For a primer you can review this recent post:

China's Stock Market Continues To Plunge: Buying Opportunity?

No comments:

Post a Comment