The Market’s Sound and Fury

11/22/2011 9:15 am EST


Curtis Hesler

Editor, Professional Timing Service

There’s enough volatility to keep things interesting, but there isn’t much movement, and that trend is likely to continue, writes Curtis Hesler of Professional Timing Service.

Perhaps you are new to the market and are investing for the first time, rather than adding to earlier positions. What to do?

Consider your age and position in life. Determine how much risk you can afford. When you are young, you can afford more than when you are older.

Then consider that the secular bear and the gold bull are both in middle age. There is more to go, but there are no ground-floor opportunities. This is not a good place to jump in haphazardly with both feet, but those willing to listen and take their cues from the market will prosper with the fewest surprises.

The stock market, as measured by the popular averages, is basically behaving as expected. Price action has been volatile, trading has been choppy day to day, and there has been virtually no follow-through on strong up and down days.

The momentum traders are having a heyday, but investors are getting nowhere as prices continue to rollercoaster with a downward bias. I expect we will have to put up with this until next spring when I look for a major high to set in, followed by the next leg in the secular bear market that began in 2000. John Mauldin says the market doesn’t repeat itself—it rhymes. 

The cycles are apparently running a bit early, which should make us wary about the high my work is pointing to in March. Cyclically, that is where that high should come in, but it might be wise to not get too taken up in cyclical precision.

The best strategy is to use strength to liquidate anything that is not commodity-advantaged. That would be any equities that are not going to see their earnings increase as prices of commodities rise.

Don’t get too far afield on companies advantaged by higher commodity prices. I suppose you could make a case for buying John Deere (DE), or fertilizer companies, or logging operations.

However, the best strategy is to stick closer to the heart of the matter. I prefer raw material producers…but why get even that complicated? If you don’t make money in energy or gold, there is no money to be made with this philosophy.

Keep your portfolios clean of paper assets and focus on tangibles. Until the Dow/gold ratio falls at least to 2.0 (it’s at about 6.9 now), continue to focus on energy and precious metals. I believe we will see the ratio eventually fall to 1.0 before the secular bear and commensurate risk in paper assets is finished.

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