Jordan Roy-Byrne: Are Technicals Worth a Damn? – 5/7/14
This week, we bring back returning guest, Jordan Roy Byrne. Jordan is editor at The Daily Gold and is a brilliant technical analyst. Jordan discusses when technicals and charts are useful and when investors should beware.
First we ask Jordan why cyclical bear markets almost always occur faster than an ensuing recovery? Jordan points out that this occurs in almost all markets, not just the precious metals sector. What implications does this hold for investors? Since the current pull back in precious metals has lasted 24-30 months, investors can expect a saucer shaped recovery which takes at least 30 months to reach previous highs.
Jordan believes that the upcoming bull market in junior resource stocks will be quite long and spectacular in terms of gains. He runs through some historical markets in the S&P 500 and Dow Jones to show how different corrections lead to different style recoveries. With respect to where we are now, Jordan points out that the two nasty bear markets in 2008 and 2011, have cleaned out a lot of speculation and excess. Jordan’s historical research shows that multiple bear markets compressed into a short period facilitates the ability for a market to have an elongated, uninterrupted rise.
Next, Jordan uses the current price action in silver and silver stocks to explore how technicals can be used to determine what markets will move first. The junior resource stocks led the current bear market that started in 2011, dropping before the metals. Since they have shown a firmer basing pattern in the past few months, Jordan believes that the junior resource stocks will lead the next leg of the bull market, before silver or gold. Jordan uses silver is a perfect example of this right now. The silver stock ETFs are well above their bear market lows; however, silver is still near a low.
Jordan then touches on how past performance in a secular bull market can help to predict future gains. He explores the gains in the HUI over the past 14 years, where the HUI went up many multiples. With the HUI currently around 225, Jordan believes that 2000 is a very reasonable target for the HUI.
So when should investors pay attention to the technicals. Jordan says always. Technicals are just one tool to be used, with sentiment, history, and fundamentals as others. All of these must be considered together. It all comes back to interpretation, where Jordan states that any bad call he has ever made were his fault for interpreting things incorrectly. Looking at all these things, Jordan states that there is no way that the bottom has not already occurred.
Jordan Roy-Byrne, CMT is a Chartered Market Technician and member of the Market Technicians Association. He is the publisher and editor of TheDailyGold.com, a publication which emphasizes market timing and stock selection for the sophisticated investor.