One of those days where it really didn’t matter what kind of stock you owned if you were long. Almost everything was down. Going through my public list I can’t help but get the feeling things might get ugly pretty soon. Lots of sectors are on the verge of rolling over. Selling pressure is increasing and risk appetite is decreasing by the day. That’s probably the reason even gold mining stocks couldn’t buck the trend although gold managed to move up.
Again, gold and the US Dollar were both up. This is a very interesting development as at some point in time there will be a disconnection and one item will head south and the other one will probably accelerate its move to the upside.
Being from Germany I am experiencing first hand how people react to the trashing of the Euro. I cannot for a second see how anybody wanting to protect their wealth and having a mid-term or long-term perspective would sell their Euros in order to buy US Dollars. After all the fraud that came to light during 2008 the US has lost its credibility. At least that’s the impression you get when you speak to people here in Germany.
With Europe losing its credibility as well this should lead to the dreaded ‘competitive currency devaluation’. That’s an environment where precious metals could emerge as the best performing asset class. Time will tell. In the meantime it will be crucial to monitor small cap miners and everything that is considered being high risk. The important thing to keep in mind is not if something is indeed risky or not but how risky a stock is perceived.
One stock on my public list that comes to mind is RES.V – Rare Element Resources. One of the leaders in the Rare Earth realm. The stocks have not developed any kind of sustainable strength since I wrote about the Rare Earth sector losing momentum.
Up-to-date RES.V – Rare Element Resources chart on my public list.
The RES.V chart has now developed massive overhead resistance and has already started to roll over. Not exactly the type of action you would expect from a sector leader. If we see a few more down days this could spark a mass exit in the stock. Technically speaking the stock is now extremely vulnerable. How the stock can handle the next 1-2 weeks will give as some valuable clues as far as risk perception is concerned. On the other hand monitoring how strong stocks like ARUN – Aruba Networks, RDY – Dr. Reddy’s Laboratories and APKT – Acme Packet to name but a few ‘Salmon Stocks’, are able to hold up, build bases and pressure will give as additional clues. As long as the market is not able to move up decisively I would avoid going long. For now the S&P 500 is having a tough time with the MA 200 which is proving to be very important resistance to the upside.
For now I’ll simply stay 100% cash.
The key to everything is patience. You get the chicken by hatching the egg, not by smashing it. – Arnold H. Glasgow
My public list with all my charts can be viewed here:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2791469
Buenas noches!