|
Good Morning Readers
In this week’s Barron’s Art
Cashin, A fixture on the trading floor for forty years used the term
“Low Level Levitation”. I have learned that if we have bad news
and there is high volume that is a bullish sign. It’s when there is
good news and no volume that it is a red flag. To put it another way, you can
know everything about the fundamentals of a company and you can read the
charts from here till Sunday but if there is no volume “watch
out”!!!! This really is a very simple concept, for every seller –
there is a buyer. If there is no volume that means that orders are not being
sold. The only way you have a chance to sell a stock is to lower the price.
To give you a real life example, one of the stocks I have been watching is
Western Lithium (WLCDF). The company is a Canadian-based resource
company focused on the development of lithium resource located in
northwestern Nevada. President Obama has a plan to give a $7,500.00
rebate to anyone that purchases an electric hybrid vehicle. The management of
this company is solid and the holding is in a mining friendly part of
northwest Nevada. I watched this stock and on a good day it might trade
100,000 shares. This is the ultimate “red flag.”
To put this example into broader terms, for
the past few weeks we have watched the DOW and the S&P continue to make
modest gains and climb back over the psychologically important levels of 1300
on the S&P and 12,000 on the DOW and this is good news. The important
thing to recognize is that it has done so on anemic volume.
There is plenty of bad news to go around.
Samples of water that had leaked from one of the reactors at the Fukishma
site had 100,000 times the radioactivity of normal background levels. That
means that workers would be exposed to a years’ worth of radioactivity
in 15 minutes. This prompted Tepco, the owners of the plant to pull all
workers from the plant.
The tensions in the Middle East are
escalating and as I have said in many previous posts the king domino in the
Middle East is Bahrain. Bahrain is ruled by a Sunni government which
compromises 10% of the population while 90% of the population is comprised of
Shiites. We in the Judeo – Christian West shall never understand the
depth of the schisms that separates Sunni and Shiite Islam, nor shall we ever
really understand the depth of the schisms that separate Sunni Islam from
other smaller sects of Islam. It passes my understanding. What is important
to recognize is that there is at times greater animosity and greater distrust
between the Sunni’s and the Shiite’s than between Christianity
and the Sunni’s.
Greece and Ireland are what we would call
“receivership” here in the U.S. with Portugal and Spain heading
in that direction. This is very bad news for the Euro.
The news at home is poor. Consumer confidence
is low, sales of homes are going into a double dip, the dollar is weak,
Meredith Whitney has stood by her prediction of defaults on a massive scale
in municipal bonds, the price of oil is @ $105.00 a barrel, the price of
gasoline is $3.03 a gallon before taxes and the end of quantitative easing is
coming to an end. This all spells bad news for the U.S. economy. Yet the
markets continue their somewhat tepid rise. In situations like this it is
imperative to keep a keen eye on the volume of trading.
To review some holdings from Friday, I am
100% bullish on US Gold (UXG), I put a buy on that @ $7.75 or below. If gold
retraces and UXG goes below $7.75, I would study the company and decide if
the risk / reward is worth it. Unless this stock pulls back to under $7.00 this
ship may have already sailed. I want to reiterate that Avalon (AVL) @ $7.00
or below is a buy and my absolute favorite is Ucore (UURAF) @ $1.00 or below.
This holding is well managed, perfectly positioned geographically, and as I
have previously said is a strong candidate for a takeover by a
“major” or a Chinese company. It is not unusual for a company to
retest the lows of $.80 before it is acquired so keep it on your radar. With
some patience this company will surely reap some nice rewards.
As I have told my readers I am long on GLD
and SLV. I would warn you not to buy here. As I have said previously for the
last five years, gold and silver correct every six months or so. I think I
would wait for a pull back in June or July and buy back in at the $128.00
level for GLD and $26.00 level for SLV.
Please heed my warning that now is not a time
for reckless abandon. Now is a time to “play defense”. I have
given you a list in previous posts of holdings that I am long on but I want
to share with you the thoughts of a man I respect tremendously. My son
married a lovely woman from Texas. Her dad, Nat, is a brilliant and very
successful economist. His theory is to forget about trying to time or beat
the market. He suggests that you dollar cost average into The Vanguard
S&P Index fund (VFINX) and go for a walk or listen to music. He asserts
that in 20 years the S&P will be 3500. While I might not be a “true
believer” the man is just much too smart to dismiss his theories out of
hand. I also see my job in writing this letter as a way of offering
alternative strategies for investing. This is a course of action that
certainly, “at the very least” bears carefully consideration and
due diligence.
Stay tuned!
|
