In this video I respond to a reader question about using the Stage Analysis Screener to trade stock market indexes. In particular the reader was interested in the TSX, so I focus on that index. The Stage Analysis Screener is very useful for understanding the trend of a market, breadth of an index, and finding leadership sectors and leading stocks.
I recently had the opportunity to do another interview with Kerem at The Next Bull Market Move. I would highly recommend subscribing to his site as his interviews are in-depth and contain a lot of great content. Below is a reprint of our interview where we talk about gold, uranium, tech, and learning from both trading failure and success.
Hi Justin, welcome back to the The Next Bull Market Move. You recently released an update on the Uranium sector (click here to see) and I wanted to know if you feel this sector this still needs to consolidate more before a big break out? And if the market does breakout do you think it will a quick speculative move, or something more steady and characteristic of a sustained stage 2 uptrend?
I think the best way to look at the uranium market or any market is to evaluate what is happening right now, and then decide what you will do if uranium goes sideways from here or starts to breakout higher. According to Stage Analysis the price of uranium is still below the 30-week moving average and the moving average is declining, so that’s a Stage 4 downtrend. Some of the uranium miners however have started to break above the moving average and are acting stronger than the price of uranium. This kind of price action tends to precede breakouts, but unfortunately in Stage 1 bases you can get false breakouts time and time again until the real breakout occurs.
This is basically what happened earlier this year when we had a ferocious breakout on big volume but it faltered and the uranium miners gave up most of their gains. You’ll notice though that the stronger uranium miners like NexGen have held onto a good portion of the gains even with the big pullback. I interpret that action as bullish as well because that shows that big money is not bailing out on the better stocks even with uranium prices weakening again.
It seems to me like the uranium price is putting in some type of floor, but I don’t know how long this bottoming process will play out. I don’t think the uranium miners will do much until the price of uranium resumes a Stage 2 uptrend. So that’s the key indicator for me to get heavily involved in this sector again. But when it does we could see a monster bull market in the uranium miners since they are so depressed and highly leveraged to the uranium price.
What’s your view on gold and the mining equities? It appears to me that we have been range bound for quite some time now. Has gold found a bottom yet?
Gold is similar to uranium right now in that we are starting to see signs that something might happen, but it’s not quite happening yet. I think that’s a key distinction you need to be able to make to use a system like Stage Analysis properly. You have to be able to interpret the chart for what it is, not what you think it should be.
If you look at GLD and GDX they are both chopping sideways above and below the moving average but not breaking out yet. That’s Stage 1 basing action. I do like the fact that the price action seems to be tightening which is often what happens before a big breakout. Also you are seeing bellwether stocks like NEM breaking out above the moving average this week.
It’s curious how poorly gold has reacted to the recent sharp move lower in the U.S. dollar. That’s something that usually doesn’t happen, but the relationship between the two isn’t always negatively correlated. If you look at the commodities sector as a whole through the GCC ETF, I think we are in a Stage 1 base that is going on 2 years old now. So if the dollar is in a new bear market now which is very possible, a new breakout in commodities overall would also greatly strengthen the bull case for gold and uranium.
Tell me something that the markets have taught you this year.
This year you’ve needed to be a good stock picker to outperform the major averages. A lot of performance of the indexes this year is due to the big tech stocks like Facebook, Apple, Amazon, and Google. There have been some big winning stocks no one is talking about though like AAOI and SQ, both of which had beautiful Stage 2 breakouts.
2017 is another good example of how important it is to be in the leading sectors of the market to really outperform. If you’ve been in the right tech stocks this year you’ve had a great year or maybe some foreign stocks. Meanwhile commodities, small cap stocks, and transports are all flat to down this year. You have to be able to adapt and trade what the market is giving you.
Let’s talk about silver briefly. It seems investors have completely lost interest in silver and pretty much given up hope of ever seeing $50+ for an ounce. When no one wants to buy, this usually marks the beginning of a move that will surprise most investors, so will silver ever break out into a stage 2 uptrend?
Silver will certainly have another Stage 2 uptrend. I’m watching silver right now just like gold and other commodities markets. You’ve seen a year long consolidation now from the 2016 breakout in precious metals so we are definitely setting up the conditions for another Stage 2 uptrend. I’m not getting involved again though until I see it breaking out on the chart, there’s no reason to get involved before that.
Within your investing career, what’s the biggest lesson you’ve learnt through a failure and through a success?
Losing money in the markets is the best way to learn since it forces you to act differently or keep losing your money. Earlier in my trading career I would make a bunch of money and then give it all back in a bear market since I had no respect for managing risk properly. Bear markets also moved me to a trend following approach because I wanted to be able to decisively determine whether to be involved in a market or not. I’ve found fundamental analysis to be too nebulous, with Stage Analysis I have a simple system and rules to follow and I can make money in bull markets and avoid bear markets.
In my opinion if you get lucky and catch a bull market and make a bunch of money, you’re not smarter or better at the markets than you were to start with if you don’t have a system or rules for managing risk. You’re actually more dangerous to your own account because you have “free” money to trade with and even lesser respect for risk. So “success” in the markets is an odd thing because if you’re following a system and managing risk and taking small losses, you’re actually being successful.
So to boil it all down to me learning through success means following your rules and keeping your account and mind intact by limiting your losses in bad markets. Learning through failure is taking a big loss in the market because you didn’t manage risk properly.
And finally, which markets are currently attracting your attention?
Technology stocks, especially those involved in semiconductors/IoT/fiber optics still have a lot of strong looking charts. Many of them are working on their 2nd or 3rd pullback to the 30 week moving average though so they are already further along in their bull market cycle. The volume in these stocks continues to be explosive which is a good sign.
Other than tech I’m keenly watching commodities sectors like gold, uranium, and copper and anything that is starting or could be starting a new uptrend. My number one objective is to get involved as early as possible in an explosive Stage 2 uptrend, no matter what the sector is.
I highly recommend visiting The Next Bull Market Move for more quality interviews from a wide variety of guests!
Some of the uranium miners including the ETF URA have moved back above the 30-week EMA. Is the new rally sustainable or could it be a fake rally which leads to more consolidation? I take at the uranium market from a Stage Analysis perspective in the following video:
Cryptocurrencies like Bitcoin and Ethereum have been the biggest trade of 2017. In this video I take a look at Bitcoin, Ethereum, Ripple, and Litecoin from a Stage Analysis perspective. Interestingly Bitcoin has been in a Stage 2 bull market ever since late 2015, but has only captured the attention of the media with its recent parabolic rise. Cryptocurrencies are now dangerously extended from their 30-week moving average and I discuss why that’s a warning sign for disciplined traders.
Gold and gold stocks are setting up a basing formation that will eventually resolve into a big move higher or lower. Sentiment in the gold market is bearish and the media is totally ignoring the gold market right now. Seasonally gold tends to make a major bottom around the end of June and the start of July. All that and more is discussed in the video below: