My last two weekend updates were all about preparing for the election. In my view the simplest way to do that was to simply build up some sort of a cash position to be prepared to buy after the election plays out. For me that meant just rebalanacing my accounts so I am roughly 50% in cash (which means short-term CD’s and bonds, foreign currencies, and cash) and 50% invested in various things – with a heavy weighting towards metals ETF’s and individual mining stocks.
My plan is to simply do enough buying so that I’m back to 50/50 assuming my longs dips a little – and everything has been dipping into the election last week.
I didn’t really see any great play ahead of the election – and in fact the classic “safety” play of bonds has fallen a bit in value as you can see from the TLT and LQD ETF’s – so everything basically has been pulling back.
LQD is the main ETF for corporate bonds while TLT tracks the 20-year Treasury bond.
The US stock market peaked out around Labor Day and really has been in a correction ever since. It basically fell 10% in September to bounce into the start of October earnings season and then started to fade again into the election.
In all past corrections in all of the years I have been in the markets Treasury bonds and TLT went up in value – except this time.
This just shows us that the bond market peaked out this summer. It can go back up with the help of Federal Reserve QE boost operations, but there is no great value in it for a bull case when interest rates are zero. Ultimately this one single fact is what is going to drive many into gold in the coming years.
Gold, silver, and the mining stocks started to firm up against the stock market last week. You can see this in stocks such as FNV, which went up Friday even though the stock market was down hard again.
NEM also did well.
I own both FNV and NEM. As for the stock market the S&P 500 is still down less than 10% from its September high and above its 150 and 200-day moving averages.
As I have written in the past two weeks it seems likely that we’re going to see more weakness in the market until the election is over. Normally that’s Tuesday night, but the odds are that the election won’t be settled that night. It could be the next day and it could take even take a few more days, but check out this article to see how quickly the various individual states can report full results:
https://projects.fivethirtyeight.com/election-results-timing/
I have no prediction on who is going to win, but it would it seems like it would require Biden winning Florida for the election to be over Tuesday night.
The S&P 500 though has support in the 3050-3166 area – that’s the area of its 1/3 retracement level from the March low to September high and both the 150 and 200-day moving averages are trading in that zone.
The odds are that we’ll see the market fall into that area and then make a new bottom low as the election is resolved.
Gold and mining stocks appear to be ready to start to trade stronger than the US stock market and separate from it again. Another good down day in the market in which they go up would be another sign that is happening.
But overall I think it still makes sense to just wait at least to Wednesday morning before making any major trades in these markets.
-Mike
