X US Steel, Jan 26, 2010

Hamilton

How to decide whether to buy or sell ? Use all you have, start with gut feel or intuition AND use all the tools the world of investing offers. Here is a good example in the form of US Steel or X, shown below.

X Jan 26, 2010

This stock trades around $20 for about the length of this chart and probable more; in fact it is basically down hill for many years dying with the rest of the US rustbelt under the weight of mismanagement, inefficiency, union demands etc. etc. All of a sudden the China factor comes out of nowhere in early 2003, presumable because the population there had grown from 1.4 billion to 1.400.000.001 causing the proverbial “tipping point” to occur.  Voila, in a mere 4 years this sleeper increases in value by a factor of 10. Our maestro Greenspan would certainly not have recognized the small bubble forming –BUT ANY SANE PERSON WITH A GUT WOULD AT LEAST BE AMAZED .

   X Jan 26 2010, 2                           

It drops even faster than the financials following EW rules to a tee. Also observe that the RSI,  relative strength indicator WARNS every single time that something is about to happen. It did again a few weeks ago and today the stock got hammered more than 10%. these indicators are worth paying attention to.

Is any of this predictable? Absolutely not ,  but is there a good reason to sit on a 10-bagger without a trailing stop-loss? Absolutely not. Unfortunately this is the part of “buy low sell high” that is most often not understood or practiced. It takes away 1/2 of the potential!

GS Goldman Sachs Jan 2010

Hamilton

Here is GS to compare with JNJ below. With this one we hit the nail on the head, recommending it at the precise low for a suggested target of $165. Again we slightly underestimated the force of the rebound as the stock climbed  a little higher.

GS Jan 26 2010

JNJ Jan 26, 2010.

Hamilton

Back in July I thought JNJ might have corrected enough and consequently I suggested buying some put options at the money with about 6 months to go. Clearly I was wrong as they expired recently valueless; I was 5 months too early and 4$ short, proving, once again, that timing is everything. The beauty with options is that you lose relatively little and can do it again which I warmly recommend. Should you own the stock sell it outright or put in a stop at about $60. (By the way , the chart for the last 2 years is similar to Goldman Sachs’.)

Here was the chart in July, 2090

jnj july 25

Here is today’s.

JNJ Jan 2010

and in more detail:

JNJ Jan 2010 2

Silver as a proxy for precious metals, energy and materials

Hamilton

Silver Jan 25 2010

Silver will drop at least to $12 ,but more likely a lot further. In terms of the precious metals stocks it is advisable to get out if still in. This applies to energy and materials as well. Even if this drop stops at $12 it is still about a 40% drop from the recent high, well worth the effort.