From time to time we will be sharing some of the ideas that our strategists generate in the global market arena. These views and ideas will likely not come every week, although as and when they do, we will share selected ideas here so that you can stay on top what our team is looking out for.
Gold and silver have been the talk of the town amongst most professional investors in recent months. With the Fed printing the dollar into oblivion, gold caught a decent bid and became massively overbought, along with its cheaper brother silver. Gold and silver sentiment became extreme and as you know, when the hysteria hits the market, it’s normally the end of the bull run. We have now had a decent retracement and believe that we can start looking at gold shares again for a bounce.
So, in the depths of the COVID gloom there was talk of a depression and stocks dropping another 50% from the lows. There was absolute conviction that you should not be buying. Now, after one of the most insane V-shaped recoveries we have ever seen, most analysts tell you to buy Apple, Tesla and anything tech-related as we have entered a new type of world. And yes, a V-shaped recovery… as most analysts say it isn’t happening, but it’s a clear V – as you see in the chart of the Nasdaq. Anyway, the consensus has swung from “don’t buy” when it was low to “buy everything” here and now? We disagree. We think it’s time to go risk-off.
Let’s get to the point: what’s happening is totally unprecedented… the market has gone up or down more than 4% for 7 consecutive days. That’s a new record. The previous record was 1929. There are a whole number of stats like this that are unprecedented. Below are stats of this week… craziest moves we’ve ever seen.
We know that it is a difficult time to buy stocks bearish news and frankly, chaos reigning in markets. However, the market is showing signs of heavy capitulation. We won’t go into all the stats that are showing signs of extremes, but there might be an against the trend trade opportunity here with a high risk:reward profile.
TLT is a defensive ETF as it effectively captures the far end of the Treasury curve in a liquid, exchange traded package. Exclusively holding bonds with 20+ years to maturity, TLT is – by design – very sensitive to long-term interest-rate movements. It seems to us that TLT has gone into what we describe as a parabolic blow off top. The most obvious reason for this would be because TLT, as a bond ETF, is viewed as a safe haven asset in times of uncertainty. Corona-times are pretty uncertain times we would say. Hence the run to safety.