What if you had a crystal ball? What if you could see into the future and have high conviction about what you thought was about to happen in the markets?
How much would that be worth to you?
Having a crystal ball sounds great. But we all know it just doesn’t work that way.
However, studying and sorting through history, looking at recent trends and the latest information can give you an edge.
It’s about as close as you’ll get to “knowing” the future.
I’ll admit, making predictions about markets isn’t easy. But if you want to get ahead as an investor, it’s something you have to do. If you’re right, it can pay off handsomely.
After all, long-term investing success is hard. Especially if you want to have any chance at beating the market averages.
For this reason, every December, I like to make predictions about what I see happening in the year ahead.
Like my call for stocks to be higher this year. Or for the dollar to be lower.
It’s also a good exercise to take stock of what’s happening each quarter. Looking at current data and past historical patterns can help.
That doesn’t mean that things will always work out the same as in the past. But I’ve learned over the years that history is a guide. And we should use it.
Which is why on my most recent quarterly Zoom call with Founding Members of Strategic Trader back in June, I zeroed in on one specific market that looked ready to break out.
Zig When Others Zag
Towards the end of each quarter, I do a live Zoom call with Founding Members. On the call, I like to go through what I’m seeing in the markets overall. And I zero in on specific sectors that look interesting at the time.
While the main focus of Strategic Trader is speculating with stock warrants, these Zoom calls are meant to be a guide to how I’m looking at certain parts of the market. Those thoughts help zero in on ways to speculate using warrants. And if used right, help provide more value to subscribers as they manage their own portfolios. (I even single out some bonus picks I don’t cover in Strategic Trader.)
For example, in June, I talked quite a bit about my thoughts on inflation and interest rates. In fact, based on the data I was seeing, I said inflation wasn’t a problem.
At the time, the consensus view was that the Federal Reserve had a serious problem with inflation and needed to raise interest rates. This was after Kevin Warsh, the new Fed chair, took over and immediately ended the practice of giving guidance on what the Fed would do.
Analysts reacted with disbelief. In part because now, instead of knowing exactly what would happen, they have to interpret data and do the work. It was a kick in the gut to many analysts.
And it’s what led to what I called the worst call of the year by Wall Street. Bank of America was calling for three rate hikes by the Fed this year.
It was all nonsense. The data didn’t support it. And I said as much to subscribers on the call.
Instead, my thought was the Fed wouldn’t raise rates at all. At the very least, it would keep them steady. And maybe even be in a position to lower rates.
So we had to look at what that would mean for certain sectors.
Which brings me back to my focus on one market during the call: gold.
Golden Ticket
My thought was, what would happen if the Fed didn’t raise rates? What would that do to gold?
At the time, it was not a popular opinion. At least to most Wall Street analysts.
But as I said on the call, gold looked oversold to me. Especially based on the data I was seeing and the fact that there was almost zero interest in the gold sector.
In fact, I showed subscribers that gold mining companies were historically cheap when compared to the S&P 500.
The chart below shows free cash flow (FCF) yield of gold miners vs. the S&P 500. As a reminder, FCF measures how much cash per share a company generated over the past 12 months.
More than that, I said it would be a good time to add to positions if you wanted more exposure to the gold sector.
Why? Because I expected gold to turn around and head higher. With gold stocks to follow that move.
And I even gave the timing.
I expected gold to head higher within two months of the call. In August. (I’ve unlocked a clip from that quarterly call that you can watch here.)
If you’ve paid attention, then you know that’s exactly what happened.
And it has gold stocks on fire. We can track that through the VanEck Gold Miners ETF (GDX).
Make no mistake, this wasn’t a matter of having a crystal ball. It was a matter of filtering out the market noise. Taking a step back, seeing the big picture, knowing how gold has historically traded in that type of environment, and making a call.
Where does gold go from here? It all depends on the next Fed rate decision in September.
I’m calling for the Fed not to raise rates again. Even though certain Fed governors have publicly called for it. And even with Wall Street still pricing in about a 40% chance of a rate hike. Even after July’s disaster of a jobs report.
When the Fed doesn’t raise rates next month, as I believe, it could set gold up to make a run at a new all-time high. Maybe even before the end of this year.
Only time will tell. But at the end of the day, you don’t get ahead in the market by taking the consensus view. You get ahead by making bold, informed calls that may look crazy at the time.
Regards,
Editor, Strategic Trader