Investors Better Listen when Markets Talk!

Monthly Market Commentary: July 1, 2019

Already early in my career, I realized that one of the problems of technical analysis was the interpretation of charts. Nonetheless, I became attracted to the field because I observed that stock, bond and commodity prices would often suddenly move in a direction and investors would scratch their heads as to why these moves occurred. Only much later, would changing fundamentals confirm the validity of the earlier price moves. In other words, prices moved ahead of fundamentals and especially ahead of analysts' projections.

Therefore, I believe that investors can benefit from looking at long- and short-term charts. In particular, investors should pay attention to major up-side or down-side breakout points - especially, when these breakout moves occur against the majority of investors' expectations.

The reason I am discussing break-out moves (up- and down) is that in some cases they are more obvious and relevant because a confluence of both fundamental and technical factors confirm the breakout move. Furthermore, following a breakout move there will usually be a retracement (not always right away) but prices should not move beyond the breakout point in order to confirm the breakout.

Recently, we experienced some breakout moves whose significance we do not yet fully know. The first major upside breakout occurred in the cryptocurrency market when Bitcoin shot up at the beginning of April.
The second important breakout move occurred in the gold market whereby gold must hold above $1370 for the breakout move to be confirmed.
Importantly, we need to ask ourselves what the sudden huge upside move in Bitcoin and the upside breakout move in gold might mean?

My readers should remember in the current market context the words of legendary trader Larry Hite who opined that, "Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you" as well as the words of deep value investor Howard Marks who observed that, "You should invest more when the tickets in the bowl are in your favor. You should invest less when they are against your favor and what determines the mix of the tickets in the bowl largely where we stand in the cycle.”

With kind regards   
Yours sincerely   
Marc Faber
 

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