-- Posted Wednesday, 8 November 2006 | Digg This Article
Mining Equities Scoring & Timing Newsletter
Michael Kilbach
November 7, 06
With all the difference of opinions from so called “experts” on how to invest your capital, how does an investor cut through the “noise” to get a reasonable return on their investment? Is investing really that complicated? Can the average person make money in the markets? In our opinion it can be much easier than most people think.
How? Through observation and analysis we have developed a unique scoring system to simplify investing in equities. Our approach is simple but effective. We follow a set of time tested rules and disciplines that allow us to eliminate emotional trading decisions and instead execute well timed, profitable equity trades.
1) We believe all major macro market trends will not end until an extreme is reached in the direction traveled. Once that extreme is met, like a pendulum swinging, the new trend will start and will not end until the extreme is met in the other direction.
2) We evaluate and determine the major long term trend in the markets. This requires significant long term data to clearly illustrate the trend.
3) We eliminate the distractions of day to day “noise” and media hype. In our opinion, daily newscasts and justification for a particular markets movement is just “noise” that complicates ones thinking and is generally irrelevant to the long term trend.
4) Once we have identified a long term bull market, we take positions in related equities at low risk entry points. We have a portion of our holdings for long term investment which we buy and hold. Another portion of our investment we trade in and out of the bull market for potentially greater returns.
So how does one remove the human emotions of “fear” and “greed” from the decision making process when buying in and out of a particular investment? In our opinion investors must be disciplined and have a predictive, reliable system. Let us show you ours. We will display a series of charts and explain our process of trading mining equities.
1) Long Term Macro Market Trend
The monthly chart below illustrates the long term movement of a current major macro market trend. Using a total of six different market indexes combined into one gauge, we measure the progress of the long term Precious Metals (PM) bull market against these various other markets. The Blue line is our scoring system which measures the long term trend. When the blue line is trending down, commodities and precious metals are considered to be in a major bear market. When the blue line is trending up, commodities and precious metals are considered to be in a bull market. The thin grey line in the background is the price of Silver.
Chart 1:
Major Macro Commodities Trend - February 1971 to October 2006 (Monthly)
- Blue Line = Precious Metals Market Score (1 to 10) Illustrates the commodities market trend
- Grey Thin Line in background = Silver London Fix Price
You will notice the score peaks at ten at the top of the commodities bull market in 1980 relative to these other markets. It then bottoms in 2000 against these same markets before heading higher again. You will also notice the recent breakout from the long term downtrend. In our opinion this confirms that the new bull market will not end until the gauge reaches the upper portions of the chart. This is an example of one major trend not ending until the next extreme is reached in the opposite direction. As a general rule, one should add to investment positions once the trend turns up from its low and it is still in the lower portion or green sections of the chart. We believe as the precious metals bull market matures, evident when the blue line scoring system nears the upper portion of the chart, it would be wise to lighten up significantly on invested positions. This approach helps investors ignore the “noise” and disregard the media hype of the exciting nature of a maturing bull market spike.
As illustrated above, the long term trend in precious metals is in the very early stages of a bull market. According to our strategy, this is when to purchase precious metal investments.
2) Ignore The “Noise” And Take Positions
We then created a timing system for entering and exiting investments that benefit from the Precious Metals bull market. How?
1) We pick equities that profit from the mining and exploration of mainly silver and some gold.
2) We make sure these equities have enough trading history to effectively break down their data into our scoring system.
3) We then overlay our customized scoring system on top of the equity and use it as our guide to add, lighten up, hold or sell positions.
4) Basically we add to positions when the score is near or at the bottom of the chart and lighten up or hold onto positions at the top of the chart.
5) Generally we do not think one should exit positions entirely until the major trend is nearing the end of its bull market. As illustrated in our first chart above, we think this bull market has a very long way to run yet.
In the following charts please take note at how profitable a trade would have been if you had taken positions when the gauge was in the green area and lightened up on those positions when the gauge was in the red area.
Chart 2:
Silver Bullion Market Scoring System – November 6, 2006 (Daily)
- Blue Line = Silver Bullion Score (-4 to +4) Illustrating buy and sell signals
- Grey Thin Line in background = Daily Silver London Fix Price
Chart 3:
Our Custom Silver Equity Index, Market Scoring System – November 6, 2006 (Daily)
- Blue Line = Silver Equities Index Score (-4 to +4) Illustrating buy and sell signals
- Grey Thin Line in background = Our Custom Silver Equity Index Value
Chart 4:
ASM.V, Avino Silver and Gold Mines, Equity Scoring System – November 6, 2006 (Daily)
- Blue Line = Investment’s Score (-4 to +4) Illustrating buy and sell signals
- Grey Thin Line in background = ASM.V, Avino Silver and Gold Mines Price
Chart 5:
SSO.TO, Silver Standard Resources, Equity Scoring System – November 6, 2006 (Daily)
- Blue Line = Investment’s Score (-4 to +4) Illustrating buy and sell signals
- Grey Thin Line in background = SSO.TO Silver Standard Resources Price
So What’s The Catch?
Every trading system requires some degree of human discretion and common sense. We are “straight shooters” and admit there are a few times where less than ideal signals may be given. However, as a general rule we have determined that our timing system can greatly enhance an individual’s probability of outperforming the market. But our performance speaks for itself. Take a close look at the charts above and note just how accurate and profitable our trading system has been. Our strategy is not to buy or sell an investment position all at once. Instead we buy in stages and average into our investment when the timing score is in the green area and sell in stages as we near the top of the scoring system. Using our customized scoring system we greatly increase our odds of consistently buying low and selling high. We have found this strategy exceptionally profitable. Simply look at our charts and ask yourself, 'could my investment decisions benefit from this insight both from a long term and short term perspective?'
This article is a trial run to determine if readers would like to know more about our system and possibly use it as part of their investing strategy. We need your feedback. Would you like to view these charts and other mining equities that are updated on a regular basis according to our customized scoring system? If you like what you have read, please provide your feedback to article.feedback@hotmail.com. In the event we receive a significant number of positive responses we will create a low cost, bi-weekly newsletter that will post a series of precious metals equity charts for our subscribers viewing. The strategy of the service is to ensure it is low cost and affordable enough that one small, well timed trade can easily pay for the six month subscription fee. Please reply as your feedback is invaluable to us. We look forward to hearing from you.
Good luck and all the best in investing and in life.
Michael Kilbach
Email: article.feedback@hotmail.com
Disclosure and Disclaimer Statement: The author of this article advises that he has personal investments in silver and gold mining and exploration companies in addition to and including the companies listed in this article. The author does not claim any of the opinions expressed in this article are to be considered complete, absolute and/or exact but rather general beliefs. The author does not accept responsibility for possible errors in calculations, data presented on charts or loss of investment using the trading system. Attempting to time an investment does not guarantee results. The author is an independent analyst and not a qualified investment advisor. It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment advisor before entering into any transaction. The author has neither been paid or received any other compensation to write this article.
-- Posted Wednesday, 8 November 2006 | Digg This Article
