Tuesday, December 15, 2009

Consolidating Market : Is GOLD the catalyst?

For the past 3 months, I notice that the market is in consolidation (but trending slightly up) that is why my money is sleeping. There are no violent index swings; and worse the stocks that I pick are lazy bastards. I got really bored.

Below is the graph I got from finance.yahoo.com, I compared both PSEi and DJIA. I noticed that we are actually on last years (2008) first half levels.

If you try to compare the 1st half of last year and now, you will notice that the current economic scenario is the same.

The first half of 2008, there are analyst that said that we are on the verge of collapse, and other economic analysts say that the idea of a collapse is absurd.

Fourth Quarter this year, after April 2009's low, we can see clearly that the worst is probably is over. There are news of good jobs figures in Australia and there are bad news like Dubai's debt crisis. See Stock News, Noise, Fear and Greed.

If you observe the bull and and bear market, there is always a catalyst.

In 2008 - Sub Prime Mortages and Collateralized Debt Obligation
In 1929 - Margin Trading and Easy Credit (i.e. installment plan, credit cards)
In 1999 (Dot Com Bubble) - Hyped-up (enourmous P/E tech stocks) and Options Trading

I cannot research the reasons for all market crashes, so just see this list List of market Crashes instead.

Thus, in order for the market to move from consolidation mode to bull mode, there must be a catalyst.

I'm paying close attention to bloomberg and other finance news websites and channels to analyze what the next catalyst is.

Chart from Kitco.

So far, all I can see that there is a violent activity in Gold. In 1 year it went up 47
% (in 6 months it went up 30%). However, is this enough? Currently no it is not, since in order for a catalyst to work, the middle class must participate.

I'll wait for Finance Institutions to offer Gold based consumer investment products, that offer a ridiculously high gain.

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