Technical analyst Jack Chan looks back on the precious metals and energy markets in 2016, as well as forward into 2017.
Submitted by Streetwise:
As always, I provide no predictions or forecasts for the future. As a successful long-term investor, I remain faithful to Warren Buffett’s life-long commitment in investing by observing his two rules.
Rule #1 – do not lose money
Rule #2 – do not forget rule #1.
Looking back on 2016
Our long-term investment model has switched back to favoring equities after placing us on the defensive in 2015. A false alarm in hindsight.
The growth sector as represented by $SPX also switched back to a major buy signal in late 2016.
The oil and energy sector as represented by $OSX had a major buy signal in early 2016, ending the major sell signal from 2014. The multimonth consolidation after the new major buy signal provided us with excellent entries, with a 40% allocation for the long term.
The gold sector as represented by $HUI had a major buy signal early in 2016, but it was a price spike and no entries could be made. No consolidation with no trendline support has been established so far to set up for a long-term allocation.
The copper sector also had a major buy signal in 2016. TECK went straight up, while FCX consolidated. We entered near the bottom of the consolidation range, with a 10% allocation for the long term.
All three sectors are on major buy signals at the end of 2016. The best opportunities were in the energy sector, where we took a 40% allocation intended to be held for the long term. These positions are up on average of 14.8% as of 12/31/16. We also took a 10% long-term position in FCX, a giant in the copper sector. FCX is up 23% as of 12/31. It was another profitable year.
Looking forward to 2017
Our long-term stocks/bond model switched back to favoring equities in 2016, therefore, I am looking for new opportunities to be fully invested in 2017.
The growth sector is in a super bull market with no overhead resistance. The major breakout in 2013 after a 12-year consolidation rendered this a young bull and should have plenty of upside in coming years. Any sharp correction with a spike in VIX will be buying opportunities in 2017.
USD remains on a major buy signal since 2011. As long as the dollar remains in a bull market, precious metals will be under pressure overall, although we may see some sharp bounces periodically.
$HUI is on a major buy signal, and we need to see a multimonth consolidation, with trendline support established, before considering any long-term allocations.
Crude oil bottomed in 2016 and a new bull market is in progress.
$OSX is on major buy signal with established trendline support. We look for new buying opportunities in 2017 at cycle bottoms.
All three sectors are on major buy signals.