I'm a bit sceptical about the value of drawing conclusions from just three years of experience. There's no good reason for it, either - we've got records for the Dow going back more than a century. According to my records, March hasn't produced more than its fair share of highs leading to drops greater than 10 per cent. By contrast, January, May, August and September have seen many more corrections and bear markets begin.
Dow highs and lows by month
Dynamic Trader chart
I don't doubt that we'll get a correction of this nature in equities at some point in 2013. The sell-offs of 2010, 2011, and 2012 each occurred for a combination of the same reasons, namely panics over Europe, the withdrawal of monetary stimulus, and seasonal factors. I don't count the Italian electoral wobbles as a full-blown panic, monetary stimulus remains ample, while we're still a couple of months of the true seasonal soft-spot for the stock market. I reckon the US and the UK will rally again soon, therefore.
Gold's 2008 lows
Following my remarks about gold last week, Julian Smith has written in about when next to buy into the yellow metal. Like me, he doesn't think the bull market in gold is over yet. He argues that the price hasn't experienced the same sort of panic-driven spike that marked the end of the last boom in 1979-80. He says he is waiting for the price to touch its 730-day (two calendar years) average like it did in 2008. That proved to be a great buying opportunity. Has this line worked in the more distant past, he wants to know?
The 730-day average over time
The short answer seems to be no, or at least not in the way that Julian may have been hoping. In the 1970s, gold's rise was so parabolic that it only once came anywhere near this line, during the major shakeout of 1974-76. When it did, it dropped 30 per cent below it, before recovering through it without much hesitation. Subsequently, the line did act as a ceiling during the early 1980s and early 1990s. Were gold either shortly to bounce off this line or to go straight through it, I wouldn't read anything into it either way.
So, what would signal a further significant buying-opportunity? I lately posted a video of last week's 'death cross' signal in gold's daily chart. (You can watch it for free here: http://bit.ly/XFLcD8). A death cross is where a market's 50-day moving average drops below its 200-day average.
Gold's irrelevant cross
This signal often gets coverage in the financial press, presumably because of its scary-sounding name. The only thing that has ever scared me about death crosses is quite how useless they are. In the course of my research, though, I did find that their converse - the golden cross, where the 50-day average crosses upwards through the 200-day average - are actually pretty handy as buy-signals. The potential gain after a golden cross has averaged 25 per cent over the last 32 years. I'd therefore be especially happy buying again upon such a signal in 2013.
