Since much of the stock market has potentially started a longer term transition into a bear market, prudence and caution are the name of the game. If leadership sectors, such as gold, commodities, and specific stocks, turn lower, the bear is in control.
Last week the picture for the euro changed significantly as it fell -3.90% for the week and fell out of a trading range between 140 and 145. The breakdown out of this trading range could be the beginning of a new Stage 4 downtrend for the euro.
One of the beauties of trend following is ignoring the constant swirl of noise that surrounds the market. Charts don't lie, and they don't have opinions. This objective method of looking at the market can dramatically improve confidence and understanding.
If gold follows along with its past history it isn't anywhere near the overbought extremes that caused it to make significant tops. And so far during this precious metals bull market silver has not made a major top independent of gold.
Of the legions of investors who are welcoming a fresh start to the year after the choppy and directionless market of 2011, perhaps gold stock investors are the most eager. Gold stocks had a volatile year last year with no progress made on the upside.
The slogan "the trend is your friend" was created for a reason. People tend to agree more often than disagree with their friends. Aligning yourself with the long term trend means you are choosing to agree with the wisdom of the market.
The market did not have a chance of making a move to the upside in 2012 without seeing money rotate out of defensive sectors that led during 2011. Here are some of the bullish signs the market has displayed since putting in a low in October.
Silver attempted to take out 50 on Monday of this week and instead had a big reversal day as it temporarily ran out of gas. Then after testing 45 the following day silver has moved higher is once again approaching 50.