I mean no disrespect to David. On the contrary, I understand his position. It is really difficult to stand on the sidelines \u2013 or even worse, buy into the most hated sector in the market \u2013 when everything else is moving higher.<\/p>\n
So, I didn\u2019t publish his email \u2013 though I share almost all of the negative stuff I get.<\/p>\n
Instead, I expected that as the gold stock rally played out, David might see the rationale to my thought process.<\/p>\n
My expectations were too high. Here\u2019s the email I got this week\u2026<\/p>\n
Why are you fighting the Fed? I thought that was an axiom that seasoned traders followed. Whatever manipulation the Fed has been using (pinning down the low end of the curve, dark pools, whatever) it has kept the market defying logic, inducing irrational exuberance and causing (multiple) losses for your picks.<\/p>\n
Obviously the COF put has been a disaster (I would happily eat my words if suddenly the banking sector tanks). Gold was supposed to rally (hopefully it will) but ABX has hurt us. GG did OK, and some of the other picks, but not enough to overcome the losers.<\/p>\n
Can you ponder this over the weekend: Why fight the Fed? Can\u2019t we have just one pick that rides this (seemingly unstoppable, Fed-induced) rally?<\/p>\n
\u2013 David C.<\/strong><\/p>\n<\/blockquote>\n <\/p>\n
David, thank you so much for your email. I totally understand your frustration and I hope my response can shed some light on my thinking.<\/p>\n
I\u2019m a \u201cmean reversion\u201d trader. I view the broad stock market like a rubber band. I hope that it stretches too far in one direction so that I can profit as it snaps back to normal conditions. Those are the types of conditions and the types of trades I look for.<\/p>\n
2017 was a momentum market. It was a freight train that only moved in the bullish direction. Momentum traders should have made huge gains. Even so, those of us who trade on the \u201crubber band principle\u201d still had a few opportunities to profit.<\/p>\n
Since you were with me on my CANE recommendation \u2013 which was last April \u2013 I\u2019m assuming you\u2019ve been with me on every trade since then. If so, then you\u2019ve had plenty of chances to profit.<\/p>\n
2017 was a HUGE year for momentum traders. The S&P 500 didn\u2019t pull back even 3% for the whole year. So the wind was at their backs.<\/p>\n
Those of us who trade based on the mean reversion philosophy had a tougher time. Even so, we had a huge year in the Delta Report<\/em>. We were profitable on 79% of the trades I recommended in 2017. The annualized return on those trades was over 200%.<\/p>\nAnd those returns are based on a philosophy that was out of favor last year.<\/p>\n
Going into 2018, there are very few sectors that offer lower-risk opportunities to profit. The ONLY sector that looks good to me is precious metals. It\u2019s had a good run higher over the past month. But the sector is so depressed, I think there are much larger gains ahead.<\/p>\n
You can argue. You can say that I ought to focus on momentum rather than value. But that\u2019s not my style.<\/p>\n
If the stock market keeps pressing higher, then I\u2019m going to keep looking for trades that offer low risk and high reward. If those trades don\u2019t exist, then I\u2019ll tell folks to sit on the sidelines.<\/p>\n
I\u2019m happy to underperform the market in the short term. I know the market ALWAYS reverts to the mean. And I\u2019m okay sacrificing short-term gains for the risk of intermediate-term declines.<\/p>\n
David\u2026 if you want a more aggressive option trading service, then there is no shortage of choices available to you.<\/p>\n
I suspect, though, you\u2019ll have a tough time finding one that racked up the track record we did in 2017.<\/p>\n
Even though it wasn\u2019t an ideal market for a mean reversion strategy, we found a few opportunities that produced stellar returns while taking on low risk.<\/p>\n
Asking me to shift my focus to momentum trading is like asking a cat to bark like a dog.<\/p>\n
It\u2019s unnatural. It\u2019s not going to happen. Cats don\u2019t bark.<\/p>\n
2017 was a big market for momentum traders. The stock market enjoyed a one-way move higher. That move has continued into 2018. So, momentum traders are having a great time.<\/p>\n
Even so, my subscribers did really well in 2017 despite sticking to a strategy that was out of favor.<\/p>\n
So far in 2018, we are underperforming the broad stock market indexes. And I\u2019ll take whatever criticism you want to throw at me for that.<\/p>\n
But good heavens\u2026 we\u2019re only eight trading days into the new year.<\/p>\n
The portfolio I\u2019ve recommended is HUGELY slanted towards a rally in precious metals. Almost nobody else supports this position. So I\u2019m sticking my neck out and betting on the rubber band snapping back.<\/p>\n
This is the best-looking low-risk\/high-reward trade I see in the market right now. The downside to buying mining stocks is minimal while the potential reward is quite substantial. Only time will tell if I\u2019m right or wrong.<\/p>\n
But there\u2019s one thing of which I\u2019m certain\u2026 If I\u2019m right, my subscribers will see huge profits. If I\u2019m wrong, then the downside should be minimal.<\/p>\n
That\u2019s the epitome of a low-risk\/high-reward trade. And, that\u2019s the only bet I\u2019ll make in the current market environment. More importantly\u2026 it\u2019s the only trade I would recommend for you to make in this situation.<\/p>\n
I\u2019m going to stay focused on the risk. You may not agree with it. But since you subscribe to my service, you\u2019re entitled to my best advice.<\/p>\n
I\u2019m not buying anything else today except precious metals stocks. It\u2019s the only sector that looks like a low-risk\/high-reward trade.<\/p>\n
Best regards and good trading,<\/p>\n
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Jeff Clark<\/p>\n