Cash is king as markets hit crossroads

With many technical indicators overbought, investors should consider raising some cash or be mentally prepared for the possibility of a significant decline in their portfolios.

We are very bullish for the long-term for the resource sector, i.e., gold, silver and the resource shares. However, we need to live life and the markets in real time and the question is where are we now and what should investors do, if anything?

The big question mark is for the short-term (several weeks) and the immediate term (1 – 3 months).

One very simple tool which will frequently keep you on the right side of the markets is the 50 day moving average.

Gold and the shares as presented by the Arca Gold Bugs Index (NYSE: HUI, Stock Forum) and the Market Vectors Gold Miners Index (NYSE: GDX, Stock Forum) broke below the 50-day M.A. early in January.

The current rally we have been expecting has now brought the prices back up to the M.A. and the question is: What Now?

With many of the technical indicators overbought on a short-term basis we think there is a high probably of gold and the shares resuming their downtrend soon.

Investors should consider raising some cash or be mentally prepared for the possibility of a significant decline in their portfolios.

Cash will be king in the next few months to take advantage of what we believe could well be the greatest buying opportunity for the resource shares before the next major up leg.

A couple of simple charts on gold and the HUI will allow you to see what we see and decide for yourself the degree of risk.

There is a strong possibility of gold returning to the $1220 range over the next 3 to 6 months.

Again, we stress our views that any correction will be within the framework of the long-term bull market and give investors a great once in a lifetime buying opportunity.

Patience and cash are the keys to your future success.

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