A veteran of 25 years of investing and underwriting experience,
Trader Garrett has created the Market Pendulum model. With a
degree in social science, experience in risk analysis and a
lifelong interest in natural laws and the sciences, he has
created an important new tool for investors.
Archive for November, 2009
The Golden Pendulum Formula
The Golden Pendulum Formula
“In 1581, Galileo, while attending services at the Cathedral of
Pisa, observed a chandelier swinging back and forth. Energized
by shifting air currents, the chandelier moved in a variety of
arcs and amplitudes. Thus was born the concept of the pendulum
which Galileo used as a time measurement device in his later
experiments”
The pendulum formula is a belief that, in any investment area,
the herd instincts of greed and fear are prevalent, that
virtually all extremes return to a natural equilibrium point or
gravity center, and trends and cycles of these tendencies can be
identified and measured.
Uncovering the full spectrum of trends, cycles, equilibrium
points and fundamental values of the market is vital. The
results should be in harmony with natural growth, maturity and
regression.
An investor’s primary mission is to determine extremes of
values, either long or short, that will result in a return to
the current “gravity center” or an equilibrium point and thus a
profitable trade. To this end, all decision lines, formulas and
concepts must be fully integrated and calibrated to result in
accuracy, precision and profit.
Fundamental Formula: Many invest in gold and silver and resource
stocks due to our huge trade deficits, unsustainable consumer
debt, housing and stock market bubbles, etc. In 2003, John
Embrey outlined 15 fundamental reasons to own gold at
http://goldmoney.com/en/commentary/2003-09-26.html. Those
reasons are still valid today and provide a type of insurance
policy against potential financial disasters.
Evaluating gold, silver and resource stocks is not easy. Some
are producers. Others may have a defined resource while others
are explorers or prospect generators. In general, there are 10
areas in the gold and silver area in particular, that must be
considered, evaluated and positively answered.
1. Management, their vision, experience and partners 2. Location
of property 3. Infrastructure 4. Number of holes drilled 5.
Number of potentially mineable ounces from measured, indicated
and inferred resources. 6. Open pit vs. underground 7.
Metallurgy issues 8. Political considerations 9. Finances, net
present value & potential share dilution 10. Feasibility study
planned or in progress
A more detailed analysis of these guidelines and other issues by
Kenneth Gerbino can be found at
http://www.321gold.com/editorials/gerbino/gerbino060804.html
Technical Formula: Outside of the fundamental criteria for
owning gold and silver stocks, there are measurable trends,
cycles and behavior that allow investors to participate and
profit from the pendulum swings into and out of this area.
Studies have shown that 60% of a typical stock price change can
be directly attributed to the movement of the overall market.
Therefore, it just makes common sense to be on the right side of
a market trend. To that end, it is wise to first focus on an
index trend before considering individual gold, silver and
resource issues.
Also, if we are planning to invest in any market arena, then it
goes without saying that we need to reduce the risk, improve the
probabilities and employ a more disciplined and original
approach. My market direction indicators and advanced market
behavior formulas are designed to assist me for just such a
purpose, and I simply call it Pendulum. It is a personal tool
box, as it were, to guide me in technical decisions.
The concept of trend is basic and using or developing an
indicator that demonstrates a trend is essential. I recommend
the MACD (moving average convergence divergence) found in most
popular programs. In my work, I use my own modified form of the
MACD which I called TSL (Trend Signal Line). Like the MACD it
assists in determining trends but without as many whipsaws. For
obvious reasons, it is very important to develop one’s own
indicators so as to avoid getting the same results as everyone
else.
Let’s look at an example. One of the more interesting concepts
is to display a trend and cycle in one integrated view. One can
therefore see the longer primary trend and the short term cycle
within that trend. The red TSL is the trend signal line noted
above and the SRA, my own speed and acceleration cycle
indicator. Here is an example from the May 2005 low in the XAU
index. Please see www.marketpendulum.com/pendulumconcepts.html.
As you can see, it did quite well and allowed an early entrance
into a profitable trend. So I would encourage all to develop
their own indicators and formulas.
Today, my Pendulum tool box measures the swings in the market,
their amplitude, force and energy while recording the motion of
emotion across an equilibrium point or gravity center. The
concept of gravity center is a central feature of Pendulum and
is found throughout nature….that force of nature that compels
both human behavior and physical objects to find their
equilibrium point.
Results: Using the concepts and criteria above, I employ two
model portfolios, one gold/silver and the other resource stocks.
The gold/silver portfolio is up an average 90% since 2002 and
the resource portfolio 31% since its 2004 inception, a very
satisfactory result for my purposes.
Conclusion: We have discussed using key fundamental data and
original technical trend criteria as the basis for stock
selections in the gold/silver and resource investment areas. It
is not easy, takes time and effort, but for the serious
investor, it can be the golden pendulum formula for potential
success.
September 11, 2005 Contact: Trader Garrett Email:
mpendulum@airbits.com Website: www.MarketPendulum.com