Wednesday 14 November 2012

A Quick Trade In Gold?

Today Israel killed one of its dreaded terrorist. Good for Israel. But the agent of Russia immediately jumped out to support the terrorists and started barking. It proclaimed that now there will be an all out war in Middle East and Crude will go through the roof. These enemies of Israel even started ridiculing Bank of Israel with their Apple position. How do they know that Bank of Israel still hold Apple and have not already sold it at a profit. They don’t. It’s all baloney and treason.

On a short term basis Crude is due for a bounce and unless it takes out $92 in the next two weeks, we are most likely to see a lower low. US Dollar did not do much and 30 Year Bonds sold off. If the world thinks that there is going to be a war, US$ will jump through the roof.  US$ has retraced Fib. 0.618 of its last down move and will most likely take a breather here. And all commodities will likely benefit from that. So we will see Crude getting a bounce and so will the precious metals. At some point in future US$ and Precious metal will move together and then we will know that bad time is really upon us.

Talking of Apple, here is a chart of Apple which I have borrowed:

(H/T Schaeffer's)

It shows lower highs and higher lows, which means volatility compression. Very soon we will see the stock breaking this triangle and I expect the initial move will be up.

We are also coming close to a short term bottom in equities. As we broke down /ES 1370 the next downside target is /ES 1330-40. If we have one or two more days of selling, we will see panic bottom. As I wrote yesterday, the actions in the equities and in forex are not matching up. While Euro/Yen made good progress, equities did not catch up. One of these two is lying. We will know for sure in few days time.

Similar position is with Euro/USD. However AUD sold off and is now consistent with the down cycle.
Moreover, the action in VIX and 30 year bond do not signify any imminent collapse. There is a positive divergence in VIX. While SPX made lower low, VIX did not confirm.

From a high of 1470, SPX today stands at 1355 or 115 points drop.  From the top that is less than 8% correction in 60 days. And if you listen to the MSM and rant blog, you will think that the world is about to end. Folks, as of now, it is just a correction. While it would be prudent not to be long and reduce exposure to equities, I do not think any long term investor need to be short yet. At least I am not and I am looking for opportunities in other places.

Apart from Nat.Gas, I think there is a short term, less risky opportunity in precious metals.

The following is from Stock Trader’s Almanac:
Gold prices tend to move up prior to the holidays, and the trend has worked especially well over the last 12 years. Seasonally speaking, it is best for traders to go long on or about November 19 and hold until about December 4. Over the last 37 years, this trade has worked 21 times for a success rate of 56.8% .The cumulative profit tallies up to $31,490. What is interesting is that this trade has had a 12-year win streak, starting from 2000. The longer-term record of this trade is not as eye-popping, but with persistent inflation concerns (the Fed has embarked on a third round of asset purchases that has no predefined limit), renewed fears of Europe’s debt crisis, and persistent deficit spending, we would look for the current winning streak to continue. 

They wrote the above yesterday but I am long gold from last week. Because cycles are calling for a short term bounce in Gold.  Let’s take a look at the seasonal chart of Gold.

The chart does show a bounce from Mid-November till end of November / early December.

 Nat.Gas took a breather today which is only to be expected. In fact it should stop here for few days and digest the gain before moving up again. Whether you approach it as a trade or investment is up-to you. As a trade it will go up and down but as an investment, I do expect Nat.Gas to cross $ 6. It may take a while, but it will be there.

That’s everything for this Wednesday. Hope you are not in panic mode nor are you getting greedy to short the market. There are other ways to beat the casino and most important thing is to avoid/ reduce risks at all costs.  Go for something which will definitely go up in few months time.

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  1. Hi BB, thanx for sharing your insights. Not sure what happened with cycles in between, but the two recent Bradley dates were spot on--1 Nov was up big and 14 Nov was down big. Like i shared before, it's more art than science, but when it works, it works great. Best to you!

    1. I saw better and less risky opportunity in Nat.Gas.
      Cycles were down but too many things did not match up. As you know I am not a day trader and looking for longer term trends. The market is down less than 8% but already lots of time has passed,(60 days) so I am not too keen to short it at this time.
      Best of luck to you with your trades.

  2. BB,
    Did you decide on or recommend a "preferred" ETF for trading Natural Gas? I rememeber you had mentioned some various ones awhile back.
    and Thanks for all you do.

    1. As you know I am not allowed to suggest any name as such. However I am long in GAS.To, HNU.TO and BOIL.
      If you look in the last few posts, I did gave a link with names of many etfs in Nat.Gas.
      Hope that helps.

  3. Is Gold a good intermediate term investment? Say 6 months or so?

    1. Yes, very much so. But if you see the seasonal chart of gold, you will notice that the major moves in PM starts by mid to end December.
      There are many ways to skin the cat.We can buy ETFs like GLD and sell a covered call to reduce the cost or we can go in now and go out by end of November, wait out for 15/20 days and then get in again for the big move.
      Hope that helps.

    2. Hi James,
      I just sent out a tweet saying that I am closing my gold trade at a loss. I think we will see a pop in equities and sell off in gold.

    3. Noted, thanks! The sell-off in gold miners has been surprising, I wonder if something's simmering.