trotsky [ PM ]
September 13, 2007 11:55AM
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Registered: 7 months ago
Posts: 234
there's really not much to say actually, as very little has changed. the three front months combined put/call OI ratios at present are:
XAU : 1.45 (this is higher than 81% of all readings over the past year, and firmly in the bullish range)
GDX: 0.89 (this by contrast is lower than 80% of all readings over the past year, and thus in the bearish range. note though that it's still a big improvement over the June - August readings)
individual issues combined: 0.57 - currently higher than about 93% of all readings over the past year, and thus nominally bullish, however a slight deterioration compared to readings of over 60 about two weeks ago.
gold futures contract: 0.59 now, this ratio is slightly lagging the advance in gold's price (they normally move in close lockstep with each other, i.e. the ratio tends to rise along with a rising gold price, top out with it, and fall with it/bottom with it. the current lag in its expansion may therefore constitute a slightly bullish signal, as it has room to expand further.
Rydex pm fund, cumulative cash flow ratio: currently at 120.84 , which is slightly up from recent multi-year lows. there have still not been any significant inflows into the Rydex pm fund, which shows that traders continue to be skeptical about this rally, despite the clear technical break-out in the gold contract.
other positioning indicators:
GLD has gained even more ounces, with altogether about 55 tons of gold entering the fund since mid August. this is a huge move, and constitutes a strong confirming signal for the rally.
COMEX CoT report: speculators have increased their net long position last week by a very large 31,000 contracts, to a near 137K net long exposure. this indicator is beginning to enter the range of 'mild concern', as the position has doubtlessly expanded further this week. however, overall open interest in the COMEX contract is still much lower than last time when gold touched comparable price levels, and thus has room to continue to grow.
overall, especially in the context of gold's technical strength, this is a combination of indicators leaning toward the bullish side. note also that gold's real price has continued its recent rise as well, as evidenced by the Gold/GYX ratio:
stockcharts.com
however, there is still some cause for concern due to the potential for the broader stock market to resume its decline. the recent strength in anticipation of rate cuts may well give way once the first rate cut is actually announced. the stock market has the problem of having discounted a rate cut, but not yet the oncoming recession. the conclusion therefore is: one should be long the gold sector, but with tight stops in order to avert getting dragged down by broader market weakness. note also that from a seasonal PoV, November very often is a turning point for gold stocks. as of yet it is not certain whether this year's turn window will involve a high or a low. |
