The 40,000 foot view of gold...
Sunday night the Saudi's released a statement that
they may increase oil supplies soon. Gold in mid-east
markets tanked, oil was hit and the carry trade
begain to unwind. (Of course, the Saudi oil minister
has since recanted <vbg>).
The Dollar has now reached the critical 109 level against
the Yen, rising from 115 just one week ago.
Over the last few weeks I've spoken about Gold trading
as money during this phase and how important the technicals
are in navigating this storm in the broad market.
So here's the view from 40,000 feet:
The key indicator here for gold and gold stocks, is
currencies. And the key currency - given the $1 Trillion
Dollars leveraged to it - is the Yen.
Where the Yen leads... gold follows.
On that chart above, gold is still up +27% against the
US Dollar, up +18% against the Euro, up +11% against the
Yen and up +9% against the Swissie.
Gold has been dramatically outperforming all other
forms of money.
"Dramatically" being the keyword there.
Gold (and Oil) were due for a correction.
The Yen is the lead currency to watch for trading
and sure enough... it's cross below it's trendline
signaled the correction here in gold and gold stocks.
I spoke about taking chips off the table at HUI 400,
420 and 450 and setting tight stops here at the 420
level:
Message 24036749
Personally, I'm not giving anything back sub HUI 420 and
I've been taking chips off into strength on each new upleg
per the red circles.
When you do some profit taking... take a piece of it and buy
a couple of out of the money calls on pullbacks to minimize
exposure to the pullbacks, but still retaining some exposure
and leverage to further upside.
There's 1 Trillion Dollars in Yen-carry money in this market
and much of it is in commodities. When the broad market
corrects - gold stocks have taken the hits as well.
The key here will be for HUI 400ish - the former high, to now
become new support. If it does... the run to HUI 520+ still
looks doable.
Technically, you can lock yourself in here via option
straddles and then buy the next breakout above 450/460.
It's been a great move... if the Fed is forced to bail
out subprime/derivatives and chooses to prop up the
markets... gold still has plenty of room to run. Just keep your eye on oil."
In addition to our currency indicators - here's another
key chart for trading gold stocks relative gold:
In this latest trading phase for gold, every time that
the HUI gold bugs stock index has reached the top of
that trading band - it's signaled a profit taking interim
top.
And every time it's reached the bottom of that trading band,
it has signaled a re-entry/buying opportunity.
The question that still remains is whether gold stocks
and gold are still in a positive uptrend?
Here's that chart:
The last time during this leg we saw a one day hit
like this... was the washout bottom that ignited
this 180 point run in the HUI index.
Will history repeat itself?
Personally, as I spoke about before... I've taken my
chips off in three waves at HUI 400, 420 and 450 and
then locked my self in - fully hedged at HUI 420.
I refuse to give back anything below 420.
So what to do here?
That all depends on where you are.
Where I am - is safely positioned, with the run
through 420 banked. I have a few puts on
gold stocks, did buy a few calls yesterday...but,
am patiently waiting for one of two things:
1. A test of that key HUI 380ish support level. At
that level I will be adding more call options and
also selling puts for premium and to discount my
re-entries.
2. A reversal here and a breakout through the
HUI 450-460 highs.
For me, everything revolves around "risk vs. reward"
and patiently waiting for "discrepancies to develop
between price and risk."
Neither gold, or gold stocks are compelling cheap here.
And neigher gold, or gold stocks offer any compelling
discrepancies between their price and the risk environment
we now find ourselves within.
This is a time to safely protect your gains, to have both
some puts and a few calls to profit on volatility in both
directions from here...and to wait for yet another carry-
trade shakeout to subside.
Gold and gold stocks are still in a positive up-trend.
The catalyst to drive gold and gold stocks to new highs
still remains Central Bankers.
This washout in the broad market has allowed two things
to occur.
1. For Wall Street insiders to bag their profits and
to pass the bag off to the public.
2. For the Fed to now have the support of the street
to once again cut rates in December.
Step aside from this volatility... there is little reward,
and much risk in trying to trade it.
The "big" and the "easy" money for this leg have already
been made.
Let the enemy continue to make his mistakes.
And be PATIENT.
Slowly add some out of the money calls in your
favorite gold and silver stocks... but, keep your eye on
the HUI 200 dma...and more importantly, the HUI 380 level.
For gold stocks to base here and stage the next move up
and through HUI 520ish... we need three things to happen.
1. For the former longterm resistance level of HUI 380 t0
now hold as new support.
2. For the Yen-carry unwind to stabilize and for gold
the metal - to maintain it's positive trendline against
all major currencies.
3. And for the U.S. Fed to once again cut rates in December
- which I think they will.
We've just had an incredible run.
Don't get greedy.
There's no battle to be fought from HUI 380-420.
Let them have it.
Be patient.
Look for bargains.
Re-enter with options... leverage your returns, but
limit your exposure.
There's nothing wrong with cash + patience here.
The BOJ isn't going to be raising rates here anytime soon
and the BOE and ECB face exporters crying uncle here and
now.
I see nothing on the horizon, or at 40,000 feet that
suggests anything other than more of the same...
Continued Global Central Bank inflation.
Now is the time to study your charts on individual
stocks. Study the fundamentals. Scrub your buy lists
for production and cost trends. Look for individual
stocks that offer discrepancies between price and risk
to their peers.
I did that with shorting the financials here:
Many of the financials had already rolled over. The Dow
was already cratering... so what to short?
Message 24025984
"Isn't it amazing how Fannie Mae is staying under
the radar and off the headlines? They are holding
"the mother lode" of subprime paper -- and you and I
are "guaranteeing" it."
While the "names" had already rolled over.. Fannie & Freddie
had not...and I caught a nice move:
Fannie & Freddie have now vastly out-performed the
XLF indice and the DOW to the downside.
You can find the same individual "discrepancies" in
gold and silver.
Use this environment to start digging and to do your
research for the next move.
Always plan two moves ahead.
And keep digging for those "discrepancies between
price and risk" - because like Fannie & Freddie,
they're still out there... both long and short.
Be smart... be patient... and seize this pause,
as a time to really polish up your research.
You can not get complacent, or lazy here.
Do the work...and prepare for the next move.
The Yen-carry shakeouts have often been fast,
and violent...and have led to "V-bottom" trades.
Good Luck,
S.O.T.B. |
