Surviving Goldageddon...
Wasn't yesterday a nice change.
Actually seemed safe to stick your head out of the foxhole
without the risk of immediately getting it shot off.
I covered all remaining puts/shorts on gold "stocks"
yesterday, and also "sold" some puts for premium.
I've bought back a 1/2 position in my "HUI Horsemen" and
added a slew of long dated, and LEAP calls over the
last week.
However, I am strongly short gold/gld as "insurance"
on what I've covered and now re-added long.
And here's why...
We've now given back the entire 238 point move
in the HUI, off of what I think was the single best
risk:reward buying opportunity of the entire gold cycle,
... the August 2007 Yen-Carry shakeout.
The HUI gold stocks are now priced at levels where they
were when we had $500 gold. But, do not confuse that
relationship. The "expectations" for higher gold, as
well as the trend line -- were both positive then, and
they are both negative now.
...remember that point.
And that chart raises the million dollar question,
does gold still need to close that gap?
And what does it do to the already over-sold HUI
if it does?
Well that question, is why we are still short gold/GLD
against our long position in the HUI shares.
And if gold doesn't close the gap...we have a nice potential
snap-back trade in the over-sold HUI shares.
However, before you breakout out the champagne, and dust off
the pom poms...WHAT IS DIFFERENT - are the fundamentals for gold.
This isn't August 2007, when global economies were roaring,
when the Fed was about to embark on a series of 17 rate cuts,
and when their foot was still mashed down on the inflater
accelerator.
...THAT is what's different.
So, we do NOT leave home -- without insurance (Gold/GLD short),
and we do NOT load up to the same levels as we did when
the fundamentals were at perhaps an all time risk:reward
level of attractiveness.
But, we DO -- take the discrepancy between price & risk
trade.
So, what's a trader to do?
Well, we just banked one of the most profitable "insurance
policies" in history... 200+ points worth of puts and shorts
from the HUI 470 trading range top.
And we got perhaps the single best buying opportunity "ever"
in the juniors/explorers.
The four trading days from last Thursday through Tuesday,
saw the HUI collapse from a key former support/resistance
line at HUI 320 - down 60 points in 4 days, to HUI 260.
That forced selling liquidation (and that's the nicest
way to describe it) took the HUI:Gold ratio to an extreme:
We saw high volumes (but, not historic) on that capitulation,
and yesterday we saw very strong buying volume on the stocks
that turned green yesterday.
I "liked" yesterdays' tape.
...didn't say I "loved" it.
Said I "liked" it.
Can we go lower from here?
You bet we can. Just look at gold in the over-nights,
now down -$10 to $741.
And the price of gold still has a long way to go to
close the gap on that chart above, and to it's long
term trend line below:
And that's the reason we are keeping "insurance"
being short gold/gld against our shares, and the
reason we are only about "half" in on our desired
position here.
And that full position will only be "half" of what it
was off of the August, and December '07 trades....
because the FUNDAMENTALS are different, and we are
STILL seeing asset prices fall, deflate, and contract,
(choose your word).
And the reason we will only be at 50% of where we were
on the August and December trades, is because we can
afford to be... thanks to a 200 point & $200 dollar+
insurance policy pay off.
And I will NOT give that back.
And... we will NOT be in a hurry to add the final half
of our desired long position. Stocks are moving in
20-30% weekly swings... We have no problem adding that
final half on strength.
Again, what a concept... adding on strength vs. chasing
weakness?
The single biggest mistake that a trader can make, is to
to rush in, and try to make back a large loss, in a single
trade.
Don't do it.
Do NOT even think about it.
And "selling puts" as mentioned earlier, is a smart way to
re-enter and re-establish your long positions.
What's different here... is the fundamentals.
And you MUST respect that.
It is the one fact that determines everything else we do.
We are in a deflationary correction.
Don't like the word deflation? - Fine, call it an
"asset value contraction" or, a commodity correction.
Call it what you want... the effect is the same,
and the fundamentals are NOT what they were last
August, or December.
A completely different set of risk:reward ratios.
Hence... not the same level of cash/capital exposure.
Wait for the next round of reflation... it's coming,
when, not if...
You beat them at their own game by thinking like them,
and staying one step ahead of them... and not behaving
like a fattend pig prepared for slaughter.
STOP drinking the Kool-Aid.
More scouts -- less cheerleaders.
Mo later,
S.O.T.B.
And remember:
"Pigs get Fat, but Hogs get slaughtered."
...and that works in both directions.
And one final thought...
Take a look at gold overnight. If you've survived
the killing fields of this correction, and are in
a position to be adding longs here... do NOT leave
home without insurance... and a lot of it.
Hedge those re-entries here... with gold short,
and ease out of that insurance ONLY on strength.
Or, at the very least, if you can not bring yourself
to short gold (for religious, or other reasons) consider
holding puts/shorts on other sectors, because in this
asset collapse -- YOU MUST BE HEDGED until the smoke
clears... and it "aint" cleared yet...
Another PS: Someone remind me this weekend to comment on one
of the single worst articles I've ever seen come out of
the gold bug permabull punditry...
And wait -- there's more!
Remind me to comment on the Gold:Silver discrepancy trade.
And I gotta get in one final, and very much deserved bitch-
slap in on the "wannabes. Someone please remind me of that
too. You know, the day-traders who are still trading like it's
1999 with their first Datek account, who've captured all of
43 index points of the the 500+ point round trip we just
banked in the HUI <vbg>. |
