Gold/HUI Trading Thoughts...
The HUI is trying to find support here at a 50% pullback
on the six week rally from HUI 274 to the 404 highs.
-- We closed Monday @ HUI 334.
-- We closed Tuesday @ HUI 338.
-- And today we've traded from HUI 328-338.
The momentum trade is being completely washed out here.
And with an accompanying pullback in the broad market,
we're seeing the non-core gold investors and traders
selling gold & gold shares first.
But, when you hear the talking heads on CNBC constantly repeating
"the long commodity/short dollar trade is dead"...
know "someone" wants in.
Today with the dollar turning positive, we're seeing the
shorts lay even heavier on the sector, pushing and prodding,
trying to run your stops.
What to do?
Be patient.
And be prudent.
Use "put sales" as your initial re-entry trade here,
and buy some "time" to be right. Look at 2010, and
2011 LEAPS.
Because volatility is still so high, the premiums are
big & phat.
Look for some strong hands to begin to step in here today
and try to push back against the shorts. There are some
great values beginning to appear in individual stocks, but
I wouldn't say the sector across the board is compellingly
cheap (not quite yet).
While nothing has changed for the long term underlying
fundamentals for gold, much has changed in the heads of
those who own & trade gold.
As always, we are witnessing a tug-of-war between Fear and
Greed. A battle between emotion and logic, with Darwin
serving as the judge, jury and executioner.
Gekko only told you a half-truth in saying "greed is good."
Because in reality - "fear" is even better.
...certainly more profitable.
I'm slowly scaling back in here. With slowly being the key
concept. Added a few shares of AUY & SLW, waiting for MFN to see
if it breaks $7, sold some deep out of the money puts in ABX,
AEM, & CDE. And keeping relative tight stops on the shares added.
We could see another 10% pullback here, and still maintain
a series of higher highs and higher lows, within the present
bullish trading channel.
And concerning the chart above, re-entry trades are not
"all in" trades. They are starting points where you BEGIN
to SCALE back in SLOWLY.
For those that bought puts as insurance on this top. Don't
be in a hurry to close them out. Fwiw, I always continue to
let them run against my initial re-entries.
If you get stopped out on these initial re-entry trades,
you're still making money on the puts.
Force the market to take you out of your puts, just like you
do with stops on the long side.
And keep in mind, any major rollover on the broad market side,
will take gold stocks down hard & fast. Sadly, many gold bugs
may give back yet another - entire move.
There are two elements to all corrections - time and price.
Most traders only focus on price.
Price is the #1 enemy of patience.
It's like the singing siren for lustful sailors.
No two bottoms are entirely alike.
While we often see "V-bottoms" in the gold sector, some become
slow, grinding affairs and require time.
Don't make the mistake of ignoring time, and only focusing
on price.
Be patient here, scale in slowly, and continue to use stops .
The momentum side of the "inflation" trade just exited on worries
that the Fed may take away the punch bowl and begin to tighten
later this year, or early next year. (I'll comment more on that later).
The US (and everyone else) wants a controlled descent, not
a collapse in the dollar. And that's why you've seen so much
conflicting rhetoric out of the Chinese and the Russians.
Keep your eye on the dollar, and be patient. Use this as a
starting point to begin to re-enter. Let the fools who run
and dive in head first find the bottom for you. Let them
pay the Darwinian Gods. There's never anything wrong with
walking in slowly from the shoreline, and checking to see
how deep the water is - before diving in.
SOTB |
