Book Profits in Gold...ehh, not so fast!

A couple of weeks ago, I pointed out that gold was beginning to look interesting in this post. I think it's safe to say that gold got interesting, as it has continued to go up and make all time highs. So far, so good...this is what it's all about...you notice something interesting, buy it and it goes up. Now for what I consider the tricky part of a good trade...when to sell.

I must admit, my natural instincts of seeing a profitable trade in an instrument that's making all time highs started telling me to book profits. I even considered it on Friday. Then something interesting happend. I was watching CNBC and I kept hearing the talking heads speak about traders booking profits in gold or selling gold at these new levels. That's when my thinking changed back to how it should be. I realized that a lot of traders were feeling like me...looking at these high prices...seeing how far above the moving averages it's trading...thinking about the paper profits. This is when it pays to fade your feelings. Sure, I might see some paper profits go up in smoke, but I'm trading for big profits, not smaller profits and that's just part of the game. When "everyone" is selling out of an instrument that's making all time highs, it usually pays to hold on just a little bit longer because what nobody thought would or could happen sometimes does happen.

Will gold continue to go up? I don't know, but I'm willing to let a position ride on the premise that it could and that there has not been any good signal for me to sell gold. Sounds simple enough, yet many (most) traders don't step away from a trade and think about these things. You've got to ask yourself, "Why do I want to sell right now?" Then write that answer in your trading journal. If you do that over and over, and you're like me, you'll start to see a pattern of selling winners too early. That goes against Livermore's advice of , "Cut losses and let profits run."

Ok, back to gold..here's an updated weekly chart that I'm looking at:The most important aspect of this chart, aside from the bullish trend in price, is the rising BB Width that's still at relatively low levels. I said in my earlier post on gold that I was looking for the BB Width to reach between 20 and 25...it's at 15 right now. It may not rise to the 20-25 range, but it's likely that it will. This would mean that volatility is still expanding (Bollinger Bands are increasing in width) which I know is a sign of a trend continuing to gain strength. So for now, my analysis says HOLD.

Hope everyone's having a great weekend.

TLT

Gold is Getting Interesting

Looks like Gold is gearing up for a run up to the old December highs. Will it break through them if it trades up there? Probably. Regardless, gold is a good trade right now.

You hear a lot of people talk about gold being a good hedge against inflation but if you study history, gold outperforms in periods of deflation. Ahh...negative real interest rates. Sounds familiar huh. Well there's the story that might push it up. What about the technicals? Here's a weekly chart of GLD:This week GLD broke out of a multi-week trading range. On top of the break out, I like the bullish MACD cross over and that the BB Width (Bollinger Band Width--a measure of the distance between the high and low bollinger bands) is relatively low...this indicates that there is room for gold to move up.

I'm in this trade, although I'm not using GLD. I'm monitoring my trade with GLD but using one of the leveraged ETNs. I'll be looking to exit this trade when and if the BB Width kicks up to the 20-25 range or above.

For full disclosure purposes, I am not a gold bug at all. I don't get all excited about gold...you know what I'm talking about, the gold bugs that really love the stuff...always. Well that's not me. I do, however, love a good trade and this one could be good. As always, enter at a spot where you can mange risk and be ready to pull out when wrong...that's key.

Hope everyone had a great week!

TLT

Outta Gold and Into Utilities and Some Random Observations

I bailed on my short gold position today as it broke through my stop. It's showing quite a bit of momentum and it traded on decent volume today. I'm out for now and will look at going short again once (or if) it approaches the recent lows. Here's a daily chart:You can see that gold bounced off the 50% retracement level and then failed to make lower lows. We'll see if it chops around or takes off higher. One thing to note is that Silver (slv) has been very strong this week...it has been at the top of my relative strength list for 2 days in a row now.

I did manage to get in utilities (XLU) today. This is a support test trade which means I'm betting that the recent support will hold. The weakness over the past week has offered a good risk to reward entry and as always, we'll see how it works out. Here's the daily chart for XLU:Note that I labeled the support a zone, this is because I don't like pinpointing the exact price but rather a thin zone for support/resistance trades. The stochastic is in oversold territory, which is essential for this type of trade.

Other things to take notice of are the extreme strength in both energy (xle) and materials (xlb). As for materials, FCX and DOW have been particularly strong. There was some weakness in tech (qqqq, xlk, smh) but that's not surprising given the strength that the sector has shown recently.

Last but not least, the dollar (uup), which I'm still long, continues to chop around with little significant moves in either direction. Long term yields pushed higher today which helped my short long term bond (TBT) position. I'll be back later in the week with more.

I hope everyone's off to a good start for 2010.

TLT

Market Overview

It's nearly Christmas and the markets have taken a slight pause today (some are up a little and others are down or flat). I thought it would be a good time to look over the markets in general and see where we stand. There's a lot of chatter about the annual santa claus rally, lets see what the markets say.

To kick it off, lets look at the S&P via SPY. As you can see from the chart below, the S&P has been stuck in a trading range since early November. The top of the channel has been tested several times in December but we still have not seen a meaningful break. I want to see it break and hold before getting too bullish on the market.

The recent break out in tech (qqqq) is good news for the bulls. Tech is looking incredibly strong and it will help move all the markets higher if it remains strong. I will be looking to enter a long position in either the nasdaq etf or the semi conductors (smh) if the S&P breaks out. Here's the chart for the Q's, note the break out:Okay, S&P is range bound, Q's are breaking out, what else should we be following for an indication...the small caps (IWM). The small caps have been the laggards lately but now they seem to be playing catch up. The Russell 2000 (IWM) is sitting (barely) at fresh highs which is another good indication for bulls. Here' s the chart:We'll go ahead and file the small caps under bullish for now, but this will change if it falls back into its prior range. Next lets take a glance at the VIX. The VIX has just fallen to some fresh lows and it actually closed below the 20 level yesterday...something that it hasn't done for some time. What does this mean? It means that worries are easing, at least for now. This is also a bullish sign for the short term outlook of the stock market.

So far, we have a neutral S&P that might break out (neutral), a breaking Nasdaq (bullish), a breaking Russell (bullish) and a falling VIX (bullish). That's 1 neutral and 3 bullish signs. Where's the case for the bears? Here it is, the financials.

Financials (XLF) have been a huge laggard and they will weigh down the S&P and the market in general if they don't perk up. Here' s the chart:There's the obstacle for bulls and fuel for bears. I don't know which way it will go and I'm certainly not smart enough to figure out how big of a mess the banks are (or are not) in. Furthermore, I can't even try to figure out the effects of the stimulus plan and whether that will provide enough cheap money to raise the market in general and make banks profitable, but there are lots of people out there that think the stimulus is merely going to provide profits to banks. I just watch the charts and try to determine which direction "order flow" is moving and then ride along.

One indication that can provide insight into whether banks will do well (and the economy in general) is the yield curve. The yield curve is currently steep, meaning short term rates are much lower than longer term rates. This is good for banks which in turn is good for the economy and markets in general. This is why the feds want the rates to remain low. Here are the current treasury rates and yield curve that are pulled straight off of Yahoo Finance's Bond Center. As you can see, longer term rates are much higher than short terms rates. This should help banks quite a bit and is indicative of good times ahead. However, there's always the concern that this time is different, especially considering that enormous stimulus plan and the worries of future inflation. We'll see how it plays out but for now I'm counting it as bullish.

So what else is there? The Dollar. The dollar has been in the headlines and has been talked about quite a bit lately. Most of the chatter has been about how bad the dollar is and that it's falling and going to lose half its value...blah, blah, blah. The dollar has actually been strong as of December and it appears that a reversal of some kind is under way. Here's the chart of UUP:Until recently, the dollar had shown an inverse correlation to the stock market, but that relationship seems to have changed as the dollar has been climbing with the market. I particularly like the long play in the dollar and I'm currently in it. One reason that I like it is that the dollar has been rising with stocks, but, the dollar also serves as a good flight to safety instrument that the world buys it when things start looking bad. Therefore, the dollar will likely keep rising in its current trend, and then if things get bad in the equities markets, the dollar will rally even harder. That's my current theory and like I said, I'm in this one.

Last but not least, Gold (gld). Gold has been on a bullish tear for quite some time, but now it seems to be falling back to earth. Why is gold a good short right now? Here's 3 reasons: 1) gold is likely in a bubble and bubbles break hard when they pop, 2) historically, gold has sharp climactic tops and long rounded bottoms and Dec. 3 sure looks like a climactic top to me, 3) the strong dollar will put pressure on gold prices. All of these things tell me that gold is a good (note not a sure thing) short right now and I'm currently in it. Here's the chart:Alright, here's a quick recap. The S&P is still range bound (neutral) and needs to break out, the Nasdaq is trending higher (bullish), the Russell is perking up and printing new highs (bullish), financials are lagging (bearish) but the yield curve is steep which makes it easier for banks to make money (bullish). The dollar is showing strength and gold is weak. These are neither bullish nor bearish (IMO) but they are very tradeable and I'm in both.

So what now? I'll be looking for a break out in the S&P with confirmation from small caps, financials and bonds (lower bonds). If this happens, I'll be looking to go long tech (QQQQ, XLK) and semi conductors (SMH) and short bonds (TBT). I'll also be adding to the long dollar position and the short gold position if they continue in my favor.

If the S&P doesn't break higher, watch out because we might see a substantial drop in the markets. For the bearish scenario, I'll be looking to short financials and emerging markets and look to go long utilities (xlu) and bonds (tlt). There's the game plan for the rest of the year and the beginning of 2010. We'll see how it plays out.

Have a merry Christmas and a happy new year!

TLT

Current TLT v2 Trender Charts

Here are some chart clusters that show the current TLT v2 Trender readings for the daily, 4 hour, hourly and 30 minute time frames of the Eur/Usd, Gbp/Usd, Oil, Gold and the S&P 500. As a reminder, here are what the different colors mean:

Green=Buy
Yellow=exit longs and look to go short
Red=Sell short
Blue=Exit shorts and look to go long.

Eur/Usd
Gbp/UsdOilGold
S&P 500
Keep in mind that these signals are based on a trend following system and that means that at least half to even more than half of the signals will actually produce a losing trade. This system is profitable over significant periods of time, but there are the occasional draw downs. I like to look at the various readings for different instruments just to get an idea of what the current bias is for that particular instrument. For example, if the 30 minute chart for the Eur/Usd is green, i will look for short term trade setups to enter long trades.

It's worth noting that based on the above charts, Oil, the S&P, and the Gbp/Usd are all showing consistent strength in the 4 different time frames. The Eur/Usd is showing a little strength, but the signals are a little mixed which tells me that it's trading around a pivotal level.

This approach works for me and I think it's interesting enough to share with you. Hope it helps. Good luck with the trading.

TLT

Golden Opportnity?

Excuse the pun. Take a look at the chart...it speaks for itself.

Head and Shoulders...Errrhhh...maybe not

In my last post I pointed out a head and shoulders pattern that had developed. This is an excellent example of why it is important not to "jump the gun" and take the trade before the sell confirmation (the break of the neck line). Here's what gold has done since the last post.

As you can see, instead of breaking the neck line and falling, gold rallied hard. This is not surprising given that gold is currently in a very bullish uptrend...an uptrend that has burned up a couple of short positions that I previously had.

Good luck out there.

TLT

Head and Shoulders Formed in Gold

Gold is forming a classic head and shoulders pattern on the daily chart which might present a trading opportunity. Check it out.
My trend system is still in "buy" mode for gold so any short trade would have to very short term for me...probably short for a few hours to a day on the break and then either bail on waning momentum or use a trailing stop.

Good luck out there.

TLT

Rally in Gold

My short position in Gold was stopped out early this morning...apparently the boys in London think that the economy is going to get worse and that gold will be more desirable, at least that's the story. All I know is that it looked like it was ready to tank and then it rallied.
Fortunately my Eur/Usd short went as planned and the dollar is continuing to rally against both the Euro and the Pound. For now, I will stay out of Gold until it calms down. As a rule of thumb, I get out of a position when I am confused by the instruments price action (like the rally in gold). If traders fade this breakout, which is tempting but very risky, and gold falls back to the 840's, I will probably put my short back on.

Good luck out there.

TLT

A Look at Gold and the Dollar

It's no secret, lately I've been shorting gold and going long the dollar. Here's an update to my analysis of both of these instruments.

Below are two daily charts...one is the Eur/Usd and the other is Gold. I trade these two in conjunction with each other because their moves tend move counter to each other, and this action also can be conformational in nature.

Here is the daily gold chart.
(*I meant that the stoch is over bought)
The above daily chart of Gold shows that there are multiple sell signals--those being the Trender lines, the Fisher Transform, the Bull/Bear indicator and even the stochastics (I added this indicator so that there would be a common indicator that people can relate to) gives a sell. Boy this is very bearhish chart for Gold. Now we have to confirm the downward move. A rising dollar (or falling Eur/Usd pair) would indicate that this precious metal is likely to head lower. Here's the daily Eur/Usd chart.
Notice that all the same signals from the Gold chart above are also giving sell signals in the Eur/Usd pair. This tells me that I should definitely hold onto my short gold position, as well as my long dollar position. Although there is some doubt as to wheter the Israel/Hamas war will end, the price action tells me that gold is heading lower, indicating that there will be peace in the middle east...for now. Like I always admit, I could be wrong and that would not be anything unusual. That being said, the technicals on the dollar seem to be getting stronger while the technicals on gold seem to be getting weaker...i.e. short gold and buy the buck. At least that's been, and will still be, my trading strategy until the market tells me otherwise.

Good luck out there.

TLT

Retail Sales, the Dollar and Gold

Stocks are opening lower today (although ARA is up a little) after some disappointing retail sales numbers. Although wall street is not liking the release, the dollar's recent strength has not been affected by the "bad news." In fact, the release provided a nice opportunity to establish a short position on the Eur/Usd pair.

There was a small "head fake" right after the retail sales figures, but then the dollar took off. I didn't trade up on the head fake, mostly because this wasn't a big enough economic release, and also because I already had a substantial short position on the Eur/Usd. Here's a 1 minute chart to show you how the price action reacted to the news.
As you can see from the chart above, there was a pretty good opportunity to squeeze a few pips out of the pair after the retail numbers...although I'm still short because I still think the primary trend is down and it probably has several hundred more pips to go.

For now I will keep doing the same plays--shorting gold and shorting the Eur/Usd. Gold has been exhibiting some interesting price behavior and I think it will likely fall sharply in the near future...although, note that Moise at Alpha Global Investors thinks that gold may break out to the upside and that we should wait for a break out one way or the other before entering, which is probably prudent advice because he is right quite often. As I say, only time will tell (and price).

Good luck out there.

TLT

Some News Items

• Nikkei closes out the worst year ever!
  

• Time to buy Double Long Crude?

• World markets gain from energy...haven't heard that in a while.

• Tough times for Gazprom

• GMAC gets $$$

• Obesity tax in NY gets support

• FED orders Florida bank to stop paying dividends!

• Potential triple bottom for GBP/USD, or just setting up a trend extension?
  

• Dr. Steenbarger on the market's potential reverse head and shoulders

I hope everyone is still having a good holiday season. As an FYI, I normally will not post links to news items like above because there are plenty of others that do a fantastic job of sorting through and posting links to news items (Charles Kirk, Trader Mike...). I posted these links today because the others are on vacation and not actively posting, so I thought what the heck.

The game plan for today is the same as yesterday...short gold and short the pound. I've seen several articles that speak of the coming strength of the pound, which makes me think that there might be a little more room to short the currency.

Gold is still showing some good signs of falling and it will probably fall pretty quickly if the Israel and Hamas skirmish comes to a halt...although Israel doesn't seem to be in any hurry.

Only two more trading days left in 2008, lets make em' good ones.

TLT

The Set Up Looked Good but...

Just as gold looked like it was setting up for a great trade, Israel and Palestine (or Hamas) broke out in an "all-out war" and gold shot up like a bottle rocket on the 4th of July. This is one of those events that reminds us why stops are very good to have...namely to keep us in check when we're wrong and secondarily to lower losses. Here's an hourly chart of gold...notice the big gap up.

You can also see how gold has formed a flag pattern and any break from this pattern will likely be a significant move...so keep an eye on those levels.

Besides gold, the Pound is on my radar screen right now. The GBP/USD pair has been falling for quite some time and today it has fallen below a support level that has been previously tested 2 other times. The past couple of times prices poked through the support line (the red line), they were rejected rather quickly, as indicated by closes above support.
It will be interesting to see how both Gold and the Pound fair this week...maybe we can catch a good trend to bring in the New Year. Supposedly, currency traders are beginning to bet on the pound instead of against it...see this article. As always, I'll believe it when I see it because all of the significant time frames (monthly - daily) within my system are giving the pound a sell signal.

Good luck out there.

TLT

A Little Gold Analysis for X-Mas

Merry Christmas!!!

I hope everyone is having a wonderful holiday season so far. I'm in the office today wrapping up some loose ends and also still keeping an eye out for a good entry on my gold trade. Both gold and the Eur/Usd pair have been flat this week...I guess traders are already taking their Christmas break.

Since there's not too much going on, I thought I would post a little more in depth analysis on gold. You can see from the previous posts on gold that I first got interested in shorting gold after I noticed it bounce off the top of its linear regression trend channel on the daily chart. After I see that kind of reaction to resistance, I pull up some shorter time frame charts to look for a trade. Since the initial signal was on the daily chart, the 4 hour chart will be the next time frame to look at. Here it is:

As you can see from the chart, both trend indicator lines are giving a sell signal (they are both red) and the Fisher Transform is in sell mode because the blue and red lines crossed below the dotted purple line. The only thing lacking is the BB width histogram...I generally like to see the bars break through the purple MA which indicates rising volatility. Only entering when volatility is rising helps filter out some of the false break outs.

Since there is a signal on the 4 hour chart, I'll pull up the hourly chart next to time my entry into the trade. Here's the hourly chart:

As you can see, we've had a lot of sideways trading action for the past couple of days. The chart indicates that a sell signal is close because one trend signal is red and the fisher transform just gave a sell signal. Now I just have to be patient and wait for a sell signal on the other trend indicator and for the BB width to break out. Tight trading action usually leads to a nice breakout once it happens...we'll see if that's the case with gold right now.

It would be nice to get the gold trade on today and to hold it anywhere from 5-10 days with an exit target in the $725-750 range. There's probably going to be a little resistance around the $830 level...have to watch price action closely when it gets to that area.

Good luck out there and have a happy holiday season.

TLT

****Update****

Gold broke down about 2 seconds after I published this post and the sell signal was confirmed. I've got my trade on and my stop in place. Here's a chart that shows the sell signal.
I'll post an update on the trade later.

On the Radar Screen for Today

Today, I'll have two charts up and I'll be looking for a good signal to make some entries. Gold and the Eur/Usd will be on my chart screen for the day. Here's a screen shot:
I'll be looking to go short on both the Eur/Usd pair and gold. Gold looks to be heading down in a linear regression trend channel (see recent post) and the Euro ran out of steam rather quickly last week, which tells me that the pair will likely go down from here. My TLT Trender has given sell signals for both pairs on the four hour time frame and now I'm just going to patiently wait for the sell signals on the hourly charts.

There's always the chance that I'm just biased and that I want the Euro and gold to go down, that's why I will be disciplined and wait for my trading system to give me the sell signals. If I don't get the signals, I won't make a trade. And even if I do get sell signals, I will have hard stops in place to get me out if I'm wrong...which happens quite a bit. It can be hard to look at yourself and try to determine whether you're seeing things objectively or through a biased perspective, which is why it is imperative to have a system with easy to follow rules and to have proper money management techniques (stops) in place for when you're wrong.

We'll see what happens today.

Good luck out there.

TLT

NIce Price Action in Gold

For the past year, gold has been trending downward in a textbook linear regression trend channel. Take a look:

Notice how the price keeps hitting the top of the channel and then quickly falls back down. It might be a good time to short gold given that it recently bounced off the top channel again. I'm tempted to short here and set an exit target around $725...there seems to be a congestion area at that level.

Good luck out there.

TLT