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How to Trade This Gold Market: Long, Short, or Neither?

Author's Note: First of all, our hearts and prayers are with those who were hurt today in the Boston bombings, and their families; especially those families who lost loved ones today.Gold, silver,

Author’s Note: First of all, our hearts and prayers are with those who were hurt today in the Boston bombings, and their families; especially those families who lost loved ones today.

Gold, silver, oil… all moving lower (in some cases, such as gold, a LOT lower). China reported slower growth than expected. Hard to figure how a miss of one-tenth of a point on data that no one believes is trustworthy anyway, would have such a huge push down on commodity prices. There are some who believe that the EU will require some member countries (Cyprus, Italy, Portugal, etc.) to liquidate state-owned gold to help pay down their debt. These and other not-so-obvious reasons are why gold selling has moved into a panic-driven fevered pitch.

Fortunately, the CycleProphet forecasts for oil, gold and silver have all been bearish for weeks. Those forecasts have kept me out of gold, oil and silver; at least on the long side.

Quote worth Quoting Again

“The American dream is not that every man must be level with every other man. The American dream is that every man must be free to become whatever God intends he should become.”… Ronald Reagan

Now there are some rumblings that interest rates have actually settled into a non-Fed-induced level that is as much market-driven as Fed-driven. If that is true, then the Fed’s actions ‘could’ be construed to have created a deflationary atmosphere instead of an inflationary atmosphere. Inflation is certainly bad, but far, far better than deflation. Could gold be reacting to a potential deflationary cycle? In this world, anything is possible.

At this writing, our forecast for WTI crude is in the $76 range and no bottom indicated in the next 90 days. Silver looks to be on a trend toward $21 with no bottom in the next 90 days. As for gold… With what appears to be panic selling, the price of gold has already plunged well below our forecast low of about $1440 and is now sitting near the $1360 range. I have been looking for an entry point for gold, silver and oil… obviously, we are closer to that point now, than any time we’ve seen in the recent past. Having said that, I am not ready to get into any of the three, yet. I plan to wait until I see the forecasts indicating that a bottom is in front of us before I venture into these somewhat unchartered waters.

Certainly my Sabinal clients will know when I start getting back into gold, silver and oil. My managed account clients will know my plans first, as required by regulatory compliance. But, my CycleProphet Trades subscribers will know shortly thereafter if and when I start buying these market segments in my personal CP Trades portfolio.

How to Trade this Market…

If you have been long gold and silver and believed (or still believe) that the outrageous and unsustainable debt that continues to climb uncontrolled (indeed, promulgated would be the better term) higher by our government for what purposes one can only guess (nefarious or otherwise), then seeing a crash in precious metals does not bother you in the least… or ‘might’ not bother you in the least.

On the other hand, if you are a trader more than an investor, and you have been growing your PM portfolio to where it held a disproportionate percentage of your tradable net worth, then the crash in PMs is most likely, more than a bit concerning. The question… “Is the current price of gold and silver a buying or selling opportunity?”

As you know, or should know, I am a rules-based trader. Gold and silver would not occupy more than 10% of my investable net worth; and, regardless of my long-term thoughts about the sustainability of our national debt, I would always have a stop limit set for any and all of my tradable holdings. I can’t tell you to buy or sell gold/silver, but I can tell you that I would have been out of gold more than seven months ago when my Equity Analyzer said to exit gold (see SPDR Gold Shares (GLD) chart below).

Equity Profile for: GLD – SPDR Gold Shares

The investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.

Indeed, my EA chart issued a short sell recommendation about 4 months ago. Following that recommendation would have generated nearly 20% on the short side. But, if you are married to any equity, then you find yourself boxed into ‘ownership-at-any-cost’. This is a great strategy when anything but a crash occurs.

Could gold go lower? Absolutely. Would I short gold here? No, because my Equity Forecast for gold indicates a possible bottom will occur within the next month; not enough time to generate enough return for the risk.

By the way… the silver forecast looks even worse.

The Bull/Bear and Oscillator Reports…

Each week, our computer programs compile the total number of equities in our database (over 6,000) that are issuing new “Alerts” for this coming week. The Alerts can be any one of the following:

  • BUY – This means the status of the equity last week was “OUT” and this week, the weekending closing price moved high enough above my 10-week, time-shifted, moving average to trigger a “BUY”. Click Here for this week’s STRONG BUYS, or Click Here for this week’s BUYS.
  • OUT – This means the equity stopped out by triggering a long-position stop-loss where the equity was sold, or it triggered a short-position stop-loss where the short position was covered.
  • SHORT – This means the status of the equity last week was “OUT” and this week, the weekending closing price moved low enough below my 10-week, time-shifted, moving average to trigger a “SELL SHORT”. Click Here for this week’s STRONG SELLS, or Click Here for this week’s SELLS.

A running total of these new conditions (BUY, OUT, SHORT) is kept on a weekly and monthly basis. We have found that an analysis of these data provide a reasonably consistent view of short term (upcoming week) and longer-term (next few weeks) of the market, as follows:

  1. First of all, the ratio of new Short Sell Signals (red line in the Turner CrossOver Oscillator, below) is an excellent indicator of overbought or oversold conditions. Oversold means the market will have a tendency to move from a downward trend to an upward trend.
  2. We have also found that the total number of Short Sell Signals compared to the total number of Buy Signals is a reasonably good indicator of investor sentiment. The more Short Sell Signals, the more bearish the sentiment. The more Buy Signals, the more bullish the sentiment. This investor sentiment analysis is generally more valid for the upcoming week.
  3. The Composite (black) line is produced by subtracting the total number of Buy Signals from the total number of Short Sell Signals. Charting this total over time and observing how the red line crosses the black line, often provides an excellent early warning of a market correction.

These data elements, along with charting the trend of the S&P 500 provide the basis for the brief forecast provided in these weekly Reports. It is important to understand that this analysis is based solely on a technical analysis and anecdotally-derived historical observations of these data. I write the weekly forecast based on my observation of the data and the Oscillator chart. Time-cycle data are NOT explicitly included in this analysis.

Closing Remarks…

Several of you have been asking for an update on our planned Las Vegas Wealth Building Symposium. This is a 3-day event that will run between the hours of 9:00 am and 6:00 pm (May 14, 15 and 16) on most days. We will likely finish about noon on Thursday, the 16th, but the daily agenda has not been finalized.

At this writing, it looks like we will be holding the CycleProphet Users Meeting on Tuesday morning (the 14th) and plan to dedicate Thursday morning to Sabinal clients.

Tuesday afternoon and throughout the day on Wednesday, we will be holding training courses in 30-minute blocks; along with some product exposure sessions for those who are not yet CycleProphet subscribers.

Hopefully, we will have the complete agenda and times for all sessions by this coming weekend’s newsletter.

Try to have a great week in the market!

Say a prayer for those innocent souls in Boston…

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