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Posts Tagged ‘best gold stock trading’

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Trending or Trading: When To Use Momentum Indicators

In Market Analysis on September 13, 2010 at 5:38 pm

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Price volume action is showing weakness on this rally and there is a good chance we could see a third failure at the 200 day.  Many times, before bear markets ensue you can encounter three or four failed rallies above the 200 day before the primary bullish trend is reversed. Markets take time to transition from a bull to a bear market. Bullish mania wears down as repetitive failures shows a market that is losing confidence.  On each subsequent rally the amount of bargain hunters dwindle.  Price volume action is poor on this rally attempt.  If we see another failure- which I believe may occur- we could see a major trend change.

Stochastics have been really accurate in this rangebound market.  Oscillators are most valuable in trading markets, not trending.  The S&P currently is a trading rangebound market while precious metals are in a steady upward moving trending market.  Since May the SPY has been in a trading range that only would have been profitable if one used oscillators.  On the other hand, in trending markets like gold which is in a steady uptrend the use of oscillators or stochastics should be secondary as those conditions shift as new high territory is reached.  In trending markets it is more important to rely on moving averages and trend support to make buy or sell calls.

Be careful of selling gold or silver solely on overbought conditions. Gold (GLD) and Silver(SLV) are in very bullish patterns breaking out into new highs in an upward trending market.  Whenever you see a breakout into new price territory on strong volume, momentum indicators need to be relied upon less.  Gold and silver have both shown tremendous relative strength and I believe will provide continued safety during a market downturn.

I believe gold and silver will continue to perform strong compared to other assets.  This summer has been hard on the equity markets and quantitative easing has been necessary for the Federal Reserve to maintaing momentum in this market.  New job growth has been weak and we are not out of the woods with the European Sovereign Debt issue.  Junior mining stocks who are translating cash into resources is where I want to be at the moment as they have held up well during this summer correction.

Gold is finding support at the 4 week moving average and is forming the handle on the cup.  I believe gold and silver could have a very strong rally as the general public becomes aware of the junior mining sector and the value of gold and silver as an asset class.

Disclosure: Long Gold and Silver Mining Stocks

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U.S. Economy Breaking Down, Attempts To Prevent Deflation Failing

In Market Analysis on June 22, 2010 at 8:44 pm

The United States is facing a crisis of a rising dollar and a recession where basic  industries over the past several months have experienced a nasty decline.  This condition is a concern for policy makers as the federal stimulus appears to be wearing off.  The economy seems to be slowing and cash, treasuries, silver and gold appear to be the area of strength.

One bellweather blue chip Alcoa is down over 25% the past 6 months.

In January after breaking into new 52 week highs Alcoa experienced a nasty reversal and has been in a 6 month downtrend.  Meanwhile, the U.S. dollar is rallying as well as gold and silver.  This is a major deflationary sign.

Yesterday’s move to disconnect the yuan to the dollar was a mutual decision for both governments to stem the global deflationary crisis by devaluing the dollar.  The U.S. government has done everything they can to prevent a deflation by keeping interest rates at all time lows, buying back treasuries to keep mortgage rates low and a massive federal stimulus.  Now this latest move is another attempt to use China to decouple its currency, devaluing the dollar.

Although yesterday’s attempt appeared to be bullish as every media outlet believed that this would help global economic growth and the U.S. Economy, the market showed that government intervention can not subdue nature’s law of supply and demand.

The reality is years of bad debt and easy money need to work its way through the system.  Eventually the markets and forces of supply and demand will reach equilibrium.  Now investors are protecting their wealth by moving into gold and silver and I have done the same.

Economically sensitive equities and basic materials need to be avoided.  It is an important time to preserve wealth by being in gold and silver during this next downturn.

Gold appears to be making a very bullish crossover pattern on its relative strength chart compared to the S&P 500 index.  Each time it has made this pattern over the past 3 years with both moving averages pointing upwards has been very lucrative to gold investors.

The transportation averages had a nasty reversal today to further prove that movement of goods is under pressure.  Transportation is the clue to see if economic recovery is continuing.  Today’s reversal is evidence of weakness and further proof that businesses and individuals are holding onto their cash.

Today showed strong resistance and failure at the 50 day.  This is an extremely bearish pattern.  We must be defensive.