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Posts Tagged ‘gdx gold miners etf’

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Major Reversal Day On Gold and Silver, Could Be A Climax Top

In Market Analysis on November 9, 2010 at 9:22 pm

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After trading through both bull and bear markets and witnessing hysteria and panic, I’ve learned that whatever method you use to buy stocks, you must have a discipline to sell. When I buy, I look for support levels and oversold conditions so that a reversal could bring about a major gain and the downside risk is calculated. As I wrote in my buy signal in gold in late July, the conditions were ideal for a major move to the upside. Now the conditions are reaching the extreme opposite, it’s overbought and surpassing measured moves and upper resistance lines which mark prior turning points.



The majority of traders become reckless at extremely overbought levels and are often stuck when markets correct to find support. They abandon their methods as their accounts grow in value and don’t factor in how events may change. Right now gold is the easy trade as most of the reports from the media outlets are bullish for gold and silver in light of the second round of quantitative easing (QE2), but is it the prudent trade? Could events trade in Washington or globally which could put short-term pressure on commodity prices?

The most dangerous trade is the painless trade, when siding with the consensus. People have a herding desire when coming to the market. They feel most comfortable when others are doing the same. This is the characteristic that’s the downfall for most traders as the market humbles the greatest number of people. The best trades are the uncomfortable ones, when you go against the crowd. The best way to remain emotionless is sticking to a plan. If one has a method, he can avoid the psychological challenges that the markets present during panics or hysteria. Although it may not be popular, it eventually works out as the panic subsides.

Many investors are now buying precious metals aggressively and borrowing on margin, which I believe is too late and dangerous. Many are concerned that they’ve missed the boat and are panicking into the gold and silver market. It’s important to have a technical mechanism to move to the sidelines as latecomers chase the market higher. The volume on the Silver ETF (SLV) is reaching record highs and I’m concerned about a climax top. It’s very hard to sustain a move of this magnitude without a major correction. Although it takes courage taking profits during a bubble, I’ve learned through many experiences how important it is to stick to a method and sell into strength. There’s significant risk of a correction and limited potential on the upside short term.

After being in the precious metals markets for years, I’ve learned its volatility. I’ve seen great euphorias followed by panics. Gold and silver is reaching a level of euphoria, so stay tuned for any signs of weakness.

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Deflationary Crisis Part 2, Will This Time Be Different For Gold and Silver?

In Market Analysis on June 29, 2010 at 8:45 pm

Stocks went down sharply today on concerns over consumer confidence and indications that show that the economy is stalling in China.  China has been a leading market in this recovery and its bull market has helped the price of industrial metals and base metals.

Over the past few weeks I have highlighted that the market has given signs of a major deflationary crisis and economic slowdown.  Today these signs became apparent with a significant sell off on high volume and a break into new lows for the S&P 500 and Nasdaq.

Today major institutions sold equities and sought shelter in treasuries and the dollar.  Gold and silver both sold off early in the day but gold fought back and closed up and silver was able to recoup some of its losses.  Gold and silver are still in a uptrend and above both the 50 day and 200 day moving average.  Gold and silver miners also appear to be close to a major breakout.

The S&P 500 and Nasdaq had a significant break of previous lows on high volume.  I alerted readers several days ago to buy inverse etf’s when the markets failed to regain the 50 day moving average for the second time.  Many times after this second failure the market has a major breakdown.  The time to short is when the averages fail at the 50 day not when it makes new lows as many less experienced traders are doing now.

Many traders are fearing that silver and gold may be a top here as they are comparing 2010 to 2008.  I understand that fear and am monitoring that situation closely.  I have received a lot of requests to comment on the situation.

At the moment I believe that we will not see a correction in precious metals like we saw in 2008.  There has been a global concerted effort for governments to devalue currency and assist the economy with unprecedented spending and cheap dollars.  The Euro is on the verge of a collapse and there are major sovereign debt issues that is spreading to more countries.  I do not believe the U.S. government will be immune from those debt issues.  The United States has high unemployment, weak consumer confidence, a huge amount of debt and poor GDP growth.

Gold miners appear to be on the verge of a major breakout into new pre credit crisis highs.

The chart above shows the relative strength of the gold miner etf to the S&P 500.  A break to 51 on that chart would show great relative strength to the market.  During this market downturn since May 6th miners and bullion have shown good relative strength which does not make me conclude that we are having a repeat of 2008.