Before I begin, I have found a couple of noteworthy articles that are must-reads:
- http://www.cnbc.com/id/29510983 – New Mortgage Plan (Outlined): VAGUE and the FNM/FRE Mortgage thing is just atrocious… Housing Bubble #2, Housing Bubble #2…
- http://www.cnbc.com/id/29515552 – Moody’s May Cut WFC, JPM Ratings: Food for thought going into tomorrow. If this were to occur and a higher-than-expected initial claims report were to come out tomorrow, this may be what keeps us lower.
- http://www.cnbc.com/id/29510966 – Jon Najarian’s Mark-to-Market Theory: 100%? Come on now…
Let’s get down to business. Through my recent research on attempting to find a legit commodity that I can keep my hands on for a while, I decided to research Gold again, with my method of purchasing it through GLD. Right off the bat, I must tell you that looking at GLD on a 5, 10, or even a 20 day chart on some occasions is difficult to do due to its lack of movement from a day-to-day perspective. GLD is an obvious long-term hold, as it makes sense due to the long and tedious movements up or down in the actual Gold commodity. As of today’s close, Gold has dropped $100.70 from its high of $1007.60 set back on February 20th. Since that point, the Gold commodity has been on a linear track of negativity, as seen in the /YG (Mini Gold Futures):
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/YG 3-Month Daily
On a 3-Month scale, the Gold and Silver industry has been one of the best performing industries, gaining 25% during this time span. Not only is this remarkable, but to hit $1000 per ounce of Gold is also an incredible feat to accomplish. The draw for Gold, however, may be lightened up for the time being. Gold became a focus of mine not only from my Basic Materials and Energy rant from last night, but because as I watched CNBC on Monday, the talking heads began discussing the future of the popular commodity. “It’s because traders want to take their gains from their Gold spoils and direct the cash towards somewhere else,” Dennis Kneale proclaimed. The panel agreed, but I had a funny gut feeling about this statement. “Where in God’s name would you put your cash, with exception to iETFs and the traditional paper bag that lies underneath your bed at night?” I racked my brain for quite some time, and because of this, I decided to take a look at my long-term projection chart of GLD:
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GLD 1 Year Daily
GLD has been taken to the slaughterhouse since the Gold high on the 20th. The minute the 23rd rolled around, not only did Gold and GLD begin to drop, the market began to play wish-wash. I did not trade last week because of these indicators, for as GLD sold off and the market became indecisive, it seemed as though the market wanted to go higher but couldn’t get the $UVOL to back it up. The 26th was the day the market made up its mind, and the market took a downturn all the way to 692.30 at the $SPX’s lowest. GLD broke down below its first trend line on February 24th(the trend line started back on January 15th) and is nearing its long-term trend line first charted on November 13th. The price level to push off of this long-term trend line will probably end up being somewhere around $88, and with the current price-volume decline, I am waiting for a pivot point in the volume to give GLD some strength. Today, we experienced an explosion in most sectors in the U.S. markets, as well as a late day push in the financial sector that lasted longer than the normal financial sector push. In the midst of all of this, however, GLD still stayed below 90 and continued its downturn, closing at $88.99 with /YG currently trading in a range of $910 – $912. My support level for the Gold commodity is $895.90, while my support for GLD lies at $86.57. If the Gold industry pushes off of these levels, I wouldn’t doubt that you see a short-term $50 move in Gold and a quick $3.00+ move in GLD.
I fear that this rally we have on our hands right now is a dangerous one, as well as a foolish one to stay with for too long a period of time. I am a commodity believer at the moment (hence all of the energy and basic materials names from last night), and I especially like the movement I’m witnessing in Oil. For what it’s worth, however, I do NOT feel we’ve put in a bottom to this market. All in all, I expect a slight pullback tomorrow off of the open (a continuation from the late day shorting opportunities which brutalized the market and robbed the $SPX of about 12 pts. and the $DJI of about 100 pts.) with a mid-day rally, followed by an indecisive and unpredictable close. I am nervous for the outcome of our indices throughout the rest of this week, thus I will sit on the sidelines with my 20% position in USO and my 80% position in cash, unless I see something worthwhile that I can hold overnight or intraday and gain profit from.
In other words, sit on the Gold commodity until further notice. Gold has flown under the radar lately, and because of this, its pivot point will be very subtle and tough to read. Be patient and observant, as well as being diligent about watching the price-volume pivot point indication.
Good Fight, Good Night…
ZM
Just realized this article was cut short by a mile… I’ll have to fix this issue when I get home.