Beware of Gold Retail Therapy

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With geopolitical tensions in the Middle East providing blowhards more “Black Swan” material, the price of gold and its ETF, GLD, acted as safe havens on Friday’s equity sell-off. Nonetheless, a look at the daily chart of the key ETF offers a bearish setup, as emotional investors flocking to a perceived area of safety could easily be poised to fall into a vicious trap. As you can see on my annotated daily chart of the GLD below, this current bounce is merely serving as a gap fill back up to a key breakdown point from a major support level on heavy selling volume. Moreover, we now have a declining 20 day moving average, not to mention a 50 day on the cusp of following suit.

In sum, beware the knee-jerk reaction of rotating into gold after watching the instability in Egypt, for it is set up to be a whole lot more dangerous than you think.

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[youtube:http://www.youtube.com/watch?v=kHngF_b3NuE 550 412]

“Go Egyptians!” (h/t kelkun)
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Also, do you really want to try and “buy the dip” with the trannies blowing through prior support?

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In prior posts, I have made numerous analogies of stock trading to playing poker, which I believe to be the form of gambling most like the stock market. The late Chip Reese is widely considered to be the best cash game poker player who ever lived. One of the reasons why I believe he was so successful–and by successful, I mean he won hundreds of millions of dollars during his career–is because of his cerebral approach to the game, as well as his calm demeanor. Whereas plenty of other big name poker pros are action junkies and talented degenerate gamblers, Chip always saw the big picture with gambling.

One of the most famous stories about Chip is that during one cash game, he was losing around $500,000. One of the hardest things to do as a poker player is to get up from the table and leave during a bad losing session. The competitor in you wants to chase your losses back and get to even. However, in this session, Chip’s son had a little league baseball game and, right on cue, he simply left the game when the time came, to everyone else’s amazement sitting at the table.

I think the seven minute interview seen in the video below is well worth your time.

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[youtube:http://www.youtube.com/watch?v=uVsgBACaJgQ 550 412]

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Plenty of excellent sites out there include more macro commentary in their links, namely Downtown Josh Brown and Abnormal Returns. I thought I’d share a “Traders Only” collection. Here are the traders that I have been reading of late (click on links):

• “The Goat,” @gtotoy, with a list of actionable setups
• Vj, @vjland,with his take on $FCX
• Joe with his morning morsel (@upsidetrader)
• @Position_Trader on Gold
• @StevenPlace on contrarianism
• @daytrend, Vic’s intraday market stats
• Joe Fahmy’s latest market commentary
• @wwwstockrake on gold and solar stocks

There are plenty of other key sources that I check everyday, so be sure to look on the right hand side of your screen for my “Recommended Links.”

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MARKET WRAP UP 01/26/11

The round numbers of 12,000 on the Dow Jones Industrial Average and 1300 on the S&P 500 seemed to almost steal the show today from the State of the Union Address last night, not to mention The Fed Announcement today. One the surface, the S&P finished up 0.42% to 1296, but some of the underlying bounces in the small cap and transportation stocks, as well as the beaten down metals/materials names, were quite impressive. Moreover, it is becoming almost laughable at how inept and uncool the bears have truly been in terms of their lack of ability to sustain even minor technical damage to the senior indices.

Looking ahead, the real issue is whether the bounces we saw today in some of the underlying areas of the market–where the bears have, in fact, won a few battles over the past week or so–will continue higher for another rally that will force bears and underinvested bulls to throw in the towel and chase stocks up to fresh highs. Alternatively, these bounces could ultimately be short-lived relief rallies, setting up a bit deeper of a correction. As usual. my analysis takes me one step beyong the indices and sectors, and focuses on the quality–or lack thereof–of individual setups. In this case, although some key areas of support held today, the heavy selling volume that we saw over the past week or two in many names still has me cautious. However, the difference between a cautious stance versus a downright bearish one cannot be stressed enough. Indeed, falling victim to a heinous short squeeze is much different than electing to not risk dollars for pennies, even if the pennies may be briefly for the taking.

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In the Company of Men (1997)

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Plenty of excellent sites out there include more macro commentary in their links, namely Downtown Josh Brown and Abnormal Returns. I thought I’d share a “Traders Only” collection. Here are the traders that I have been reading of late (click on links):

• “The Goat,” @gtotoy, with his excellent daily $SPY read
• @StevenPlace looks at past tops in the market
• @daytrend, Vic’s intraday market stats
• Derek’s always thoughtful analysis on a new correlation

There are plenty of other key sources that I check everyday, so be sure to look on the right hand side of your screen for my “Recommended Links.”

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