Why You Should Be Looking At Gold
The recent weakness and
inability of the market to decisively carve out new highs is a bit
puzzling. Several days last week we saw most of the typical relationships break
down. A weak dollar was shrugged off my both the bond and stock market for the
most part. So, is this the pause before another lethargic move higher, or is
there something else brewing? Tough call, and as I have always said, it makes
no difference for HVT, we trade price action
there, not opinions and conclusions. Let’s review a few
HVT set-ups from Friday first; I will come back at the end and
address some developments that bear watching.
First, here is the re-cap from Friday’s
HVT action. A whopping 4 trades, yep, 4
trades. And let me say something I waited patiently for those 4 trades and they
met every possible criteria for me. The first 2 were losers (right on the
opening) in Citigroup (C) but marginally
so. The last 2 were big winners (relatively), one in
Newmont (NEM) and one in Texas Instruments
(TXN). So there you have it, HVT, 2003 4th quarter style, it certainly is
vastly different than a year ago. I have always preached about the importance
of finding one or two stocks and trading them until you are blue in the face.
There is an inherent edge gained by doing this, my trade in
TXN was a perfect example, yes it met the
technical parameters for a set-up, but many in my
Trading Room simply did not understand the sudden attack on the keyboard
when I entered my buy order. Careful observation and repetition develops that
skill.
Staying with that theme, and simultaneously
allowing me to segue to the next part of the article, I realized on Friday that
my casual observations in NEM needed to be
addressed. Yes, I have done quite well with NEM
this year, both investing and trading, but let’s face it, gold stocks are in
play, and you only need one or two days of watching NEM
to know he can sometimes have stunning range, albeit erratic at times. But that
is what got me thinking. What appears to me as random erratic moves are most
likely somewhat “predictable” if observed more often. There is a second reason
why I feel that this might be a good move and that is sector rotation. No, I do
not mean the rotation intra-day, I am talking about a longer-term macro shift
from the bloated tech stocks to a sector that is actually experiencing real and
more importantly, sustainable growth. This could take months if not years, but
my experience has taught me that a bit of foresight, even if wrong can often
lead to a solid game plan.
Case in point: while the stock market has been
muddling higher, the commodity, gold and FX markets have been far more dynamic.
I have no intention of short-term trading these markets, but I am confident that
gold mining stocks will offer me the next best way to participate in them with
HVT without having to learn a whole new dynamic of another exchange/product.
One last observation regarding these markets — it seems to me that there is
pretty solid evidence that inflation is not only alive and well (commodities)
but that some players expect even more inflation in the years ahead (gold
market). Seems kind of odd that despite the 7.2% GDP growth that the Fed sees
no signs of inflation or at the very least take some measures to prevent it. I
believe the Fed is the primary reason we should all be looking at gold.
Overnight Japan was whacked yet again, this time
on the heels of a report that banks non-performing loans are not being reduced
as much as the market has priced in. Have you noticed just how bad the Nikkei
has been roughed up in the last 2 weeks, it has dropped over 1000 points, nearly
10%. While I have no idea what that means for our market, it bears watching. I
did initiate a long $/Yen position last night at 109.36. While I realize that
this trade goes totally against the strong down-trend, I sense that there may be
a decent size counter-trend move setting up here. The rout in the Nikkei and
the fact that many exporters in Japan are expecting and planning accordingly for
a Yen value of 111. In addition, you can never rule out further intervention by
the BoJ to prevent further Yen appreciation. Meanwhile the long Euro
position from Thursday is beginning to play out, a move through 118.60 should
fuel further upside.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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As always, feel free to send me your comments and questions.