Here’s how you can profit from Gold and Silver
Stocks posted modest gains yesterday, but the volatile session was plagued with indecision caused by a tug-of-war between the bulls and bears. After beginning the day with an opening gap higher, the broad market drifted lower throughout the first forty-five minutes, but promptly reversed and rallied throughout the morning session. Because the major indices subsequently consolidated near their intraday highs, further gains in the afternoon would not have been a surprise. Instead, sellers arrived on the scene during the final hour and erased the morning gains and then some. The S&P 500 and Nasdaq Composite both eked out 0.1% gains, while the Dow Jones Industrials managed to hold 0.2% of its gain. The small-cap Russell 2000 also advanced 0.2%, but the mid-cap S&P 400 closed lower by less than 0.1%.
Total volume in the Nasdaq was 9% higher than the previous day’s level, causing the index to register a bearish “distribution day.” Like the S&P, the Nasdaq has now had three such days of institutional selling since the beginning of last week. In the NYSE, a 4% decline in yesterday’s volume prevented that exchange from having its fourth “distribution day.” Advancing volume exceeded declining volume by a margin of 3 to 2 in both exchanges, which was positive, but market internals were much stronger before the final hour’s sell program kicked in.
Once again, the gold and silver mining stocks shined brightly yesterday. The price of Spot Gold was nearly unchanged, but the mining stocks themselves showed great relative strength and played “catch up” to the commodity price. The CBOE
Gold Index
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PowerRating) surged 3.0% to a fresh record high, causing a majority of the individual mining stocks to blast off to new highs as well. Newmont
Mining
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PowerRating), which we purchased via intraday alert to Stalk Sheet subscribers yesterday, broke out of a bullish cup and handle pattern on strong volume and closed at a new 52-week high. Unfortunately, there is not an ETF that tracks the mining stocks because
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Also showing relative strength to the broad market yesterday was the Semiconductor Index
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PowerRating), which has been leading the Nasdaq, fell 0.9%. It worked out well that we took our small profit on
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Despite yesterday’s small gains in the S&P and Nasdaq, the overall price action was negative. The late-day selloff that followed the morning rally caused each of the major indices to close near their intraday lows. It also resulted in the formation of bearish “inverted hammer” candlestick patterns on numerous daily charts. We have circled the “inverted hammer” candlesticks on the daily charts of both
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“Inverted hammer” candlesticks are bearish because they trap the bulls who bought the strength earlier that day. As such, they typically are forced to sell the next day, which in turn attracts more sellers, both bulls dumping their long positions and bears entering new short positions. When “inverted hammers” occur after an extended rally, it often, but not always, is a warning sign of an impending market correction. If you consider the numerous “distribution days” the markets have recently begun experiencing, the odds of at least a short-term correction are further increased. Due to the Dow’s inability to break out above the 11,000 resistance level, we entered a new short position in
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PowerRating) yesterday. We’re not expecting a huge collapse or anything like that, but we do anticipate at least a one-week correction, perhaps longer if bearish momentum begins to set in.
Yesterday’s erratic price action was a perfect example of why we began recommending a mostly cash position in yesterday morning’s Wagner Daily. Although we dipped a toe in the bearish waters by shorting DIA yesterday, it is our only open ETF position. Due to several mixed technical signals, we feel that now is not the time to have a strong opinion on which way the markets are headed in the short-term. Remaining positioned mostly in cash will enable you to take advantage of the next clear opportunities when they present themselves. Above all, remember to trade what you see, not what you think!
Open ETF positions:
Short DIA (regular subscribers to The Wagner Daily receive detailed stop and target prices on open positions and detailed setup information on new ETF trade entry prices. Intraday e-mail alerts are also sent as needed.)
Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and financial conferences around the world. For a free trial to the full version of The Wagner Daily or to learn about Deron’s other services, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com .