This Is The Type Of Trade I’ve Been On The Lookout For…
Despite another knock to the bond market, stocks
again held in reasonably well. The yield on the 10-year Treasury now is above
4.5%, a level deemed important by observers. However, on the heels of the solid
Retail Sales figures, the highest in four months, perhaps the perception of a
stronger economy is outweighing the negative implications of higher rates. The
story continues to play out, with new clues offered each day, eventually a
clearer picture will develop.
The rise in yields was certainly noticed by the
gold market. Yet again the metal and the mining stocks were creeping higher.Â
Inflation seems to be in the air despite the Fed sounding the alarm on
deflation. As mentioned in previous columns, trading has been selective and
typically the trades are developing as the market pays out. The trade
highlighted below in Newmont Mining (NEM)
was a good example of the types of trades I have been on the look-out for
recently.Â
The first thing you will notice is the initiation
of a long trade despite the stochastics being overbought and on the verge of
rolling over. Does this not go against my rules on stochastics? Yes….and
no. My qualifier for stochastics is that even is they are in the “overbought”
or “oversold” area, a trade can still be initiated provided that the reset in
some way. A reset? Yes, in this case just a slight pull-back, and I mean
slight, then a resumption higher (or lower for a short).
The “reset” also coincided with a general
observation that comes from watching the same handful of stocks each and every
day. Typically when NEM approaches a whole
number, in this case $38, and the technicals look solid, you can expect a
“burst” through that level. You cannot wait for it to trade there, a slight
leap of faith is required, but of the dynamics are right, you will correctly
anticipate strong moves. I was filled at 38, it never looked back. Never chase
entries or be the one saying “once they start trading $38 I am in.” It is too
late many times.
And so the trade played out for over 2 hours. My
exit was straight forward, a break of the 20 ema.
I hope this added a little insight to what I am
doing in this market.
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As always, feel free to send me your comments and
questions.