-- Posted Wednesday, 8 February 2006 | Digg This Article
Okay Smarty Pants you took some magnificent profits on your gold stocks. Now what? You wait, that's what. Corrections of this magnitude are not over in a day. Line up your next targets for the next big Buy-In. You sold to the Newbies - those that just had to finally get in at any price. The greed of others rewarded you. Their greed has now turned to fear. But you know better. And now you want to buy back those stocks you sold to them, albeit at a much more attractive (lower!) price. That's why you're called a "trader". You trade stuff for other stuff; in this instance it's gold, oil, silver, or whatever, for US dollars. You do it back and forth. There are becoming fewer and fewer bidders on the trading floor now. You're off to the side as an observer patiently awaiting your opportunity to step forward with fists clutching cash, and courteously offering to the now depressed seller(s), "Oh sir, I may be so disposed to purchase those stocks you have that nobody else seems to want." That seller will be grateful you happened by to relieve his misery. You took him off the hook.
But when do you step down from the spectator's gallery clutching your cash?
Looking to the suggestion to the chart on the right we can see a ratio of the GLD ETF and Newmont Mining (NEM). We know that when the gold bull is running the gold stocks outperform the metal. From November of 2004 until May of 2005 we had a bear market correction in the bull cycle. With fits and starts since then we've seen the stocks lead the way with the ratio now sitting at about .97. If we truly are in Phase II of the gold bull as gold pundits tell us then the ratio should stay within the downward trending green channel boundaries.
Furthermore, we want those upper indicators to go to their extreme levels on the upside. We want a bold line crossover in the MACD. We want the SlowSTO and the RSI to go above 50, and the Wm%R to cross above a minus 50. These achievements should be co-incident with the ratio bumping up against the upper green channel line.
What happens then?
At this point we won't know if the channel line will hold as resistance or if the gold stock correction may continue right on up through it. So, here's what we do - - we patiently await the MACD bold line to cross back below its lighter green trend line. Ditto for the SlowSTO black line to cross back over on the downside of its red line, and the RSI & Wm%R to reverse direction downward as well.
Now then I would wait for at least the MACD & SlowSTO to achieve their reversals. If you are more conservative then wait for all four to reverse direction.
I have used NEM & GLD so as to get some semblance of volume which is illustrated in light blue along the bottom of the chart. Volume dries up at correction bottoms. An additional aid for you will be to derive additional comfort when the volumes here plod along below .50 (scale left). Right now we're nearly double that at .90.
There will be no starter's pistol to alert you. You have to do this in solitude at your computer with little encouragement from others, for you are the ultimate contrarian.
- - CV
-- Posted Wednesday, 8 February 2006 | Digg This Article
