-- Posted Wednesday, 7 June 2006 | Digg This Article
By Jack Chan at www.traderscorporation.com
6/06/2006
We had a crash this past few weeks in metals and metal stocks. Not a big deal if you bought your gold stocks in 2001 at pennies, but a disaster if you bought within the past few weeks. What is even more unsettling for the latecomers, is the fact that despite such negative price action, some analysts insist this is a great buying opportunity, “back up the truck” as one suggests…. The purpose of this update is not to argue or dispute that, because we don’t believe in forecasts and predictions. What I can share with you is our signals, our analysis, and our course of action. The rest is up to the market Gods.
The signal
We issued a sell signal on 5/12, ending the buy signal issued on 3/24. Traders took profits and moved to the sideline. A reader sent me an email accusing me of “engineering” the crash by issuing the sell signal. Sure, we have quite a few very well heeled investors among our subscribers, but if Warren Buffett had trouble sinking the dollar by going public with his “short the dollar” campaign, what chances do I have cornering the gold market?
The analysis
Our breakout model also alerted us to potential trouble by breaking down in late April on the daily time frame and again four weeks ago on the weekly time frame. All hell broke loose after that. As long as this model points down, owning gold and gold stocks without a hedge in place is at very high risk.
Our course of action
Action #1 – we had a sell signal on the GLD and reversed from long to short at $68.15. We shall exit this trade on a close above resistance, risking under 3%.
Action #2
Canadian traders bought the gold bear fund at $10.68.
Summary
Here we go again, gold to $1000 or $500? Both bull and bear camps have convincing arguments why they are right, and only one of them will be correct. The chance either way is 50/50, and a coin flip is equally effective. But we don’t leave our trading to chances. We trade on signals and set ups, manage our risk, then let the market do its work. We have been consistent buyers these past few years and have been richly rewarded. Does this sell signal indicate the end of the bull market? Perhaps, perhaps not. Our short positions provide an excellent hedge for investors still holding a core long position, and the risk/reward to the downside is very attractive to traders after a parabolic rise has ended. This gold market has been giving us many golden opportunities in the past few years and will continue to do so as long as you are not biased one way or another.
End of update
-- Posted Wednesday, 7 June 2006 | Digg This Article
