9-4-2008

What Now

This week you wait. Yes, you wait and look for a “trigger signal” to get long.

You don’t need me to tell you that the Stock Indices are breaking down. You don’t need me to tell you that the US Dollar continues to rally and you certainly don’t need me to tell you that Crude Oil and it’s by products are all falling and falling hard. The press is doing a fine job of that.

What you may need me for is to tell you when gold and silver’s technical indicators turn up, assuming you wish to play the Seasonal Uptrend that often kicks in around mid-September.

What’s been cushioning Gold and Silver’s break has been a lack of confidence in world credit markets. The commodity bubble burst a few weeks ago. With that burst you’ve witnessed a $40 break in Crude Oil; Corn has broken $3 a bushel and so on. As this has taken place, Gold and Silver fell as well, but not sharply. Now, with investors questioning what is safe, both gold and silver in my opinion are ripe for protective buying.

A word of caution. Being “ripe for buying” is not a buy signal. The buy signal I am looking for can come about as described in the section of this report dealing with the Daily Charts.

Gold’s Seasonal Story

A pull back in prices into the very end of August occurred as expected.  Look at the Seasonal Chart below provided to us by The Moore Research Center…www.mrci.com.

December Gold

Now lets look at a Daily Chart of December Gold Futures.

Clearly, December Gold is still in a Downtrend, a Downtrend that is losing steam. If the seasonal price picture holds, than prices should NOT take out the August low of $777.7.

The “trigger that seasonals are kicking in” for a September rally should come from a combination of things. First, a close over the 18-day Moving Average of Closes is necessary. Second, the chart needs the Swingline Study to begin a pattern of making higher highs and higher lows. My expectation is that today’s high of $819.5 will replace the previous high of 849.7 and become the most recent high. For that to happen the current chart formation needs to see today’s low of 798.1 broken, followed by a move up and over $819.5. That would confirm a “Buy Signal” and I would want you to get long.

Writing about possible price triggers is like writing fiction. Until it occurs all that one can do is guess what will take place. Currently the trend is down. As such, you wait for the setup to take place.

Conclusion and Recommendation

Over the past two weeks those who follow my Twice Daily Recommendations could have done well had you followed my last option trade recommendation, which bought the 850 December Gold Call and used the latest market rally to get out quickly, producing a tidy profit. In fact a profit large enough to fully cover the cost of the Bull Call Spread I had previously recommended and which many still own.

Those who follow my Twice Daily Trade Recommendations should still own the December Bull Call $1000-$1025 Spread at 6.30.  Yes, if you followed my recommendation you are behind on this spread. This spread has until November before it expires, so time is what is left.    

If the seasonals in Gold and Silver take hold I expect to get another Buy Signal. When that occurs, my expectation is that I will issue another signal to either buy Calls or another Call Spread.

I realize I am missing opportunity on the downside. However, the seasonal trade is such a strong one that I prefer to sit out selling opportunities just now.

Silver

Let’s start off by looking at a Seasonal Chart of Silver as provide to us by The Moore Research Center…www.mrci.com.

If Silver Seasonals hold up, prices should move up now.

December Silver

Let’s look at a chart of December Silver.

Stochastics came out of their embedded status on August 21^st and have not yet hit the 18-Day Moving Average of Closes. This is highly unusual. Unless Stochastics again embed, I still look for this event to occur, but obviously at a lower price than I first expected.

Like Gold, the best situation would be for prices on Friday to make a lower low than that seen on Thursday. That would set Thursday’s high of 13.265 up as a “buy trigger”, with whatever the 18-Day Moving Average of Closes is as the first upside target.

Recommendation

Those that follow my Twice Daily Recommendation know that I had recommended that you buy the $15.00 December Silver Call. Nice profits were taken, as was the case in Gold.

This left in place the December Silver Call Spread that has been on for a month or so now, a spread those who own it are behind on.

My recommendation is this. Enough time is left to have that spread come back to life. I am not certain that it will end up with a lot of value, but if we get another buy signal, one that again works out, you’ll be in good shape. Taking a total of nearly 10-cents in profit last week certainly cut into the cost of holding onto this position.

Keep in close contact with my Twice Daily Reports as that is where specific trade ideas will be published.

As many of you know, we publish our Mid-Day Videos both on our website and on YouTube. The videos on our website have a better look to them and typically play faster than those on YouTube.   

http://www.iepstein.com/videos_start.aspx