Yes, You Can Time the Gold Market
By Jeff Clark
February 24, 2009
The long-term bull market in gold is alive and well. For proof, just take a look at this monthly chart of the metal plotted against its 40-month exponential moving average (EMA)...
The 40-month EMA is the line in the sand for gold. If the metal is trading above the line, then we have a golden bull market. If it drops below the line, however, then the bear is in charge.
(This is similar to the monthly chart of the S&P 500 I've shared with you so many times before. While we use a 20-month EMA for the S&P, a 40-month EMA eliminates many false signals generated by gold's extreme volatility.)
Long-term, buy-and-hold investors can simply follow this chart and make investment decisions accordingly. But traders can do better.
You see, during every long-term bull market, corrections inevitably wipe out a good chunk of hard-earned profits. Wouldn't it be nice to have some sort of warning system that lets you know when those corrections are about to hit?
Well, take a look at this chart...
This chart simply compares the action in the gold stocks (GDX) to the action in the price of gold (GLD). When the chart is rising, gold stocks are outperforming gold. When the chart is falling, gold stocks are underperforming the metal.
The best time to own gold is when the stocks are outperforming the metal.
Pay attention to simple support and resistance lines on the chart. Each time one is broken, traders have an opportunity to profit. For example, the chart broke below its support line back in April and generated a sell signal. Gold was trading for about $950 per ounce at the time.
The chart generated a buy signal in late October when it rallied above its down-trending resistance line. Gold was below $750 per ounce at that point.
With the price of gold currently hovering around $1,000 per ounce, buy-and-hold investors are up about $50 since last April. Aggressive traders, on the other hand, are up $450 ($200 on the way down plus $250 on the way back up).
Of course, the usual argument against trading is that no one can time the markets. It's easy to look at a chart in hindsight and figure out the buy and sell points. It is far more difficult to do so in real time.
Keep in mind, though, last year I told you when I was selling and when I was buying. Those decisions were based in large part on the action in this chart. Perhaps it is possible to time the market after all.
Today, the chart is giving us a possible warning sign. It looks as though the chart has broken down through a rising support line. That's bearish and will likely lead to lower gold prices. But it's not a clean break yet. One strong day in the gold sector could reverse this chart and resume its bullish uptrend. So we don't have a sell signal just yet.
We're close, though. If the chart drops below 0.35, then the trend will be bearish. Traders should then exit their gold positions and look to buy them back when the trend shifts to bullish. Aggressive traders can even short the sector.
The long-term uptrend in gold remains intact. But there's no reason not to trade the shorter-term trends as well.
Best regards and good trading,
Jeff Clark
|
|
|
| • |
Blue-chip rout... General Electric, ConocoPhillips, Kraft, Procter & Gamble, Unilever, Pfizer, Sony all hit new lows. |
| • |
Heavy-equipment manufacturers Deere and Caterpillar hit new lows. |
| • |
Earnings today... Chicago Bridge & Iron, Foster Wheeler, Home Depot, Target, St. Joe, Vornado Realty, Wynn Resorts. |
|
|
Last |
Change |
52-Wk |
| S&P 500 |
744.79 |
-3.28% |
-44.96% |
| Oil (USO) |
23.32 |
-4.23% |
-70.33% |
| Gold (GLD) |
97.82 |
+0.02% |
+4.74% |
| Silver (SLV) |
14.32 |
+0.48% |
-20.08% |
| U.S. Dollar |
87.28 |
+0.92% |
+15.55% |
| Euro |
1.27 |
-0.90% |
-14.24% |
| VIX |
52.48 |
+6.45% |
+118.12% |
| HUI |
317.51 |
-1.23% |
-31.68% |
| 10-Year Yield |
2.78% |
-0.01 |
-0.74 |
|
| Company |
Sym |
Industry |
Zion |
ZN |
oil & gas |
Career Education |
CECO |
education |
Eldorado Gold |
EGO |
gold |
AutoZone |
AZO |
car parts |
|
|
| Company |
Sym |
Industry |
ConocoPhillips |
COP |
Big Oil |
EOG Resources |
EOG |
oil & gas |
Kimberly Clark |
KMB |
paper products |
Nokia |
NOK |
cell phones |
Repsol |
REP |
Big Oil |
Caterpillar |
CAT |
machinery |
Devon Energy |
DVN |
energy |
Kraft Foods |
KFT |
food products |
Nomura Holdings |
NMR |
broker |
Reynolds American |
RAI |
cigarettes |
Burlington Northern |
BNI |
railroad |
Walt Disney |
DIS |
entertainment |
Kellogg |
K |
food products |
Natl Bank of Greece |
NBG |
bank |
Procter & Gamble |
PG |
consumer prod |
Unilever |
UN |
consumer prod |
Boeing |
BA |
aerospace |
Dupont |
DD |
chemicals |
HJ Heinz |
HNZ |
food products |
Manulife |
MFC |
insurance |
Panasonic |
PC |
electronics |
Sun Life Financial |
SLF |
bank |
Banco Bilbao |
BBV |
bank |
Deere |
DE |
machinery |
Ing |
ING |
bank |
3M |
MMM |
conglomerate |
Pfizer |
PFE |
Big Pharma |
Sony |
SNE |
electronics |
Adobe Systems |
ADBE |
software |
CSX |
CSX |
railroad |
General Electric |
GE |
conglomerate |
Luxottica |
LUX |
eyeglasses |
Norfolk Southern |
NSC |
railroad |
Schlumberger |
SLB |
oil equipment |
Costco |
COST |
wholesaler |
FedEx |
FDX |
shipping |
Lowes |
LOW |
home goods |
Nissan Motor |
NSANY |
carmaker |
Spectra Energy |
SE |
pipelines |
|
 |
 |
|
