Gold Update

Gold has been on fire! Up almost 10% over the past month.

I would be more thrilled about gold’s run if it hit my down side target first.

The March 3 Profit Radar Report featured this longer term projection for gold (yellow lines, chart below).

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

The March 13 Profit Radar Report provided this shorter term roadmap and target levels for a buyable low. The blue down side target boxes where around 1,260 and 1,240.

We had a buy limit for gold futures at 1,265 and for the SPDR Gold Shares ETF (GLD) at 119. Unfortunately gold stopped just shy of 1,265 (and GLD before 119) before staging a strong rally.

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What’s Next?

The yellow projection shown in the March 3 Profit Radar Report assumed a triangle breakout followed by a relapse.

However, there is an alternate, more bullish path. Regardless, we wanted to buy gold because both scenarios pointed higher.

Now the question is whether to chase price or not? Short-term, gold is over-bought. But as long as trade remains above 1,350, trade can continue to grind higher (which would improve the odds of the more bullish path).

Continued updates and projections are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF e-Newsletter to get actionable ETF trade ideas delivered for free.

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Gold Seasonality and Sentiment Turned Frosty

In early November, gold finally reached my down side target and I became a self-proclaimed gold bull, at least for 2015.

After over three years of falling prices (from 1,927 to 1,130) it just felt right to put the bear down for its hibernation and become a bull. In November 2014, at the 1,130 low, the pieces were in place for at least a tradable and perhaps a lasting low:

  1. Gold reached my down side target
  2. There was a bullish RSI divergence
  3. There was a big green reversal candle at the November 7 low
  4. Seasonality was turning temporarily bullish
  5. Sentiment was ripe for a reversal. The ‘smart money’ was bullish and the ‘dumb money’ was bearish

On queue, gold started cruising higher and everything went according to plan … until something odd happened in late January.

 

The January 27 Profit Radar Report noted that commercial traders (smart money) were selling gold at a rapid pace, and published the chart below. The dashed red lines illustrate what happened the last two times commercial traders fled gold.

The chart also included Elliott Wave labels (numbers from 1 – 5). In case you’re not familiar with Elliott Wave Theory, you may find this excerpt from the same Profit Radar Report interesting:

The chart shows that current trade is important from an Elliot Wave perspective. Gold appears to have completed a 3 wave rally. There are now two options:

  1. Gold will trace out a wave 4 correction followed by wave 5 higher. Target for a wave 5 high is around 1,330.

    Longer-term, a complete 5-wave rally will be followed by a corrective decline and at least one more rally leg.

    Shorter-term, a wave 4 correction could become a pain to manage. Waves 4 tend to seesaw over support/resistance levels, therefore using the trend channel support at 1,275 as stop loss could kick us out at the wrong time.

  2. A 3-wave rally is indicative of a correction and would translate into a relapse to new lows. This option is unlikely, but theoretically possible.”

Balancing the potential of long-term gains and short-term risk was a tough call, but my recommendation was as follows:

We can either take our profits and run or commit to endure a potentially painful correction in exchange for further gains. I like to keep things simple and recommend taking profits. Lets cash in gold around 1,295 and GLD around 124.20 for a nice 13.5% gain.”

In addition to bearish sentiment developments, the Profit Radar Report cautioned of weak gold seasonality. The chart below plots the actual price of the SPDR Gold Shares ETF (NYSEArca: GLD) against gold seasonality up until mid-March (a full year gold seasonality chart is available to subscribers of the Profit Radar Report).

It’s hard to ignore the textbook November bottom, but it’s also hard to ignore the January sentiment and seasonality warnings. The risk of more down side is real, and my inner gold bull is set on hibernation mode for now. As per the second Elliott Wave Theory option discussed above, new lows are at least possible.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Is Now the Time to Buy Gold and Gold Miners?

Gold was the most hated asset class going into December, especially after Swiss voters rejected a proposal to boost the country’s gold reserves by some 1,500 tons (about 7% of global annual demand). Is this a good ‘blood in the streets’ trade?

Massive. That’s the only way to describe The December 1 overnight reversal of the gold futures (following the Swiss no vote).

In fact, price action painted two giant green candles. One marked the November 7 low, and than there was Sunday’s.

Two trading days before the November 7 low, the Profit Radar Report wrote: “There is a bullish divergence and gold has finally met our long-term down side target. Gold seasonality for November is bullish. Sentiment, seasonality and the bullish technical divergence increase the odds of an upcoming buying opportunity. We will dip our ‘toes in the water’ and buy gold if it dips below 1,130 and moves above 1,140.”

The Profit Radar Report identified the gold trade as one of the biggest opportunities around, and the gold rally was chugging along nicely, until the Swiss gold referendum came along.

Gold futures (chart shown) dropped more than 2% right after Sunday’s (November 30) rejection by Swiss voters. Sunday’s Profit Radar Report was published when futures were down more than 2%, trading near 1,145. It stated:

Swiss voters rejected proposals Sunday to boost gold reserves. Short-term, the Swiss gold proposal was a lose/lose proposition for gold buyers and an unnecessary cross current for our precious metals trade. As Wednesday’s PRR mentioned, soaring prices following a ‘yes’ vote were a forgone conclusion. When everyone expects a rally, the market usually doesn’t deliver one. A ‘no’ vote on the other hand would obviously be bearish.

A quick drop in gold prices was needed to shock the ‘bullish Swiss vote gold bugs.’  The question is how long of a drop? Initial (kneejerk) reactions following such newsworthy events are often wrong. Gold futures are down another 2% on Sunday.

In terms of technical analysis, the most likely interpretation of this decline is a retracement of the rally from the November 7 low. The chart shows various Fibonacci retracement levels (78.6% = 1,146.70). In terms of Elliott Wave Theory, this pullback looks like a wave 2 correction. The only requirement for a wave 2 is that it can’t exceed the prior extreme (November 7 low). In short, as long as the November 7 low remains unbroken, we are looking for higher gold prices.”

The corresponding entry level for the SPDR Gold Shares ETF (NYSEArca: GLD) was at 111.08 on November 11.

Today, gold busted through red trend line resistance. This trend line can now be used as stop-loss.

What about Gold Miners?

Gold miners tend to respond faster and stronger to rising gold prices than bullion itself. In essence, gold miners are a leveraged play on gold prices.

Friday’s kneejerk reaction offered a low-risk entry for the MarketVectors Gold Miners ETF (NYSEArca: GDX).

Sometimes when a trend line is broken, prices will double back and test the line before peeling away in the direction of the break.

The Profit Radar Report suggested a buy limit order against the green trend line to scoop up GDX in case of a pullback. That’s exactly what happened November 28, courtesy of the kneejerk selloff prior to the Swiss vote.

The actual GDX chart does not look as bullish as the gold chart, but GDX is likely to dance to gold’s beat, not vice versa.

The precious metals trade (which includes silver) is likely just in its infancy and should offer a number of good entry points along the way.

Continuous low-risk, high probability trading opportunities and gold analysis is available via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.

 

Are There Enough Gold Bears for a Major Gold Bottom?

Apparently it can only get worse for gold: CNBC: “Gold headed to $800” — Bloomberg: “Don’t catch a falling knife” – Yahoo!Finance: “More pain coming.” Is that enough bearishness for gold to carve out a major bottom?

Gold sports a bullish RSI divergence and reached our long-term target of ‘new lows below 1,178.6’. Gold seasonality for November is bullish. Sentiment, seasonality and the bullish technical divergence increase the odds of an upcoming buying opportunity. “

That’s what the Profit Radar Report stated on November 5.

It’s probably safe to assume that gold’s $70 rally caught many by surprise.

  • Bloomberg: “Don’t’ catch a falling knife! ABN sees gold at $800 next year” – November 6
  • Yahoo Finance: “Gold bulls beware: ‘More pain coming’ before the metal finds a bottom” – November 10
  • CNBC: “Here’s why gold could be headed to $800” – November 12

I’m not implying that any of the above sources are dumb by any means, but when a strong consensus builds, the market usually does the opposite.

In my humble opinion, such bearish sentiment (the above headlines are just a small selection, confirmed by other sentiment extremes) was worth to take a stab at ‘catching the falling knife.’

Risk management is crucial when dealing with ‘sharp knives,’ so via the November 5 Profit Radar Report I recommended the following: “We will dip our ‘toes in the water’ and buy gold (futures) if it dips below 1,130 and moves above 1,140.”

As the chart shows, a dip to 1,130 followed by a move back above 1,140 required trade to fall below the descending green trend line (target) and rally back above minor resistance.

If the market is able to rally strongly after hitting a down side target, it generally has the strength to rally further. This approach limits risk.

Since the above gold futures move happened overnight, I included this recommendation for ETF traders in the November 10 PRR: “Today’s pullback offers a low-risk entry for the SPDR Gold Shares ETF (NYSEArca: GLD), as it retraced 78.6% of the recent bounce, and filled an open chart gap at 110.49. If a low of some degree is established, GLD should move higher from here.”

Gold is currently one of my favorite trades, and there should be another opportunity to jump in for those who missed the initial up move. Additional buy trigger levels will be discussed via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

3 Perils of Chasing Red Hot ETFs

Few things are worse than watching an ETF that was on your mental buying list – but not in your actual portfolio – go up … and up … and up. It’s always tempting to chase performance, but here are three risks and one solution.

The seven most notorious words of the financial industry: “Past performance does not guarantee future results.”

In other words, anyone buying a hero and ending up with a zero has no one to blame but him or herself.

+65%, +55%, +38% are the digits of the three hottest ETFs right now (based on 3-month return). Does it make sense to chase those ETFs?

The trend is your friend until it bends, so chasing ETF hot shots isn’t always a terrible idea, but being aware of three common pitfalls may reduce embarrassment at the water cooler investment chat.

Peril #1: Leverage

Leveraged ETFs usually crowd out any ‘Top 10” performance list. Leveraged ETFs are ETFs on steroids. Currently 9 out of the 10 best performing ETFs are leveraged or leveraged short ETFs.

Leverage can be a blessing and a curse. It’s important to know that leveraged ETFs -like carnival mirrors – always skew the real condition of the underlying sector. For more details on the dangers and delights of leveraged ETFs click here: The Must Know Basics of Short and Leveraged ETFs

Weeding out all leveraged (short) ETFs and zooming in on ‘pure ETFs’ will offer a more accurate picture of the best performing sectors and their ETFs.

Peril #2: FOMO

FOMO (fear of missing out) is a powerful motivator, but it’s a terrible reason to buy. If the sole reason for buying a hot ETF is fear of missing out on more gains, it’s probably a bad idea. FOMO is not an investment strategy.

Strong momentum, persuasive fundamentals, or yet unreached up side targets are better reasons to buy an ETF that’s already trading well above its low.

Peril #3: Performance Chasing & Trend Reversals

Here’s a real life example of the perils of performance chasing.

Gold was one of the hottest assets in Q1 2014, but one of the worst performers in Q3.

The SPDR Gold Shares ETF (NYSEArca: GLD) was up as much as 15.13% in March. It’s fallen as much as 17.96% since. The VelocityShares 3x Long Gold ETN (NYSEArca: UGLD) was up as much as 50.69%, followed by a 46.95% drop.

Burnt trend chasers still hear the ringing of those chewed out Wall Street phrases in their ears:

“Past performance is no guarantee of future results”

“The trend is your friend until it bends”

The key question is how you can tell how long a trend is to last.

The gold chart features an observation made by the Profit Radar Report on March 12, three trading days before gold rolled over: “Gold has now reached our initial up side target at 1,365. RSI is lagging price and traders are quite bullish on gold. We are looking to short around 1,400.”

Bullish sentiment and chart resistance capped gold’s up side in March (blue circle).

It appears that bearish sentiment and chart support ended gold’s slide on November 7.

Having a pulse on investor sentiment and technical support/resistance levels does not guarantee winning trades, but it generally prevents against joining the performance chase at the worst of times.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Despite Selloff – Gold is Holding Support … For Now

Various media outlets listed many ‘convincing’ reasons to buy gold (a few examples of recent media blunders are listed in the article), but the gold market did exactly the opposite. Why did gold drop and where will it find support?

On June 8, Barron’s reported that the gold speculators are back and the Financial Times observed that gold bulls feel no need to hedge their gold position.

On June 11, MarketWatch ran an article titled: “Why mining stocks point to gains for gold prices”.

On June 14, gold prices (and gold ETFs) fell 45 points or 3.5%.

What happened?

Gold ran into a triple barrier.

That triple barrier is made up of:

  1. Technical resistance
  2. A seasonal weak spot
  3. Bullish sentiment extremes

The July 13 Profit Radar Report pointed out that: “Gold is making progress towards our up side target. We are considering a small short position.”

What was the up side target and how was it determined?

The up side target was 1,350, determined by combining technical analysis, seasonality and sentiment.

The June 1 Profit Radar Report published this price projection (chart below, yellow lines) and stated:

“On Friday gold slipped into our support zone at 1,255 – 1,230. Gold sentiment is quite bearish, so the immediate down side may be limited. The yellow projection shows one possible route to get to 1,350+/-.”

In terms of time, the projection was off by a couple of weeks, but gold reversed rather violently when it neared the outlined cluster of technical resistance levels around 1,350. Since prices did not completely touch the resistance cluster, there is still a chance of another bounce to ‘complete unfinished business.’

The SPDR Gold Shares ETF (NYSEArca: GLD) chart below offers an updated look at the gold market, with some interesting technical nuggets (chart published on July 15 by iSPYETF.com).

  • GLD found support right at the June 19 gap up open. I’m showing the GLD chart, because this gap is not visible on the futures chart. Support held and gold (and GLD) should bounce as long as this support holds.
  • GLD is trading heavy, as trading volume during the selloff was elevated. This cautions of further weakness eventually. A close below 124.30 would likely trigger another step down.

Based on the actions of commerical traders, which includes actual gold miners and other insiders, gold may see more selling.

Here is what commercial traders are doing and why this may be concerning:

Smart Money is Leaving Gold Just as the ‘Herd’ is Jumping in

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

What’s Next? Bull or Bear Market? Try Gorilla Market

Right or wrong? The QE bull market will last as long as the Federal Reserve keeps QE going. A majority of investors say ‘Yes,’ but a curiously sophisticated experiment and powerful data suggest a surprise outcome.

In 2004 Daniel Simons of the University of Illinois and Christopher Chabris of Harvard University conducted a fascinating experiment.

If you want to be part of the experience take a minute (it literally only takes a minute) and watch this video before you continue reading.

To get the full effect, watch the video first and don’t read ahead.

If you don’t want to watch the video, here’s a quick summary:

Truth in Simplicity

The experiment is quite simple. There are two groups of three people each. One group is wearing black shirts, the other group white shirts.

The three people wearing black shirts are passing one ball to fellow black shirts; the ones wearing white shirts are doing the same. So there are six people, passing two balls.

The assignment is to watch how many times the players wearing white, pass the basketball.

It’s a simple assignment that requires some concentration and a clear mind.

The answer: The white shirts pass the ball 15 times.

But wait, there’s more. Many viewers get the number of passes right, but completely overlook a woman dressed in a gorilla suit. The gorilla walks slowly across the scene, stops to face the camera, and thumps her chest.

Half of the people watching the video did not see the gorilla. After watching the video for a second time, some of them refused to accept that they were looking at the same tape and thought it was a different version of the video.

“That’s nice, but what’s your point Simon?” Good question.

The Invisible 800-Pound Gorilla

The experiment was supposed to illustrate the phenomenon of unintentional blindness, also known as perceptual blindness. This condition prevents people from perceiving things that are in plain sight (such as the bear markets of 2000 and 2008).

Much of the media has zeroed in on one singular cause for higher or lower prices. Sample headlines below:

Reuters: Wall Street climbs as GDP data eases fear of Fed pullback
Reuters: Brightening jobs picture may draw Fed closer to tapering
Reuters: Wall Street slips amid Fed caution

The media is busy ‘counting passes,’ or watching Bernanke’s every word and interpret even the slightest variation of terminology.

The Fed’s action is the only thing that matters, but amidst ‘counting passes,’ many overlook the gorilla.

Gorilla Sightings

It’s believed that a rising QE liquidity tide lifts all boats. This was impressively demonstrated in 2010 and 2011 when various asset classes and commodities reached all-time highs. It only conditionally applies to 2012 and 2013 though.

In 2011 gold and silver rallied to nominal all-time highs. Why?

  1. The Fed pumped money into the system (aka banks) and all that excess liquidity had to be invested somewhere, anywhere, including precious metals.
  2. Fear of inflation. Gold is known is the only real currency and inflation hedge. Silver rode gold’s coattail and became known as the poor-man’s gold. From 2008 – 2011 gold prices nearly tripled and silver went from $8.50 to $50/ounce.

Since its 2011 high, the SPDR Gold Shares ETF (NYSEArca: GLD) has fallen as much as 38.29% and the iShares Silver Trust (NYSEArca: SLV) was down as much as 63.41%.

This doesn’t make (conventional) sense or does it. QE or the fear of inflation didn’t stop in 2011. In fact, QE (and the associated risk of inflation) is stronger than ever. Based on the above rationale, the gold and silvers meltdown is inconceivable and unexplainable.

The QE ‘Crown Jewel’

Initially QE was limited to government bonds or Treasury bonds. In other words, the Federal Reserve would buy Treasuries of various durations from banks and primary dealers with freshly printed money.

The effect was intentionally twofold:

  1. The Fed would pay top dollars to keep Treasury prices artificially inflated and interest rates low.
  2. The banks would have extra money to ‘play’ with and drive up asset prices, a process Mr. Bernanke dubbed the ‘wealth effect.’

With that thought in mind, take a look at the iShares 20+ year Treasury ETF (NYSEArca: TLT) chart above.

From the May peak to June trough TLT tumbled 14.56%, more than twice as much as the S&P 500 (7.52%).

Lessons

The lessons are simple:

  1. QE doesn’t always work and can misfire badly.
  2. We don’t see every gorilla (or looming bear).

All this doesn’t mean that the market will crash tomorrow. In fact, the stock market doesn’t exhibit the tell tale signs of a major top right now and higher highs seem likely.

Unintentional blindness is real and often magnified by the herding effect. The investing crowd (or herd) is convinced that stocks will go up as long as the Fed feeds Wall Street.

The above charts suggests that we shouldn’t follow this assumption blindly.