Last week (ending 8/27/2010) turned out to be a little schizoid for traders in that most general markets were slowly sinking and the precious metals were going the other way.
As I always like to do, let's examine the overall markets first.
VTI, our whole market proxy has been wonky since the middle of July (look at the MRO rock-a-by below zero - none of which gave me a valid Sell). Then, on August 13, again later than usual after an MRO reversal, came a Valid Sell signal that gave us a /share gain. I then went short(nervously because of the late signal) and now look at the MRO! Wiggle/woggle and the only thing that's hold me off a cover is the 5DMA and %R are still dropping. But I check it every AM at open to make sure something doesn't go haywire on me.
As you can see from the daily chart of SPY , the S&P 500 is almost untradable for the average trader (i.e. one that does not have a mini tied directly into the exchange and capable of doing a few thousand trades a second ahead of the market in general). There are far too many whip-saws in the trading range from late May for me to trade (I did twice and lost money on the whip saws both times. Once, shame on me, twice, deeper shame on me!) Right now I'm short with a cover order creeping down day by day to stay glued to SPY's butt!
Now the precious metals are playing to different drummer. Both gold and silver (I don't track platinum or palladium) are on long term uptrends. This means I watch them, but trade strictly on the trend and not the MRO. This usually means a longer term trade where one can let the profits run (and make some real money too!). Depending on how far above the trend the metal trades will determine how much you loose off the top when the MRO finally gives a valid sell (which it will sooner or probably later) and you wait and wait until the uptrend line is firmly penetrated. I usually give the price a little cushion to about 5% below the trend before pulling the trigger and selling. On a short sale, should one be so lucky as to get an established downtrend to trade behind, I sell the day following penetration of the trend unless, at open, we take another drop. Then I do it day at a time. Anytime, in a short sale, after an MRO valid BUY (= cover), the next day's close is higher, the trade is covered in a flash. I like using a (more or less) 100% invested method for trading - long on valid buys, short on valid sells, but the cover trigger does not have a trigger guard on it and I've filed the sear down until a nervous twitch sets off the bang and I'm covered and out of there!
We can't say anything bad here. GLD is walking up a slightly accelerated trend line that started in November of 2008. In the case of such an uptrend (short term traders take tranquilizers during this kind of trade) the MRO reversals and what would otherwise be buys or sells, become instead, indicators of strength or weakness as you can see by the labels. It has been an awful long time without a sufficient correction to fracture the trend. The longer it goes, the more likely the correction (and it will happen - unless "this time, it's different") will be significant. The "this time it's different" means the damage done to the economy, National debt, private debt, trade balance and unfunded liabilities both private and public of this country are so bad ( right now it only totals 6 trillion - that's just a printer's switch from a solution, right?) that this time it is really truly different and things go straight to hell from here. That is always a possibility given that the idiots in charge are already talking about further QE and other insane schemes to make it all even worse. With Gold and Silver, trade the trends until they stop. Period.
Here's where you can do some trading - really short term from a few days to a week or two. But it's harder. As long as the Weekly data is climbing a trend, your core holdings should remain in place. But there's no reason you can't do some short term trading on the buys and sells hidden within the bars of the weekly data. The daily looks a lot different than the weekly chart, doesn't it. But check the two out and the highs and lows will match to the penny. Takes the highest high and the lowest low from a week' data and they will match the larger bar high/low of the weekly chart.
Silver is also riding an uptrend going back to about where gold started. Keep the core position and trade the daily fluctuations hidden in the weekly data high/low bars. 'nuff said…
IGE is an ETF that represents a large basket of natural resource companies. One would expect that if we were pulling out of a Great Recession, the demand for resources would be rising, right? Well, hmmmm.. Take a look at the monthly chart of IGE which is on a sell that kicked in last May. This is not the picture of a recovering economy. It's a picture of dropping demand for everything from A to Z. Further, remember that the moving average for this chart is a 5 month MA - not 5 day.. When that moving average rolls down, it means something big is going on!
Credit Ishares
This chart shows IGE top ten holdings - even some golds in there which has been buffering the stock price while everything else is dropping away. The overall picture here is not recovering economy but a softening of economies world wide that will eventually lead to wailing and tears.
What it all boils down to this past week was what anyone who reads FSO already knows by heart. Hold the core precious metal investments, do your trading in them very short term and hold the shorts on either broad market ETF's or your favorite dog (pun intended for the short DIA), being ready to cover in a flash if we get a rally. Every one of the major market averages (DIA, QQQQ, RUA, SPY) are in sell mode on a daily basis and every weekly chart has just rolled under (as of Friday) showing extended weakness, if not worse. Only time will tell.
End
Information on the MRO an Market Trend Trader
The MRO (Market Reversal Oscillator) and its associated trend trading system was developed and is sold by Mike Endres and the Marker Trend Trader. Please feel free to contact Mike to discuss this article and the MRO trend trading system.
Please note that the author may or may not hold positions in the securities mentioned in this article and nothing contained herein should be construed as investment advise for any particular security or action. Do your own research and make your own decisions!
