The Smart Money Tracker: Is gold topping?

Sunday, February 22, 2009

Is gold topping?

This seems to be the general consensus everywhere I look. It seems like everyone has noticed that gold is overbought and somehow that means gold has topped out. Don't get me wrong, it is entirely possible that gold has gone as far as it's going to go.

I just wanted to point out a few things. First off overbought doesn't necessarily mean top. Just go back and look at the breakout in 07.

Next, I want to take note that gold has now closed over $1000 for the third time in history. It's only a few dollars from closing at all time highs. Gold is already at all time closing highs on the weekly and monthly charts. Granted the month isn't over yet.

The COT isn't especially negative on gold yet and silver is still extremely bullish.

Gold has been moving steadily higher since Nov. I'm not really sure what's bearish about that.

Gold is still in a secular bull market.

The 50 day moving average has crossed back above the 200 day moving average and the 200 day moving average is turning back up.

Silver is forming a powerful rounded base. So are Platinum and Palladium.

The mining stocks are still stupid cheap compared to the price of gold.

The junior sector is exploding for the first time in quite a while.

Volume has been very heavy in the ETF's and mining stocks in general.

Other than biotech, which is questionable, precious metals are the only bull market in town so to speak.

As far as I can see the miners are the only sector that has improving earnings potential. The price of their product is going up and their expenses are coming down. I don't think we can say that for just about any other sector.

So sure gold could top anytime but until it does it seems like a waste of energy to try and pick a top. I think the greater danger is if gold breaks out of the year long consolidation above $1000 and enters the next phase of the bull market and one isn't on board because they were worried about an overbought oscillator.

Ultimately gold will finish the secular bull market no matter what the dollar or Euro or any currency does. So even if one doesn't spot every short term top correctly the overall trend will eventually correct any timing mistakes. That is if one has the patience to let the bull work for them.

More in the weekend update...

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Technical trading rules

T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.
T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows
T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently.
T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken.
T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places.
T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side.
T7. Watch for volume climax, especially after a long move.
T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps.
T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.

General Trading rules

G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
G3. Limit losses and ride profits, irrespective of all other rules.
G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.
G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation.
G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%
G8. In taking a position, price orders are allowable. In closing a position, use market orders."
G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.
G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.
G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.

SMT Disclaimer

Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.

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Is gold topping?

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Sunday, February 22, 2009

Is gold topping?

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