Gold Trade Proves Spectacular to the Upside

[Excerpted from Bill Cara's Week-in-Review]

Trader appetite has changed. This was a week in the market when traders turned aggressive, taking on more risk.

In this Week In Review, I’ll look at market structure again. But rather than focus on the GICS coding system, we’ll look at specific stocks and see how they fit in the food chain.

Commenting on the Canadian market in particular, my associate Pierre Brodeur sent the message that his quant work was showing that,

In the past few days, many short and ultra short sectorial ETFs have been “biting the dust” as their bullish support lines have been broken. (Mining and gold) are now in bull mode while the Bearish Canadian Energy sector is now standing on its bullish line ready to break. Finally, the TSX Bullish % reversed into a column of X yesterday which is testimony that: (1)- More and more market participants “believe” that this upswing is different this time, and (2)- Upswing is finally more broad-based as the mid and small caps are starting to participate. Conclusion: Now is the time to modify the strategy from being defensive (capital preservation) to a capital appreciation strategy.

A few days earlier, I too believed the move was about to start, so after the close of the market on Wednesday, November 19, I gave you the “Trade of the Generation (TOG)”. I recommended selling bonds, and buying gold/goldminers.

To this point, after just five and a half sessions in the U.S., the gold trade has been spectacular to the upside. In a short time, so too will the bonds break out – only I believe they will sink in price as yields rise. That will happen, I think, when the $USD starts to sink as the various U.S. bailouts and economic stimuli plans are kicked into gear, which will be more aggressive than the rest of the world. After all, it is the U.S.-centric Credit Default Swap problem at Citi (C), Bank of America (BAC) and JP Morgan (JPM) that is the source of the global financial problems.

Here are the charts of $GOLD (819 up +$83/oz from 736 at TOG or +11.3% ) and $XAU (101.59 up +29.16 from 72.43 at TOG or +40.3%) as rayg reported a week ago had already started,

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Bill, Thanks for the TOG call on Thursday. Here are the results:

Gold-up 53.3 to 802.20
PHLX gold/silver-up 26.71%
Gold miners- up 20.28%

One year returns in one day....AMAZING!!! Tks

Ray
Posted by: rayg at November 22, 2008 9:28 AM

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On Wednesday, November 12, I gave you my Report on Goldcorp (GG). When the price had dropped below our $18.90 stop to $17.75, I wrote an ADDENDUM to the blog entry precisely as we went long again on GG. I stated that with put writes, our cost basis was well under $17. Ten and a half trading sessions later, GG closed at $26.97 (+58.8%).

With put and call option strategies, you would have made a satisfying three-year Bull market performance target in less than two weeks.

By the way, please note that in the price performance tables in the Saturday report and in this Week In Review (WIR), I used the 1-week performance that represents the past five sessions, which extends to the prior Friday price changes for U.S. data because of the Thanksgiving holiday on Thursday.

I do have a system that facilitates both calculations, but I use the 5-day week for comparative studies. For some of you, there is clearly fault to my logic if you are using these tables to compare apples to apples, i.e., the tables from week to week! Of course, that’s only if you are following only the US. stocks.

So W/W for our purposes means the past five trading sessions. As the previous Friday was one that was up +6.54% for the DJIA, +6.32% for the S&P 500 and +5.18% for the NASDAQ Composite, the calculations you see in this WIR will be materially different than those for the three-and-a-half trading sessions in the U.S. this week. The Canadian data is ok because there were five full trading sessions this week.

However, it is what it is. I do all this work by hand, and do not have the time to show multiple views of the data.

Comments

[leh:]

Yes, nice call BUT it would be very helpful (and honest) to document how many false starts/head fakes you've bet on in the gold miners over the past several months and how much this has cost you to date. Technically the sector has just broken out from its correction from March/April timeframe, and strict trend followers are now looking for entry points on pullbacks. As someone who has been painfully headfaked by this sector multiple times in the past couple months, I'm learning the old lesson of price confirmation (vs guessing) before jumping aboard this time. Nice to catch the bottom, for sure, but honesty demands we ask how many missed swings you've taken to date before hitting this homerun.

2008 Dec 01 08:36 AM

[GMiki1:]

Oops, gold dropped. It's still the only place to be right now, aside from silver, oil, and ag, but jeez, Louise... It's like herding cats. :)

2008 Dec 01 10:45 AM

[raytayzmd:]

..."document"??????...... asking a gold bug to "document" his callls?????...what suburb of "Fantasyland" do you live in?

On Dec 01 08:36 AM leh wrote:

> Yes, nice call BUT it would be very helpful (and honest) to document
> how many false starts/head fakes you've bet on in the gold miners
> over the past several months and how much this has cost you to date.
> Technically the sector has just broken out from its correction from
> March/April timeframe, and strict trend followers are now looking
> for entry points on pullbacks. As someone who has been painfully
> headfaked by this sector multiple times in the past couple months,
> I'm learning the old lesson of price confirmation (vs guessing) before
> jumping aboard this time. Nice to catch the bottom, for sure, but
> honesty demands we ask how many missed swings you've taken to date
> before hitting this homerun.

2008 Dec 01 11:30 AM

[CLH:]

Yes you were right for one week but wrong for 6 months. Nothing to brag about.

2008 Dec 01 02:07 PM