Going long the June Australian dollar is my best trading idea right now. After bottoming at long-term support at 95.15 on Wednesday, Thursday had some fabulously wild swings. You could buy first when it dropped back to 95.65 (just 50 pips from the bottom), then catch a night rally to 96.87, get short and ride down to the morning low of 95.72 where I was buying, and riding up to 9681, only to move sideways back and forth from 9641 to 9675 all afternoon. I did a lot of scalping late. I look for the bottom at 95.15 to hold for several days while a seasonal low occurs so all dips can be bought. In fact, if Friday we sell off, we should make all the move right back up on Monday, and go on higher approaching 97 and eventually 98. Since 98.50 on the down move, all 50 cent dips to new lows have been buys. My recommendation to get long at 95.50 was an excellent call and I am staying long and scalping for the immediate future. Last year's low of the year of 95.65 was made in late May. Personally I feel that the Aussie will not trade in 2013 below 94, but if it does you can know that I plan to buy all dips until the currency returns to a premium over par. The oversold condition and bearish sentiment is extreme, paving the way for an eventual short-covering rally which could travel much further than anyone might imagine possible. Even with a recent rate cut, at 2 1/2% this currency carries a nice premium yield over other currencies and Aussie should rally with gold as gold also corrects from the April selloff.
Gold Movement Forecast
I am looking for August gold to find minor resistance at 1425 and especially 1435 to 1450, where it should top out and then return to the 1405 area where it should get support for a retest of 1450. If 1450 can be taken out then expect a retest of 1485, but if it cannot take out 1450 then look for a retest of 1372 and eventually 1300 and lower. Until gold trades above 1500 I remain bearish above 1450 and will look to fade the current rally into resistance at 1450. I still believe there is at least a 50% chance that gold trades down to 1225 in the next 12 months. I am extremely bullish under 1300 and will be buying all dips under 1300. By the same token I will be selling all rallies above 1450 until I see two closes above 1500.
Gold vs. Platinum
My favored trades right now in the metals is to buy gold on dips and sell platinum on rallies. Platinum is "skankier" than gold, which means it will sell off hard for no reason. When this occurs, one can take profits on the short platinum side of the spread trade. I like being long a full 100 oz. August gold contract and selling two July Platinum contracts against it, especially when the premium of platinum over gold expands, playing for a contraction. One can also play long 3 to 5 Micro Gold (10 oz) contracts against one Platinum. As an industrial metal, on weak stock market days, platinum should underperform gold. As we get into the summer the stock market should start experiencing more down days unless you believe the DOW is the reincarnation of the Jack and the beanstalk story, and it can grow to the sky without any meaningful correction.
GDX vs. DUST
Today when the gold miner ETF GDX hit 30, then the triple short ETF of DUST fell to support at 75 and I bought DUST at 75.01. After rallying to 78.78, DUST came back to 75 again. I did not buy it late in the day because I was afraid gold could pop overnight and DUST might open at 70 or lower Friday morning. I like buying DUST at 75, 70, etc. in 5 dollar increments down to 60 possibly. But I like pairing the trade of 100 shares of DUST with being long 600 shares of GDX. If one is only trading 300 shares of GDX long, then one would only buy 50 shares of DUST. This way one can spread off overnight and not get caught in a big morning move against your position. I feel it is ok to scalp a few dollar in DUST when GDX hits resistance. But if one is holding overnight, I suggest pairing it up with GDX shares. DUST fell from 105 to 75 in a couple days.....what a mover! The easy money in GDX has been made for now and DUST will start getting some footing as it trades down to the 60 area. I do not see it falling below 60 at this time.
I underestimated how low this stock could trade down to after hitting a high of 23.75. I felt 21 should hold and then really believed 20 was going to hold. To be trading down to 18.50 is a major disappointment. There is still a post earnings gap from 18.10 to 18.50 that is not filled. I have a small core position in this stock priced at 23, and lots of shares priced in the low 20s and low 19s. I fortunately sold out my shares purchased at 21 when we rallied to 21.80 recently. The average price for the low shares is 19.60 and when we trade back towards 20, I will be lightening up for sure. I am not convinced this stock is ripe yet and has matured enough for a sustained rally. In the meantime then I will continue to dump a few shares on rallies and then buy them back on weakness to lower my average price. I do not plan on selling out at a loss. CLF should stay above 18 or at least 17.50 and at some point get an upgrade based on valuation and we get a pop towards 20 where I can lighten up.
Disclosure: I am long CLF.