Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Rally On First Trading Day of 2010, But Is The Bottom In?

Commodities / Gold and Silver 2010 Jan 06, 2010 - 04:34 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleThe precious metals moved higher in the first trading session of 2010, which is traditionally known as a bullish sign for the whole following year. However, this single session does not determine the direction in which metals will head in the following days / weeks - there are other tools that need to be applied in order to find the most probable shor-term outcome. In the following essay I will focus on the current situation on the gold market (charts courtesy of http://stockcharts.com) and its implications for long-term Investors and short-term Speculators.


Over a week ago we wrote that the price of gold (GLD ETF) is very close to the long-term support level (rising thick blue line) - the aforementioned $105 level. It is also currently in the area marked with red ellipse, which suggests that the bottom may be very close.

Consequently, we have just seen a local bottom in the gold market, but the question remains if that was the final bottom for this decline, and gold will move higher in the following weeks, or was that just a small pause within the decline.

The Stochastic indicator (on the bottom of the above chart) has put a double bottom, which in the past meant that a local bottom is in. The Relative Strength Index (on the top of the above chart) confirms that gold is moved close to the "oversold" territory, and might have just put a local bottom.

Therefore, the key question is - should I go back on the long side of the market?

If you've been following my analysis for some time, you might have noticed that I'm usually very careful when it comes to saying that "this or that will take place". There is a very good reason for that, which is connected with my overall approach toward investing. Before elaborating on that topic, I would like to provide additional version of the above chart. Normally we would have put everything on one long-term chart, but this time it seems that it would make the whole analysis rather unclear.

The reason that we decided to feature the second version of the same chart is that it emphasizes the similarity between several situations (red rectangles) that can be extrapolated to what we see today.

Please note that each of the marked time frames begins with a decline after a significant top has been formed. This corresponded to a relatively low value of the RSI indicator and a double bottom (or a big single bottom) in the Stochastic indicator. This is exactly what we see today. It was three times in almost 2 previous years when the initial "Stochastic double bottom" and low values of RSI after a decline meant that only the initial part of the downswing has been completed.

Back then the decline took the form of a "zigzag", meaning that there was one small rally within the decline, that caused the Stochastic indicator to move above 50. Applying this tendency to today's situation on the gold market suggests that gold may rally insignificantly only to move lower once again. Should that take place, we will need to look for some kind of confirmation - most likely in the form of either high (that was an important bottom) or - more likely - low volume meaning that gold is likely to move lower in the short run.

At this point I would like to get back to the topic that I've started a few paragraphs earlier regarding the overall approach toward investing.

The reason that I rarely tell you what "will" happen is that there is nothing certain in the future, especially when the capital markets are involved. The commodities market tends to be very volatile, so it is even less predictable than prices of other assets. Yet, there are many techniques and tools (and I'm on a never ending search for the most reliable ones) that allow us to analyze the market and provide us with an insight as far as the chances that a particular move will materialize are concerned. I have put the "chances" word in bold, because that is the key word here. The chance that a bottom / top / breakdown, or breakout will materialize is all we can infer from the analysis of charts, or by using other means.

Investors often ask me "is the bottom already in?" or "was this the breakout?". I read it in the following way "should I buy?" The problem is that in 99% cases I don't know anything about the person asking this question, nor about their investment preferences. Without that, it's impossible to answer this question. One might ask "Why? That's a relatively simple question..." The question (just like investing itself) is simple, but not easy.

The "was the bottom in?" is just a small part of a much bigger question - "how should I position myself given the current market conditions"

Long-term Investors generally want to keep their holdings invested in a given asset class until the final top is reached (hundreds or much more likely thousands of dollars away). However, given the fact that gold and silver may plunge fast (the big 2008 downswing), these Investors would also prefer to stay out of the market with at least a part of their holdings during the most unfavorable conditions. Consequently, they want to stay out of the market only when the risk of a sell-off is very big, and ride out the smaller / less probable declines. For long-term Investors, the risk is to be out of the market, because the consequences of being totally out of the market are too important - missing a $200 move to save $10 on an entry point simply isn't worth it.

This means getting back to the long side of the market as soon as the risk of a deep decline is low.

This is the case today. By buying now, one is not buying at the top - more than $100 below it in gold. Moreover, the "bottom area" has been reached, so the risk of a deep decline from here is limited. Consequently, it makes sense for long-term Investors to enter the market, even though there are no "clear" signals that the bottom is in. In other words "it is profitable enough" for one to get back on the long side of the market with their long-term capital, to do it.

Speculation is a different matter. Here, you take small positions, trade often, and a wrong decision every now and then is to be expected (!). Therefore, Speculators usually want to stay with their capital on the sidelines and enter only during the most favorable conditions. This approach allows them to minimize the number of losing transactions and maximize the amount of the profitable ones. Consequently, being out of the market is not a big risk as far as the speculation is concerned. Here you can say that "there's always the next train." You can - and it is profitable to - wait for the most profitable risk/reward situation and enter the market at this particular moment.

This means waiting for the most appealing risk/reward combinations. Naturally, you may - and most likely do - have a different style of trading than the one mentioned above, and that is perfectly fine with me. Still, the main implication remains - trading is about many single transactions and maximizing the odds of a success in each of them. More details about portfolio structuring are available for Subscribers along with meticulous analysis, premium charts and tools.

Summing up, although situation seems favorable from the long-term point of view, there are several factors suggesting that this may not have been the final bottom for this decline. Therefore, speculators might want to wait for additional signals before opening a position here.

To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules