Today Technical Disciplines Editor Rex Takasugi recommends an ETF that may be
putting in a bottom.
“In the March edition I said that it appeared that gold was approaching a
capitulation situation and that capitulation now looks to have occurred in quite a
dramatic fashion. I don’t think the price of gold was manipulated by central banks
or governments as some of the gold bugs contend, but rather I think some hedge
fund(s) thought they could force gold prices down through a major support level
and cause some panic selling among the gold holders. There were probably a lot of
stop orders just below that major support level.
“The gold mining stocks have declined in price far more than gold itself percentage-
wise. ... Could gold prices drop further? Sure, it could definitely happen, but from my
contrarian viewpoint the odds are that we’ll see some type of tradable rally in gold
from here. What is the best way to play a rally? A conservative trader could buy a
gold ETF (GLD or IAU), and a moderately aggressive trader could buy a gold miners
ETF (GDX), and an aggressive trader could buy a leveraged gold ETF (GDP) or a
junior miners ETF (GDXJ).
“The Market Vectors Junior Gold Miners ETF (GDXJ, NYSE Arca) is a more
aggressive way to play a rally in gold prices. If gold miner prices drop twice as much
as gold prices, then it is likely that gold miner prices would rise about twice as much
as gold prices, all things being equal (which they never are, of course). There are
a multitude of variables that affect gold and gold mining companies, but generally
I would expect the two to track similarly, but with different volatilities. There are
many other gold and gold mining ETFs to choose from, but this one is my pick.
“Technically, this is a CCI Trendline Trade, and you can see from the chart above
that the CCI indicator has just broken the trendline (green line), giving us a buy
signal. I’d prefer to see a divergence with the price, but this signal is not bad. The
break of the MOB indicator is of concern, for sure, but the overall sentiment on gold
is so negative that it sure looks like capitulation to me. I was thinking that a Type 2
Trade was setting up, but the divergence on the 5/35 Oscillator isn’t what we’d like
for a Type 2 Trade. My intermediate-term target is the upper MOB at around $28.50.
Use appropriate money management stops to protect your trade from becoming a
big loss.”
Rex S. Takasugi, Technical Disciplines, www.infowire.net, 253-639-0436, 5/12/13