Friday April 26 2013
Here is a good article comparing now and its recovery in 2008..
Acting Man suggests another Elliott Wave interpretation. This is looking more correct, a big A B C correction from the 2011 top,
or we simply did not get the small last fifth wave under the previous interpretation.
The Economy - slower than expected.
Stocks continue their topping pattern. Crude oil is moving up nicely as it did mid 2008. I am thinking the asme for gold stocks, so over sold the rally is beginning this week.
GLD
GDXJ GDX and GLD are all displaying this A B C pattern to the upside. It is overdone on the two hour chart. Now look at the daily.
GLD Daily
Gold has run enough that the idea of another big downside seems to be fading. THe MACD at bottom is encouraging. Here is my thinking. I have zero nada interest in owning tens of thousands of dollars of stocks in this sector. However we do seem to be at an historic oversold juncture, see the two lead articles. Even if gold ends up much lower later this year, we seem poised for a bounce into June.
Yesterday June $13 calls for GDXJ were trading at $84 per one hundred shares. So one could control 1,000 shares of GDXJ at the money for $840. While buying options is always risky, as we have seen owning gold shares is even more risky.
I am suggesting it might be worthwhile to scale in purchases of June and September calls. I am not advocating a large purchase at once. But accumulating say 2-5 calls on pullbacks over the next few days could pay off this summer. USO has jumped from 31 to 33 and also looks promising. The idea here would be to own calls expiring in June and September. If one bought as the price rises accumulating say 20 calls across gdxj, gdx. The idea would be to keep cost under $3,000 total. Then if GDX even moves back to 40, the returns would be impressive. Given the historic sentiment extreme, volume extreme, see chart above, and any other kind of esxtreme one can name this seems a reasonable risk. And again a far better idea than risking tens of thousands of dollars in actual stocks. The other advantage of this strategy, accumulating some calls, is that if the final low has still not occurred in gold, although that looks less likely, one does not have great risk exposure.
My other observation about Steve Kaplan's buying lower and lower as a market falls is that clearly one should be hedged. If that is the strategy, one should own a six month at the money put at say 18 when gdxj is being purchased lower and lower under 18. This would have been a portfolio insurance technique as GDXJ slid to 11-12.
CAUTION One should be thoroughly versed in options terminiology, strategy, technique, before entering any trade.
Comments