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How To Trade Gold and Silver’s Volatility

Wed Aug 25th
Understanding the key differences between both gold and silver’s risk/volatility levels plays a large part in how I choose a low risk trade setup. Those of you who follow me already know the GLD etf is my favorite trading vehicle as it provides me with low risk trading setups along with a very high win rate.

Ok, let’s jump into to comparing gold and silver as trading instruments. I get the same questions from new traders all the time and I think these two questions will help clear them up.

The questions are:

1. Why don’t you give silver (SLV) trading analysis/signals?
2. Why don’t you trade silver?

My answer to the questions are simple and the chart below displays my view.

The gold (GLD) signals I provide work with silver so you can just trade silver when I have gold long or short trade. This is the reason I don’t provide much silver analysis because it’s duplicate info.

The chart below shows how gold and silver trade together when it comes to rallies and sell offs. But notice how volatile silver is while gold had a nice slow and steady trend upwards… Gold’s low volatility trending characteristics is what I love about it. Silver on the other hand is all over the place making it easy to have protective stops triggered before the majority of the trend is over. The silver charts almost always look terrible (tough to read for a direction). I really don’t like getting shaken out of a winning trade…

The pink circles show a quick short trade we did this week catching a quick 1% drop. The short trade was for FuturesTradingSignals where we capture 1-3 day extreme market sentiment shifts.

GLD – Gold ETF Trading Chart

The chart below shows several points as to why gold/silver was screaming BUY ME on Tuesday afternoon. The two things that carry 90% of the strength in my opinion are the candlestick pattern (Bullish Engulfing) and the volume surge. Those two things when seeing on virtually any time frame are a good indication to go long for 1-3 candlesticks minimum.

Gold VS Silver – 5 Minute 3 Day Chart

This chart clearly shows the power of trading a more volatile commodity with silver being the one. This week’s buy signal in gold is dwarfed by the performance of silver. Silver has always shined more in my opinion but when it comes to trading… It tougher than it looks to trade because of the wild whipsaw action it makes on a regular basis.

Gold and Silver Trading Conclusion:

In short, gold is the safe haven when it comes to actively trading. I do trade silver here and there but the size of my position is much smaller because of the difficulty level and volatility associated with it. I will not that I do trade gold and silver futures at times but for this report I focused on ETF’s.

If you want to get my Trading Analysis and ETF Trading Alerts Join My Newsletter: www.TheGoldAndOilGuy.com

Chris Vermeulen

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Back 2 Back Reversals for the Stock Market

The market continues to become quicker and fiercer as it move up and down 2+% on a regular basis This week we have seen some wild price swings due to earnings, events and the Fed’s which just makes trading that much more intense.

I have pointed out yesterday that this market only gives you a brief moment to take profits before it starts going wild shaking traders out of positions. This increased volatility is caused from a couple of things:

1. Traders/Investors know the financial system is still riddled with unethical practices/manipulation. This causes everyone to be extra jumpy/emotional and causes volume surges in the market as the herd starts to get greedy or fearful.
2. Volume overall on the buying side of things just isn’t there… I see some nice waves of buying but it doesn’t move the market up much… then it only takes a small wave of sellers for the market to drop… Investors are just scared to buy stocks and that is not a good thing…

I keep a close eye on the buying and selling volume for the NYSE as it tends to help pin tops and bottom within a 2-3 day period. In short when we get panic buying meaning 75%+ of volume is from buyers then I know the general public is jumping into the market buying everything up and that’s when the smart money starts to scale out of their position selling to these retail investors. These retail investors are buying on news and excitement much like what we are seeing now with earnings season. Stocks have run up for 5-10 days, as the smart money buys in on anticipation of good news, then the earnings are released which are better than expected and the stocks pop and drop. Well the pop higher on BIG volume are all the retail investors buying and are generally the last ones in. The smart money is quickly selling into this buying surge so they end up getting out at high prices.

My point here is that in general I see 4-6 of these panic buying or selling days a year which I find are tradable. The crazy part is that we have seen 11 of these panic days (both buying and selling) in just 8 weeks… We are seeing more selling than we did at the bottom in 2009! Something big is about to happen and I want to make sure we get a price of it once the moves starts.

Anyways, below is a chart of the SP500 showing how its trading under some key resistance levels. Today the market gapped up testing the 50 day moving average and above the 5 day moving average then sold down very strongly during Ben Bernanke’s speech. This is not a good sign for the overall health of the market.

On the commodities side of things we are not seeing much happening with gold or oil at the moment. Gold is still in a short term down. And gold took an $8 drop today when Ben Bernanke said inflation would remain low for an extended period of time.

As for crude oil, yesterday afternoon I pointed out to members that oil had a big run up on virtually no volume Tuesday and it would most likely give back those gains today. We saw this today with oil dropping from $78 down to 76.50 per barrel. Overall Oil looks like it wants to go higher but has some work to do before that can happen.

Mid-Week Trading Conclusion:
In short, the market remains choppy and we are getting more than normal news/events which are moving the market and this is causing extra noise and volatility for traders. Cash is king during volatile times and if you are doing some trades be sure to keep the positions small for another month or so.

If you would like to receive my detailed trading analysis and alerts be sure to checkout my websites at www.TheGoldAndOilGuy.com or www.FuturesTradingSignals.com

Chris Vermeulen

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What I See Next for Gold, Dollar & SPX

Last week we saw stocks move sharply higher as traders started to cover their short position which added fuel to an already oversold market ready to bounce. Overall volume was not that strong on the move up which is a bearish sign. On Friday afternoon we saw the SP500 continue to move into the $1075 resistance level on very light volume. This indicates to me that buyers are not willing to pay these higher prices because the market has moved up so quickly and the fact that it’s trading at a resistance level.

I feel the market will gap higher on Monday just like we say on June 20/21 deep into a resistance level and the big money will short the pop sending it sharply lower.

Gold looks to be shifting its momentum from a down trend to an uptrend. It’s forming a reverse head & shoulders pattern which is shown in the video posted below.

Here is My Technical Trading Report Video Covering:

– Gold
– US Dollar
– SP500
– Market Internals
– On Balance Volume

iPhone/iPad Video Format: Click Here

Weekend Conclusion:

In short is looks as thought the market is at a critical pivot point. We could see prices stall out here and continue the down trend or see strong buying step in sending prices higher in the equities market. We need to wait and see what type of price action unfolds in the coming days.

If you would like to receive my trading alerts and education checkout my service at www.FuturesTradingSignals.com or my swing trading service at www.TheGoldAndOilGuy.com

Chris Vermeulen

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SP500, Oil and Gold Trading at Resistance Levels

June 16, 2010
It’s been a bright week so far for stocks and commodities. It appears that the down trend could have ended as of yesterday (Tuesday June 15th). In this mid-week report I figured I would bring back the 80’s colors to see if I can spice things up!

Below are some charts I did showing my current views on the market. You may want to put on your hyper color shirt, sunglasses and zinc when viewing them in order to get into the zone… lol

SPX – S&P500 Index Exchange Traded Fund – Daily Chart

I’ll keep this short and sweet here are the main points.

Moving Averages crossed over this week and when we see this a trend reversal generally occurs. That being said it is best to wait for the moving averages to cluster which means we need a pullback or sideways movement for a few days. I feel this is very likely to happen.

NYSE Buying Spikes have returned! We saw these during the previous bottom back in February. As the market continues to trend higher and mature these volume spikes tend to increase also.

Long Term Cycle has bottomed and should start to rise this week. As we can see from the February bottom the cycle was also bottoming which is very bullish for the index.

We Are Here shows where I think we are currently trading. The market is over bought right now and I feel a quick pullback or sideways move is needed before we see a continued move up.

Here is my Pre-Market Trading Video & Squawk Box Recording for today if you want to see my charts as of this morning: http://www.futurestradingsignals.com/trading-education/june-16th-market-reports/

Gold Futures – Daily Chart

Gold is trading in a tight wedge at the moment. The long term picture is pointing to higher prices but I feel there is a good change of one last drop which should shake out a bunch of traders before rocketing upwards. August and September are good months for gold to move up and if you have been following the market as long as I have then you know patterns and prices can drag out much longer than we anticipate. So as much as the chart of gold looks like an imminent breakout is about to occur, it could still be a few months way. And to be honest that’s how the market works…. If it doesn’t shake you out, it will wear you out!

Crude Oil Futures – Daily Chart

Oil is trading a key pivot point and also looks to have formed a possible bear flag. At the moment I am neutral on oil, it’s a 50/50 guess as to which way it will go, so I am just watching for now… But I have pointed out some key resistance and support levels for those with oil positions… This small chart makes it look like I put a ling at ever $2 but if you look closer some are above and below those even numbers.

Mid-Week Stock and Commodity Wrap Up:

In short, I think the market is on the verge of another rally which is very exciting since we cashed out in late April before the market had the big sell off. It will be nice to put some long term plays to work so we are not so dependent on the short intraday plays which last 1-2 days because of the extreme volatility in the market.Last week we saw the financial market including commodities move higher which was great to see. But the recent run up has brought both equities and commodities to their key resistance levels. With Gold, Oil and the SP500 trading near key resistance points we will most likely have some sharp movements this week so buckle up tight!

Gold – Daily Chart

Gold Future Prices continue to form the large cup and handle pattern and is trading near resistance. This week I figure we will see gold make a move up or break the dotted support trend line and drop towards the blue support level. I continue to wait for a low risk setup for gold.

Crude Oil – Daily Chart

Crude oil has been trending down for a couple months and recently rebounded to test its resistance level. It looks as though oil is forming a bear flag which generally means we should see lower prices in the near future. But another $1-2 move up could trigger a surge of buyers if this resistance level is broken which is why this week should be volatile… it’s a 50/50 chance for commodities to either rally or sell off.

SP500 – Daily Chart

The SP500 has posted some decent gains the past couple days but it’s still no in the clear just yet… Most technicians are looking for a move above 1100-1110 area with heavy volume before they start to commit serious money to the long side.

It looks and feels as though the market could drop or rally very sharply from here and if you are caught on the wrong side of the move then it’s going to really hurt the trading account. During times like this when the market is at a critical pivot point with increased volatility levels along with mixed market internals I tend to stay on the side lines until some dust settles.

Weekend Gold, Oil and SPX Trading Conclusion:

In short, everything is trading near key pivot points giving mixed signals for prices to rally or drop. My analysis is pointing to a small move up Monday morning to break Fridays high followed by some selling late Monday or Tuesday. How much of a move down I don’t know for sure but there is potential for a 3-4% move. On the flip side if buyers step in pushing the price above 1100 then we could see a surge higher of 3-4%…

Very dicey times right now to be trying to pick a direction, which is why it’s best to wait for the risk level to diminish before getting involved or at least trade a small position with a protective stop if you feel confident in a direct.

If you would like to receive my Low Risk ETF Trading Signals be sure to checkout my service at: www.TheGoldAndOilGuy.com

Chris Vermeulen

Get My Technical Charts Emailed To You:

I figure we will see stocks and gold move up together but I’m not really sure about oil at this point… If oil does not move up then the market will have limited up side and instead of a new bull market rally to new 2010 highs we could just see move up to test near the April high. Then it could roll over and start heading back down triggering much larger sell off as we enter another bear market.

All that being said… it looks to be a couple months away still and a lot can happen in that time. As a market technician I take each chart one day at a time.

If you would like to learn my intraday and swing trades along with my trading signals checkout my website: www.FuturesTradingSignals.com

Chris Vermeulen

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Broad Market Internals Are Pointing To Higher Prices

It was another extremely volatile week sharp rallies followed by sharp sell offs. Fear is in no doubt controlling the market. The bulls and bears continue to battle it out. The charts below cover some important trends and market internals I pay attention to on a daily basis.

US Dollar Index – Daily Chart

The past two months the dollar as been in rally mode. The last 14 days we have seen a large bullish pennant form and this pattern typically marks the half way point for the current tend. The measured move for the USD is pointing to 93 over the next few months.

Gold Futures Prices – Daily Chart

Gold as we all know is seen as the major safe haven and the price per ounce has been steadily climbing. Friday we saw the major indexes sell down very hard but both the dollar and gold posted some solid gains. Gold does looks as though it needs some time to digest the recent move higher and this could take a week or two before anything exciting happens but I am on the lookout for low risk setups.

VIX – Volatility Index – 60 Minute Chart

This index measures the fear in the market. When fear is high and everyone is selling their positions we see the VIX jump in price. Over the past month we can see a possible Head & Shoulders pattern forming. If this pattern unfolds like it should then we will see the price of equities bottom in the coming week with the VIX dropping below the blue neckline. The old saying is “When the VIX is High is time to Buy, when the VIX is low its time to Go”.

Put Call Ration – 60 Minute Chart

In short, when the put/call ration is over 1.00 then there are more traders/investors buying Put Options than Call Options. Put options are when people are buying leverage to take advantage of lower prices. My thought/opinion about this is when more people are trading with leverage anticipating lower prices, I figure they have sold all their long positions and are now using leverage to profit from lower prices. Well if the majority of individuals have sold everything then in reality there should not be much left to be sold… So I feel this correction which started in April is almost finished.

NYSE Advance/Decline Line – 60 Minute Chart

This is one of my favorite charts to look at. While there are several indicators, market internals and technical analysis needed to clearly determine if the market is currently overbought or oversold, this chart is one that can help give you a good idea if you should be looking to buy, short or just stay in cash for the time being.

SP500 Futures Prices- 2 Hour Chart

The SP500 has been up and down like a yo-yo with some very dramatic moves. Up 2+% day down 2+% the next… very sharp and powerful moves can be both every profitable or costly if not traded correctly. Last week we caught a nice 2% gain in less than 24 hours which was an exciting trade. It looked at though the market was about to breakout to the upside and possibly reach the 1150 level but early Friday morning there were rumors about some Euro bank having serious problems and that was just enough to cause a domino effect sending the market lower throughout the entire session closing on a very strong negative note for the day/week.

That being said the market internals are indicating that equities are oversold at these current prices and a bounce is due any time. With the panic selling on the NYSE Friday reaching 119 sell orders for every 1 buy order I think we will see some follow through next week with lower prices, then a rebound once investors finish selling everything they own at which point we will be looking to get involved again.

Weekly Trading Conclusion:

In short, money continues to flow into the safe havens (Gold & US Dollar). The major indices are showing extreme panic selling and look ready to in the next few days. There is a possibility that the market could break down and start another major leg lower which is a big concern to me. I will be glued to the market internals and support levels for the major commodities and equity sectors in hopes to catch the bottom or to avoid another melt down.

If you would like to receive my Daily Pre-Market Videos and Trading Alerts please checkout my website at: www.FuturesTradingSignals.com

Chris Vermeulen

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Gold & SP500 Day Trading Gone Wild & What’s Next?

May 2, 2010
The past couple weeks we have seen sellers control the price of gold. This can be seen on the charts by the light volume drifts up then heavy volume sell selling sending this metal sharply lower. This type of price action provides some excellent intraday shorting opportunities.

On the other hand the SP500 has been doing quite the opposite providing some very profitable intraday buying opportunities for those who have the time to trade during the day.

Below I show a couple of low risk intraday trading opportunities which lasted a couple days providing massive gains, tiny down side risk and immediate price action. But what I think is about to happen in the next week or so will turn the tables with gold providing great buying opportunities and the SP500 with some great shorting opportunities, opposite to what is happening now.

Two Shorting Opportunities in Gold Making 210% Return in 3 Days

The fist two weeks of April gold had formed an excellent mini head & shoulders topping pattern. This is a pattern which I find very profitable when trading the intraday charts.

The first chart is of the 2 hour intraday gold chart spanning 25 days. On this chart gold had formed a mini head & shoulders topping pattern which day traders were able to take advantage of with very little risk.

Once the first wave of selling was finished and gold reached our price target of $1134, we exited our position and waited for another intraday setup. It was only a couple days later when gold has setup for another opportunity to short which an even more potential than the first trade as it had the possibility of dropping to the $1115 level. This would have provided a $40 move in gold washing the market of weak positions setting itself up for another big rally.

Our first price target was reached at $1147.7 where we took some profits and moved our stop to break-even (our entry price) for the balance of our position. Doing this guarantees the trades will be a winner no matter what happens. As you can see on the chart depending what investment type you trade you would have earned 2.6% – 210% return on your investment.

Gold Short Intraday Trading

Gold’s Surprise Rally – Spain Was A Pain

Last week Spain was downgraded causing large selling pressure on the Euro as everyone sold the Euro and moved their money into a safer investment like the US Dollar and Gold. This sent both dramatically higher at the same time. The chart below shows the same 2 hour chart of gold but is zoomed out so you can see farther back and also the most recent rally in gold.

The red arrow on gold shows where gold was most likely to go in the coming days, but instead it rocketed higher on the Euro-land news hitting the wires. Most of the price advance happened within the first 4 hours and since then the price has drifted sideways and grinded its way a little higher.

Gold Surprise Rally

SP500 Buying Opportunity Makes 135% Gain in 3 Days

During the day on Wednesday I had low risk entry point for day traders on the SP500. The setup is simple really. Tuesday’s panic selling sent the market tumbling in a very short period of time putting the market in an oversold condition. A condition like this provides excellent low risk/instant price movement type of setup.

Take a look at the volume on the chart… Volume on the ES Mini SP Futures contract was not very heavy during the sell offs. But the days following shows strong buying volume indicating big money was buying up stocks at these discounted prices. This is great to see.

ES Mini Trading Strategy

60 Minute SP500 Trading Chart

As you can see from the chart below Tuesday’s heavy volume sell off was an almost straight drop. That type of move generally provides a trad-able bounce or drift higher within a few days which tests the level were prices started to drop originally (the breakdown level).

The price of the SP500 drifted up into resistance with declining volume meaning traders are not willing to pay the higher price for the index. This is a sign of weakness and worked out perfectly with our price target of $1205-1206 at which point we took money off the table and moved our stop up to lock in some solid gains if the market did in fact reverse back down after reaching the key resistance level.

SP500 Day Trading Strategy

Gold & SP500 Trading Conclusion:

Some very exciting times lie ahead as I feel gold and the SP500 are changing short term trend directions. Gold which was down the past month is now headed higher as we are looking for low volume pullbacks to take long positions.

And the SP500 looks ready to take a swan dive to correct/digest some of the monster rally it has put in since the February low. With any luck we will get a nice shorting opportunity to catch some of the move down and then we should be setup for another large rally.

In short, we are looking for gold to dip to enter long and the SP500 to breakdown this week then form a low volume bounce/drift into a resistance level which we will try to short once the bounce loses its upward momentum. I feel we will have a bunch of day trades in the near future along with some great swing trades at the key turning points.

Get My Gold and SP500 ETF Swing Trading Signals: www.TheGoldAndOilGuy.com
My Intraday, Swing Trades and Trading Strategy: www.FuturesTradingSignals.com
You can also Trade Explosive Stocks with me at: www.ActiveTradingPartners.com

Chris Vermeulen

Disclaimer: I currently do not own gold and SP500 ETFs or Futures contracts.

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Are Crude Oil & Natural Gas about to Explode?

March 13 2010
Last weeks price action unfolded just as we expected. Money poured into stocks with the focus being on small cap, banks and technology stocks. The fact that these sectors are showing strength while utilities, health care and consumer staples lag is a good sign that investors are once again taking risks in the market.

Because investors and traders are bullish on the stock market again the money flow into the safe havens like precious metals and energy has decreased. I believe this is the reason stocks moved up last week while precious metals drifted lower.

Below are weekly charts (Natural Gas, Crude Oil and the Dollar) showing what I think is most likely to happen in the next few weeks and what should fuel the fire.

Natural Gas – Weekly Chart
Natural has been out of favor for the past 3 months with most of the selling happening recently as seen on the chart. In my opinion natural gas is over sold and about ready for a bounce.

The price of NG is now trading at a key support level but until the selling momentum stops and reverses back up I would steer clear of this commodity play. Natural gas is known for taking peoples money time and time again so trade this commodity very carefully.

Crude Oil – Weekly Chart
Crude oil has been trading in a channel for several months and is now testing the upper level. If we see the US Dollar drop in the coming weeks then I expect oil to surge higher along with natural gas. If oil breaks out then I expect to see the $90 level reached within a month.

US Dollar Index – Daily Chart
The US Dollar has put in a very nice bounce/rally since the low in November 2009. Last month the dollar finally reached a key resistance level of 81. I have been talking about this major resistance level since January as the Dollar would find it difficult to break above this level.

There is a strong chance we could see 78 reached which is the measured move down. If we get follow through selling next week then I would expect 78 to be reached within 1-2 weeks and over the next few months we could very well test the 2008 low of 72.50.

Natural Gas – It’s the Season
Natural gas’ seasonal price action shows that the price tends to strengthen between February and April. So with NG at support and we are in March you can guess what I’m thinking… higher prices are where the odds are pointing.

Crude Oil – It’s the Season
It’s the same story as natural gas above….
Higher prices seem to be where the best odds are.


Energy Trading Conclusion:

As a technical analyst the above charts are pointing to higher prices in the coming weeks for natural gas and crude oil, which is exciting for us all. BUT when things are this perfect looking we must be very cautious as the market has way to suck traders into these “perfect setups” and spit us out a couple days later for a nasty loss.

Understanding how the market moves is crucial for avoiding and/or minimizing losses when trades go against us. That is why I continue to wait for my signature low risk setup before putting any money to work.

My focus is to take the least amount of trades possible each year, only focusing on the best of the best setups. My low risk setups require risk downside risk to be under 3% for the investment of choice. and the broad market needs to be showing signs of strength as well. I use several different types of analysis to confirm if a setup has a high probability of winning and those which do are the trades I take along with my subscribers.

It is very important to wait for the market to confirm a move higher before taking a position when there is this type of setup. The market could go either way quickly and jumping the gun is not a safe bet.

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Chris Vermeulen
www.GoldAndOilGuy.com

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What’s Next for Stocks, Gold, Silver, Oil & Nat Gas?

December 13, 2009
The past three weeks have been interesting to watch as the Dow (DIA ETF) has broadened causing traders to be shaken in and out of positions. Commodities have been under pressure as the US dollar has risen. Below are some charts of these investments and what I think could happen in the next couple weeks.

DIA – Exchange Traded Fund
As you can see the broadening formation is bearish as it results in a short term pullback. This type of price action is what frustrates breakout and novice traders. As traders jump into positions once the previous high is broken, they hope for a rally. Instead the market briefly moves higher then reverses and moves down to penetrate the previous pivot low. This is where breakout traders place their stops and as the market knows this, it obliges by moving below this level to shake out these traders before it rallies again.

That being said, it looks like stocks could make a new high this week, just enough to suck in more short term breakout traders before rolling over once again to test a deeper support level. A pullback to the $99-100 level would make for a great buy point.

DIA ETF Trade

DIA ETF Trade

GLD – Gold Exchange Traded Fund
The strengthening dollar is putting pressure on precious metals with gold testing the first support level. Depending on what the dollar does in the coming days we could see gold test the second support level.

In my opinion gold can test the second support level without triggering any major sell signals for traders and investors. The trend will still be up and it is important to know the horizontal support level is more important than a trend line support level.

GLD Gold Trend

GLD Gold Trend

SLV – Exchange Traded Fund
Silver is in the same boat at gold. Only time will tell if we get a bounce or a further test lower. Either way, the underlying trend is still up and we will be able trade it.

SLV Silver Trading

SLV Silver Trading

USO – Oil Exchange Traded Fund
Oil broke down out of its bull flag last week and is currently testing both trend line support and horizontal support levels. We could see a short term bounce here to the $37, 38 or 40 levels. Taking money off the table at each resistance level and raising your stop is an important money management strategy I use for this type of play.

This is a high risk type of play which I am not taking part in. But I do find it fun to track plays like this for educational reasons.

How to trade Oil

How to trade Oil

UNG – Natural Gas Exchange Traded Fund
The natural gas fund is a touchy topic with so many traders. I get emails every day asking why I trade UNG because of the contango and the fact that so many people have lost money with it; they don’t want to touch it again. My answer is very simple, it works perfectly fine for short term trading which lasts 1-20 days. “If it works, Don’t Fix It”.
I do agree UNG is tougher than other ETFs to trade, but it still makes money and that is what our goal is.

Anyways natural gas has found some support and is bouncing around. We could see it trend sideways or up until a test of our blue resistance trend line is reached. From there we can asses the situation for a possible trade.

The underlying trend is down on the monthly and weekly charts so do not get too excited about going long anytime soon.

UNg Natural Gas Trade

UNg Natural Gas Trade

ETF Trading Conclusion:
Overall the market feels a little top heavy and the price action on the charts are saying the same thing. My short term indicators are telling me the Dow (DIA fund) is over bought and ready for a couple days of selling. With any luck we will see a test of support which will flush out most short term traders this week, then a nice low volume rally going into Christmas. On the other hand, the market has been holding up well and prices could continue to drift higher from here. If that is the case we simply continue to hold our current long positions and enjoy the ride.

Silver and gold are testing support levels and if the market continues to rally here, I figure precious metals will follow. But if we see stocks pull back and test support, then we will most likely see the metals pull back further also.

Crude oil has formed a scary looking chart as it flushes out traders on this recent drop. My general rule for spec plays is to buy when the chart looks scary, but is trading at multiple support levels. It is very difficult to buy at these levels but as my good buddy David Banister from ActiveTradingPartners.com always says, “Buy when they Cry, Sell when it’s Loud”. Meaning buy when everyone is panicking out of their positions, and sell when everyone is buying into the move usually seen by high volume levels and much higher prices.

Natural Gas is jumping around like crazy. We continue to wait for a tradable price pattern to form in conjunction with a support or resistance level to help put the odds more on our side.

If you would like to receive my Free ETF Trading Newsletter:

Chris Vermeulen
www.TheGoldAndOilGuy.com

Gold Stocks – The Next Winners

Gold Stocks – A contrarian view on where the next Gold Stock winners will emerge.

Searching for the Golden Goose?

For years we have been speaking and writing about the massive bind the Fed now finds itself in. With price inflation rising – read as food and energy skyrocketing — and little hope for nominal interest rate increases – read as housing too weak for higher rates – negative Real Interest Rates (nominal rates less inflation) looks set to persist for some time.

Now why is that important?

Firstly, not only do negative real interest rates make holding non-income producing assets such as Gold attractive, but an environment where inflation is allowed to have its way and economic growth is sick (stagflation), is tantamount to the perfect storm for Gold Stocks and other Precious Metals!

So what do you do?

You load up on assets leveraged to the price of Gold – namely Gold stocks.

Wrong!

As Old Gold Bulls we have seen this situation before. A low growth high inflationary environment is poisonous for equities – Gold stocks included. And whilst the storm persist in the equity markets it will either drag gold stocks lower or prevent them from fully expressing themselves to the upside! That’s why we encourage investors to have a portion of their portfolio exposed directly to the metal either through ETFs, Futures or Physical:

Investing in Gold Stock

Investing in Gold Stock

Chart 1 – Since July 2007 the S&P (red) has been moving lower and Gold the Metal
(green) has outperformed Gold Equitites (red and black)
Hunting Elephants

There is no doubt that an equity risk premium has weighed heavily on Precious Metal equities and that stabilization in equity markets would certainly benefit such stocks. But that’s old news.

What we consider interesting and downright fascinating is the nature of Gold Equities investors should be focusing on over the next year.

Conventional wisdom is that the juniors are where the investment gems lie. We don’t disagree – entirely.

Over the longer term (3-5 years) the fundamentals certainly favour late stage explorers and emerging producers, but an overlooked market dynamic causes us to lean rather towards their larger cousins.

As we have alluded to above, Gold Stocks and other Precious Metal equities are equities and more often than not subjected to the same forces as the general equity market. One such force is the veritable WALL of passive indexed money. By some accounts amounting to several TRILLIONS of Dollars.

And what’s the passive indexed money saying?

Trading Gold Stocks

Trading Gold Stocks

Chart 2 – large caps now outperforming small caps

Firstly it’s saying that the long period of outperformance by small caps versus large caps (chart 2 is falling) bottomed in 2006 and the trend has since been towards large caps.

Secondly…

Gold ETF Trading

Gold ETF Trading

Chart 3 – large cap growth has outperformed value since late 2006

The trend in large caps from value to growth (chart 3 is falling) also looks to have bottomed around late 2006. We define growth as earnings growth of +15% p.a. and/or PEG ratio of around 1.5.

These trends resonated well with us as large cap Gold producers beat out small cap miners over the last year leaving many a gold stock speculator highly frustrated.

Gold Stocks – Where to find such Elephants that will benefit from these trends? We would begin by looking at components of the Gold Stocks ETF (GDX) or the Amex Gold Bugs Index (HUI). Chris Vermeulen