OptionPundit

Tag: Gold

  • How to Profit from Future Options- IFO Weekly Update

    Futures markets especially Corn, Wheat and Crude have been buzzing rather actively during past few months. As part of our Income from Future Options (IFO) service, our strategy has been to wait for the best set-ups that increases our probability of success and as soon as our set-up emerges, then we go for it. (Try IFO FREE for 14 days, thereafter US$97/- per month) (prices are revised upwards from Jul 22, 2013).

    Here is the weekly outlook for 3 markets that we are monitoring for set-ups to emerge. Usually this discussion is shared with Members only. This week we are sharing it with all.

    CORN

     Corn has been consolidating and forming a bullish formation for weeks now. Latest USDA report showed just how bad the situation is in corn. Soon after the report, CORN futures spiked but then settled for lower. As of now, Dec futures are still below Friday’s low. I was actually waiting for a bullish breakout to trade it to the upside. But on Friday, we had a big down day with a false breakout. Now the question is if the bulls have lost it and the bullish pattern invalidated. Should corn break the low at 774, I will have little faith left in the bulls.

    Potential Trade Ideas 
    I am waiting for the bullish pattern to be invalidated to play corn to the downside. As corn can move very quickly in either direction, I will only take the trade if there is a close enough stop to limit my risk. Close enough stop meaning corn doesn’t have to move a lot against me to prove me wrong. This is an aggressive setup.

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  • When do I Buy Gold?

    I have been covering gold ever since Oct 2007 and many readers know that I am a long term bull on Gold (both Physical metal as well as paper gold). Gold is one of those underlyings that I don’t short. I, at times, may initiate a swings bearish positions but I will usually close it within a few days. Key reason – there are many factors beyond my tracking ability that affect gold price movement including but not limited to geo-political, currency, flight to risk etc to name a few.

    I, however, have certain points when I usually go long. Pls look at the chart below-

    This is a 3 year daily chart of Gold prices. Though gold has been trending upwards for the last 10 years, recently gold has picked up speed. I have plotted 50days Simple Moving Average (SMA) and 144days Exponential Moving Averages (EMA) on this chart. If you look carefully, you will observe that every time Gold pulled back around 144days EMA, it has nicely bounced and a up leg started (For swing trading I use different methodologies). And this “support point” is the point where I start to refine my entry.

    This post is NOT to say that gold is headed to 1,600 (144 days EMA as of this writing) but to mention that IF gold drops to 1600 I would surely add more positions to my existing long positions.

    Disclaimer- As of this writing, I have some bearishly biased option positions in GLD. However, a certain % of my investments are in both paper/physical gold.

  • The Gartley Pattern on Dow and S&P500

    Gold is making waves, a new record high in terms of US$; I hope you read my earlier post on Sept 2 (Going for Gold)and benefited from the move.

    Recently I attended a talk in an investment club where one of my friends presented an interesting perspective about The Gartely 222 Chart Patterns and his forecast for the coming few weeks. As this was in line with what I was thinking so I thought why not share it broadly. The Gartley pattern was outlined by H.M. Gartley in his book Profits in the Stock Market, published in 1935 on page 222. Although the pattern is named “The Gartley Pattern” , Fibonacci retracements were not discussed in the book, with regards to this pattern!

    Investopedia explains Gartley Pattern as following-

    The attached shows an uptrend XA with a price reversal at A. Using Fibonacci ratios, the retracement AB should be 61.8% of the price range A minus X, as shown by line XB. At B, the price reverses again. Ideally, retracement BC should be between 61.8% and 78.6% of the AB price range, not the length of the lines, and is shown along the line AC. At C, the price again reverses with retracement CD between 127% and 161.8% of the range BC and is shown along the line BD. Price D is the point to buy/sell (bullish/bearish Gartley pattern) as the price is about to increase/decrease.

    Though there are many variations to ratios, the Fibonacci retracements that yield good results are the 61.8% at the B point and the 78.6% at the D point. The pattern should exhibit a distinct AB=CD pattern that converges in the same area as the 78.6% XA retracement and the BC projection (either 1.27 or 1.618). The most critical aspect of the Gartley is the B point retracement, which must be at a 0.618 of the XA leg.

    Currently both Dow and S&P 500 are in the process of forming the classic Gartley 222 Pattern. Whether or not it will be completed and follow the reversal it is yet to be seen. I am not a fully technical analysis trader but I do like to use it as one of the tools while making key investment decisions since a majority of traders around the world use it (which might hence call for benefiting from “self-fulfilling prophecy” type of trading).

    Dow made its high on April 26 (11, 258), Point X, then declined to 9,614 on July 2 (Point A). Then it rallied to 10,719 on Aug 9th (Point B) which was almost 61.8% retracement of Move from X to A. The Dow declined to low of 9936 (Point C) which was in between 61.8% and 78.6% fib retracement. Then Dow is again rallying upto Point D being 10,950 (+/- 100 points). This will make it almost a complete Gartely 222 pattern.

    The above chart provides details about S&P500 in relation to The Gartely Pattern.

    So what’s the bottom-line: Just like previous Head & Should pattern, this might work out to be a fake pattern as well. However, I am going to watch current market move and will be willing to take bearish positions starting mid next week. There is nothing certain in the markets so I’ll be cautious and hence my stop loss will be placed above April highs.

    Disclaimer– Pls do your due diligence before investing any single $$ on the trades mentioned here. These are just for information.

  • How to Play Google Earnings, Again?

    Google (GOOG) is announcing earnings today after market close. A $500+ stock and famous for it’s move post earnings, it is almost in every “speculators” list to play for the big event.

    I covered GOOG earnings extensively. If you are looking for a play based on detailed analysis based, check out the past trades here.  There were 4 different types of plays and all were the winners.

    So do you want to play again? what is your outlook on how much Google is going to move. If you expect Google to move more than $15-$20, you should not even read further.

    I think it may be range bound when it opens tomorrow. It may move $10-$15 but not very much. Of course I may be wrong and I had been wrong in the past. So what to do? I would like to reduce my risk and hence I am willing to spend a very small sum for my views and I am willing to lose all as there will not be not much time left for Oct expiration.

    Here is how I plan to trade this-

    Buy Oct 520 Put Butterfly and 540 Call Butterfly. This trade can be done for $230 (as of this writing). In order for this trade to make money, Google should be between $512.3 and $527.6; and between $532.26 and $547.7

    Goog Earnings Oct 2009
    Goog Earnings Oct 2009

    So if someone has a $10K portfolio, this will be 2.3% of capital. If you have a large cap portfolio, don’t invest more than a small fraction on it as you may lose 100% of the capital invested on this. Pls do your due diligence before you invest any single $$.  I am personally into this and many other variations for Google earnings.

    The GLD trade was closed for nice profits.

    All the best, Profitable Trading, OP

  • The Shining Asset Class – Gold

    Recall the post on Dec 31 on watching the Gold action. It has been closing upwards every years for the past 8 years. As of Friday’s close, Gold was up almost +7% year to date and as of this writing, it’s rising further.

    Attached chart shows a massive base building around $920-$940. And if Gold is to break-out based on 3 box reversal, the next logical price point is $1060, almost to earlier peak registered in 2008. That would mark either the double top, or if upside momentum is sustained, a new beginning on next Bull Run.

    Based on my understanding of the bull markets and bubble formation, Gold hasn’t yet reached into the mad rush, the speculative zone. It may seem possible that sustained move past $1060 will begin that bull run phase leading to speculative zone. OP readers and OPNewsletter subscribers know that I have been a gold proponent for long time. No matter what others think, I think gold is the real symbol of wealth for generations and been passed in that “psychology” from one civilization to the next.

    Dow has been turning lower and lower when compare with gold. 1 share of Dow buys 8.4 shares of Gold vs. 21 almost year back (this is rough approximation). Many can explain this downtrend via various rationale, but ultimately if coordinated efforts from the world bankers will show somewhere that’s in Gold. There are multiple interpretation of rise in gold including as vague as it is indicating that economy is improving and inflation is on horizon, to “safest heaven”. I am in the 2nd camp for now. I shall warn you though; Gold is not for the weakest heart. It can really stir one’s emotion and throw one out of the game. We played GLD in Aug’08 OPN portfolio and this monster ruined that month for OPNewsletter and resulted into the ONLY loss making month for OPN. However, as part of my personal diversification GOLD is an important asset class and I have NEVER sold any physical gold.

    In any case, I thought to bring this to your attention. Check out your nearby gold vendors, Physical gold coins may be almost out of the market and do you know that Physical Gold is now commanding almost 15-20% premium over paper gold, Yes!!

    The Shining Asset Class, Gold.

    Profitable trading, OP

  • Markets, Stocks to Watch on Tuesday

    The market started the week on a bearish note and the week has lot more to offer this week; International Trade data today at 8:30am, retail sales tomorrow, PPI on Thursday in addition to the cash index options settlement; and the biggies CPI, Industrial production and US equity option expiration on Friday. Volatility is here to stay at least for this week.

    Though we may term yesterday’s volume below average, the selling was big. According to Lowry’s, the down Volume was 88% of total Up/Down Volume on the NYSE and was 87% of the total on the NASDAQ.

    The bottom line is the markets appear to be approaching important support areas (Dow-8350, S&P500- 850) and as it approaches those areas; some of the technical indicators might as well drop into the oversold region. If however, the markets can’t hold on to these lows and if volume expands, it’s highly likely that it might result in in a retest of the Nov. 20 bear market low. The Dow P&F charts are already pointing a 3 box reversal to 7,800 box.

    Transports are also breaking down. If however, Transport breaks down but the industrial don’t we might have a potential bullish Dow Theory technical signal. On the other hand Gold and Oil continue to sell-off either due to needs for funds or anticipating upcoming deflation. However, it may be too early to link to deflation as Gold needs to go down below $750 areas and Oil probably below $25-$27. However, Most of Gold action is taking place above $800 area and Oil is still above $30. Stay tuned.

    According to briefing- AA reports a fourth quarter (Dec) loss of $0.28 per share, excluding non-recurring items, which is $0.18 worse than the consensus estimate that called for a loss of $0.10. Revenues fell 19.1% year-over-year to $5.69 billion versus the $5.26 billion consensus estimate. Infosys (INFY) and InSteel (IIIN) will be announcing before market opens. Commodities are continuing it’s decline, Oil slipping and most metals losing it’s luster. And be careful of the renewed volatiltiy ahead/after the Commodity Index Rebalancing is done sometime by this week. Here is snapshot of the impact from FT–

    In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.

    If you would like to know what is commodity index rebalancing, check this out.

    While this week is packed with action, this is also filled with lot of opportunities. Theta will be increasing everyday, at very fast pace giving option sellers an advantage. The low time value makes the options $$ cheaper thus a good vehicle of playing earning related speculative moves. Stock pinning will be another area to look for. You may find past candidates as well as conversation on stock pinning here at OP Discussion forum.

    I shall be sharing my updates via InvesCafe real time alerts. If you have not yet sign-up (It’s free) on the InvesCafe, you may want to do so to stay in touch with traders especially in this action packed week.

    Looking forward to profitable week,
    OP