Rebel Traders – Analysis Without The Hype

Tonight after the equity markets closed the International Monetary Fund (IMF) issued a statement that it would begin selling large holdings of its gold reserves.

From the wires:

IMF: Says will shortly begin ‘on market sales’ for remaining 191 tons of gold; To start selling up to $7B of gold to market

- Gold will be sold in a “phased manner” to avoid disruptions to gold market

- On market sales does not preclude sales of gold to interested central banks.
- Off-market sales would reduce amount of gold to be sold on the market.

So why is the IMF selling its gold? Is it that the monetary fund is looking ahead to more countries needing cash bailouts? Or does the IMF view gold as a worthless commodity in the future?

I sincerely doubt that gold will be a worthless commodity in the years ahead, on the contrary, I still see gold as a valuable asset in a changing world where global currencies and governments are in a state of flux. I think it is that the IMF needs additional income to meet future financing needs, and why they will begin selling the contents of their safe.

The announcement did impact the gold price as reflected on this gold chart which shows the reaction.

Thinking of selling some of your old gold jewelry for hard cash? It is the big thing these days with television commercials popping up everywhere, and even at kiosks inside shopping malls.

If you are waiting for prices to go up you just might be out of luck in the short term. The following two charts of the gold ETF (GLD) reveal golds intermediate road blocks.

One chart is trend line levels, the other is Fibonacci extensions and both the trends and the Fib extensions line up fairly well. Sell that gold jewelry soon, if these charts reveal what I think they do then your best opportunity to sell the yellow money may be right now.

Long term (years) price predictions of gold remains very questionable. Too many factors remain unanswered to provide a price range. Depends on how the currency market situation play out in the months and years to come and what happens with inflation down the road. For now, gold appears to be at a short term peak.

Thanks to Ron Griess at TheChartStore for allowing me to share some of his fine work:

US Gasoline Prices:

Crude Oil:

Gold:

S&P 500 Valuation:

If you have been following my market videos then you will know my recommendations for Gold (ETF symbol GLD).

Gold has been running upwards last week on growing fears of economic conditions worsening as well as a ’safety trade’. In other words, some people have been buying up gold as they feel it is the only safe place to put their capital.

Irrespective of the reasons for the price advance in gold, one must still practice good trade management if you are already in GLD, or are considering getting into gold.

GLD is approaching a significant resistance level ($100). That would be a good place to take some profits off your trade and then set a stop loss on the remaining shares at $91 (this only applies to those who acquired GLD below $91).

What this will do is protect your gains that you have built up thus far. In the event that resistance at $100 becomes a turning point and gold begins to move down wards then you will have protected your gains in case the price declines further.

I have identified two support areas on the chart shown below. Both are trend lines that should serve as good support on any pullback in the price of gold. If gold does pull back to support (and does not break below it) you would have a good risk/reward spot to enter gold ‘long’.

Another trade scenario for those who are not in gold (GLD) at this time would be to wait and see if GLD breaks above $100. It would be at this point where you can initiate a ‘long’ trade in GLD. Again, risk to reward is key here. Always have a significant ‘line in the sand’ to know if a trade is not working and your entry price is close to your exit point, this keeps losses to a minimum. An important rule for all traders is to always know where your exit is before you ever step into a trade.

In the example above of going ‘long’ on a break over $100 you set your exit on a break back below $100 for that could be a signal of a failed advancement. Each trader will have different risk tolerance levels that they are willing to take, personally I use about 1.5% below the support level ($100 in this example). It is also important for traders to understand that in order for a successful risk/reward trade profile to work you have to initiate the trade at a price that is close to the support level.

But remember, you don’t go ‘long’ if the price moves ‘below’ the support levels as that would signal a breakdown in the price and your chances of a successful trade would be greatly reduced.

Lets say for example that GLD pulled back to support on the chart, and by the time you noticed it the price began to move back upwards again. Now the price is 5% higher than the support level so what would you do? You would let it go, for if you were to initiate the trade at a level that was 5% higher than the support level (and you are using that support level as your exit point) then you already have a built in potential for a loss of 5% if the trade fails. Never ‘chase’ a trade, if one gets away from you don’t fret, another will come along.

The best trades are always those that come to you, not you chasing them. Have an exit strategy that minimizes your potential for losses and remember that you always allocate your trading capital sparingly, not ‘all in one basket’.

Gold (GLD) Chart

A special video covering events in the S&P 500 futures, Euro, and Gold

Update: 2am (US EST):

From the news wire:

First on the list is the all important S&P 500 E-Mini Futures. Once again we are still stuck in a trading range. Important support and resistance levels for the short term are highlighted with the white circles.

When it comes to 2x or 3x ultra ETF’s (SRS in this case) I always prefer to perform my analysis on the primary index it tracks. There is an inherit ’slop’ or ‘tracking error’ in ETF’s that can give a misleading analysis. In the case of SRS the tracking error and slop has been very pronounced lately. The following chart illustrate this. Also included is the current analysis of the Dow Jones Real Estate Index, which is what SRS tracks (2x inverse).

(read more…)

Fox News is reporting that another emergency meeting will be held later today at the United Nations. Additionally, the US State Department has begun to evacuate some US citizens from the region.

Monday , August 11, 2008

DEVELOPING @ 2:30 p.m. EDT: The United Nations Security Council has called another emergency session for Monday afternoon, scrambling to resolve the fighting between Russia and U.S.-allied Georgia over the breakaway region of South Ossetia and other parts of Georgia.

Facing Russia’s superior firepower and expanding range of attacks, Georgia requested this latest session, which is to begin at 5 p.m. EDT in New York. Georgia is not a council member; Belgium’s ambassador, Jan Grauls, approved the session as this month’s council president.

It will be the fifth such emergency round of talks the council has held on the conflict since late Thursday night.

Meanwhile, the State Department says it has evacuated more than 170 U.S. citizens from Georgia as the conflict over separatist areas there intensifies between Georgia and Russia.

A spokesman said Monday that two convoys carrying about 170 private U.S. citizens along with an undetermined number of family members of American diplomats based in Georgia have left Tbilisi on their way by road to neighboring Armenia. The spokesman says more convoys are being prepared in case other Americans choose to leave Georgia.