Gold (GLD) sitting at resistance

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I heard this on a global news program: "All the gold             in the world can fit inside of a baseball diamond, but yet its value is greater than all of the farmland in America or six Exxon-Mobil's. Which would you rather own? All of the Gold             or all of the farmland in all of America or all of the energy resources of Exxon-Mobile? I will reflect on this "relative valuation". I recall when the Palace in Tokyo was worth             more than the entire state of California in 1989 and we all know what happened after that. It's all relative :-)

I have drawn out the resistance levels for gold             based on the supply that halted the last two advances. We happen to be bumping into the supply here, which is why the price is just sitting here, in my opinion.
How will this market will unfold to capture the most amount of people on one side of the market? Once that happens we will have a great trade setup. Right now we wait.
Cheers to all. Technical Tim Friday, Feb 18, 2012 10:35AM EST
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If you reflect on this chart from the perspective of creating a "point of maximum optimism" - then all we would need to see is another rally almost to a new high. That should create the conditions for bulls to hold on for a long time despite falling prices. If you refer to the BHI chart I published, this is almost the inverse. Food for thought.
Given how gold is acting today in response to EU injections of $700B into their banking system (3 years at 1% interest)... and gold did not react... and the Chicago Purchasing Managers Index shot up way above expectations... that we may have created the "bull trap" or the "point of maximum optimism" that I had been looking for. The downside of gold appears more likely than upside.

The biggest drop in 1-day going back to 2008 occurred after this comment yesterday. I'm selling short on this rally today as I view it as a counter-trend bounce from oversold. Details to follow.
I just covered from selling short GG after this comment at $49.60+ (at just after 2pm last Thursday). It was a very nice profit and there was very little, if any, heat in the trade (aka "maximum adverse excursion"). I may be premature on this cover as I think it really is possible that a major "bull-trap" high is in place for GOLD. I reasoned it could be setting up, I waited patiently for it to set up. I pointed it out in charts and in the news when there was no reaction to the huge injection of capital into European banks. I realize Bernanke was speaking around the same time, but wasn't the factor from my perspective. I hope that the trade continues to set up. I think any rally in gold of 1% can be shorted using a stop about 3% over the last high. That is a wide stop, but you always need room when a market is making a major top. The attention to gold is very high with Putin winning, from Buffet's comments about gold, etc. The reason for the top could simply be that people already have their hedges "on" and don't need any more. Gold is like canned food in your basement. Once everyone has a 50 year supply safely stored away, it generally isn't where the next dollar flows to be saved. At some point, money will get invested into something productive that will yield us savings or some new useful product.
Tim, I have two questions for you. (1) Do you have any hard, non-anecdotal evidence that using resistance lines produces really good profits? In particular, have you done any back-testing or forward-testing on resistance lines? and (2) Did you buy GLD at its bottom on the last couple days of 2011 and/or did you sell it when it subsequently hit the resistance line and peaked?
timwest PRO analyst128
Dear analyst128. I have been buying GG when I am bullish on GLD and yes, I have bought it at key lows, especially the one at the end of 2011. As for "hard, non-anecdotal evidence" - there is no such thing and even if there was, the future is not the past, so it still doesn't matter. The way to think like an opportunist (one who identifies opportunities) is to see when there is a mass opinion on one side of a market, then wait for when it is clear that the market is no longer responding to news to confirm that direction. Once you have your market in a "corner" so to speak, then you have yourself a great trade setup and then using risk-management tools and proper position sizing, coupled with an exit strategy that helps you capture and lock-in profits. There are many ways to catch a fish. The only right way is to find out what works for you and then repeat as often as possible. You could survive catching minnows at the local stream or your could survive going out to sea catching one huge tuna a year. Also - ENJOY YOURSELF while you are fishing (trading). Cheers. Tim
+1 Reply
Tim, well, I should have left the word “hard” out of my first question and made it, “Do you have any non-anecdotal evidence that your strategy produces good profits?”

You dismiss non-anecdotal evidence by saying the “future is not the past.” Granted. However, if a set of conditions existed several to many times in the past and I applied an investing strategy each time and lost money, I’d be pretty confident that I’d lose money with the strategy in the future. By the same token, just because I caught a big tuna a couple times doesn’t convince me that I will have fishing success again in the future. Drawing conclusions based on small samples (fishing) can be very risky.

I have a long-standing policy that I don’t invest using a particular strategy until I have some solid evidence that it would have produced better profits over the long term in the past than what the strategy did that I am already using.

I can think of at least three ways to produce non-anecdotal evidence. (A) Back-test the strategy over an extended period of time to determine how much profit it makes. (B) Forward-test it over an extended period of time. (C) Invest money in it and determine the resulting IRR.

Over the years, I have read / heard about hundreds of strategies. This web site probably has hundreds of them. For all I know, you are a genius and have become wealthy with your investment strategy. However, how can I conclude that yours is any better than the others?

I don’t mean to particularly pick on you. I just started trying out this web site and I will likely have the same reaction to strategies offered by other people. I can only ask, hope, that, in addition to describing their investment strategies, that people will back-test them over extended periods on time and share the results. We’re all looking for an investing strategy that materially out-performs the Long Term Buy and Hold strategy. But, how can we separate the wheat from the chaff?

I would suggest that anyone who is inclined to think along these lines read David Aronson’s book, Evidence Based Technical Analysis.
timwest PRO analyst128
Thank you for your clear response. I don't mind that you have asked me these questions but I believe that after 28 years of minding the markets, trading, investing, charting, developing systems and strategies, analyzing historical data, the best I can say is that I am a seasoned professional who has learned to interpret the psychology of the market in order to ascertain the potential risk/reward. I would certainly suggest that you read any of Dr. Van K. Tharp's books.

As for "back-testing" and such: I've watched systems that have worked for decades bankrupt a firm (Nick Leeson at Barings, using a 50-200 day moving average cross) that forgot to apply money management in their effort to make money or to "be right". I have designed many systems that seem to be great in back-testing, walk-forward-testing and yet they still needed adjustments after short periods of time. I gave up on that effort because it truly isn't what I "believe" works or shall I say it isn't what I want to be doing each day. I like to think for myself and figure out when the "crowd" has positioned itself in such a way to create a low-risk entry.

As for my strategy, what is missing at this site is how much risk is in each trade to the overall portfolio. Furthermore, what is also missing is the portfolio of trades that are "on". Also, I may use options to get exposure instead of outright positions. At some point, that layer of information can be added so you can see the P&L of the collection of ideas with an NAV associated with it, perhaps like Covestor's website. That may help you see if the strategy (me) is making money or not.

To summarize my performance: Since September when I started posting ideas to this website as a journal-entry or blog-type of experience, I would imagine that I have made money each month, but I also have positions that you don't see listed here on this site because they were in the portfolio prior to September.

I am not perfect by any means and I do make losing trades with regularity, but I don't get upset by them. I am very good at holding onto winning trades and adjusting my stops as they develop.

I will take a peek at David Aronson's book on TA.

(I have a fever, so I reserve the right to go back and edit these comments :-)

If I were to describe my overall strategy, it would go along the following lines:
1. Buy value. Own companies that have great free-cash-flow and add to positions when bad news occurs. Also, sell call-options to generate additional income when stocks get a bit overvalued.
2. Buy after bad news has driven an asset down to a decent price and when it has shaken out most technical analysis players. Mutual fund portfolio managers usually take a few days to finish selling after bad news.
3. Watch how the news impacts the market. If good news can't rally a market, then it is time to get out. When bad news can't drive a market down, then it is time to consider buying.
4. Avoid, at all costs, gambling ahead of quarterly earnings releases. I find it is far safer to wait for after the news to assess what to do.
5. Sell short companies that are overvalued and have weak relative strength recently (versus the market).
6. If you are anxious about an idea, it may be because the position size is too high or that you haven't done your homework. Anxiety is a great barometer to help you.

I'm going to leave it at this for today. I'll await your reply and see if anyone else has comments to continue this thread.


Tim 11:34AM EST, March 1st, 2012

I've been trading/investing for about 9 years , I'm a rookie compared to Tim. Started with day trading, but quickly abandoned that idea. For the past 7 years I've been using an asset rotation strategy combine with relative strength. I started with mutual funds, then switch to ETF (much ,much better). It's a moderate , simple strategy, but very consistent in term of return. I rotate assets on a semi monthly monthly and quarterly between 3 asset class ( U.S sector ETF, Emerging market ETF, and Fixed income).

Don't if it's possible, but it would be great to have a "portfolio" feature here. just to show and test different ideas from the community members here. Will make the request
Tim, thanks for your thorough response.

Our approaches are close to night and day from this standpoint. I rarely pay attention to news. I am a trend follower and believe that the price trend reflects the views of many, many people, not just what mine might be which could be wrong.

Continued success with your investing.
Algo Kid - The idea of having a "portfolio" feature at this site is a great one. I would amplify it by suggesting the feature shows the individual buy and sell transactions that show the transaction date, ticker, shares, price, and profit performance statistics (even if they are only 'paper' transactions) would give all of us a way to evaluate strategies. - - - I'm going to submit this as a enhancement request.
I just posted a comment at the WSJ - but didn't mention "TradingView". Here is what I wrote "12:16 pm March 6, 2012
Tim West wrote :
I sure enjoy the mudslinging in here – it is better than a tennis match. I’ll try to summarize – we sure agree that it is important to protect ourselves from the Government’s printing 7 trillion worth of dollars ($3 trillion by our faithful Fed and $4 trillion by the ECB). However, when the market cannot rally on the announcement of all of these injections and investments AND when China announces that they expect to grow slower (and consume less “stuff” relatively speaking), then the game has changed. The fact that the largest speculative positions are now LONG gold is a sign that the buyers and holders of gold have something to prove. The sellers have the upper hand now and it is just a matter of time to see what they do with it. How bad you beat your opponent when you have the advantage is a matter of sport and helps set the tone for future “games” together. If you had control of the gold market, where would you send it? Down a little or down a lot? Perhaps down “medium” to flush out most of the players? What is your vote?"
I have made other comments on Gold by way of GG (Goldcorp). GG is a more volatile instrument than GLD but they do tend to move in the same direction a significant % of the time (significant to me means >85%). I am thinking that this down-move in gold may take a little rest. The decline was very well set-up with speculators long with their biggest positions ever and with a failure of monetary stimulus to drive further gains in asset prices. The clincher seems to be the recovery in financial shares (banks mainly) that indicates that investors are starting to see a safety-net for the economy in the form of stronger economic data. Once bank stocks begin to climb meaningfully, it implies that new lending is occurring and that existing loans will be serviceable and loan-loss reserves will be adequate to deal with any further problems. Therefore, the "safe-haven" hide-outs of currencies (mainly Japanese Yen) and T-Bonds have also been falling apart. I will ponder how big of a retracement of the recent decline that gold could have to maintain the high we set last month, but I would imagine that only about a 50% bounce-back is possible. I'm just guessing. As every day unfolds, new information will be presented and we can gauge how much China's economy is weakening and how that is impacting all of the related markets. I hope everyone did well on this trade. I have covered my gold short position as of yesterday's close and am looking at selling the next rally at some level. Cheers everyone. Tim 2:14PM EST Friday, March 16, 2012
Thank you for the comment Tim.
I just want to commend the comments in this site... I have been other sites and people aren't near as sophisticated in the way they talk. I appreciate the intellectual discussion instead of a mudslinging euphoric ego fest verse hopefully down angry crowd.
I agree with Tim and others about gold's very near term direction. It'll probably slosh around or make a mild counter trend move for bit. For those of you who caught Tim's short elevator plunge down over 2 standard deviations, congrats! I missed that ride, but I think there's some consolation cash to be made while we wait for next directional setup.... but with plenty of room to be wrong, which I often am.. The April - May 167 call / 156 put double calendar has breakeven points about $18 points a apart and that's assuming no spike in implied volatility between now and expiration. The roi is 30 - 60% -- theoretical return on risk that is - if GLD is trading between 155 and 167 on April 21st , with a wider range for breakeven and a 67% probability for doing no worse than that. For me that one trade would be part of many other trades I will have on by the time my risk has been allocated for the month

I'm new to the site and I must say that my jaw dropped at the quality of these browser based charts. They are great. Really spectacular. Though option time decay is where i focus my trading energy, it accounts for less than 20% of my portfolio. Mostly I trade the intermediate term, investing with technical analysis supported by macroeconomic market study. I'm only so so as a directional trader, and I respect the art of successful swing traders. I hope to pick up some insight here and get better at it. I'm an experienced option spread trader and know a few strategies very strategies well, and trade even fewer proficiently. I'm willing to help anyone struggling to learn them
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