Friday, June 6, 2014

Simple Trading method for the GDXJ

My apologies for not posting anything recently, there honestly hasn't been much to say but I wanted to make a couple points and at least update some charts.

As I have mentioned before, in terms of gold I use the GDXJ to analyze the entire picture.  I have a number of reasons why I do this.  A) Junior gold stocks are massively oversold and undervalued.  They should first begin to hold stronger than the metal itself when the move lower begins to exhaust itself.  B)  In any sustainable bull move in gold, the miners should outperform the metal and the juniors should outperform the seniors. C) They will also predict a changing trend and begin to move higher before the metal itself.  Point is, gold can move without the miners reacting and the seniors who have earnings and dividends can move without the juniors, but if the juniors begin to have a strong move higher, you can be guaranteed that the seniors, gold and silver will all do the same, so no use analyzing 10 different charts for all of them (In the interests of time as we watch for a change in trend.  By all means, when we begin to see buy signals, analyze the individual miners and the metals themselves when you are ready to buy.)

So whats the GDXJ saying?  Nothing too exciting.  I have taken this chart and used a very simple trading method based on 10 and 20 day exponential moving avgs.  When the 10 crosses above the 20, buy.  When it crosses back below, sell.  Here is the result of that for the last year or so.

If you saw the MA's cross lower in Sept of last year, you would have sold at about 47-48, only to see it go down about 40% in the next 3 months.  You then had an excellent opportunity at the beginning of this year to buy at about 30-32, only to see it go UP about 30% in 2 1/2 months.  The sell signal you got in April has kept you out since then and saved you about 10 points in losses.  You can also notice that at every buy or sell signal, MACD crosses above or below the zero line.  This is your confirmation.  Recently the GDXJ has been sliding slowly lower, but beginning to show signs of some value buying.  We don't have a buy signal yet, but we can see that a rally towards the 35 area would trigger one.  I believe we are at a bottom and within weeks of a major change in trend in gold and miners.  Watch this closely over this summer. Summer is never a good time period for gold, so don't expect it to be exciting, but we should see a final low within this month or next and begin to see some strength emerge around Aug, as we move toward the fall which is typically the strongest time period for gold.  This is one of those opportunities that comes along every couple of generations, where SERIOUS money can be made here, so its in your own interest to watch this like a hawk.  BUT, in the mean time we need to make some money somehow, so lets look elsewhere.

I utilized Twitter last week to make a call to buy Twitter stock. (If you missed it you can follow me here.) Since, I have jumped in and out again, but the overall picture looks nice so lets take a look at the chart.

Now, first of all I am a trader.  And in a lot of ways to do so successfully, you also need to be a traitor.  I have no allegiances.  My allegiance is to profit. You can leave the name of the stock off if you wanted to, it doesn't matter to me what it is, I'm just looking to see if it meets my standards for a trade.  Fundamentally, twitter is a shit company selling for 358 times earnings or something ridiculous like that.  It is not a good investment.  But all we are doing here in terms of trading is analyzing the money flows.  It's a lot like surfing actually.  You wait for a good wave that meets your standards, you position yourself, begin to paddle, and if its good, it will catch you and send you for a ride. If it doesn't, you don't keep paddling trying to make something happen when the wave is gone, you stop and go back for the next one.  When the ride begins to lose steam you get off and swim back to your start point and wait for the next one.  There is no difference here.  We can see money pouring into TWTR right now and it's beginning to look right.  So we will watch it, paddle out and get ready.  If the MA's cross, we are ready to ride the wave of money moving into TWTR.  If that nice wave proves to be a dud, and either the MA's cross lower or we move towards a new low, we don't waste time, we sell and go back to wait for another.  If it catches us, we ride it till the momentum stops.  We don't jump off a wave halfway cause we made a little money.  If it's working we ride it till that ceases to be the case.  When it stops going up we wait for our sell signals.

We can see on this that everything is in place for a trend change here.  We just need to see the rally break to a higher high than before, and have those MA's cross, which all should occur if it can get above the 34 mark.  So watch this, because this could easily rally 25%.  And that's a pretty decent chunk of change to make while we wait for gold to do something.

That's all for now.

-Jonathan M Mergott

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