Thursday, December 10, 2009

And I'm in again, sort of...

I bought more GLD this afternoon. Looks like Gold is now at or near being oversold. $110 per share is a long-term bargain. It seems like a lot of money but I've been involved with gold since 2003 and it always seems expensive.

This is a bull market for gold. You have to get in when you get in and be firm about it. My formula for buying GLD is reflected in the chart below. I use a combination of Slow Stochastic, RSI, and MACD in my readings of most stocks.

Generally speaking, in a bull market if the Slow Stochastic drops below 10 and the RSI below 50 then you want to buy. Alternately, if the Slow Stochastic is below 15 for three days in a row (like today) and the RSI is below 50 it is a buy signal as well. This works only for sectors in bull markets. This doesn't work at all in bear markets as I painfully found out in 2000 and 2001. But, hey, learn from your mistakes, right?

The MACD is kind of a wild card. If it is negative at the same time you get the other indicators then that means it is a solid buy. Buy a lot. But, if it is strongly positive (as it is today) you want to be cautious and not buy so much. So, I only bought about one-third of what I would have bought if the MACD had been negative today. Gold is oversold, but not severely. It could still drop more. If it does, I'll buy more. If it doesn't rise too fast and the MACD works its way toward zero, I'll buy more if the Stochastic and RSI aren't too high. This is more an art than a science although you are dealing with very real technicalities.

I bought more GLD based on this chart today. The only "trouble" with these indicators is that the MACD is a bit extended and high. So, it was a cautious buy. The chart is at the top followed by the Slow Stochastic, the RSI, and then the MACD readings. Within the chart itself are Bollinger Bands and the 50-day moving average. Notice how during this bull run GLD has been pulled back toward the average only to break free again. I think this will happen again this time. In fact, I put money on it. We'll see. This chart was created at BigCharts.com.


So, using this method the chart above reveals the following. Assuming you do everything the simple way and just buy at the open (though it is best to trade near the close when things are clearer) you would have a solid buy July 9 at $89.63, a small buy August 12 at $92.60, a solid buy October 26 at $101.62, and today a small buy at whatever tomorrow's open is - I bought at $110.22. Essentially, you do what you are supposed to do in any bull market. You buy on the pullbacks. Nothing magical about it actually.

There are another set of rules for selling, but Richard Russell has taught me not to sell gold. Just accumulate it for now. A huge, third-phase of this gold bull market awaits somewhere in the future. At that time everyone with want gold and the price will experience a blow-off. When will that be? He doesn't know and neither does anybody else. An educated guess is over $2000 an ounce, however. Probably a lot higher.

Why will gold skyrocket? Because to the Federal Reserve attempting to defeat deflation. Next year, our government is going to have to refinance over $3.5 trillion in debt. It will do that by selling bonds and effectively "printing money." Worthless fiat money. In the years ahead that number will grow exponentially. It will balloon to more than $23 trillion just ten years from now. This is not even conjectural. It is an economic fact. This bodes for well gold, the only form of currency that is more than 5,000 years old. Gold is the only money.

I discovered this combination trading stocks routinely in the late 1990's. Since then I've quit my trading ways and focused on buying and holding gold. As I posted just six days ago, I sold all my stocks and gold stocks in order to capitalize a movement into gold bullion, gold ETFs and perhaps some utility stocks that pay 5% yields. The strategy, once again, is to get my money closer to gold and out of the influences of the general stock market. Also, I trust utilities more than banks, plus they pay more.

So, we'll see how it all plays out. It is always a gamble. No body knows what is going to happen.

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