Monday, January 24, 2011

GLD is a Buy

GLD was a buy at the close today at a little over $130/share. It is a good time to add more to the portfolio. Of course, it could be a losing play, but I'm betting that it isn't. The charting system I use during bull markets doesn't predict absolute bottoms or absolute tops. Any system that claims absolute insight in market timing is a lie.

But, my system gets in the neighborhood. Six months ago I bought more GLD at $118/share. It ended up going lower to about $113 over the next week or two. Today that dollar difference doesn't seem like a big deal. I could be wrong but I don't think it will make much difference this time either.

GLD reached an oversold condition on all three of my primary indicators today. The Slow Stochastics was below 10 (at 6.89), the RSI was below 50 (at 35.1), and the MACD was negative (at -0.98). This is the soup I have always used to determine entry points in a bull market. So, this marks a buying opportunity for GLD, even as hedge funds and others are dumping it.

SLV, which I made a resolution to watch more closely this year, also gave the same three signals (at 7.27, 34.7, and -0.29, respectively). So, now might be a good time to add to my holdings there as well. I'm going to wait on that one a bit though - to see if the MACD will go slightly lower on SLV. I'm just not as confident (or foolish) about it as I am about GLD.

The last time I bought GLD the market sort of meandered for a couple of months before resuming its upward course. This is typical of bull market conditions when the bull is correcting and taking a rest. It is also, unfortunately, precisely how things look when the bear has taken hold and pausing before more downward momentum. Oversold or just the bear resting? No one knows. That is why this kind of stuff is not for the faint at heart.

According to a Dow Theory interpretation of things, GLD is still a great value. That is the most important point. GLD closed at $70 on Nov 12, 2008. That is the most recent lowest low. GLD closed at $139.11 on Dec. 6, 2010. That is the most recent highest high. The 50% Principle would require GLD to break through the mid-point, roughly $105, to turn bearish. At $105 I would have still made money overall but I would have lost money on my last two buys.


The other consideration here is the 200-day Moving Average. The last time GLD touched this average was January 22, 2009 - almost exactly two years ago. This is a long time and all market moves, bullish and bearish, eventually come back toward the 200-day MA. Currently, the average is about $125, which is a key area of support for GLD. Dow Theory considers all action above the 200-day MA as bullish. So, for now the trend remains solid according to Dow Theory. There's always a chance GLD will test the average. In fact, it is high time that it did so. As with my last buy, GLD could drift $5-$6 lower. I'm prepared for that. Such a move might even set up a further buy opportunity.

When I consider the only way (short of defaulting) to manage
the enormous burden of public debt in the US is to inflate our way out of it, I have to believe the long-term trend remains bullish for gold as the Fed continues to struggle with deflation and attempt to lower the perceived "weight" of the debt through inflation.

I've posted a lot about the economy and my personal investing throughout this blog. Managing my future retirement is a rather large priority for me now, after all. So, today I thought instead of blogging about things I have already done I'd blog about something as it actually happens. It might give the reader some sense of the uncertainty about whether I just lost a bunch of money today or whether it will grow. As I post this blog no one truly knows what will happen. It is a best guess.

Meanwhile, the Dow closed at 11,980.52,
a new high for the rally. Things are looking very bullish for stocks, the exact opposite of silver and gold today. So, I certainly seem rather foolish, refusing to buy the stronger stock action while betting on the weaker commodities. Maybe I ought to have my head examined.

By contrast, if you look at the chart today for DIAs (the Dow ETF) you will find that the three important ratings in my charting scheme are at 87.69, 78.35, and +1.13, respectively. Generally speaking, the Slow Stochastics rarely reach 90, the RSI rarely exceeds 75, while the MACD reached 1.52 on October 14, 2010. So, yeah, the markets could go higher but
they are severely overbought and due for a correction.

This is a very interesting time, with stocks and commodities largely in opposition to each other. For the short-term anyway there are
corrections in order. Stocks should go down, commodities up. But, no one pays any attention to my charts except for me. It's probably better that way.

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