Gold Sector Update
posted Jul 22, 2005 at 09:24PM
I am up to my eyeballs in paint and plaster and grout..so I will be brief and to the point.
The key data point I am keying on is the Gold COT. It has much improved over the last two weeks but is NOT at optimum buy levels from an historical perspective.
So in my mind if gold give the appearance of breaking down and say testing large number support at 400+ it would coincide with the COT at a premium buy level, and a good point to launch a truly impulsive leg up. I would be keeping an eye on equities, even if bullion makes new lows I would expect to see the HUI to hold prior lows
If gold breaks up, there is plenty of room to support a bullion rise to retest old highs but I do not think too much further. I think the path of equities would be torturous..say a move up to 225 that gets everyone excited, then a sharp drop to the 185-190 level to put in a reverse H&S followed by a retest of highs.
Perversely this latter scenario would make me very nervous and I would be thinking of selling all paper assets, my thoughts being that this would signal the final top of the reflation game and all things paper would start heading south in a big way.
As always those are just thoughts...we will have to see how things shake out.
In summary I intend to hang on to what I have. If it dips strongly...buy large and hold. If it breaks up, buy...but from a swing trader's perspective. In the latter mode stick with high quality higher RSI stocks then on buying for a longer hold where cheaper stocks I think would give higher percentage gains over a full bull market leg.