By the way, aren’t you glad I haven’t been trying to trade this monster for a while? I took the MBT portfolio to cash on December 18 at $1672 gold. : )
The reason you shouldn’t buy yet, in brief, is the fact that gold had one nice week just isn’t meaningful after what it’s been through lately. (Click chart to enlarge.)
In other words: Any asset, even the stock of a company whose products make your hair fall out, your breath stink, and your skin turn green, is going to rally violently for at least a week or two if it’s been beaten down like gold has been beaten down.
Furthermore, in spite of that one “up” candle on the weekly chart that got hopeful gold bulls itching to buy, the trend is still unmistakably, authoritatively, definitively, DOWN. (Click chart to enlarge.)
I know what you’re thinking. ”OK, Mr. Happy, then when is the time to buy back in?” Well, I’m glad you asked!
I’m currently planning to buy back in a three-step process. Gold needs to, at minimum, do three things before I will be *fully* invested again. If gold misbehaves at any step along the way, I will reduce exposure. (Click chart to enlarge.)
I’m not saying I will buy in equal 33% chunks at each of these three moments. It could go 20%–30%–50% or something similar. And I’m not saying I will automatically buy on a weekly close above $1570–I need to make the decision in real time, as should any trader.
I do feel that this strategy strikes a balance between the ultra-conservative plan of not buying anything until gold rallies 23% to $1800, and the reckless plan of going in heavily now when I have no degree of confidence that we won’t re-test or break $1321.
Notice I said going in heavily now is reckless. $1321 gold, what some say is the bottom, is 9.6% below where we closed the week. I suppose one could take a small position and put a hard stop down there. Me, I’m not going to do that.
Consider: My first target, $1570, is only about 7.5% higher than where we are. Suppose we bought there with a $50 stop at $1520. That’s a nice, tight stop. Our losses would be capped at 3.2%. Plus, $1570′s importance as a long-term support/resistance line is massive. Personally I’m willing to let someone else make 7.5% and buy with greater confidence (not to mention a far tighter stop). If you buy right here and gold heads down again, you’re going to take a nearly 10% loss on the trade before gold hits your stop at $1321.
Gold is still in a downtrend, my friends. Now is not the time to look up and fret about missing gains. Now more than ever is a time to look down, assume the trend will continue until it doesn’t, and plan how you are going to minimize losses.
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