Thursday, January 15, 2009

Charting around

I have now bought roughly half the gold stocks I plan to buy during this correction, even though I don't think the correction is over. Corrections are choppy, messy affairs and can be hard to time precisely. I saw a chart pattern I liked in the GDX ETF (a basket of gold miners) and figured we're at the bottom of this "leg" of the correction.

A bounce up should come next, then a bounce back down. The problem with corrections is that sometimes the first leg down makes a lower low than the second. By buying half now and half in a few weeks, I am trying to volume average into the bottom of this correction. Catching the exact bottom and exact top are not realistic goals when trading (though they make for great bragging rights...). The idea is to participate in the bulk of a big move.

Anyhoo, here's the chart pattern that sealed the deal for me:

If this "a-b-c" type correction is really only part of a larger "A", then a "B" up is imminent, to be followed by a "C" down to complete the correction. The final low of the "C" may or may not be lower than the pending "A" wave low, which is why I am buying half of my gold stocks now. I got heavily into Goldcorp (GG) July 2009 calls today, which will be my primary way to play the gold sector. The GDX ETF is a more diversified/less risky way to play the sector and also has options. I also like RGLD and have put in orders on this stock that haven't filled yet.

For those who don't like options, you may be able to make bigger gains by buying the bullish ETF DIG and playing the oil sector with double leverage. This chart is getting ready to explode to the upside and I don't know any double levered bull gold stock ETFs, so this trade may end up being more profitable than GDX for those who don't like options. I may even buy a little for a short-term trade while waiting for gold stocks to finish their correction (another 60 minute chart shown below):

The momentum divergence on the long bond is also unfolding as anticipated and the tradeable proxy for the long bond is TLT. This sucker's going down:

Don't fear the panic - embrace it and profit from it!

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