Friday, January 30, 2009

Gold - bull trap

I don't trust gold kicking butt right now. Call me a skeptic, and you all should know as full disclosure that I am heavily invested in physical gold and I am a long-term bull on gold. I think we're headed for a steep, sharp quick fall that will provide yet another great buying opportunity (I hope...). Pay close attention to the final peak at the far right of the chart:

Now the gold miners, using a 6 month chart of the ETF GDX as a proxy for the sector. Look for that same price spike at the far right side of the chart:

The strength of gold and gold miners has been impressive. I said the gold mining stock rally would end before December was over and we haven't made any real progress since then. We are now overdue for a quick, swift plunge (which is why I'm short NEM right now despite my longer-term bullishness on the sector). The ratio of GDX to the S&P 500 is also due for a rest and gold stocks should underperform the $SPX over at least the next week or two:

At the end of this correction, which should take at least one week, gold stocks will be the number one sector (ignoring leverage opportunities) for profits, although I think 90% of stocks will rally frantically in a final short-term (i.e. 4 - 10 weeks) rally to complete the bear market bounce before the next deadly plunge. Are you ready?

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