Saturday, July 17, 2010

Intermediate-Term Thesis Reviewed

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I think a big and fairly fast move down is coming over the next month in all stocks, including Gold stocks. Keep in mind that I am biased as I am heavily invested in puts on equities (the DRN and UPRO ETFs) and I am waiting in cash to buy Gold miners if they get cheaper. After being as bullish as anyone this winter on Gold stocks, I backed off because blue chip Gold stock indices failed to significantly leverage the Gold price (i.e. barely kept up with the gains in the metal price). I created a new tradable thesis a while back based on what I thought Mr. Market was telling me. So far, so good.

Here is where I think we are for Gold stock indices and why I am not interested in being long Gold stocks in my trading account right now (1 year chart of the GDX ETF in candlestick format follows):

This fits in with my thesis of where we are in the stock market, as a big move down in the general stock market indices will probably drag the Gold stocks down with it. This isn't always the case, but given the weak price action in Gold stocks and their recent lack of leverage to the Gold price on the upside, they are vulnerable here. Here's a 4 year daily candlestick chart of the Wilshire 5000 ($WLSH) thru Friday's close to show how this fits in with my trading thesis for general equities:

Could I be wrong and miss the train completely on Gold stocks? Of course, which is why it's called speculating. But I am starting to salivate over the prospect of picking up Gold stocks again at lower prices. The pieces seem to be coming together, although things can (and often do) change on a dime. I think the coming buying opportunity in Gold stocks will be a doozy and will precede a massive leg higher in Gold equities. Once we reach the next low point, I think Gold mining stocks will once again outperform the Gold price to the upside in a major way.

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