Today's Ideas:

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    Saturday, November 22, 2008

    2 NEW ideas

    If you follow my Twitter comments, I mentioned before the open on Friday that gold was perking up as a buy on my screens. Well, it turned out to be a stellar day for gold, but without me on board (at least in trading accounts mentioned here). I did begin to buy right before the close on Friday, even though readers know I hate to "chase". The simple reason it was acceptable to start some trading exposure after the run yesterday, is that this is a longer term signal, rather than a 2 day trade, so it leaves plenty of potential. I will continue to look for signals to add to this position, and expect to be involved for several weeks at a minimum, and possibly a few months. Gold has shown relative strength in the face of a rising $USD, especially the last few weeks. Second, gold had a steady, sharp impulse rally on Friday, indicating serious buying. And for the skeptics that attribute the move to the strength in stocks, I remind them that gold was up nicely before stocks even opened, and moved higher even as stocks languished midday. Third, as bonds have been on a relentless rally as a function of "flight to safety", gold could only be considered a reasonable substitute to "overpriced" bonds, which also have the added risk of additional supply. Some of these things have been in place for awhile, but Friday was the tipping point, in my opinion. I have my plan to add confidently over the next couple weeks on weakness, or sideways moves, if that's all it presents. One caveat, gold is my most difficult vehicle to trade, as judged by my results. That said, I haven't had many signals in gold over the last few years, that weren't also accompanied by stronger signals in other commodities. I suspect this could make the move in gold even more pronounced if I'm correct, as this is a solitary signal. Look at the action in the agricultural commodities yesterday, which were smashed lower (corn). Whenever a signal is a lone standout, it gets all the attention (and buying). Lastly, consider that some highly respected traders are buying, such as Mish.

    My particular gold this round is the DGP etf (2x gold bull), but with a special twist. I'm also simultaneously shorting the DZZ etf (2x gold bear). By doing this, I will be effectively long twice as much as my DGP trade, but also benefit by eliminating solvency risk with Deutsche Bank. I might also buy the futures, but have no stake in them as yet.

    Regarding equities, it is now safer to buy the dips, as well as sell short the rallies. I've made a few limited-risk attempts this past week, to no avail. Friday's action could be the beginning of a rally to the 950+ area on the S&P 500, and I'm content to be long a good portion of the BGU etf (3x big caps). Importantly, I will add to this long equity trade, but only on pullbacks. I still refuse to chase stock moves higher, as the overall trend is down. My confidence level is not as high on the equity trade, but the signals call for longs, so that's the plan. I can promise that chasers will soon be sitting on a headache, so if you attempt to profit from sharp rallies, let the prices come to you. Rest assured, there are plenty of sellers at higher prices, myself included. I'll not only sell my longs, but initiate shorts (not necessarily at 950, we'll see how it acts up there), and that's double selling! Of course, I'll employ stops on both these ideas, as anything can happen.

    I remind readers that to optimize results, focus on proper sizing of 1 or 2 good ideas, rather than burden yourself with 50 marginal ones. The results do not lie in the "quality" of the idea, nearly so much as the execution. If stocks rally, just about any name will work, so don't spread yourself too thin.

    EDIT: To be clear, I am not an unabashed bull with regard to equities. It's just that the risk/reward has tipped to a point where longs can be played into dips, as well as still selling (shorting) rallies. With regard to the gold comments, it's critical to keep the potential in mind, so we can act on dips, but I wouldn't run out and pay up on Monday, if gold opens higher. The bus will come around again.


    Blogger senrex said...

    Thanks for your updates. I've been checking in quite a bit during the day. Why am I still unconvinced about gold?

    November 24, 2008 12:49 PM  
    Blogger itrade4real said...

    I'm not sure why you're unconvinced, perhaps b/c it's the expected time frame of the trade (weeks to months)?

    All I can say, is if you like money, this is the best thing can find!

    Importantly, I am not known to be a goldbug, and in fact, I really don't like to trade it, but a signal is a signal, and so far it's 2 back to back UP days. I hope for a sharp pullback to get fully loaded.

    November 24, 2008 12:56 PM  
    Blogger senrex said...

    I guess I'm unconvinced because I think we still have deflationary worries -- and the stories about the oil producing nations setting up a short squeeze to make up for their lost oil profits sounds a bit too convenient in terms of timing. I guess I'm a born skeptic. I was into UYM last week, by the way, at 12.52 and got my ass handed to me. I'm praying for a pullback to under $10 and then I'm gonna be all over it like white on rice.

    November 24, 2008 1:06 PM  
    Blogger itrade4real said...

    Yes, I was in UYM and lost last week also, before we nailed it the past 2 days. I think all your points on deflation are correct, yet gold still goes up. That can be very telling, and is worth the trade, IMO. In any case I'll use stops on DGP, once I get "full" position size.

    November 24, 2008 1:14 PM  

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