Are you one of the Tycoon Report readers who enjoyed the
69% advance in GLD in 9 short months?
If you didn't act on my March 2, 2010 article "5 Reasons Gold Explodes - 4 Ways to Profit From It", then you'll be glad to read about your second chance below...
What is GLD?
According to Yahoo! Finance:
"This investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation."
What does this say? It says GLD is an ETF that tracks the price of gold.
Looks like it's time to jump back in to this ETF before it makes another 69% run!
Most investors with a general understanding of how financial markets work and who have been concerned about inflation have considered hedging against inflation by owning gold.
But some missed out on this great trade because they weren't confident about when to buy it or how to buy it... or they didn't read my March, 2010 article.
A secondary thought, buried in the back of the brain, may have also discouraged you from buying gold. That thought being: "I might not know how pick the price to sell it."
I won't allow this to happen a second time!
The red diagonal lines, drawn from the green circle to the GLD peak, show you the 69% gain I'm talking about.
How would you have known to sell at that high?
The answer to this question will help you to know when you're going to exit GLD next time.
There are many different signals that told us when to enter GLD and then exit GLD at the top. Most students of my "Technical Analysis Millionaire" program are able to see all of them. But to keep it simple, I'll point out one well known signal I wrote about two weeks ago, and one little known secret that keeps you in winners right up to the top.
1. The RSI negative divergence sell signal. After going parabolic, GLD reached its top in August, 2011. Notice how GLD made much higher highs while the RSI, at the same time, made a lower high.
That's a "negative divergence", which is typically a precursor to a bearish reversal.
I'll zoom in to make this more clear...
The RSI put in a sell signal that same day. You could have supported the argument to exit GLD with the candlestick pattern, the price/volume action, or any number of other technical indicators. But I think the more important question is: "How would I have known to stay in GLD and ignore the earlier RSI sell signals?"
2. The channel. Notice the blue up channel, which is made up of the "trend line" (lower line) and the "return line" (upper line). Using this up channel (which is taught in my TAM program) we knew the up trend hadn't been in danger of being "exhausted" until July - August, which is when GLD went parabolic.
We connected three higher lows from March, 2010 to January, 2011 and extended them out and then drew the parallel "return line". Once we saw the move straight up in the summer of 2011, we knew that was when we should start watching the RSI for exit signals.
You might need a tiny bit more than just a basic understanding of how to use the RSI to understand that you can ignore the first sell signal in the beginning of a new up trend. You would also then know that the sell signals prior to the parabolic channel breakout were not very reliable and could be ignored.
Okay, that's enough prep work to mentally prepare you to profit THIS TIME AROUND!
Below is a 14-month chart of GLD, which looks almost identical to the 14 months leading up to my March 2010 article. I posted charts in that article too.
In addition to the RSI negative divergence I pointed out above, you can see one more negative divergence at the GLD top.
But now you should focus on the POSITIVE DIVERGENCE in the RSI, which the purple arrow is pointing to.
You'll see that it occurred as GLD bounced off of a key support level that has been tested several times as a support (and even as a resistance) level.
You may also notice a spike in volume as the stock moved above a slight resistance level.
GLD is now at the same level it was at 1 year ago. So why is NOW the time to buy it?
There are two things I want to know before buying anything:
1. Does it look like it's well positioned to advance? In other words, do the odds strongly favor an advance?
2. What's the risk/reward?
We've just covered the answer to number 1.
And, since GLD is trading very close to its key support level, it's also a GREAT risk/reward ratio!
It's not like GLD is a company that might come out with a bad earnings announcement... or that may be investigated by the SEC for fraudulent accounting... or that has any company risk. If it declines, it's very likely it won't be a very rapid decline (unless of course it's coming off of a major parabolic top like we've seen).
It's GOLD!
It might decline because the U.S. dollar makes a strong advance (which I think is unlikely, as the dollar just made a fast move higher and is currently reversing back down).
It might decline based on comments from Ben Bernanke this coming Thursday.
But if it declines, you can just exit it quickly. There are two ways to do this:
1. You can just exit the entire position at $145.00 and then let the ETF trade for a while and give us more clues on when we should get back in, or if we should get back in.
2. You can exit half of it at $145.00 and the other half at $135.00 (average exit would be $140.00). This is because if GLD breaks its support level at $148.00, the next support level is at $139.00. If GLD breaks below $148.00 but then finds support at $139.00, you will be holding half of your original position and you can then reposition yourself back into GLD (bringing your position back up to 100%).
Defining Your Exit Strategy Is Key
Most investors know this to be true, but few actually heed this important concept. We've just covered the reasons why GLD is a good investment. We covered the way to exit the position, using the last GLD ride as an example. And we covered the way to exit the position if we are wrong, with either a 7% loss or a 10% loss.
But if we are right about this, like I think we are, the reward-to-risk ratio is probably 5-1 to 7-1 over the next 12 - 18 months.
Enjoy! I'll see you next Tuesday!
If you didn't act on my March 2, 2010 article "5 Reasons Gold Explodes - 4 Ways to Profit From It", then you'll be glad to read about your second chance below...
What is GLD?
According to Yahoo! Finance:
"This investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation."
What does this say? It says GLD is an ETF that tracks the price of gold.
Looks like it's time to jump back in to this ETF before it makes another 69% run!
Most investors with a general understanding of how financial markets work and who have been concerned about inflation have considered hedging against inflation by owning gold.
But some missed out on this great trade because they weren't confident about when to buy it or how to buy it... or they didn't read my March, 2010 article.
A secondary thought, buried in the back of the brain, may have also discouraged you from buying gold. That thought being: "I might not know how pick the price to sell it."
I won't allow this to happen a second time!
The red diagonal lines, drawn from the green circle to the GLD peak, show you the 69% gain I'm talking about.
How would you have known to sell at that high?
The answer to this question will help you to know when you're going to exit GLD next time.
There are many different signals that told us when to enter GLD and then exit GLD at the top. Most students of my "Technical Analysis Millionaire" program are able to see all of them. But to keep it simple, I'll point out one well known signal I wrote about two weeks ago, and one little known secret that keeps you in winners right up to the top.
1. The RSI negative divergence sell signal. After going parabolic, GLD reached its top in August, 2011. Notice how GLD made much higher highs while the RSI, at the same time, made a lower high.
That's a "negative divergence", which is typically a precursor to a bearish reversal.
I'll zoom in to make this more clear...
The RSI put in a sell signal that same day. You could have supported the argument to exit GLD with the candlestick pattern, the price/volume action, or any number of other technical indicators. But I think the more important question is: "How would I have known to stay in GLD and ignore the earlier RSI sell signals?"
2. The channel. Notice the blue up channel, which is made up of the "trend line" (lower line) and the "return line" (upper line). Using this up channel (which is taught in my TAM program) we knew the up trend hadn't been in danger of being "exhausted" until July - August, which is when GLD went parabolic.
We connected three higher lows from March, 2010 to January, 2011 and extended them out and then drew the parallel "return line". Once we saw the move straight up in the summer of 2011, we knew that was when we should start watching the RSI for exit signals.
You might need a tiny bit more than just a basic understanding of how to use the RSI to understand that you can ignore the first sell signal in the beginning of a new up trend. You would also then know that the sell signals prior to the parabolic channel breakout were not very reliable and could be ignored.
Okay, that's enough prep work to mentally prepare you to profit THIS TIME AROUND!
Below is a 14-month chart of GLD, which looks almost identical to the 14 months leading up to my March 2010 article. I posted charts in that article too.
In addition to the RSI negative divergence I pointed out above, you can see one more negative divergence at the GLD top.
But now you should focus on the POSITIVE DIVERGENCE in the RSI, which the purple arrow is pointing to.
You'll see that it occurred as GLD bounced off of a key support level that has been tested several times as a support (and even as a resistance) level.
You may also notice a spike in volume as the stock moved above a slight resistance level.
GLD is now at the same level it was at 1 year ago. So why is NOW the time to buy it?
There are two things I want to know before buying anything:
1. Does it look like it's well positioned to advance? In other words, do the odds strongly favor an advance?
2. What's the risk/reward?
We've just covered the answer to number 1.
And, since GLD is trading very close to its key support level, it's also a GREAT risk/reward ratio!
It's not like GLD is a company that might come out with a bad earnings announcement... or that may be investigated by the SEC for fraudulent accounting... or that has any company risk. If it declines, it's very likely it won't be a very rapid decline (unless of course it's coming off of a major parabolic top like we've seen).
It's GOLD!
It might decline because the U.S. dollar makes a strong advance (which I think is unlikely, as the dollar just made a fast move higher and is currently reversing back down).
It might decline based on comments from Ben Bernanke this coming Thursday.
But if it declines, you can just exit it quickly. There are two ways to do this:
1. You can just exit the entire position at $145.00 and then let the ETF trade for a while and give us more clues on when we should get back in, or if we should get back in.
2. You can exit half of it at $145.00 and the other half at $135.00 (average exit would be $140.00). This is because if GLD breaks its support level at $148.00, the next support level is at $139.00. If GLD breaks below $148.00 but then finds support at $139.00, you will be holding half of your original position and you can then reposition yourself back into GLD (bringing your position back up to 100%).
Defining Your Exit Strategy Is Key
Most investors know this to be true, but few actually heed this important concept. We've just covered the reasons why GLD is a good investment. We covered the way to exit the position, using the last GLD ride as an example. And we covered the way to exit the position if we are wrong, with either a 7% loss or a 10% loss.
But if we are right about this, like I think we are, the reward-to-risk ratio is probably 5-1 to 7-1 over the next 12 - 18 months.
Enjoy! I'll see you next Tuesday!
32 votes
Thank you for voting!
Comments:
Tom
6/5/2012 5:48 PM
Thanks for your help with the entry into GLD. Could you tell me if you are waiting for the $145 price or are entering here at $156-157? Thanks, TomSkipch
6/5/2012 6:01 PM
unsubscribeJack555
6/5/2012 6:26 PM
Thanks for tying together the concepts into a process / methodology. These TT emails are good refreshers for the 6 months of TAM, showing us in action so to speak.Bob
6/5/2012 6:58 PM
Good analysis. Thanks. But I am going to wait till it trades and closes above the 50day MA. I do not mind leaving a couple bucks on the table to more certain we get past and overcome the Resistance and it now becomes Support.Ross
6/5/2012 7:56 PM
IAU is the junior version and less fees.Chalzer
6/5/2012 9:12 PM
Nice job on the TA/entry/exit strategy, BUT, there are other considerations that cause me concern about GLD for anything other than a day trade. I've copied a well-considered opinion from an investment advisor who shuns GLD for the reasons following: ----Marco
6/5/2012 9:44 PM
Excellent analysis Chris. Personally, I don't trust the management of GLD as far as I can throw them, so I have chosen to invest in CEF (The Canadian Fund) which trades on both the AMEX and CDN exchanges. The fund only invests in silver and gold, and theyBob
6/5/2012 10:45 PM
GLD; Fees & Management ManagerManagement Team Manager Start11/18/2004 Management Fee0.40% Expense Ratio0.40% Premium/Discount 0.92% ======================== IAU Fees & ManagementPeter Robinson
6/6/2012 2:06 AM
Very helpful article Chris. Having purchased your Internal Strength System, your graphs analysis are really appreciated. PeterJanrussmantel
6/6/2012 6:18 AM
I buy gold and silver coins. I refuse to open an account with any company unless they send the coins to me. I have a couplr of American sikver eagles that are uncircled and mirror like surface.RH
6/6/2012 12:27 PM
How do you calculate the risk reward ratio? Is that based on the Stock Replacement strategy?rbf100
6/7/2012 5:53 AM
If that nitwit Chairman Bernanke announces a qe3 then yes, the sky is the limit for gold and other commodities to the detriment of Main Street.