Large Bounce: GLD Update
- Posted by DynamicHedge
- on August 29th, 2013
Back in the beginning of July I highlighted $GLD as an opportunity for a big inflection point:
Take a look at the long-term ratio chart of $GDX / $GLD. Not only does it highlight this brutal underperformance of the miners, but it also indicates a breach of the former historical lows in the spread. This is the lowest point in the ratio since the inception of the products, and also a two standard deviation move based on the relationship over the last two years.
When historic price discovery like this takes place it usually means a significant inflection point is at hand. This could work out in a couple ways: either prices in the entire gold complex resolve higher or the bottom completely falls out. The higher probability option, given the tone towards owning gold at the moment, is that the inflection point resolves in higher prices. This might look like a large bounce in an emerging down trend or a long-term bottom in the overall uptrend. On the other hand, if the bottom does come out of the gold complex, look for many mining company bankruptcies and months and months more selling pressure. This is a far lower probability outcome in my opinion. Remember, inflection points can be synonymous with knife catching. If that is your game, stick with the underlying $GLD because $GDX has proven it can fall faster and further if things do go south.
We were looking for a large bounce and we found it. The easy part of the trade is over and if you plan on sticking with $GLD from here consider reducing size or preparing for a grind. If you were in $GLD for a swing trade, then congratulations the trade as I see it is done.
Disclaimer: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please click here for a full disclaimer.
DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
- 6 Steps: Find a Good Trade in the Rubble
- Analyst Actions March 24-28
- April Seasonality
- The Real Reason for Market Softness
- Options Expiration: Historical Strength
- Bearish Engulfing Patterns are the Least of Your Problems
- Marketview: Not Logical
- Strong Spring
- Marketview: Two-way Extremes
- Jobs Report Reactions