Taking advantage of the long-term trend reversal in Gold ($GLD)

market timing model:

Buy Mode
– Timing model generated buy signal on close of March 5 (click here for more details)

today’s watchlist (potential trade entries):

$todays watchlist
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open positions:

Below is an overview of all open positions, as well as a report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on two separate $50,000 model portfolios (one for ETFs and one for stocks). Changes to open positions since the previous report are listed in pink shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

$todays watchlist
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closed positions:

open position summary
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ETF position notes:

  • Now that $TBF had a nice week of price consolidation, we have increased the share size on the setup (full position and risk now).
  • No new trade setups going into today.

stock position notes:

  • No changes to open positions and no new setups on the watchlist today.

ETF, stock, and broad market commentary:

Stocks concluded a relatively flat week by dipping moderately lower last Friday. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite slipped an average of 0.2% lower. Total volume in the NYSE surged 42%, as turnover in the Nasdaq jumped 33% above the previous day’s level. However, the swift pace of trading was likely attributed to last Friday being triple witching options expiration day, which occurs on the third Friday of the last month of every quarter.

Two weeks ago, we pointed out that ProShares UltraShort 20+ Year Treasury Bond ETF ($TBT) was setting up as an intermediate-term Trend Reversal play (see the recap from our trading blog here). Throughout last week, we were stalking the non-leveraged version of this ETF (ProShares Short 20+ Year Treasury Bond ETF – $TBF) for buy entry if it rallied above the high of the previous week.

Although $TBF did not yet trigger for buy entry, it remains on our watchlist going into this week because last week’s price action was indicative of bullish consolidation. The price traded in a tight and narrow range, near the previous week’s high, as volume declined. Therefore, we still like this setup for buy entry if it moves above the high of the past two weeks. An updated weekly chart of $TBF is shown below:

$TBF trend reversal setup

The impressive, long-term bullish trend (from 2005 to 2011) in gold appears to be reaching an end. Since forming an all-time high in September 2011, SPDR Gold Trust ($GLD), a popular ETF proxy for the spot gold commodity, has merely been oscillating in a sideways range.

On the weekly chart of $GLD below, notice that the ETF attempted to break out above key horizontal price resistance in October 2012, but was unable to do so. As such, $GLD formed a significant “lower high” on its long-term chart. Nevertheless, there’s still a major base of horizontal price support around the $150 level:

$GLD breaks uptrend

The next near-term move in $GLD could be a bounce into resistance in the $158 to $160 range. In this area, there is new resistance of the prior lows from December 2012 and January 2013, as well as resistance of the 10-week moving average (roughly the same as the 50-day moving average) and the 40-week moving average (approximately equal to the 200-day moving average).

If $GLD bounces to this level and stalls, it will form a second significant “lower high.” This would be bearish and could easily lead to a breakdown below major support at the $150 area on the next move down.

Another possible scenario for $GLD is that it fails to bounce much higher and simply breaks below its four-week base of support (below $150) without first forming another lower high.

Regardless of how $GLD plays out, we have added this precious metal ETF to our internal watchlist as a potential short sale entry in the coming weeks (traders with non-marginable cash accounts could buy the inversely correlated short ETF of gold instead). As always, will give you a heads up if we add this swing trade setup to our” official” watchlist, but for now we are waiting to see how the next near-term move plays out.

On the individual stock side, we have our eyes on the Solar Energy sector. Many stocks in this industry have recently doubled in price and are undergoing a correction by time. However, as solar stocks have been trading in a range, the 50 and 200-day moving averages have been rising to provide support. This means leading stocks in this sector may soon be a position to stage another advance higher. Below are the chart patterns of two stocks we are watching as potential buy entries in the near-term:

$WFR chart pattern

$SPWR chart pattern

As of Sunday evening in the US, the major indexes in Asia are trading roughly 2% lower on Monday morning. This is likely to carry over and pressure our domestic markets on Monday. Although our rule-based technique for timing the market has been in “buy” mode since March 5, we have mentioned several times over the past few weeks that the buy signal was never confirmed by higher volume (institutional accumulation). This is why all recent buy entries have been on lighter than normal share size (25% to 50% of maximum capital risk of $500 per trade). We also have been maintaining a sizeable position of cash in both the model ETF and stock portfolios. Therefore, even if stocks suddenly break sharply lower, our losses on the long side will be limited. Furthermore, we already have one short position working as well ($XME).

relative strength combo watchlist:

Our Relative Strength Combo Watchlist makes it easy for subscribers to import data into their own scanning software, such as Tradestation, Interactive Brokers, and TC2000. This list is comprised of the strongest stocks (technically and fundamentally) in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Combo Watchlist can be downloaded by logging in to the Members Area of our web site.

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