Trade Idea: Consider Short Positions When GLD Strengthens
10/09/2017 1:41 pm EST
Trade idea: As long as GLD trades below $128.17, then consider new short positions when GLD shows strength. Depending on your entry price and how much room you want to move, use a risk price between $125.55-$128.17, suggests Landon Whaley of Focus Market Trader.
The SPDR Gold Shares ETF (GLD) declined 40 basis points in the week ending October 6, but still has gained 10.5% for the year.
When U.S. growth is accelerating alongside a rallying U.S. dollar and U.S. yields, I call that the 3-Headed U.S. Hydra, because just like the mythical beast, when it rises, it has a profound impact on asset prices.
One of the asset classes most impacted by this type of economic environment is gold and the 3-Headed U.S. Hydra Fundamental Gravity is pure kryptonite.
This is the exact environment gold experienced during the final six months of 2016 when it lost 13%, and experienced a maximum drawdown of nearly 18%. The U.S. hydra began its latest rise on September 8 and since then gold is down 5.4%.
As long as the greenback and yields continue to rise, this latest decline in gold is just the beginning.
Not only is the Fundamental Gravity setting us up for a short trade but the Behavioral Gravity index shows that investors are wrong-footed and positioned bullishly in gold.
Remember, the greatest market opportunities come when investors’ perception of market diverges from that market’s Fundamental Gravity.
Investors are bullish but gold’s Fundamental Gravity is decidedly bearish.
Trade idea: As long as GLD trades below $128.17, then you can consider new short positions when GLD shows strength.
Depending on your entry price and how much room you want this trade idea to move, use a risk price between $125.55 and $128.17
Once initiated, close all open trade ideas if GLD opens, or closes, above your risk price. Your risk price “line in the sand” is that $128.17 level. If GLD trades above that price, even for a second, then promptly close all open trades.
If this short trade moves in your favor, then you could consider using the area between $119.08 and $116.23 as your spot to take profits on some or all your position.