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Long-term Trades- Active

Long-term Trades are trade or investment ideas that have the potential for significant returns over a longer-term period, typically several months or more. This category of trade ideas might be useful for the longer-term swing trader or investor looking for investment ideas to supplement their existing portfolio and prefers a less active, more hands-off approach to investing.

Apr 222015

I've often discussed one of the most simple, yet effective buy & sell signals for trading GLD (gold etf). The buy signals come when the RSI (14) on the daily time frame crosses below the 30 level (i.e.- oversold) with the first cross above the 70 level (overbought) as the sell signal. As I often reiterate; this, nor any other stand-alone buy or sell signal comes even close to a 100% accurate timing tool for trading gold. As with all buy & sell signals that I use, this one should be used in conjunction other confirming (or contradicting) technicals in order to help avoid the false signals & more accurately hone in on the entries & exits for those signals that are likely to play out for a profitable swing trade.

GLD oversold buy signals April 22nd

GLD oversold buy signals April 22nd


For example, this chart shows the last 4-years of trading history in GLD, which encompasses the entire bear market that began with the Sept 2011 highs. Those that have followed RSOTC for a while might recall that GLD was one of the longest standing Active Short Trades on the site, with a short entry back on Jan 30, 2012 at 168.97, just 9% off the all-time highs in GLD, and the trade reaching its final downside target on an opening gap down at 136.00 on April 15, 2013. (click here to view the exit & accompanying notes/charts)

That large gap down to the final target level happened to be the third consecutive failed RSI buy signal that came around the mid-point of the recent (or current?...still TBD) bear market in GLD. The fact that we were short GLD during all three of those signals is testament to how those signals were not only ignored but proved profitable to hold onto the swing short in gold. In other words, although GLD was oversold on those three occasions, there was not enough supporting evidence to go long or close the short trade. It is also worth noting that GLD did spark a strong rally immediately following that April 15th gap down & although I was considering reversing to a long & decided to pass, we were able to book profits just off the lows and side-step any give-back in profits from the rally that immediately ensued.

After closing that short in GLD, I mostly sat back just watching gold & the mining stocks until the lows in mid-2013, going long gold & gold mining stock as well as most of the following reaction lows. It is also worth noting that those timely entries (and exits) posted on gold & the mining stocks since the June 2013 lows were very timely and posted shortly after the RSI crossed below 30 (as the bottom in gold often comes several days to a couple of weeks after the RSI crosses below 30, just as the top often comes shortly after the RSI first crosses above 70).

What does all this mean? Simply that using the RSI as a buy & sell signal for gold, as effective as it has been, can be made much more effective when scrubbing out some of the buy & sell signals when the technicals don't confirm. Also highlighted on this chart is the fact that the 50 level (mid-point) on the RSI often acts as support when tested from above & resistance when tested from below. Since the most recent sub-30 buy signal in GLD was triggered in early March, GLD has moved considerable higher with the RSI moving above the 50 and backtesting that level from above several times since late March. Current the RSI is at 46 but the 50 level typically does not act as a "hard-line", rather a zone of support or resistance around the 50 level.

Taken in conjunction with many other factors on gold, both technical & fundamental, my primary scenario is that the most recent uptrend in gold is likely to resume soon, with GLD going on to take out the April 6th high and moving considerably higher from there. If that happens to be the case, then one of the first indications that it may be getting close to time to book profits on the current GLD long trade would be a cross above 70 on the daily RSI, with the exact exit TBD based upon additional confirmation via the charts.

 April 22, 2015 1:32 pm  Gold & Commodities, Long-term Trades- Active Tagged with: ,