When stocks began to slide in October of 2018 this defensive play began to rally.
Surprisingly, when stocks bottomed in late December, this trade continued to rally.
With the major stock indexes sitting near their 200-day moving averages, this would be a good time to consider a trade that is not dependent on the direction of the stock market.
There’s an opportunity to enter this strong trending market now.
Gold can easily be traded using the ETF GLD, and right now it has a bullish pattern in a bullish trend.
While gold can be viewed as a defensive play when stocks decline, it doesn’t always trend based on the stock market’s trend. As I stated above, this year gold has been in a bullish trend despite the rally in stocks.
At the end of January I discussed GLD, and I suggested that due to its short-term strength, the gold stock SBGL might be a better way to play it. SBGL has since rallied from $3.30 to $4.07, which is down from its recent high of $4.40!
That’s a 24% run in about 3 weeks.
If you’re a nimble trader, the current pullback in SBGL offers a new trade entry if it trades back over $4.20. If that happens, a good stop for the trade would be under $3.85.
There is also an interesting trade setup in GLD now.
On Friday GLD broke out over its recent consolidation that’s been forming since the beginning of February. This creates a good stop under $122.90.
The recent high is $125.25, so it’s best to either enter under 125 to keep the trades risk lower, or over $125.25 to get extra confirmation of the trend’s strength.
GLD has had bullish trends end at the $129-$131 level several times since 2016, so this is both an important concern and a potential opportunity.
If it rallies to 129 and then returns to trade under $125 that would be a pattern that would encourage me to exit the trade at no loss.
On the other hand, if GLD breaks the 131 level, this trade will be in “early” and the weekly chart suggests good potential for a move to 150 for the patient trader!
Rick Nartarian, Chief Investment Officer
The American Investor Daily