After last week’s run up in stocks, it’s time to be careful about chasing trades higher before they consolidate.
One trade that has worked nicely and is pulling back today is GLD.
As a result of its explosive move last week, the big picture looks even better then it did 2 weeks ago when I mentioned it.
Read below to see how to play it now.
I’ve marked up the GLD weekly chart below so you can see the long-term compression that I see developing.
While I don’t normally get into fundamental reasons for trades, this time I think it may be helpful so you can follow my logic, or not.
Gold is not rallying as a hedge against inflation. I believe gold is rallying because investors are worried about the prospect of a new round of interest rate cuts coming globally.
With interest rates already negative in much of the world, and not far from all time lows in the U.S., any need for monetary easing could lead to a fear of financial instability. This will light a fire under gold.
If this happens it could be the biggest surprise move of 2019.
I don’t have a gloom and doom view. I just see the way gold is acting and I’m trading it.
The trade here is to try to be positioned before the breakout over 130. If you’re already in based on my last mention of it, then I’d take some profits and hold tight with a no loss stop.
If you’re not in, then I’d find pull backs to buy with tight stops. As long as it’s over $120, I’d have a bullish posture, but for right now a pull back should hold $124 so I’d use that as my stop for any new trade.
There is also good support at $125.00-$125.50 so this would be the buy zone for the stop under $124.
Rick Nartarian, Chief Investment Officer
The American Investor Daily