Watch For Clear GLD and SLV breakouts to buy and/or add to longs

Watch For Clear GLD and SLV breakouts to buy and/or add to longs

Chart 1: Nice high volume rally in gold puts it on the edge of a confirming breakout. Courtesy Bloomberg

Chart 2: A breakout by silver would act to add reliability to a clear gold breakout ahead. Courtesy Bloomberg

Let’s keep a close eye on the precious metals here, and especially the ETF for Gold, GLD, and the ETF for silver, SLV, that can be traded like stocks to get precious metals exposure. GLD had a nice high volume up-day that nearly broke above the down-trendline from last March’s high. A CLEAR breakout would be yet another buy signal for GLD, especially if accompanied by a breakout by SLV via a close over 13.8 – which would add a buy signal for silver to the mix.

A shift in market attitude has been developing where gold and the dollar move higher at the same time. This means investors are starting to turn to gold as a flight to quality. Are investors starting to recognize that all this stimulus ultimately leads to devaluations in most currencies versus real money? Perhaps this trend is just beginning. Judy Shelton is publishing a great op-ed article in the Wall Street Journal this week calling for a return to a gold based currency that would prevent the massive debt bubbles that are behind our current crisis. Gold may become one of the few refuges of safety in the current environment. Let’s look to buy/add GLD on a clear closing breakout over 93 w/ an 84 stop-loss and buy SLV on a clear close over 13.8 w/ an 11 ops for a higher risk/reward trade. Remember to keep your risk of loss on all trades at under 2% of capital on any one trade (1% for conservative investors).

We have abstained from becoming bullish on stocks for even a bear-rally thus far because our Demand and Supply internal composites have yet to signal an environment where a catchable rally is likely according to these tools. Follow-through days are often followed by 90% down-days and breakouts are whip-sawed. We keep a list of potential stocks basing, but until the overall market environment is more clearly favorable, investors should keep capital in cash and the few opportunities available, like GLD.

Remember that our goal is to pinpoint reliable enough moves that we can buy base breakouts that will lead to profits being locked in via trailing stops before the market turns down again at a minimum. Stocks often base for many weeks or months following a major low and good base breakout opportunities only come in plenty at the end of that basing period as a broader rally evolves. By catching the strongest stocks and groups, one can substantially outperform the market during the rally. But you have to leave your ego at the door because these opportunities come usually quite a bit AFTER the market has bottomed and turned up. The goal isn’t to catch the bottom of the indexes, but to be patient enough to wait for basing opportunities to become reliable and plentiful. If a major bottom is in place, those base breakouts can lead to triple-digit opportunities. If it is just a bear rally, double-digit gains can be locked in via trailing stops as we did in the March-May rally. So far internal action smacks of a bear-rally, and it is not yet clear whether it is catchable or not – but internals will eventually change.

We remain cautious as neither of our Top RS/EPS New Highs nor Bottom RS/EPS New Lows lists are yet signaling a clear plurality of moves in either direction. Until we get evidence of sustainable Demand, volume, breadth, and leadership on the upside, this market remains in “no man’s land.”