27
Sep
2010

ETF Periscope: Has the Gold Train Left the Station?

Has the Gold Train Left the Station?

by Daniel Sckolnik of ETF Periscope

“It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things.”  ~ Leonardo da Vinci

For anyone who has been in the markets for any extended period of time, a strong sense of déjà vu must be ensuing. It looks something like this: First, a clear trend in a particular market appears to form, but maybe not so clear that we’re ready to commit to the trend. Second, the trend has solidified beyond all reasonable argument. But, we still don’t pull the trigger since we figure it may be too late to ride that particular gravy train. Third, the trend is not only continuing, it is gaining momentum. New highs are reached, and we can’t stand it anymore, it just makes us too crazy. Resistance, as they say, is futile. So, we buy, at any price, because it’s downright embarrassing to miss such a pure and beautiful trend. Plus, of course, we want to make some money.

Fourth and finally, the market proceeds to head south with the gusto reserved for a flock of birds determined to hightail it to Florida before the cold winds of winter hit the northern shores.

Does anything out there fit the first three parts of the above profile?

You betcha.

Gold.

The question that warrants being asked now is: Is the fourth part of the above equation about to kick into gear? Or is there still a little more time to buy a ticket, hop aboard and ride this particular train to profitability?

If you step back and look at the big picture, September’s momentum is exceptionally strong, and could be looked at as a possible indicator that the uptrend for the markets in general could be expected to continue. The Dow Jones Industrial Average (DJIA) rose almost 200 points on Friday, ending at 10,860, perhaps on its way towards the 11,000 mark, a level not touched on since May. The DJIA has risen a spectacular 8.4% so far for the month of September, and may have found enough support at the 10,750 level to sustain the next leg upward. The benchmark S&P 500 Index (SPX), did even better for the month, ending Friday at 1,149 for a 9.5% September gain. The Nasdaq Composite (COMP) led the pack of the three major indexes, coming in at 2,381 and up an astounding 12.6% for the month. Equally impressive, SPX, COMP and DJIA all posted gains for a fourth consecutive week. This, taken together, is a classic illustration of a strong upward trend.

The good news for the markets that seemed to power Friday’s rally was a better than expected rebound in demand for U.S. capital goods, based on the Commerce Department’s most recent report. Though total orders actually dropped by a little over 1%, the figure seemed to indicate a slight resurgence in business investment.

However, to accomplish any sort of true recovery, it seems likely that a substantial push would need to come from retail for the upcoming holiday season, and if Main Street remains effectively mired in double-dip land, at least in terms of both unemployment and the housing industry slump, it seems difficult to envision a scenario where Wall Street can maintain momentum.  And if that’s the case, the shiny gold balloon could pop, and the last one’s on board the train may find that they left their luggage back at the gate.

Since this is after all an ETF oriented commentary, let’s use GLD (SPDR Gold Trust) for the purpose of illustrating some of the technical aspects of the shiny metal.

Back in June, GLD touched new highs slightly above 123 on several occasions. It has corrected downward about 7% dating back towards late July, but has rebounded and risen steadily since then. It broke out about two weeks back, and now sits at 126.69, with average daily volume holding reasonably steady. However, as is usually the case when new highs are being hit, extreme volatility often results, as the battle between profit takers and new investors ensues. The influence of economic reports and other financial news often have an amplified effect on the markets at these junctures. The coming week will provide a large amount of grist for the mill, with reports due out on consumer confidence on Tuesday, U.S. economic growth on Wednesday, weekly jobless claims on Thursday and manufacturing and construction spending reports on Friday.

Whether gold continues its upward trajectory or not remains to be seen. Sooner or later it will come down, and it may be prudent to wait for that moment. On the other hand, if you evaluate carefully, you might find that adding gold can serve as ballast to other aspects of your portfolio, thereby taking yourself off of the “gotta have it now” bandwagon and more onto the “smart overall trade” train. For the intelligent investor, looking at the big picture not only in terms of macro-trends, but also in terms of your own total investment plan, is really the best way to ensure that your portfolio remains “golden.”

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

For anyone who has been in the markets for any extended period of time, a strong sense of déjà vu must be ensuing. It looks something like this: First, a clear trend in a particular market appears to form, but maybe not so clear that we’re ready to commit to the trend. Second, the trend has solidified beyond all reasonable argument. But, we still don’t pull the trigger since we figure it may be too late to ride that particular gravy train. Third, the trend is not only continuing, it is gaining momentum. New highs are reached, and we can’t stand it anymore, it just makes us too crazy. Resistance, as they say, is futile. So, we buy, at any price, because it’s downright embarrassing to miss such a pure and beautiful trend. Plus, of course, we want to make some money.

Fourth and finally, the market proceeds to head south with the gusto reserved for a flock of birds determined to hightale it to Florida before the cold winds of winter hit the northern shores.

Does anything out there fit the first three parts of the above profile?

You betcha.

Gold.

The question that warrants being asked now is: Is the fourth part of the above equation about to kick into gear? Or is there still a little more time to buy a ticket, hop aboard and ride this particular train to profitability?

If you step back and look at the big picture, September’s momentum is exceptionally strong, and could be looked at as a possible indicator that the uptrend for the markets in general could be expected to continue. The Dow Jones Industrial Average (DJIA) rose almost 200 points on Friday, ending at 10,860, perhaps on its way towards the 11,000 mark, a level not touched on since May. The DJIA has risen a spectacular 8.4% so far for the month of September, and may have found enough support at the 10,750 level to sustain the next leg upward. The benchmark S&P 500 Index (SPX), did even better for the month, ending Friday at 1,149 for a 9.5% September gain. The Nasdaq Composite (COMP) led the pack of the three major indexes, coming in at 2,381 and up an astounding 12.6% for the month. Equally impressive, SPX, COMP and DJIA all posted gains for a fourth consecutive week. This, taken together, is a classic illustration of a strong upward trend.

The good news for the markets that seemed to power Friday’s rally was a better than expected rebound in demand for U.S. capital goods, based on the Commerce Department’s most recent report. Though total orders actually dropped by a little over 1%, the figure seemed to indicate a slight resurgence in business investment.

However, to accomplish any sort of true recovery, it seems likely that a substantial push would need to come from retail for the upcoming holiday season, and if Main Street remains effectively mired in double-dip land, at least in terms of both unemployment and the housing industry slump, it seems difficult to envision a scenario where Wall Street can maintain momentum. And if that’s the case, the shiny gold balloon could pop, and the last one’s on board the train may find that they left their luggage back at the gate.

Since this is after all an ETF oriented commentary, let’s use GLD (SPDR Gold Trust) for the purpose of illustrating some of the technical aspects of the shiny metal.

Back in June, GLD touched new highs slightly above 123 on several occasions. It has corrected downward about 7% dating back towards late July, but has rebounded and risen steadily since then. It broke out about two weeks back, and now sits at 126.69, with average daily volume holding reasonably steady. However, as is usually the case when new highs are being hit, extreme volatility often results, as the battle between profit takers and new investors ensues. The influence of economic reports and other financial news often have an amplified effect on the markets at these junctures. The coming week will provide a large amount of grist for the mill, with reports due out on consumer confidence on Tuesday, U.S. economic growth on Wednesday, weekly jobless claims on Thursday and manufacturing and construction spending reports on Friday.

Whether gold continues its upward trajectory or not remains to be seen. Sooner or later it will come down, and it may be prudent to wait for that moment. On the other hand, if you evaluate carefully, you might find that adding gold can serve as ballast to other aspects of your portfolio, thereby taking yourself off of the “gotta have it now” bandwagon and more onto the “smart overall trade” train. For the intelligent investor, looking at the big picture not only in terms of macro-trends, but also in terms of your own total investment plan, is really the best way to ensure that your portfolio remains “golden.”

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

ETF Periscope
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