Wednesday, February 11, 2009

Gold Breaks Out Again

Today's breakout in gold above the highest downtrend line from the all time high puts the $1,000 target in sight. The most likely topping zone is above the July 2008 high of 988.50 up to 1000. The target should be reached in the next 8 to 10 days. While it is entirely possible that the all time high could be exceeded in an expanded flat B wave, this not as high a probability.

I went long the DGP (double gold long ETN) on the 1/23/09 breakout and will hold until we get a valid sell signal or the target is reached.

Today the markets barely moved after yesterday's downdraft. We may see another day or two of this kind of behavior before the bottom gives way, but it could just as easily happen tomorrow from the outset.

A couple of days ago a money manager on CNBC indicated that his fund was long with an expectation that the SP500 would be heading to 1000. However, he qualified his statement by saying this is a bear market rally and the fund's stop loss was 800 on the SP500. In other words they will exit all positions if the SP500 breaks through the 800 level. I have a feeling they are not the only ones. It looks like the flood gates will be opened at that point and the real selling climax will be underway.

Yesterday I indicated that I had exited my long RIMM position. After years of following the markets and stocks, I have developed a certain level of intuition and I have found that usually I am better off following it. My intuition told me that the selloff was a sign that the rally was over and RIMM selling off with it was a strong indication that the run was over in RIMM even though I did not have a sell signal. Last night RIMM warned that its margins would be at the lower end of the range and the stock opened down 12%. Things don't always work out this well, but experience and daily involvement with the markets is a large part of developing success as a trader.

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