Issue #192
Dear Member,
I’ll start with the bad news: You should have been stopped out of your long position in PowerShares DB Gold Double Long ETN (DGP) when it hit my recommended protective sell stop at $24.54 on Tuesday.
The ugly news: Nearly all markets are now caught in no-man’s land, in trading ranges accompanied by …
A. High volatility. Normally, volatility is a good thing, it creates lots of trading opportunities as the markets swing.
But the recent volatility is seeing many markets swing in tight trading ranges. That makes trading more difficult, as the swings are smaller. In addition, it allows the big boys to pick off stops in the market, much more easily.
Moreover …
B. There’s lots of “noise” in the markets. Noise refers to moves that occur that have zero impact on trend, but nevertheless, cause swings that are even more difficult to trade.
Small swings in themselves are tough to trade, but when they are also associated with lots of “noise” – be it uncertainty over fundamental developments impacting markets, or even cloudy chart patterns – it makes it even more difficult.
On top of that …
C. Volume and liquidity levels in nearly all markets are declining. That’s part and parcel of the above two forces.
But here’s the good news …
FIRST, all of the above, according to my models, are temporary. We should soon see larger swings in the markets that are easier to capitalize on.
We should also soon see a lot of the recent jittery noise in the markets dissipate, as new trends emerge, and older trends resume their trajectories as well.
We should also soon see, according to my timing models, volume pick up, resulting in increased liquidity.
And most important of all is the following:
SECOND, I am fine-tuning my trading models as follows …
A. I will trade only the larger swings going forward.
That means we will likely be in positions for longer periods. How long? Hard to say right now. But instead of trading noisy short-term patterns, I believe it will be far more profitable to concentrate on intermediate-term moves.
For instance, gold can still rally, before heading into what should be its final decline. But instead of trying to play that final last gasp rally, I am going to focus instead on the major trend, which is bearish.
That means that as soon as I get a confirming sell signal for gold, I will recommend a bearish position, be it on a failed gold rally, or a breakdown from gold’s current levels.
This will allow you to take advantage of the next big move down in gold, rather than trying to eke out a small profit from a small, false rally.
B. I will also be diversifying your opportunities more.
In the spirit of the theme of this service, I spend most of my time concentrating on precious metals, the mining sector, and energy, as I should.
But I am now going to put more emphasis on the currency markets, the stock index markets, and other sectors, such as interest rates and even the emerging markets. That will expand your opportunities accordingly.
And, lastly …
C. I will probably make more extensive use of options. Normally, I tend to shy away from buying options. Placing stops in options is almost impossible. When you buy an option, most of the time you have to risk your entire premium.
But there are times when options are better to trade than ETFs, or the underlying security.
Therefore, I do expect options trading to increase in this service. But don’t worry. When I have an option purchase to recommend, I will also give you the alternative of simply buying the underlying security, so the choice is yours.
You had some nice gains late last year and in the early part of this year. I fully expect to get it back on track.
Hold all existing positions and stay tuned …
Best wishes,
Larry
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