Gold on the Cusp of a Significant Price Rise
Commodities / Gold & Silver 2009 May 19, 2009 - 07:30 PM GMTBy: The_Gold_Report
The 'Sell in May' situation could arrive right on time this year, according to Roger Wiegand of Trader Tracks, who anticipates the next larger, extended rally in gold this fall. In this exclusive interview with The Gold Report, Roger suggests some alternate market plays for the lean summer months and explains why he believes "the deck is stacked against the stock market" and $1,375 gold appears in the cards.
The Gold Report: Roger, last week in your newsletter you talked about seeing two "flying wedges" in the Dow in the technical charts. Do these wedges have anything to do with the proverbial "Sell in May and go away"?
Roger Wiegand: Those two little wedges can be either continuation triangles, which go straight sideways, or they can be bull flags, which occur when the end of the pennant points in an upward direction. As I recall, the two wedges we saw were pretty much straight sideways.
What had happened is the NASDAQ, the S&P 100, the S&P 500, and a couple of other related indicators all signaled stocks were in a bull situation, and they should continue to climb in price. Then they stopped and prices came back a little bit and we saw one of these wedge-shaped patterns. It was over rather quickly. It was only within a matter of a few days that I expected prices to either take-off again immediately in a new rally or, fall. It fell a little bit but, instead of continuing to sell, it started in another new wedge. This is a highly unusual chart pattern signaling manipulation, in my opinion.
What that said to me was we have a technical continuation of the first wedge. In other words, the chart is levitating and prices are peaking. It's wanting to sell, but I suspect there's artificial buying holding it up. Now the other thing that happened in the middle of the second wedge last week was the bank stress tests were announced, which in my view were just a lot of public relations. Looking forward, there are some key dates coming up during the last 10 days of May, starting roughly around May 20. We think from that date forward toward the end of May we'll encounter that "Sell in May" situation. So, after all the machinations and moving around on these prices and the Obama bounce being delayed and so on, it now appears there's a chance that the "Sell in May" situation could arrive right on time.
TGR: You said earlier that you're expecting a Dow rise in the fall, but a major selling event in September?
RW: Yes, we are looking for a rise in the fall. Right around the first two weeks of September, I think we'll see fresh buying for Dow and index shares. Investors and traders return to work after Labor Day and vacations. Usually when that happens, they begin to buy. Unless there's some really bad news we can't forecast out there right now, I suspect the first few days of this could be strong. However, during the last week of September, moving into October, I think we're looking for a major selling event. That one could be a real attention-getter.
TGR: How far do you think it will drop at that point? Will it be testing our 2008 loads?
RW: I suspect we could go back as far as Dow 6,500 or 5,600. That's probably the worst case for the fall. I believe the deck is stacked against the stock market and I would be very cautious and expect hard selling at the end of September or, into the first two weeks of October.
TGR: What are you suggesting investors do between now and September? Is there a way to play the market before it takes its trip down?
RW: I think there is. From a trader's viewpoint, if, in fact, we're correct on the Sell in May event, you could purchase June put options on the S&P minis or, you can trade the S&P mini futures short. We're planning to trade the S&P mini futures short and we'll price those options. Those two trades, held during a quickly falling sell-off, could earn quite a bit of money in a short period of time.
TGR: You're recommending some bond plays. Are there any other interesting plays, what you would call "no-brainer plays"?
RW: None of them are no-brainers because we can always be surprised. The other trade I find attractive is the Canadian dollar long. We can trade these using ETF shares and buying currency futures. The good news on the Canadian dollar, from what I can see, is that it might rally from 86.00 (on the index) all the way up to 1.00—and perhaps even higher. Now why is that going to happen? I think it could happen because the Canadian dollar is a mining and natural resources currency. Consequently, it's related to most all miners including precious metals, base metals and other commodities. Base metals are not as strong, but they've stabilized. The Canadian dollar is also related to the massive energy sector. So the Canadian dollar should be a very good trade, indeed.
TGR: You mentioned earlier in our conversation that a good thing for some investors to do would be to take some profits and to sell into the strength of the market. If we're selling-off our current stocks, where should we put our money?
RW: We like grain. Grain has the potential to have another record year. We've had open positions since March on a soybean spread and the first leg of that trade is now up almost 100%.
Typically, the way we trade spreads is to take half off the table when we've got 100% or better, in an effort to recoup our initial trade investment holding the balance for higher prices. So far, that trade has gone very well. This is our fourth year on these and they have all been annual winners.
Share traders and investors will have several new opportunities buying shares in grain and other food-related stocks. We've recommended some before and will have more of them this year. Shortages and other fundamentals forecast higher grain and food prices.
We continue to like gold spreads for December, 2009. Our spread has been in place for weeks now, so I'd have to re-price it in the market for newer entries. We like gold long for December because we have been predicting a forecast price of $1,260 with a newer, higher projection announced six weeks ago to a potential $1,375 on December, 2009 futures. Gold might return to $850 before we settle down here and rally in the next leg, but on a cyclical basis gold has another chance to rally mildly this spring after a minor pullback.
TGR: Doesn't gold usually kind of go down or sideways during the summer?
RW: Yes, it travels sideways for most of the summer. I would say that's probably our trading action in the next two to four weeks. If gold sells down again, and I think it will, you could see a base-bottom somewhere between $850 and $885 and then a lot of chop and mild rallies. These channeled markets are difficult to trade. And, then into the fall we're looking for the next larger, extended rally. I suspect other markets will have a negative influence on several things and, as a result of that, gold should rise significantly in the fall. I know manipulators will be trying to cap it and keep the lid on, but one of the keys could be a rally price break through $1,007—the former high. Then gold could run away to $1,150 and more, easily up to $1,260. Now the other event, depending upon manipulation, is the chance gold could rise as high as $1,375 on the December futures contract. That remains to be seen. If it happens, we should see several markets with new pivot moves depending on key events. But, technically, from where we are today and where we've been, $1,375 appears in the cards.
TGR: That would be good news for a lot of those junior miners.
RW: Absolutely. One of the bigger stocks we've recommended in the gold sector, of course, was Hecla Mining Company (NYSE:HL). It was down at $1.41 and we're still recommending holding it with a stop, up 120%. They previously had a couple of problems we recognized were only temporary. Actually, HL has done so well it's almost behaving, trading like a high-risk junior miner, which it's not. Hecla is an NYSE-listed Blue-chip listed company with a beautiful balance sheet and a lot of great things happening. We plan to continue to recommend a hold through the rest of this year and probably into further-out years. Lower energy prices have played a major part in better mining profits.
TGR: Any other interesting companies in the gold sector?
RW: In the gold sector, we've recommended Miranda Gold Corp. (TSX.V:MAD), San Gold Corporation (TSX.V:SGR) and Bravo Venture Group (TSX.V:BVG). We also like Clifton Star Resources Inc. (TSX.V:CFO), and Canplats Resources Corp. (TSX.V:CPQ) in Mexico. Those are some of our preferred juniors. Our top seniors other than Hecla would be Agnico-Eagle Mines (TSX:AEM) and the other, of course, would be Goldcorp (TSX:G) (NYSE:GG), which is the Cadillac. Those would be our top three selections for the big boys.
TGR: Thanks, Roger, as usual, this has been very interesting and informative.
Using the nom de plume “Traderrog,” Roger Wiegand produces the popular Trader Tracks newsletter, providing investors with short-term buy-and-sell recommendations and insights into the political and economic factors that drive markets. An insatiable reader, he digests a variety of domestic and international publications, with the economic, political, monetary and market news and commentary woven into his opinions and analyses. For more than 17 years, Roger has devoted intensive research time to the precious metals, currency, energy and financial markets. But his varied background—which includes graphics, writing, editing, sales, marketing, commercial printing, consulting and real estate development (from sand and gravel mines to landfills to residential/commercial projects)…and trading—also shapes the view he shares. In addition to Trader Tracks, Roger also pounds out a weekly “Rog's Corner-After The Bell “column for Jay Taylor's Gold, Energy & Tech Stocks newsletter. For other essays, visit websites such as Kitco.com and, of course, The Gold Letter. Roger is a frequent speaker at The Cambridge House Resource Conferences. Visit Roger and Jay's website at webeatthestreet.com. Tel: 718-457-1426 Claudio Bassi, Manager cbassi@miningstocks.com.
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