Subscribe to Oakshire Financial

The Wake-Up Call On Coffee (GMCR) And Gold (GLD)

11/29/12 by  
Filed under Bourbon & Bayonets

 PDF version Leave a comment 

The guy in the office down the hall was always a bit too loud.  But this morning we couldn’t help giggling when he all but roared over the phone, “Whaddaya think of your precious metals investment, now, you old tugboat?”

Now, tugboats are fine, we suppose.  They serve a purpose, anyway, and there’s nary a naval going vessel of serious dimension out there that doesn’t require the service of one of those helpful little pullers once in a while.

But in the end, you’ll have to agree they’re not really sexy.  They’re not rich and famous, nor envied by the vast blot of sailors or would-be sailors or, like my son, just those who like looking at pictures of boats.

Of course, the show’s not over by a long-shot; we appreciate that.  And despite Gold’s loss of fifty dollars over the last three trading sessions and her near 6% decline since early October, we understand the need on the part of the tugboats doubters out there for some proof that we are, indeed, on a golden decline.

Always worth having another look at the charts (and a few other crispy, well-spiced nuggets of info) that might have you second guessing your love affair with an asset that is declining in value and has been doing so for fifteen straight months.

This is gold proxy GLD, the SPDR Gold Trust ETF, since last August, 2011:

For those who managed to play any of GLD’s intermediate reversals for a profit, congratulations.  But the winning trade until today has clearly been the bearish one, and as we’ll show you below, there’s likely more growl left in the move.

We note first and foremost that since last September (2011) GLD has failed to break above any of its former highs, though a month ago it did manage to retrace up to overhead resistance at 175 without breaking above (red lines at top).

And at the very moment it was reaching up to that former high, GLD’s Relative Strength Indicator (RSI, in red at bottom) was also completing a very important move.  As the chart shows, RSI readings at the high registered extreme oversold (over 80, red circle), signalling a pullback was forthcoming.

Note, too, that in all the fifteen months that GLD has been declining there has been a steady decline in the number of shares traded per day (blue line).  This is not a confidence builder for those seeking a bottom.  What would be more constructive is evidence of GLD stock churning as it changed from weaker hands to stronger.  That hasn’t happened.

Finally, both RSI and MACD indicators have now pulled below their respective waterlines with the latest drop in price.  This also doesn’t bode well for gold’s immediate future.

What’s perhaps most damning, however, we leave for last.

Have a look at the three month chart for GLD:

Though it’s clear from our first chart, we’re taking advantage of the bigger picture here to comment on the gathering of the moving averages at GLD 160 (black box).  There’s nothing so scientific about this formation and nothing technically significant per se about it, either.  What is significant is that this sort of gathering regularly occurs during a slow rollover of the averages after a long and steady decline.

If we’re, in fact, witnessing such a rollover now, it’s also important to note that GLD sits today a mere 3.5% above the support area at 161.  Should it drop below that level, 161 would then become resistance.  Note, too, that when moving averages are gathered as they are for GLD, it becomes easier for a single day’s move to slice through support and change a stock’s complexion entirely.

There’s little question that a test of the 161 level is now inevitable.

Consider:

  1. Trendline support, in red, has been broken.
  2. Price action has fallen back below the short term moving average (blue circle), and
  3. Both RSI and MACD have again submerged below their waterlines.

The best we can offer is that all goldphiles keep an eye on GLD 161.  Any move below that level would likely be a game-changer.

Climbing a Green, Green Mountain

We close with a word on Green Mountain Coffee Roasters (NYSE:GMCR), a stock we suggested you consider back on the 22nd and 29th of September.  Anyone who followed our advice with either a stock or options purchase has made out handsomely.

Congratulations… and a warning.

GMCR looks fully valued here and topped out for the meanwhile.

For those not addicted to caffeine, we say consider shorting it or buying some PUTS.

 

Many happy returns,

Matt McAbby, Senior Analyst, Oakshire Financial

 PDF version Leave a comment 

Comments

21 Comments on "The Wake-Up Call On Coffee (GMCR) And Gold (GLD)"

  1. jrboyd on Thu, 29th Nov 2012 6:27 PM 

    Matt is wrong on gold. Same issue as Apple just spread out over longer time horizon. Lots of cap gains to be taken and are being taken but inflation in 2013/2014 will drive price back up.

  2. Auric on Thu, 29th Nov 2012 6:27 PM 

    Yellow Monetary Metal is indeed in an interim decline. One would expect so in a 12 year bull market. Fundamentals? Bullish. Macro technicals? Bullish. Physical FOR DELIVERY demand? Bullish. Near term price action in the futures markets? Bearish. Physical gold cannot be manipulated with funny money. Futures can. Central banks? Buyers. Mega investors? Buyers (Paulson, Soros, et al.) Dumba** retail “hope and change” no-consequences for my actions cool aid drinkers? Oblivious.

    Gold is not now an investment. It is a storage vehicle for wealth while this funny money con-game economic catastrophe plays out. Don’t be a fool. Don’t be fooled.

  3. john vis on Thu, 29th Nov 2012 6:28 PM 

    i have shorted gold via gll and futures

  4. Chalzer on Thu, 29th Nov 2012 6:31 PM 

    The neat thing about technical analysis is that a TA enthusiast can make a persuasive argument for his/her particular bias, if they are well-versed in the vocabulary. I see it differently from your perch. We may well have one more leg down if the PPT and the gold cartel have anything to say about it but for my money, I’m a gold bull, intermediate, long term. A swing bear trade may be a short-lived one. Good luck.

  5. larry on Thu, 29th Nov 2012 6:47 PM 

    Are you still holding some silver puts for Jan 2013? Yes? No? Buy more? Sell now? Tks….Larry

  6. Chris.bergner@tesco.net on Thu, 29th Nov 2012 6:57 PM 

    In my experience, just as you are convinced something is so the opposite happens! Gold and Silver often rally into the end of December and beginning of January. The fact is that the prices have been held down in order to cover up the destruction of the currencies through QE. I’ve followed Silver very closely and seen it repeatedly slapped down as it tried to rally. In the end they’ll just be providing cheaper gold for the East to buy and the miners like Lonmin and Xstrata will go bust, as rising costs crush them. Long term Gold the real stuff will explode as hyper inflation hits places like the US, and a host of other countries including the UK. Put simply the die is cast and governments want to keep spending, all the warning signs are there and history has already shown us what happens. Still if the Mayans are to be believed then the world ends on the 21st of December anyway, aaaaahahahahahahha. Why couldn’t they pick the longest day not the shortest?

  7. AJ on Thu, 29th Nov 2012 7:14 PM 

    Forget the bear tack on gold,consider the debasement of currencies,gold is the only safe currency and will soar further as inflation rears its head due to the massive printing of money.

  8. david Jarvis on Thu, 29th Nov 2012 7:35 PM 

    Matt predicted $22.50 for Silver by year end back in August- enough said.

  9. Stephen on Thu, 29th Nov 2012 7:40 PM 

    I hope Oakshire is saying that GLD is going highrer–because I myself am convinced of such. Problem is, I also believe equities are going MUCH higher?
    And, disagree with you on GMCR. It’s got more room to run.

  10. Stephen on Thu, 29th Nov 2012 7:42 PM 

    No, I take it back, GLD, gold in general, will never see much more growth, ever, because, stocks are back in the picture.

  11. Chalzer on Thu, 29th Nov 2012 7:47 PM 

    Matt,

    In your chart you say GLD overbought then say oversold in your text…what do you really mean?

  12. Chalzer on Thu, 29th Nov 2012 7:49 PM 

    Stephen,

    Please see Auric’s comment re: gold…enough said.

  13. stephen hamilton on Thu, 29th Nov 2012 8:13 PM 

    GLD is the spring that is still coiling this spring will explode like a rocket. i beleave it is being milipliated by the fininical instatutions. this pull back may last untill mid jam or feb then it will explode they are trying to shake you out.

  14. Dale Laine on Thu, 29th Nov 2012 8:55 PM 

    How do you factor in potentially serious inflation due to the avalanche of money printing (fiat)? Or is that longer term?

  15. Gary on Thu, 29th Nov 2012 10:06 PM 

    GLD may be taking a breather. Longer term… maybe within six months the fundamentals will trump any of the technicals, as the balance sheets of the banks start to reflect movement in lending, and the resulting increase in M2. Inflation prospects and risk-on environments are the mother’s milk of Gold appreciation. It is all about timing now, as the table is set.

  16. DJMpawn on Fri, 30th Nov 2012 1:24 AM 

    Matt in your newsletter you stated gold would be at 1450 by year end and
    silver would be at 22.50. I was wondering do you still feel that way or have
    you changed your view. Please comment in your next letter.

  17. Market Noise on Fri, 30th Nov 2012 10:47 AM 

    Looking at Gold weekly chart, it bounced right at 50% of the trading range at the intersection of a 20 and 50 golden cross. I know you like esoteric-numbered MA’s, but I like the old standards. I think we test resistance and see if we get a breakout through the triple top before we look for further declines.

  18. Terry Stoner on Fri, 30th Nov 2012 2:50 PM 

    Liked your aticle on gold. Will watch the GLD 161 price level.
    Completely out of the stock market with no intentions of ever returning.

  19. Gary on Fri, 30th Nov 2012 10:53 PM 

    Stocks and gold can move upward in a linear correlation – both are directly effected for similar reasons – by inflation, and the Dollar depreciation.

  20. Marcie on Sat, 1st Dec 2012 3:37 PM 

    Hi,
    Would be interested in your thoughts about “bubbles” and silver.
    Personally think that GLD will be a hot commodity globally and best choice is mining stocks. What about GLD as currency and the banks being required to have it on hand. If true how does that change the equation?
    Thanks,
    Marcie

  21. Gary on Mon, 3rd Dec 2012 8:14 PM 

    Marcie

    Silver movement is in linear correlation to Gold movement – both up and down, however the direction is no doubt the same, the velocity of movement is much more pronounced with Silver. The fast train is the “Silver Bullet” and it is cheaper, and always travels in the same direction.

    GLD is an exchange traded fund that follows gold. Gold, however is the metal. and I can assure you it looks doubtful if the banks will ever be required to make an exchange in gold coins. Sorry, you have to go to China for this service, as they encourage the possession of Gold.


Get our Bourbon & Bayonets newsletter, and a two-month trial subscription to our premium Wall Street Elite newsletter (normally $49.99 per month) completely free. That’s $100 of ‘house cash’ you can start off our financial newsletters with.

Absolutely NO credit card or personal information required to get started

Your Email (required)

Our Wall Street Elite trading system had well
over 100% return for the year 2010.

Give it a try today, with zero obligation and zero commitment.