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Mona Bemoans the Gold Bull Break (GLD)

Posted on September 7, 2020

It’s not that we take pleasure in being spoilsports…

But the truth is, someone has to a call a spade a spade.

And if it weren’t for the few brave and mighty (like us), no one would step up to the plate and swing like Almonzo “Golden Boy” Ritchie, Lord rest his soul – nor would anyone know the truth…

Briefly…

Almonzo was perhaps the greatest slugger you never heard of.

He passed from this world when the tug he was pulling along the Erie Canal (for charity purposes, you know) capsized, dragging him to a murky death just west of Lockport N.Y.

Some suggested foul play, when the jilted EX of Almonzo’s lover, Mona Boddice-Stretcher, surfaced nearby with a giant cork in his hands, hopped on a waiting steed and sped off in the direction of the haunted Spalding Mill, where Mona’s ghost, it’s still said, cries nightly for her beloved home run king.

Nope.

We’re talking about gold today, friends; we don’t like it, not one bit.

We’re stealing a bit of brother Matt McAbby’s thunder in the process, but as we say in the business, timing is everything.

So here goes.

Gold looks bad.

Whether it’s a temporary phenomenon or longer lasting, we can’t say.

But profits ought be taken, and now.

Why?

First take a look at the daily chart of the SPDR Gold Shares ETF (NYSE:GLD) –

  • Most damning here is the three week overbought RSI read (in green), from which we’re now seeing the fallout: RSI is now flirting about its all-important half-way waterline, while
  • MACD, too, appears just days away from submerging.
  • This comes after a 40% lift off the Wuhan virus lows in March (in red),
  • That culminated in a strong volume surge (in black), itself indicative of distribution.
  • Since the early August highs, GLD has traced out a bearish descending triangle (in blue) with support at 179.  Any break below that level would likely incur an immediate drop to 165, where the rising 137 day moving average offers first support.

And while a daily RSI overbought read is dangerous in itself, when combined with a weekly overbought signal, the results are rarely good.

Have a look –

  1. A weekly overbought signal was struck a month back (in green), and now
  2. Weekly MACD is rolling over, and
  3. Price is tickling the lower cusp of a six month trend channel (in red).

This is bad.

But what makes it worse (and we apologize for piling on) is that GLD is also the proud owner of a MONTHLY overbought read that ventured deeper into the muskosphere than even the September 2011 top out (in green, below).

Have a look –

  • The monthly chart shows all the froth of the last half year, a buying frenzy that served gold holders nothing but euphoria.
  • Yet it happened too fast.

And with all three RSI reads now more overblown than they were at the 2011 top, we have to recommend a chill pill.

The euphoria was nice.

But now we take profits.

And if you weren’t already in, we’re offering the following –

A Jew and His Money recommends you consider selling short GLD (now at $181.64) and buying the GLD October 16th 182 CALL for $4.75.  Total credit on the trade is $176.89.

Rationale: With the expectation that GLD will immediately decline in price, we’re setting a short term hedged short sale, with a maximum loss of $5.11 should GLD rise above $182 by October expiry (CALL price less initial credit).

The trade starts making money below $176.89 (our initial credit).

In other words, if GLD drops 2.6% between now and October 16th, we start cashing in.

Maximum loss is $5.11.

Maximum gain, theoretically unlimited.

With kind regards,

Hugh L. O’Haynew

20 responses to “Mona Bemoans the Gold Bull Break (GLD)”

  1. M T says:

    I’m in but with spreads…really trying to trim exposure across the board as it might be one of those times to preserve the ol’ firepower…if the market is a mirror on what is going on around me, it has surely gone mad.

    All the best. Hope back to school went/is going well…

  2. Hugh L. O'Haynew says:

    bs’d
    Bless you, MT, and your persistent sanity.
    Hang on to it.
    Yes, the planet’s drifting into a banal from of derangement, and dry powder will be crucial.
    The market’s madness is expressed fully only at tops and bottoms, though.
    When you can ONLY profit (so throw in all your funds without thinking — à la Portnoy) or ONLY lose (so sell everything regardless its value), the lunacy is complete.
    We’re very close to the former.
    May the Most High see us through to better days.
    Hugh

  3. M T says:

    What. A. Trade.
    Are we in a “no sleep till the 137” situation?

    /GC has me tossing and turning…this camel is feeling the load!

  4. Hugh L. O'Haynew says:

    bs’d
    G-d bless you and the rest of the mishpocha — gotta believe, MT!
    So we got a rebound. Not the end of the line though.
    More to come — maybe even, as you suggest, down to the 137 DMA…?
    We got an eye on it.
    Stay with us,
    Huey

  5. M T says:

    Scalptastic round trip on this one – I’ll have to find a good spot to cut back in.

    Looking at selling a put to cover my insurance.

    This one started out so innocently, defined risk etc. Then Cap’n Reckless took over and it was all “/gc” this, “Oct 2 FOP” that.

    Them points sure add up quick dropping through resistance levels. Big boost to the win column.

  6. M T says:

    Style imitation!

    GDX in October:
    -1 38 Call/+1 40 Call
    +2 38 Put

    Credit on entry…

  7. Hugh L. O'Haynew says:

    bs’d
    Love the action, MT.
    Late getting back to you, but, as always, we’re watching.
    Let us know how the exit goes.
    Hugh

  8. M T says:

    GDX was a bust…but the credit received made this a risk worth taking. Lotta short deltas for the money.

    /GC I cut in (again) near 1917 and out around 1905 when my insurance long call expired. I’m sitting on the OTM Dec put I sold to pay for the long call.

    Next few days might be right to cut back in/sell a call to offset, but want to see the price action around these levels. The short call is so tempting as it would immediately improve my account margin.

    If I hadn’t barely survived my last hands on futures option lesson with Professor “Maintenance Margin” in June this would already be done and dusted 🙂

    All the best.

  9. Hugh L. O'Haynew says:

    MT
    Well put, friend!
    Gotta say, though, that the near-, near-term on gold is VERY difficult to read.
    Flatlining completely now — and several technical formations appear in the works.
    Well have to wait for a break.
    If not for that sickly overbought RSI read back in August, we’d say it was a toss-up.
    Don’t take your eye off it for a minute!
    Huey

  10. M T says:

    Hi Hugh,
    Appreciate your perspective. /gc is riveting TV these days.
    Can’t shake the feeling we’ll move towards 1800-1850s before we see 1950-2000.

    But feelings have never paid me so playing it as “wait and see” – and hoping this cushion of theta doesn’t turn into the bed of nails…

    Which means:
    Short Dec 1840/2020 strangle
    Short Dec 1810/2010 strangle
    Short Jan 1780/2080 strangle

    And a finger on the eject button at all times should things get whippy…or we get that break you mention.

    MT

  11. Hugh L. O'Haynew says:

    We may be getting that long awaited move in the PMs —
    Right.
    About.
    NOW.
    Stay on it.
    We will, too.
    Love,
    Huey
    P.S. You got a fair amt. of skin in the game, there, brother MT.
    Wishing you only the holiest, enduring mazel with it.

  12. M T says:

    The fear helps me focus!

    Rolled the Dec calls down to 1980, closed the 1840 put on this gentle rise, shorted /gc, set stops.

    All aboard? That’d be nice. Could see a last meander up to around 1910 without breaking the pattern. All the best and good luck to all.
    MT

  13. M T says:

    …and fear gets me flat! Fireworks ahead around the 1930s? Or just another floating doji?

    I’m just a spectator now…but already preparing to kick myself for closing the Jan strangle 🙂

    MT

  14. M T says:

    Tantalizingly close to breaking? Again? Sending good wishes to anyone with the patience to hang in there.

  15. Hugh L. O'Haynew says:

    bs’d
    It’s palpable, no?
    Yesterday saw a huge number of MARABOZU patterns across the large- and mid-caps.
    Big selling happening under the hood.
    A broad dump could be close.
    Will gold go with it, or get the ‘safe haven’ trade?
    Odds on her following suit — in our most-humble-of-all opinions!
    Keep the faith, Gee-Gee! 😉
    Hugh

  16. M T says:

    I love the short. Love it. Gold doesn’t seem to be behaving as the “shelter from the storm” so I’m right there with ya on the broad dump pulling down all classes…

    But man it hasn’t paid (yet) at these levels… I’ve been in and out of /GC and /SI strangles several times, lovely times as IV fell post election…unfortunately I can’t give this trade the sweaty palmed lip licking attention it deserves due to other commitments.

    All the best riding this bronc. I’m going to take a walk over to “U of Zero” in your honour later this aft!

    MT

  17. Hugh L. O'Haynew says:

    bs’d
    Maybe a rough ride over to Lansdowne after that…?

  18. M T says:

    If I see a door I want it painted (red) black

    oh dear this could go on for ever. Never did I think I’d be making O-town puns on the internet

  19. M T says:

    oh – and what a break this morning. Had to catch a piece with the mini, great entertainment. Waiting for some real volume to pick up, this could be awesome.

    mT

  20. Hugh L. O'Haynew says:

    bs’d
    Hey, hey, my, my…
    Heart of gold, anyone?
    They’re getting cheaper…

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