After the May 28 breakout, more selling came today as traders sold off gold ETF's to 2009 levels and the price reached 15-week lows.
I have placed my favorite several technical indicators on this daily August gold (COMEX:GCN14) chart. They're my favorite because by placing a handful of indicators on a chart, I can learn 10 or 15 important specifics. These technical indicators are the 9- (red line), 20- (green line) and 50- (blue line) period Simple Moving Averages (SMA's), Bollinger Bands (yellow lines), Candlesticks (red and green bars) where on this daily chart each bar represents a day, and a bear pennant (royal blue arrows).
I fully expect more technical follow through selling in the coming days and weeks. We may retest the $1,180 per ounce lows the market made in December 2013. This bear pennant, if one was prudent enough to notice it like I was, will lead to the retesting of those lows in my view. To me, this is just the start of something far more bearish. What if $1,180 per ounce doesn't hold?
Chart by eSignal
I am bearish on this market. There could be several ways to play it with options, and one could be to buy straight August put options or bear put spreads in a 3-to-1 ratio with a call for a hedge in case the trend changes on a dime and the market rallies.
Another potential play could be to sell naked, deep, out-of-the-money August options or option spreads with very clear-cut exit strategies upon entering the trade for risk management. Remember, when you sell naked options, you have unlimited risk and should have a well-funded account of risk capital, because there are margin requirements as well.
This gold market is right where I want it for this strategy because markets can only do 1 of 3 things over any given period of time and that is go up, down, or sideways. I believe that the gold market will move lower to sideways as opposed to making a huge rally up over the next 30-45 days.
For exact details on other types of risk, months, expiration dates, strike prices, and number of positions feel free to contact me at 312-277-0115 or email@example.com. In addition, I am by no means "married" to the gold market. I like to make trade recommendations to my clients in the direction of the existing trend whether the market be the precious metals, energies, currencies, financials, softs and more.