By Gil Morales and Chris Kacher
PLAYA DEL REY, Calif. (MarketWatch) — When it comes to buying gold or
silver, the best buy signals are found in what we refer to as “pocket
pivots.”
These are statistically significant buy signals we have developed and
used with great effect in our own handling of the precious metals in
2011 as we ourselves have thus far outperformed the S&P 500 Index
over 50-fold as of this writing.
Pocket pivots
essentially provide a tool that traders and investors can use to gain
early entry into a narrow-based ETF such as the SPDR Gold Trust
GLD
-0.17%
or iShares Silver Trust
SLV
-3.08%
, or an individual stock, and they dovetail quite nicely with our general strategy and approach towards either gold or silver.
This approach has adhered to the principle of “buy it when it’s quiet,”
and so pocket pivots fit the bill quite nicely as “quiet” buy signals
within a stock or commodity ETF’s consolidation that generally occur
when nobody is looking.
And right now, with sentiment somewhat bearish on the precious metals,
not many investors have been looking. So while investors’ and traders’
eyes have turned elsewhere, the SPDR Gold Shares ETF, shown in a Chart 1
on a daily chart have developed some interesting and positive technical
characteristics that could set them up for a bigger move in November.
The SPDR Gold Trust had a very nasty sell-off in late September, but
found its low right above its prior breakout point at around the 151
price level soon thereafter. The recent retest of that low several days
ago occurred on lighter volume, constituting a successful test of key
lows for the gold shares. On October 25th, as we point out on the chart,
the gold shares flashed a pocket pivot buy point. A pocket pivot buy
point is described by an upside movement that carries above the 50-day
or 10-day moving averages on upside volume that is heavier than any
down-volume day in the pattern over the prior ten days.
In the chart you can see that the volume on October 25th as the gold
shares came up and through its 10-day moving average, the magenta line
on the chart, was indeed higher than any down-volume day in the pattern
over the prior 10 days. According to our methodology, this is a pocket
pivot buy point, and we will begin pyramiding a position in the gold
shares from this point.
The iShares Silver Trust (SLV) representing of course, the white metal,
shows similar action to the gold shares in that it also bottomed in late
September after a nasty downside spill, retested that critical low
several days ago on lighter selling volume, and then flashed a pocket
pivot buy point of its own, as we see in Chart
2, below. This is very
constructive technical action for silver, in our view, and portends a
possible continued movement to the upside.
The action in both silver and gold is very constructive off of these
recent lows, and with European officials looking to open up the
“Euro-QE” spigot as they leverage the European Financial Stability
Facility or EFSF, to the tune of 1.3 trillion euros. In our view, this
is negative for currencies, particularly fiat currencies like the euro
and dollar, and when combined with the strong technical bottoming action
we are seeing in both metals, could eventually lead to a breakout to
new highs for yellow and white metals. Silver and gold tend to follow
one another around, but we might consider gold to be in the leading
position currently given that it remains much closer to its all-time
highs than silver does.
But we think that in a world that remains awash in fiat currencies as
government officials can only continue to kick the can down the road,
gold and silver show some strong potential for the month of November.
Gil Morales and Dr. Chris Kacher are both managing directors of MoKa Investors LLC, cofounders of
www.selfishinvesting.com
and co-authors of “Trade Like An O’Neil Disciple: How We Made 18,000% in the Stock Market” (Wiley, August, 2010).