Monday, July 20, 2015
The Dow rose 14 points today but came off of the highs in the final hour. The advance/declines were 2 to 1 negative on average volume. So it was a strange technical session. Short term overbought for the major stock averages. Not a lot of economic data due this week but plenty of earnings. With an extra week in the August option cycle there is no rush to trade the SPY options at the moment. GE was off a dime on light volume. No trades pending here as well. The story today was gold or to be more accurate, the gold shares. The spot gold price fell $25 on good volume. This, despite the US dollar having only a slight gain on the day. A report on Chinas gold holdings was the announced culprit. The gold shares are crashing. The XAU fell 5 1/5, while GDX dropped 1 2/3. Volume was extreme. ABX lost 15% of its value today, down 1 1/3 on drastic heavy volume. The oversold technical indicators for the gold shares are off the charts. My ABX October calls are decimated. Big losses there. We will probably get the August/September upside for the gold shares. But for ABX instead of from the 11-10 level, it will probably be from the 6-7 level. I'll hold onto the calls for now but this is definitely a cut the loss trade. Mentally I'm feeling OK. We are on the cusp of new highs for the S&P 500 and should get there this week. A pullback first would not be a surprise. The summation index continues higher and the overall trend is up. We are no longer in a constant headline news mode ruling the averages. Earnings should pave the way higher. The gold shares are crashing so I suppose that you can sit back and watch the show. I do have an order to purchase ABX outright lower from here but it isn't in my trading account. ABX in the single digits is considered by me to be a longer term investment to be held, not traded. Time should work for me there. I doubt the largest gold producer will be going out of business. I could be wrong but the odds are against that this time. I consider this crash in the gold shares an opportunity but you really can't tell how low they will go. The bounce back should be spectacular as well. The action in the gold shares is reminiscent of March 2009 for stocks to me. Blown out readings in many of the technical indicators. Just look at the Gold/XAU ratio as an example. We'll keep an eye on the action overnight and take it from there.