The Gold Sector and Most Powerful Indicator

By: Chris Vermeulen | Sun, Apr 5, 2009
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The Gold sector has been performing relatively well over the past month. The price of gold has broken trend line support but is still holding horizontal support and forming a bull flag. Gold stocks and the broad market have been performing well and that has boosted the price of gold stock. Gold bullion has been under pressure, because money is being pulled out of physical gold and put to work in equities, which provides much more potential than gold at current levels.

HUI vs. Gold - Weekly Chart

This chart is crucial to follow. Trading with this trend will greatly help improve your success for trading gold and equities. HUI/Gold ratio chart has broken higher to a new multi month high and is now testing support.

HUI Gold Stocks Index - Daily Chart

Gold stocks have bounced off support and broken higher but are not looking for support to test the breakout. The trend line, 200 & 50 moving averages could provide support as different types of traders use different indicators to generate buy and sell signals. With so many clumped together I hope we get a nice rally higher in the near future.

Gold Bullion & GLD Fund - Daily Chart

Gold has been under some pressure in the past months and it's because investors and traders are starting to move some money back into stocks. Gold did break our trend line support but is now at horizontal support and forming a bull flag. We will see what happens this week, as we could get a breakdown or a bounce.

Gold Miners Bullish Percent Indicator - Daily Chart

The bullish percent index calculates the percentages of stocks in a sector, which are on a Point & Figure Chart buy signal. It is used to determine overbought/oversold conditions. Using an index/sector fund cannot be applied directly to individual stocks but rather to the entire sector.

The bullish percent indicator is one very powerful tool for swing trading intermediate trends. It works well with every sector, especially the gold and energy sector. The key here is to trade with the trend and enter on pullbacks with low risk buy signals. Trade the opposite in bear markets. I used this for a buy signal in December and prices had a 16% rally. These are the exact types of trades I wait for in gold and energy. I like to catch a few of these each year, which makes up the majority of my gains. I use several other charts to confirm buy and sell signals along with my strict money management rules for not taking trades if risk is over 3%.

Sometimes, depending on the market condition, I will scale in and out of positions using this chart. Accumulate on Wave Bottom Zone and scale out, when the sectors is at the Wave Top Zone. This strategy can carry some big drawdowns, but has performed well for my retirement account.

The Gold Sector Conclusion:

Gold stocks have been holding up, which is good for the price of gold bullion. The gold sector had a nice pop a couple of weeks ago and the market is still digesting that move. Gold is trying to hold horizontal support and with any luck we will see higher prices this week. The broad market appears to be overbought and if we see the broad market roll over, it should boost gold and gold stocks higher as a safe haven.

The Gold Miners Bullish Percent index chart is at levels, which were previous tops so that worries me. But this chart can stay at those levels for a long time in strong trends, which is why I focus on several other charts and indicators to help time the sector.

If you would like more information on my trading model or to receive my Free Weekly Trading Reports visit my website: www.GoldAndOilGuy.com

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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