Tuesday, April 6, 2004
Issue Contents:
| 10:02 | Timely Insight The Nature of Mamis |
| 12:24 | Focus on Gold, PDG Quick take on 2nd biggest producer. |
| 15:44 | Intraday Update Why is it so quiet? |
| 16:16 | TrendVue Active Trader Transcript for Tuesday |
| 16:16 | TrendVue Trader Talk Transcript for Tuesday |
When I worked at the old office, my friend David would send me faxes of something called the Mamis Letter. It was written by my hero Justin Mamis, the father of the Sentiment Cycle.
Most weeks, Mr. Mamis would write about the usual stuff, go over the major moving averages, feature some stocks, etc., but one of the great things about the Mamis Letter was that it had no fixed format in terms of what would be said each time.
Instead of adhering to a rigid list of topics, he would bring up subjects when they deserved attention, and while it might have been annoying for those who wanted updates of every market and more stock picks, I learned more from him than from anyone, for it was precisely the act of being able to focus on the relevant that was his genious.
Not only did he know where to look, he knew exactly when, because his senses had become so in tune with the market that his proverbial antenna always picked up something in the wind just as it came over the horizon.
Over the years, as I have made the journey as a trader and market psychologist, I have noticed the progression to a certain oneness with the market. My subconscious allows me to sleep through a handful of mornings such as this one. When I wake up, I don't panic. I just take a look at the screen, smile and know that there wasn't much I could have done on the gap down anyway.
This is a quick note on Placer Dome, interlisted on NYSE and TSX and the second largest Gold producer.
Yyou can see on the following chart a two bar retracement after the last up swing culimnates in a gap up. The inside bar (marked in magenta) offers us an opportunity to place a buy stop above - inside bars are in essence a pause in a move while market participants decide what to do next. As you can see, this chart is littered with them, frequently at important swing points.
As it turns out, I didn't notice PDG until well after the open today. My first round in the morning is to review index and commodity charts to get a feel for things. Since Friday we've been on high alert watching the Gold contract GC fail at an important test of top (knowledge base article).
Since these tests are where all reversals can start we have no choice but to exercise caution. Note that we are not about to claim that this is the top in Gold - but a test is a test and until or unless price can move up from here, caution is prudent.
Related to some gold producers is Copper. The HG commodity contract has broken down out of a triangular congestion zone built up over a month. Sometimes these breaks are indicative of where price wants to go; sometimes these breaks reverse immediately and the market powers on in the direction of the original trend.
So there you have it - Gold and Copper both broken down; its up to us to follow along and see if either or both draw interested buyers sufficient for another move up.
Frequently a market will test a top, fail, retrace and then move up. There is that potential here. Some of the Gold complex names still look relatively strong - stronger than the underlying commodity prices would suggest, so it seems there remain buyers out there.
Thus my interest in PDG this morning. Back to the daily chart - a two day retracement followed by a gap up this morning. Using our typical approach for retracements - a buy stop limit order just above or below market (depending on whether we are going long or short) - we would not be filled this morning.
So, what to do? We have two choices: 1) pass on the trade and look for something else - always a perfectly valid choice. 2) look for the first retracement at the open and place a buy stop limit above / below the market depending on direction.
Here's what I did with PDG:
After the gap up, I waited for a retracement on the 20 minute chart. For multi-day swing traders we do not recommend getting too fancy with small time frame charts. 20 minutes seems to be a very useful time frame that filters out much of the intraday noise.
As PDG retraced, I placed a buy stop limit order 1 cent above each 20 minute down bar.
The long entry was triggered on the next bar. Additionally you can see another down bar (marked in red) in the upswing which developed - yet another opportunity to enter a long.
Given that PDG is trading sideways in a trading range after a gap up, there is every possibility that PDG will stop me out in noise if price does not rather immediately push up and out of the range. Due to this its not the best of trades to highlight for subscribers, some of whom have less experience and agility than others.
However since PDG offered a good real-world example of how to deal with opening gaps, its worth discussing. I also thought it timely to highlight the recent significant moves in Gold and Copper given the high level of ownership of gold stocks and mutual funds.
Surprisingly, there is no Gold-based Exchange Traded Fund (ETF) available on US Markets as yet - but Barclays Global will be introducing one soon with the symbol IAU, trading on AMEX. Canadian traders already have XGD available to them, also from Barclays, which trades on the TSX.
Many investors and traders feel lost unless they are doing something. We must remind ourselves that there are more than just two actions we can take in the market - more than just buy and sell - frequently the most important action of all is to do nothing.
For now, all we know is that some selling was able to push price down into the range of the past two trading days. This is really a "pause", not a reversal - at least not yet. So we take this time to review a ton of charts and sectors and get ready to act when it makes sense to do so. If experience is any guide, the time to act will be soon.
Transcript for Tuesday
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Transcript for Tuesday
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