Buy Alert: July 2, 2013
Buy Alert: July 2, 2013
Option Strategy:
Buy SPDR Gold Trust (GLD) August 2013 $126.00 calls for $2.00 or better.
Commodity Outlook:
You know it, I know it, everyone knows it… gold is getting thrashed in 2013.
In fact, the metal is down 26% on the year and bearish investor sentiment is at its highest levels in years.
As you may be aware, this year’s gold meltdown primarily revolves around Ben Bernanke’s remarks towards quantitative easing (QE). Fears that the Federal Reserve will start tapering QE sooner rather than later has had investors dumping the yellow metal in favor of equities.
But last Friday something interesting happened in the gold market…
Gold opened the trading day at $1,199, fell to an intraday low of $1,179, and then rallied to close the day at $1,232 on heavy volume.
Let me show you what I mean…
The chart above depicts a reliable technical signal called a key reversal day. When a key reversal happens in a downtrend (like what gold is in now), the opening price is below the previous day’s close and the closing price is above the previous day’s open.
I know that may sound confusing. But the fact is, this is a low-risk technical buy signal for gold.
With bearish investor sentiment at extremes, we could see an abrupt round of short covering in the gold market soon.
To capitalize on a potential rally in gold, let’s by SPDR Gold Trust (GLD) calls. GLD is an ETF that tracks daily price movements in the spot price of gold. If gold rallies, so will GLD.
Here are the important details you’ll need for this trade…
Trade Metrics
| Underlying ETF Symbol: | GLD |
| Call or Put: | Call |
| Expiration Month, Day, Year: | August 16th, 2013 |
| Strike Price: | $126.00 |
| Current Bid/Ask Price: | $1.85/$1.88 |
| Maximum Buy Up To Price: | $2.00 |
| Maximum Risk Per Contract: | $200 |
Here’s a breakdown of the important technical support and resistance zones in gold…
Exit Strategy:
Remember, we want the price of gold to move higher. Our first profit target is the low from April and May at $1,350. If gold can break through that important level, we may see it retest $1,425.
The risk control line for this trade is at $1,180, the intraday low from last Friday. If gold trades below that level, conservative investors should consider closing this trade to keep risk in check.
Category: Commodity Trading
