Gold Indicators: Improving Quickly, But Not Yet a Buy

A big surprise has been how quickly the gold indicators have improved. But they still are not flashing outright buy signals, and until they do, I will hold off opening a call position on either gold stocks or the metal itself. In retrospect, I wish now that I had followed a similar course of strict adherence to the indicators when the signals were negative, which would have led me to recommend puts.

Our S&P indicator has gone from negative to a bit more negative, largely because small-cap stocks have been lagging the market. Our indicator for VIX also has gotten worse, which supports the prediction of at least a small pullback in the SPY. However, we are getting close to expiration, and if the market does not dip as the indicators suggest it will, and the indicators remain negative, I will likely suggest that you take the loss on the current put option and buy another one whose expiration date is further out.

As readers of The Complete Investor and Real World Investing know, I have been and remain very bullish on oil. Still the indicators are negative both for oil stocks and for the commodity itself as measured by WTI, the U.S. oil benchmark. To say the least, that makes it galling to have a losing position in anything that relates to oil.

And so far it seems I have been on the wrong side, first in picking Continental Resources (NYSE: CLR) as a put candidate, and more generally in betting against oil, though the most widely traded oil index is not far from where it was when I recommended the CLR put. Earnings arrive next Monday for CLR, so there still is hope.

What I find particularly troubling is that the indicators for oil stocks have been especially negative – negative enough so that if oil-related ETFs were to rally, say, 5 percent or so from current levels, I would have to look for new variables to include or scrutinize existing ones to see if any should be eliminated. This is a dynamic world, especially with so much economic heft shifting to the East, and while my oil indicators include a number of China-related variables, continued gains in oil and especially in oil stocks would clearly suggest I have overlooked something.

But if it’s disappointing to have a miss, I’ll recall a message I always tried to impart to my kids: to view mistakes as an opportunity to improve. If you get 100 on a test, you may think you know it all, but if you get a lower grade, it should be a spur to learn a whole lot more. Our overall batting average at Aggressive Trader, fortunately, remains very high, but we’re always seeking to improve further. Some mistakes come from out-of-blue events that could not have been predicted. But the few mistakes we have made are leaning experiences that I am confident will lead to better indicators.


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