Option Investor
Market Updates

Gold/Silver stocks on the move

Printer friendly version

Traders just never know where they'll find attractive risk/reward trades, but the technicals in the XAU.X were just that for a bullish trade to take place earlier today.

Gold/Silver Index Chart - last five months.

The XAU.X is up better than 4% today and it may just be some short covering in the group that's driving today's gains. Notice how our "confirmation" level was NOT violated to the downside and how the 50-day MA (thin blue) also provided support. We'll be watching the 200-period MA (thin red) at 52 closely. Remember how the XAU.X and the bond market helped us in the past? Broader-market equity bulls don't want to see this index head higher and bond yields start to slip lower. That type of activity might signal the market is once again entering a "panic" stage. It is never too early to remember what type of events took place in the past and develop scenario's for future trading. It's OK (or it has been in the past) for the XAU.X and treasury yields to move in the same direction. That makes "economic sense" as higher bond yields and higher gold/silver usually means inflation, and inflation usually means growth. I've talked in great detail about "what part of the cycle" you're in as it relates to the above. Right now, at this point of the cycle, I believe higher bond yields and XAU.X is rational and should make stocks attractive over the longer-term. Everyone's worried about "recession" today, but I can only imagine what the talk will be 9 months from now. As a trader, I'll take it one day at a time, but understand what the future may hold.

Watch the VIX here!

The Market Volatility Index (VIX.X) basically tells us what is going on in the options market. Nine sessions ago equity bulls were happy to see this index drop back below our upward trend (thick red). Our thick blue line served as a "water mark" and we felt a move below that level would be a good sign for stocks. As bullishness increases, the VIX actually moves lower. Watch current levels closely. Moves to the low 20's is usually "over bullish" as market participants begin speculating after a major run higher in stocks has occurred.

Overall, still bullish

Today's trading still looks like consolidation and there doesn't seem to be a lot to be worrying about. We know what to be looking for, but currently we're not seeing anything really alarming. Looks like some positioning is being done and traders should stay patient and disciplined. If a stock looks like it's just trading in a range then wait for the break. Eventually the market will come to agreement on a direction and traders can then implement their strategies.

Jeff Bailey
Staff Analyst

Intraday Update Archives