Homebuilder Stocks Gap | Commodity Stocks Surge
Homebuilder stocks TOL and RYL, provided me with a pleasant surprise this morning, with both gapping higher. The double position in both was a bonus. Both were sold. When I have a stock that gaps higher, I’ll usually sell 1/2 using a tight trail stop at the open, and set a target with stop-loss for the second half.
BIDU had a buy signal yesterday and was good for an entry over the 5-minute high today.
Gold stocks gapped higher with the XAU near the daily 20-day moving average. That moving average is a major one, and will act as support, or in this case, resistance. When a stock or index gaps to a major moving average early in the morning, I’ll move down to a smaller time frame to watch for an entry. In this case, the XAU formed a base at it’s 30-minute high on the 5-minute chart.
My favorite gold trading stocks include GG, AEM, and AUY. I also trade the gold sector ETF, GDX. When the XAU breaks above the 30-minute high, there’s a chance to enter. Depending on risk, you can use the low of the day, or under the base. You’ll often see strong moves off 20, and 50 day moving averages in this scenario. Gold stocks played that way today. Ugly shows a nice entry in AUY using a 30-minute chart. You can see the two buy signals on the 5-minute candlestick chart.
The XAU is back to it’s trendline. Watch for a move through it, but be on guard for a false break.
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[...] It’s been a week since I last visited the Homebuilder stocks, when I sold into the gaps of RYL and TOL. A reader asked me what I thought of RYL in the short-term, and it looks like the right time to revisit the sector. [...]
Comment by Ames Tiedeman
Gold will go way up, maybe to $1,500 an ounce or higher because the dollar will fall for years.
The dollar will keep falling and here is why:
The U.S. cannot sustain 800 bilion a year trade deficits. We cannot export our way out of this mess. The only answer is a sharply lower dollar to drive manufactruing home and to lower the trade deficit. The dollar has much farther to fall. What you are seeing is a long term effort (it will take 20 years) to get the trade deficit back under 1% of GDP. We are currently running a trade imbalance of nearly 6% of GDP. No nation can do this. The IMF would be stepping in to help any nation if its trade imbalance went to 6% of GDP becuase its currency would collapse! The U.S. is different, but still, we cannot sustain a trade deficit of this magnitude. People must understand that when we buy an item from say China, we pay in dollars. The Chinese company we just bought from them goes to an Exchange Bank in China and converts those dollars to Yuan. The Chinese banking system (Chinese Government) is now sitting on those dollars. They can either 1, buy oil, 2, buy Treasuries, 3. buy U.S goods, 4. buy U.S. Corporations, 5. other. Over time if we (the U.S. ) continue to run a trade deficit we could simply be completely bought and controlled by foreigners. Warren Buffet has explained the situation as being like a rich Texas farmer who loses a small piece of his land year after year and never notices for a while. When he then notices, tragedy sets in because he no longer controls his land. So in sum, we need to get the trade deficit way down. This is why the Fed has abandoned the dollar. It wil be going down for the next 20 years. That is how long it is going to take to correct this imbalance mess. Bottom line: Lower, much lower dollar will equal higher inflation and higher GOLD prices. Much higher!
Comment by Online Stock Trading
Interesting insight Ames. What you write is so true regarding foreigners buying control of the U.S. slowly. Recently China threatened the United States with their “nuclear option” of dollar sales. I’ve seen estimates that China holds over $900bn in a mix of US bonds.
Imbalances always move back to the mean. It just takes time.