MorningWord 6/26/13: Clubber What’s Your Prediction for the Fight? PAIN – $GLD, $AAPL

by Dan June 26, 2013 9:07 am • Commentary

MorningWord 6/26/13:  Well there you have it people, Gold is going lower. And just when you thought there were no sellers left.  I often get asked my opinion on Gold and in a very unsophisticated manner I usually have none. I have no idea why it goes up or down and therefore I have little to add. I know and have read many smart people that were wrong for a long time on the shiny metal, then very right from the bottom in 2008, got way too bullish in 2011 and now you will have to pull their gold out of their cold dead hands.

From a purely technical standpoint (I can add a little value here), I suspect Gold pauses soon around 1200 an oz, BUT very likely round-trips the move from late 2009 and could see 1000 an oz.  Again, I could not give you a single fundamental reason why it would got to 1000 or back to 1400, But I will tell you that 1400 should be fairly significant technical resistance for some time.  The chart below shows the danger-zone highlighted in red and the resistance level at 1400.  I suspect the next year sees Gold bang around in a very wide range btwn 1000 and 1400.  A trader’s delight!

Gold 5 yr chart from Bloomberg
Gold 5 yr chart from Bloomberg


CONVERSELY though, one name that I get asked a lot about that I do have lots of and very strong opinions on is AAPL.  I do understand the fundamentals very well and was bullish for a long time before being early on the short side.  I am not going to go into the gory details but, many smarter than I have compared the mania in AAPL over the last 5 years in a similar light to the true believers in Gold.  There are obviously few fundamental comparisons to be made, but from a sentiment/psychology and technical standpoint the similarities are glaring.  The 5 year chart below of Gold (white line) overlaid to AAPL (orange line) shows the steady, and orderly multi-year run up that highlights the massive accumulation which resulted in a parabolic blow-off top.  Obviously AAPL coming a year after Gold, but when they broke they broke hard, and continue to make lower lows.

Gold (Orange Line) vs AAPL (white line) from Bloomberg
Gold (white line) vs AAPL (orange line) 5 yr chart from Bloomberg


One of the very first (valuable) lessons I learned in this business is that stocks/risk assets are very likely to overshoot on the downside, just as they do on the upside, but trying to play for a bottom takes an entirely different set of skills than knowing when to take profits on winners.  In the first instance, an investor risks lost gains, while in the latter the investor risks fresh capital.  The second half of my trading career has had probably 10% of the “catching the falling knife trades” than the first half, but I would add that nowadays, I define my risk and risk what I am willing to lose in the options market (a good example of this was the LULU trade that we closed for a loss yesterday, here).

SO when I look at the chart comparing the 2 assets, if I I did not know the names of asset classes, on purely a technical basis I would be inclined to play Gold for a bounce at 1200 and would think that AAPL could continue to make lower lows and round trip the move from 2010.   BUT knowing what I know about both I would be inclined to own AAPL with its 3% div yield, amazing balance sheet and $50 billion buy back and short Gold as I can’t think of a single good fundamental reason to own it.  Read our posts on AAPL yesterday (my way to play, here) and Enis’ Would You Rather (here).