11-8-2007
Let me remind those who follow this report that I now record and publish two Mid-Day Video's: One on Gold and Silver along with one on Stock Indices. These are in addition to the in-depth nightly video I record that covers charts and my market opinion on all the major futures markets.
The link to my Mid-Day Videos is below. Be sure to click on the RSS feed to know when a new video is posted. I do my best to record and get these posted by 1:00 P.M. CST.
http://www.iepstein.com/videos_start.aspx
Time for profit taking............
There comes a time when markets correct overbought conditions, go through profit taking spells or simply don't have "new information" to keep trends advancing.
I think that is where gold and silver markets are today.
Yesterday in my Mid-Day Videos I alluded to this and do so again in today's videos.
I watch the characteristics of markets and use seasonal trends to compare what is going on with what had been going in past years. Both gold and silver are following history.
In the graphs included in the gold and silver sections of this report, I highlight what has occurred in the past in the month of November. I have no reason to believe we will see any departure given today's fundamentals.
My thinking is that you want to get long Call Spreads in both gold and silver, using either weakness or sideways action if that is what develops, looking for a strong year end rally in both gold and silver.
The US Dollar
The US Dollar is not a bottomless pit. Rather, it is a market that is in a well established Downtrend. Given the bearishness of the stock market, the Dollar today is showing divergence. This divergence may well lead to a rather brisk short covering rally, one that if strong enough will allow you to sell into. At this point with the December Dollar Index trading at 75.46, it is probable that some form of short covering will develop. Give me a rally and I will provide you with another sell recommendation. Yep....I am very bearish.
The Seasonal Chart below was provided by the Moore Research Center, Inc
For the past several months, gold has followed the above Seasonal Gold Chart momentum very nicely. It has been a great map.
We're now approaching the point where about 1/3rd of the month is behind us. About mid month, historically speaking, gold prices peak and either break or stall out going to month end. Given the large rally we've just seen in gold, I am looking for prices to stall out and possibly even break. This would be consistent with past history.
I want to use this "stall or weak period" to establish Long Call Spreads. I feel these are easier to use than futures right now because you use the daily gyrations to establish your position. The key is this to be right....will prices make new highs by the end of December. I think they will.
Let's look at a Daily Chart of February Gold.
Stochastics remain embedded, since both the K and D lines, the red and yellow values both remain over 80. They become no longer embedded if the "D" line, the one in "red" with a current value of 88.52 as of this writing gets under 80. Should they lose their embedded status, look for a move down to the 18-Day Moving Average of Closes, currently at 795.
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Ideally, I want you to use breaks to establish Long February Gold Call Spreads. As bullish as I am, the Dollar risk given the current chart pattern is not yet conducive to using a futures contract, the way that I teach trading. If a futures opportunity shows itself, I will of course make a recommendation to enter using such. In the meantime I recommend placing orders for Call Spreads.
Regular readers of this report who have followed my recommendations may still be 50% long the February 760-780 Gold Call Spread at $8.00. As of the close last night, you were $750 ahead on each of those spreads. If prices begin to lose ground, I will issue a recommendation to liquidate. When you liquidate, do so on a Spread Order. Do not "leg out".
My new recommendation is this; buy the $830-$850 February Call Spread at $900, not including commissions or other fees.
Your total dollar commitment is limited to your cost per spread, which if you get filled will be $900 plus whatever commissions and fees you pay. My intent is not to risk the total $900 as there are many days left before expiration.
Let's look at the seasonal chart of silver below provided by Moore Research (MRCI).
Silver has shown a strong tendency to bottom out toward the end of October. At least so far, this fits right into the current momentum pattern seen on the above chart.
Let's look at the chart of March Silver below.
The overall chart action has been following the historical seasonal patterns to a fair degree. At the end of October, instead of prices breaking down and/or losing momentum as they historically have done, prices went sideways to higher. That presents a degree of divergence.
If you look at today's chart of March Silver, you see that Stochastics have a reading of 75.36 and 80.69. I define this reading as an overbought reading.
Stochastics have not embedded; therefore, via the way that I use Stochastics, there is no compelling reason for a price break to occur. Had Stochastics embedded and fallen out of an embedded state, I would have called for a move back down to the 18-Day Moving Average of Closes, which is as of this writing at 14.45.
This present us with a dilemma as it is always difficult to buy into overbought markets, that however is what we are faced with. Given the seasonal tendency of silver to slip into month's end, I think we put orders in to begin a program of purchasing Silver Call Spreads under the market, looking to take advantage of Silver's historical tendency to rally into year end.
With the help of one of my broker's, Mark Pesek, we created the following table.
The spread I have decided to focus on is the 1525-1600 March Silver Call Spread. I decided on this one since I think it possible that March Silver might reach down to $15.00, if it follows its seasonal tendency to be weak in November.
My recommendation is to enter the 15.25.-16.00 March Silver Call Spread at 27-cents. This equates to a cash outlay, exclusive of commission, exchange, NFA and transmission fees of $1350. I intend on recommending that you build a core position starting at this price level.
Given the amount of time premium in this spread, unless something dramatic occurs to negatively affect silver, I think you have plenty of "wiggle" room to play with. In any case, should silver fall dramatically in price, your total risk is limited to the price you pay for the spread plus commission and other fees.
To discuss these Gold Call Strategies in more detail, either call your IECo Representative or Mark Pesek.
Mark can be reached at:
1-800-284-1065
If you wish to e-mail Mark you may do so by writing him at:
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Disclaimer: This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is taken from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and Options on Futures trading involve risk. In no event should the content of this market letter be construed as an express or implied promise, guarantee or implication by or from Ira Epstein & Company or Shatkin Arbor, Inc. that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are no indication of future performance.
