The Alibaba IPO May Shine, But Gold is Glistening

By: Chris Vermeulen | Fri, Sep 19, 2014
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Scotland voted to remain part of the United Kingdom, Alibaba (BABA) is going to become the United States largest initial public offering (IPO), U.S. stock market indexes are up nearly 2% this week, Treasury yields are near lows, and gold and silver prices are getting bludgeoned in the paper market.

While U.S. financial prognosticators are raving over Alibaba and the IPO, the price action in precious metals and in the broader U.S. equity indexes showed signs of weakness about the time it was announced that Alibaba could start trading in the low to mid eighties.

The gold and silver charts shown below demonstrates the strange price action in silver futures after the announcement regarding Alibaba's likely price increase at the open of trading in the stock today.

Alibaba

The chart below shows gold futures prices during the same time frame as the silver chart above.

Alibaba

The hype surrounding the Alibaba IPO is almost nauseating. However, it may provide an excellent trade entry into a long position in precious metals. Both gold and silver have been under major selling pressure for several weeks.

In silver, the selling pressure started around July 15th of this year and the selling has not stopped. Silver futures prices dropped from roughly $21.50 to $18.50 an ounce in about two months. This represents a near 14% decline in the price of silver over the past 2 months.

Gold prices have also seen strong selling over the same period from July 15th to present. Gold prices fell from around $1,340 per ounce to a recent low slightly below $1,220 per ounce. Gold prices dropped nearly 9%, showing some strong relative strength against silver futures.

We have been watching the precious metals sector very carefully for several weeks and price action seems poised for a bounce as major support is underneath both silver and gold futures here. A break of these levels would trigger some potentially strong selling pushing metals prices considerably lower. The daily chart of gold futures is shown below:

$GOLD Gold - Spot Price (EOD) CME
Larger Image

The $1,180 - $1,200 price level has shown major support for gold futures prices which is clearly depicted on the weekly chart of gold futures shown above. We are contrarian traders and the price action in precious metals is ripe for a potential bounce. We view the opportunity more as a trading opportunity than an investment opportunity for now, but that could change in the longer term.

As an options trader, we will likely use a put credit spread using the gold ETF (GLD) as the underlying asset. The trade will have defined risk and will capitalize on higher gold prices, the passage of time, and reduced volatility in GLD options. Recently the options alert service from TheTechnicalTraders has put up some huge winning trades and the track record has been impressive thus far.

 


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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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