Hey, Gold Bug! Welcome to the Inferno! (GLD,TSLA,GS,XLF,FB)

It didn’t take long, that’s for sure.

 

Once the mighty Trump landed in the White House, it was time for Quinn the Eskimo and his merry band of goldphiles to turn-tail and run.

 

Apparently.

 

And while we may see a bounce here in the precious metals near-term, the fires of hell are only now being stoked for gold lovers – may they endure their agony gracefully.

 

Either that, of course, or they can sell.

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We had a friend several years ago who refused to heed our warning about an imminent selloff in the PMs.  He had just loaded up on silver as the metal was topping, and we warned him strenuously against the move.  Every sign and symbol associated with that metal was screaming ‘overbought’ at that hour, but this fella thought he knew better.  He piled his own life savings on top his father’s, which he was also managing, and spoke about the fortunes he was about to make.

 

After that, we spoke less.  He was embarrassed, and we understood.  When we did meet, he would ask our opinion, whether we thought the metal had bottomed, or if it was close to bottoming. We averred that it was probably still best to sell, take a small loss and move on.

 

He said he couldn’t take a loss.

 

That scene was repeated several times over the course of the next year and a half at the grocery store or in the park or on the sidewalks of our small town, and each time the laddie inquired, we told him it would be best to take his lumps and redeploy in an appreciating asset.  But the chap insisted that he couldn’t – he couldn’t bear to take the loss.

 

And we can’t begin to imagine how he’s feeling now.

 

We haven’t seen him for a couple of years, but our advice would still be the same – sell the stuff and redeploy – if, indeed, there’s anything left to redeploy.

 

The Lesson

 

We raise the question of our friend and his willingness to take a loss as an object lesson for all who’ve yet to experience the phenomenon of a losing trade – or even for those who have.  And the lesson is this: it’s better to close out a hundred trades with minor losses rather than suffer a wham-doggy wipeout – a catastrophic loss than renders you pale, depressed, pimply and impotent.

 

That’s the way, after all, that trading normally proceeds – loss, loss, loss, gain.  Loss, loss, gain.  Gain.  Loss, loss, loss, gain.

 

We hate to belabor the point, but if you’re going to be a winner in the long run, you have to be willing to admit you’re wrong when the market tells you so, and you have to act swiftly and mercilessly when it does.

 

Close your losers.   Period.  The winners will take care of themselves.

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It’s not such an easy thing to do, of course, because we’re emotional beings.  But it’s a matter of financial survival, so there’s really no choice.  If the losses are kept to a minimum, the winners will more than amply cover for them.

 

‘Nuff said.

 

Moving On!

 

Before we return to the precious metals and this week’s trade, let’s detour back to discuss four prior initiatives that require your attention.

 

To begin, we’re going to recommend action on a bet we opened back on April 26th on Tesla Motors (NASDAQ:TSLA).  The letter was called Trading Basics, and it put two board lots of the stock in our pockets, against which we’ve sold CALLs twice to successfully recoup a small loss on the purchase.

 

And today we’re going to sell a third round in an attempt to seal the deal.

 

Tesla shares are currently trading for $196.65 and our adjusted cost base for the stock is $199.40.

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Stay tuned.

 

Next up is our August 30th endeavor from a letter called Bleeding Heart Greed.  There, we bought the XLF January (2018) 24 CALL for $2.45 and sold the XLF January (2018) 25 PUT for the same $2.45.  Zero premium was the result.

 

And that’s where it got complicated.  Because in mid-September, XLF spun off its real estate portfolio and a new ETF was born.  That meant a re-jigging of our options, too.

 

Thank goodness for the helpful folks at the CBOE who were willing to walk us through it.

 

The results are as follows (according to OCC Informational Memo #39834) –

 

The CALLs are now worth $3.24 and the PUTs $1.53.  Sell the former and buy back the latter and you net $1.71 on nothing laid out.  Adjusted for minimal commissions, that’s 1040%.

 

Our November 8th trade arrived in a missive called Facebook DeFANGed, and there we suggested a Facebook trade that had you sell five (5) FB November 25th 129 CALLs for $0.30 each and buy the FB November 25th 117 PUT for $1.51.  Total debit on the affair was $0.01.

 

A week later, we closed the PUT for $3.40, and last Friday the CALLs expired worthless.

 

That puts us ahead $3.49 on just a penny spent.  For those who like math, that’s 34,900%.

 

And those who like profits!

 

Finally, we report on our November 15th effort that asked you to sell the GS November 25th 215 CALL for $1.76.

 

Last Friday the option bit the dust, and we come away with a 100% profit, the full $1.76.

 

Give us more, Huey!  We love you awfully!

 

Now a look at the precious metals.

 

We start with a chart of the SPDR Gold Trust (NYSE:GLD) –

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A quick glance reveals that price is now trending below all her moving averages and both RSI and MACD are sub-waterline (in green).

 

All the MAs are rolled over, though aren’t yet unfurled, and the only real sign of hope is that RSI is close to oversold (red dot).

 

A look at the weekly chart (below) offers even less cause for hope.

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Here we see that the longer term picture is about to turn black

 

After a bullish run for most of the year, weekly RSI and MACD are both going sub-waterline (in green), an event that should bring the selling hordes into play.

 

Note, too, that price is also below all the MAs on the weekly chart and that three of the four MAs are themselves rolled over.

 

Volume figures may indicate that the bulls used up all their ammo in the last ten months (in blue), though it’s hard to say anything definitive there.

 

What we can say is that without a bounce that carries to at least GLD $130, the die is cast.  We’re headed to $100 and potentially lower.

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With kind regards,

 

Hugh L. O’Haynew

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