System Signals Silver Sale (SLV,GLD,XAU,TSLA,GM,MSFT)

There are all sorts of trading systems out there.

 

Some old-timers swear by the Graham and Dodd fundamental model, that tells you to buy them when P/E ratios and dividend yields are sparkling and dump them once the ratios are no longer competitive.

 

Others will tell you that’s balderdash, and only technical analysis can produce for you winning trades over the long haul.

 

There are those who swear by cycle analysis, point and Figure charting and Elliott wave theory.  Some adhere exclusively to Dow Theory. And still more go in for Gann triangles and Fibonacci retracements.  And believe it or not, some have even made consistent money trading the interplanetary orbitals of financial astrology!

 

Here at Normandy we’ve examined them all at one stage or another, and we’re here to tell you that absolutely no system has all the answers – and certainly none is foolproof.  But we can also tell you from experience (and the academic literature is fully behind us on this) that the single best method of making money in the trading arena is by using a trend following system.

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It doesn’t sound too exotic, and it’s not likely to make you the most popular kid in the block, but trend following systems employed consistently are far and away the soundest means of securing profits in the market.

 

And this is how they look in practice.

 

The Basics

 

As with every money-making system, goals and time horizons are key.  They have to be realistic and well-established and must not be deviated from.

 

One has to ask himself, ‘Am I a day trader?  Swing trader?  Do I trade the intermediate trend, or am I in it for the long haul?’ and one has to stick to those parameters.  The easiest thing in the world is to bet on a stock, have the trade go awry and then convince yourself you’re a buy-and-hold Warren Buffett style investor when, in truth, that was never your goal or style to begin with.

 

Additionally, one has to determine a means of timing one’s entry and exit points.

 

Case Study in QQQ

 

Let’s imagine you’ve decided to trade the PowerShares QQQ Trust Series (NASDAQ:QQQ), a proxy for the NASDAQ 100, also widely referred to as the ‘Qubes’.

 

You choose them because they’re highly liquid, offer reasonably tight spreads, and, because they’re an index, are less given to the whipsaw action of single stocks that tend to jerk around on earnings days or alongside unexpected bad or good news, and are just tougher to trade on the whole.

 

Indexes generally get you around trading against all that noise.

 

So you go with the Qubes, and perhaps you’ve decided to employ a Bollinger band or moving average system to time your ins and outs.  However you choose, again, the key is holding fast to your discipline and keeping your buy and sell decisions as objective as possible.

 

In the following case study, we’ll demonstrate a moving average trend following system.

 

Take a look at the following chart –

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As you can see, we’ve selected four separate moving averages to be our trade guides – the 15, 30, 45, and 60 day MAs – and the resulting trading method is quite simple.  It’s based on moving average crossovers.  We’ll buy the underlying security when all the averages unfurl and start streaming higher, and sell them when they roll over and move lower.

 

We’ve circled in red those places where trades are initiated and then closed.  At high points, we initiate shorts (or buy PUTs), while at the low points we go long (or buy CALLs).

 

The instant the 15 day moving average crosses below the 30 day,

we have a sell signal, and vice versa.

 

In the chart above you see four such instances, three of which produced gains.

 

You, of course, can tweak the numbers to produce your own sleek, custom-designed profit producing machine, but the method is clear enough.

 

You don’t catch tops or bottoms, and that’s not the goal.  You wait for a turn and chase the trend after it’s already on its way.

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Before we move to our trade for the week, here are a few older initiatives that require some reportage.

 

We start with our March 22nd effort from a letter called Don’t Miss the Boat.  There, we urged you to buy and sell a number of PUTs and CALLs on Microsoft stock, some of which we later had you buy back.  The original trade was made for a debit of $0.09, and the buyback cost us another $0.28, so at the end of the day we succumb to a net loss of $0.37.

 

NEXT!

 

Our April 12th venture came to you in a letter called Imminent Inter-Galactic Planetary Barrage.  There, we recommended a series of pairs trades between GM and Tesla, the forst of which has expired in our favor.  We suggested buying the GM May 30 PUT for $1.09 and selling the TSLA May 190 PUT for $2.18.  A credit of $1.09 was earned and, as of last Friday, pocketed unequivocally.

 

Our last trade to report was initiated on the 3rd of May in a missive entitled White Metal, White Hot.  The trade matched the Philadelphia Gold/Silver Index (XAU) against the metal, as represented by the SPDR Gold Trust (NYSE:GLD).  Specifically we suggested you buy the XAU May 85 PUT for $2.30 and sell three (3) GLD May 120.50 PUTs for $0.81 each.  Total credit on the trade was $0.13.

 

Well, the XAU expired worthless.  But the GLD PUTs closed in-the-money, meaning we’re now holding three board lots of GLD purchased at $120.50.

 

Our advice is to sell them immediately.  With GLD trading at $119.37, you’ll take a hit of $339, but that beats losing more.  And because it was never our intention to be long gold at this stage, it makes sense to offload the shares and look to recover some funds from a different direction.

 

Like this…

slv technical

Our short term models indicate silver, represented here by the iShares Silver Trust (NYSE:SLV), could be in some trouble.  As you can see, our moving average crossover system registered a sell signal yesterday, just days after RSI went bearish (in blue) and MACD looks poised shortly to follow.

 

We believe it’s time to sell some premium against SLV.

 

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Wall Street Elite recommends you consider selling ten (10) SLV August 16.50 CALLs, now trading for $0.53 each.  Total credit is $5.30.

 

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Wall Street Elite recommends you consider selling ten (10) SLV August 16.50 CALLs, now trading for $0.53 each.  Total credit is $5.30.

 

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We’ll be looking to repurchase those at a cheaper price ASAP.

 

With kind regards,

 

Hugh L. O’Haynew

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