Gold Shakeout!

Gold continues to retreat from its highs as we head into the weekend, leaving more than a few investors wondering what the heck is going on…

But I have news for you — this is normal market action.

Gold futures snuck below $1,950 once again on Thursday afternoon as the US Dollar finally firmed up following an ugly summer plunge. It’s no coincidence that we’re seeing gold retreat after all the attention it received on its explosive run above $2,000 to new all-time highs. This month’s quick retreat is the perfect excuse for traders to take profits…

I’ve said it before, and I’ll say it again: Don’t outsmart yourself trying to pick tops and bottoms! As with any asset, we’re going to see breakouts and shakeouts in gold. You can’t let these moves cloud your judgement. We enjoyed a huge momentum move aided by the dollar’s three-month slide. A move like this is almost always followed by some much-needed profit taking.

Now that we’ve seen a bit of a shakeout and the weak hands have sold, we can start to look for signs of a bounce that could lead to more potentially profitable trades on the long side.

Remember, I’m a big believer in gold long-term. In fact, I think the metal is setting up for even bigger gains, targeting a long-term move to $3,000. It should set up for gains again once it bleeds off some of the pressure from its monster rally.

For now, we’ll continue to watch the dollar and how gold reacts to nearby support levels. A little patience can pay off in a big way when you trade what you see… and ignore the cries of the financial media.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Don’t let the doldrums chop up your trades!

Greg GuenthnerIt was another quiet trading day Wednesday morning. Trading volumes were way down and the market was casually meandering along. Typical summer trading, as we’ve noted over the past several weeks…

But the afternoon session was an entirely different story.

Investors didn’t like something about the Fed minutes… possibly the comments regarding economic concerns (as some pundits claim). Either way, sellers stepped up to the plate and pushed the averages into the red. The day’s gains evaporated in minutes. The market continued its retreat early Thursday morning — but the averages fought into the green by midday.

A couple of things we need to keep in mind:

First, there was nothing new in the Fed minutes. Investors wanted an excuse to sell and they got it. Let’s not over-analyze the situation. The S&P is tagging new highs and some skittish money came off the table. Nothing more, as far as we can see right now.

Next, it’s summer — and it’s options expiration week. Of course we’re running into some chop here…

spx chart

It’s not surprising to see come choppy action as the S&P 500 bumps up against its all-time highs. But this doesn’t mean the rally is cooked! Even a larger pullback into the end of the month wouldn’t spell doom for this market. Instead of looking for reversals, you should stay focused on finding the strong names that are bouncing higher while the broad market chops along. These will be our leaders if and when the rally begins to extend.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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