Monday, January 26, 2009

GDX Discussion

Top Line: The news continues to be bad and the market just keeps on hanging on. We continue to expect a rally. Most of the earnings are behind us and we do have the end of the month just ahead.

This morning gold was up and so was the GDX. We saw the goal line to be near the 200 day SMA and put in an order to trim some of our position. We set our prices too high and failed to sell any of our position. We are running into the situation where the GDX has gone up while other assets have just held their own, making the GDX a giant portion of our portfolio. Plus, as we mentioned, we have no cash left to take advantage of any opportunities that come along.

We do not want to sell our GDX at any price just to satisfy our need for cash or to rebalance our portfolio. We want to sell GDX, or any position for that matter, when it makes sense to do so. This morning with the GDX pushing up against its 200 day SMA seemed like a good time to sell into strength. We do think that higher prices are coming but sometimes we like to play around and try to do things that make sense to us at the time. This morning's peak at 36 preceded a severe drop in the stock back down to 33.50. That's a big reversal.

We think that GDX is still headed higher but we have been in it so long that we remember that it is no longer a value play like it was back in October. That's when we were shouting that GDX was a buy. The rally ahead of us should take GDX up through its 200 day SMA and then it will drop back along with the market. The GDX may drop through its 200 day SMA but if it does it should not stay there very long. Yes, we are getting ahead of ourselves but we have been waiting for a rally for a couple of weeks now.

In the news, existing home sales were up nearly 9% in December as mortgage rates and home prices dropped allowing buyers to get in on the cheap. The other "surprise" news was the leading economic indicators (LEI) were up rather than the down forecasted. As we mentioned in our last post, if the market expects bad news, how can it be a surprise? That would be, if the news wasn't as bad as feared.

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