Long Term Trading

I want to change focus a little bit and instead of worrying about the indexes and bull or bear market all the time, instead try to focus on strong momentum stocks that are actually making some money.

CAGC seems to fit that category well.  They are making good money, have good margins and momentum at this juncture and are in an attractive business that has a very large and hungry market in perhaps the biggest economy in the world. China.  They sell organic fertilizer and are in the range of 400 million to 500 million market capitalization.

I am impressed with the very strong relative strength of this stock and my sense is that the run is not over and that this is a company that can participate with more good growth story coming out of China.

But how to find a good entry point on CAGC China Agritech Inc.  My entry should have been 12 and change after the recent decline that was concurrent with the world index weakness, but alas I missed it.  So the question now is where do I go long CAGC.  I certainly do not feel comfortable getting involved now given the recent huge run up, but I think a move to 19 would get me interested.

The last 5 days was a big sign of strength breakout on confirmed volume.  A very common occurrence is for a stock to pull back right to the breakout area after the initial breakout.  So 19 and change seems like an ideal location.  However that may take some patience, 1 to 3 weeks ?  Tough call on when that may occur.  If I am lucky, the broad market indices will get a new decline leg going and help to take CAGC down with it.

I believe next earnings date for CAGC is March 29th, however they have already given forward indications that their numbers will be good ahead of time.

So I am switching to wait and watch mode on CAGC but I feel that CAGC could potentially be a very large continuing trading opportunity in 2010 (both as a core position and tradable position) and I do not want to miss out.

Stay tuned as I track CAGC going forward trying to ‘game’ this stock and see the story unfold for the year 2010.

I am only going to do one post today and it is going to be on the GLD ETF because I want to emphasize how important a day it was today in the gold market.

Today we broke out north from the large symmetrical triangle with confirmed volume and confirmed sign of strength.  The triangle formation has been developing since February-March 2009 time frame.  This is quite a large triangle and has significant cause for an extended move.

But there is even better news.  This symmetrical triangle also makes up the right shoulder of the much larger head and shoulders bottom formation that has been in existence since March of 2008.

And there is even more better news.  The entire head and shoulders bottom formation of approximately 1.5 years in duration is in itself the handle of a super large cup and handle formation which is 30 years long.

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Today was a huge day for gold and the GLD ETF in my opinion!  Gold got a nice bid today and held firm.  I consider it to be a possibly pivotal day for the gold market for two reasons.

The first reason is that despite the broad market break down today, the gold price (as represented by the GLD ETF) held firm all day and managed to trade up by about .60%.  I hinted about this when it happened a few days ago and could be the early signs that foretell a scenario where the gold price becomes less “co dependent” on the broad market for its direction.

The second big reason I consider today to be a pivotal day for the gold price is because gold was able to trade up today despite the significant US dollar strength we saw throughout the day today.  So we had the broad market down big, the US Dollar UP big and the gold price holding firm and managing to get a nice upside close. 

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Spot gold has some good upside action today but it is still early and we still do not know how the day will end.  But so far today I am seeing bullish signs and a good possibility of a bullish closing weekly price bar to set us up for next week.

It would be superb if we can get a bullish weekly close going into next week.

I am seeing that the daily MACD has crossed up on the spot gold price for the fourth time since being in this large triangle.  In the near term there is a slight tendency to an ascending triangle formation (green shaded area) in the chart.

Still, the spot gold price has not achieved a move above the 970 to 980 area that is necessary for me to say we are in breakout mode and have much higher confidence that the breakout is for real.

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I don’t have a crystal ball that tells me what is in store for the future.  But the closest thing to a crystal ball that I have found so far is the 1974 time period of the S&P500.  The entire structure of the market during the time frame of 1968 to 1982 has given me a lot of good perspective and understanding about our current market and has helped to give me great clues and better confidence about where our current S&P500 may be headed in the future.

Now you may be asking yourself, what on earth does 1974 have to do with today ? Nothing actually.  But what I have found over the years is that sometimes past market movements tend to rhyme and show similar structure and trend development.

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The US Dollar got clobbered today and gold popped up like a basketball submerged under water.  So far the supposed US Dollar rally is not materializing.  The dollar is trying to rally but it cannot seem to get any real ease of movement to the upside.  It still could, but it had better start soon because it is once again flirting with the critical longer term support line.  The price action today in the dollar looked like a real sign of weakness to me.

Meanwhile the gold price is inching closer and closer to the completion of its symmetrical triangle formation and I am slowly gaining more and more confidence that we are going to see a real breakout from this market come beginning of September.

The dollar index just keeps failing to get a rally going and I am thinking if it keeps failing like this for the rest of August it might turn into a real severe drop in September.  If that scenario plays out then it would help the gold price to finally get an upside breakout above the 1000 range.

Incidentally, if I am correct that we do get a gold price breakout, it will be important that the breakout materializes in the form of wide price spread and blockbuster volume on the upside.  We will have to take a look at the GLD ETF to get confirmation.

I still think this gold price setup has the  potential to be one of the greatest upside setups I have ever seen in my life if I am correct on us getting an upside break.  

21.70 on the DGP ETF ( The gold double long ETF ) is for me the green light signal that the breakout has started to initiate.  The “safer” upside trigger on the DGP ETF is 23.75 or above.

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The SP500 is about to get a bullish monthly crossover on the MACD indicator, a popular moving average combination indicator that can become very useful over longer time frames.  The monthly MACD signals can signify new major bull or bear market moves with sometimes 1 year or more duration.

The current daily MACD signal is starting to flash some near term sell signals and could set us up for a move to test the 940-945 range on the SP500. 

It is confusing sometimes when you have a sell signal on one time frame and a buy signal on a different time frame.  To help clear the confusion, I always keep in mind that the longer term time frames have precedence over the shorter ones.  So while we could get some selling pressure into 940-945, we must remember that the longer term signal is indicating higher prices.

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In case you do not know about it yet, I would like to tell you about what I believe to be the most powerful cycle model ever created.  I did not create it.  It was created by a man named Marty Armstrong who headed the former Princeton Economics Institute which was an institutional advisory and money management firm.  PEI as it was known has since been shut down by the United States government for reasons I can’t speak to because I don’t know the details or facts about them.  But I will say that it is a crying shame that their business and knowledge was shut down because it was in my opinion some of the most valuable and important financial knowledge ever devised.

The former website itself used to have unbelievable amounts of historical research on money and financial panics going back hundreds and even thousands of years.  The only reason I know about it is through a radio program that used to play in California and was hosted by Buzz Schwartz, a trader and radio host.  He used to have Marty on as a guest and I listened to their interviews and his advice on markets.  I also got a few of Marty’s monthly ‘Capital Market Review’ publications and that is how I am able to tell you about his cycle model.

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