Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Friday, October 19, 2007

Good Trade for a Bad Week

On Tuesday, I recommended that Red-Hot Resources subs buy some leveraged "bear" ETFs, the kind that go up when the markets go down. One of the trades was bearish the Dow Jones Financials (IYF). That trade worked out very well ...
MACD, the momentum indicator on the bottom of the chart, gave me a good "sell" signal at the end of last week, and the IYF fell below its 20-day moving average, which is why I entered the trade on Tuesday. It has since closed below the 50-day moving average, confirming a bearish trend.

I'm still long an energy stock in RHR. We banked half gains and moved the stop up close. Why did I let the rest ride? Because we've been bagging gain after gain in energy, and oil ran up a lot higher, faster, than I thought it would. Maybe, despite Friday's pullback, oil will resume its bull run.

However, oil stocks, as tracked by the XLE, are pulling back sharply. Commodity stocks can often lead the underlying lower. I think this is signalling that crude is going to pull back.

Another indicator -- the tighter and tighter crack spread of gasoline over oil. The fact that gasoline prices aren't rising with oil tells me that consumer demand for gasoline is probably weakening. This is another indicator of recession.

As for gold, the jury is still out. We might get another interest rate cut out of the Fed, which would be bullish for gold prices, but only some gold stocks are participating in the latest rally -- maybe indicating consolidation to come in precious metals as well.
Check out my new gold and energy blog at