Friday, September 8, 2006
“Never trade gold during a full moon.”
It was October 1980. I was sitting on a public bus with my girlfriend, discussing what sort of engraving I should have on my high school class ring. I mentioned how unfortunate it was that gold prices were so high that I would have to work overtime at the shoe store to buy the ring.
A stranger in the seat in front of us turned around and uttered the sentence you see highlighted above.
There was a full moon that evening, but I ignored the stranger’s advice and bought the gold ring anyway.
That was my very first gold trade - and I bought at the peak of the market. Just after my purchase, gold began a twenty year bear market.
Since that day, whenever I see a full moon, I’m reminded of the unsolicited advice from that stranger on the bus, “Never trade gold during a full moon.”
It may seem absolutely crazy to you, but that advice has saved me from many a heartache... and that advice came in handy two days ago.
Subscribers of my newsletters know that I’ve been patiently waiting for specific action in the gold market before re-establishing the positions we sold in May. Two days ago, however, gold and gold stocks broke out of a bullish “ascending triangle” pattern. It looked like gold stocks were ready to run to the upside... without me on board.
As I drove home from my office last Tuesday night, I ran through the arguments in favor of buying gold stocks right now... and the arguments against it. The most compelling bullish argument is the technical breakout of the “ascending triangle” chart pattern, which you’ll see in a moment.
The most bearish argument is that everyone is talking about how bullish the gold stocks look.
You can probably sense how conflicted I was. As a trader, I pay close attention to technical analysis. However, I’m also a contrarian, so I’m naturally inclined to go against the herd.
Moments later, the conflict resolved itself. I turned the corner to drive up the hill toward my house and there, like a sign from above, was the biggest, brightest full moon I’ve seen in months.
Now... before you start thinking I’m totally nuts to consider trading on the basis of moon phases, you should know that many popular technical analysis theories are based on lunar cycles.
It’s true. The formulas behind both the Elliot Wave Theory and the Bradley Cycle Theory are derived from lunar cycles. In fact, much of modern day mathematics can trace its roots to the early astronomy of Galileo.
Of course, that doesn’t mean you should look to your horoscope for financial advice.
But let’s face it... Strange things happen during a full moon. And, one of the strangest things I’ve learned in over twenty years of trading is that you can’t trust the moves that happen in gold and gold stocks during a full moon.
Bullish moves often reverse and turn bearish. And bearish moves often lead to bullish turnarounds.
So when the gold stocks broke out on Tuesday, as the full moon shined brightly overhead, I wondered whether the move would hold. Based on Thursday’s big drop... it didn’t.
I’m sticking with the plan that I told my subscribers about a few months ago. There are lots of trading opportunities in the gold market. But before you go chasing after one, maybe take a look up in the sky first.
Best Regards & Good Trading,
Oil Service stocks continue to struggle… Oil Service ETF making lower lows and lower highs.
Big homebuilders struggle… Brookfield Homes and Beazer Homes hit new lows.
U.S. Oil Fund getting crushed… down $10 in the past month.