Can't Keep a Good Bull Market Down
Today's Idea
A quick look at the daily chart for December Gold shows strong near-term support near the 1316.00 area. With only a few days till option expiration, bullish traders may wish to explore selling puts with a strike price below this key support level. For example, with December Gold trading at 1353.00 as of this writing, one could sell the December 1315 puts for about 1.00 or $100 per contract, not including commissions. The premium paid would be the maximum potential gain on the trade and would be realized should December Gold be trading above 1315.00 at option expiration on Nov ember 23rd. Given the potential risk on the trade, traders should have an exit strategy in place should the trade move against them. For example, one may wish to buy back the short put prior to expiration should December Gold trade at 1315.00.
Fundamentals
After a nearly $100 sell-off the past few sessions, Gold bulls have regained the upper hand, as traders now believe a bailout package will be agreed upon to deal with the debt situation in Ireland. This speculation sparked a bid into the Euro vs. the Dollar and sent commodity prices higher across the board, including Gold. The yellow metal was also buoyed by yesterday's release of the weekly jobless claims data, which showed that claims jumped by 2,000 to 439,000 for the week ending November 13th. The continued weakness in the U.S. employment sector is supporting the belief that the Federal Reserve will follow-through with its plans to purchase $600 billion of U.S. Treasuries by the end of the second quarter of 2011. Those traders who have followed the Gold market the past few years will note that during this historic bull market, Gold prices have followed a pattern of long up-moves, followed a brief but intense correction which cumulated into a consolidation phase. Although it is still too early to tell, it does appear that Gold may once again be entering the "consolidation phase" of the recent move, and if recent history is any guide, this could be the set-up for the next leg up to test the historic highs once again.
Technical Notes
Looking at the daily continuation chart for December Gold, we notice that despite the nearly $100 correction off the all-time highs, the overall bull market is still firmly intact. The 200-day moving average, which many technical traders look towards to determine if a market is in bullish or bearish hands, does not come into play until the 1220.00 area. The 14-day RSI has moved from vastly overbought readings to a more neutral level, with a current reading of 49.95. 1315.60 is seen as strong support for December Gold, with near-term resistance found at 1376.60.
Mike Zarembski, Senior Commodity Analyst
