Matt McKinney's Options & Futures Trading Strategies Blog

Direct: 312-277-0115  |  mmckinney@zaner.com

Matt Mckinney's Options & Futures Trading Strategies Blog is a blog dedicated to bringing updates, news and commentary on futures and commdity markets.

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Futures, options and forex trading is speculative in nature and involves substantial risk of loss.  These recommendations are a solicitation for entering into derivatives transactions.  All known news and events have already been factored into the price of the underlying derivatives discussed.  From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives.


OPTIONS PLAY:Can Gold Prices Go As Low As The Monthly Chart Indicates?

Posted on 7/26/2015 11:44:41 AM by: Matt McKinney, Market Strategist @ Zaner. 312-277-0115.

Direct-312-277-0115, http://www.mmckinneyfutures.com/

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

 

 

OPTIONS PLAY:Can Gold Prices Go As Low As The Monthly Chart Indicates?

According to my 10/20/50/BB Trend Finder system, the gold futures are in a "PRINCIPAL-TREND" down on three different time frames.

 

 

Fundamentally, according to CBS's Marketwatch on July 24, "Gold futures finished higher on Thursday, putting an end to the 10-session losing streak that sent prices to their lowest level in more than five years." The article further stated, "Gold is being ‘stepped on’ by world events—rumors of massive Chinese margin calls have Chinese investors liquidating gold, elsewhere flight to safety capital currently prefers the Swiss Franc, U.S. dollars or U.S. Treasurys over gold,” and finally, another important point in the article in my opinion was, "There is decent velocity to the downside right now," he said, but there is also strong support in the $1,040 to $1,050 range. If that support is tested, the next stop will be $1,000, Kerr said." I couldn't agree more with these points on the gold futures market right now.

The other major factor to consider is the fact that the biggest outside market for gold the U.S. Dollar Index futures contract, which typically, but not always, has an inverse relationship with gold. The U.S. Dollar Index market recently has responded as a flight to quality or safe haven trade and is also responding quite bullish on any fair to good U.S. economic data reports. So in my fundamental view there is a lot more in the bear camp favor and I expect this to continue in the short, mid, and long-term in the gold futures.

 

Technically, I have added my favorite technical indicators to the gold chart below. They are the 10 (red line), 20 (green line), and the 50 (blue line) period simple moving averages or SMA's. I have also added Bollinger Bands or BB's (the light blue shaded area) and Candlesticks (the red and green bars). On the daily chart below each bar or Candlestick represents one day of trading, on the weekly one week of trading, and on the monthly one month of trading. I have coined this combination of my favorite technical indicators the 10/20/50/BB Trend Finder system. These few technical indicators can tell me several different characteristics about the market at a quick glance. I have them saved on my charts in MARKETHEAD so they can populate on any chart, any market, and any time frame at the click of a mouse.

 

On the daily, weekly, and monthly charts below I have gold in what I refer to as a "PRINCIPAL-TREND" down. This is the strongest form of a trend that my 10/20/50/BB Trend Finder system can identify. In order to achieve this what we need to have happen first is a cross of the 10 period SMA (red line) down and under the 20 period SMA (green line) as both indicators point lower on fairly sharp angles while the market itself trades below the 10. Now we have the 10 period SMA as our first area of resistance, then the 20, next the 50, and finally on the charts below the top line of the BB's represents the final area of resistance.

One other extremely important point for the gold bears and this is consistent on all three time frames is the direction that the indicators are pointing. On all three time frames the daily, weekly, and monthly charts the 10 period SMA, the 20 period SMA, the 50 period SMA and the bottom line of the BB's are all pointing down. On each chart the top line of the BB's is not. However that is 4 out of 5 of my 10/20/50/BB Trend Finder indicators all pointing bearish.

I figured this out by pulling up and studying a daily, weekly, and monthly chart with my indicators by the click of a mouse which I found at: http://www.markethead.com/2.0/free_trial.asp?ap=mmckinne , which is a web application that we have developed for our clients called MARKETHEAD where I get about 80-85% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 15 years. So if I'm using it then maybe my reader's should check it out. Yes? 

 

Daily Gold Chart

 

Weekly Gold Chart

On the monthly chart below, gold has taken out every previous low from what my indicators are showing me except for the made back in October and November of the Great Recession. In October of 2008 we saw gold prices bottom out at about $681/ounce and in November before it rallied up to an all-time record high of $190/ounce it bottomed out at about $698/ounce. Can we go back there? Is that even realistic? Well if you look at the monthly chart below you will see that we have taken out every low except those. Finally, of course it could happen, as I remember when I got into the business in 1998 gold futures were at about $250/ounce. For now the bears are firmly entrenched and so is the deflationary tone of all the commodities markets so stay tuned for the next big move!

Monthly Gold Chart

  

OPTION PLAY:

Some good plays I think could be to buy puts or bear put spreads with a call for a hedge or an "insurance" policy in case the trend changes to up dramatically. I would recommend this in a 3 to 1 ratio as always. Buying puts or bear put spreads have a limited risk. Another play could be to sell deep out of the money calls with GTC stop orders to buy futures at a higher price in case the market rallies.

For exact details on strategies, months, expiration dates, strike prices, and number of positions feel free to contact me at 312-277-0115 or mmckinney@zaner.com .

It is also important to note that I am not married to a market, but to trends. So I make recommendations with options on futures and commodities like the energies, grains, currencies, softs, financials, and more. So whether you are a hedger or a speculator I believe I can help by putting together strategies and recommendations then present them to you, and as always leave the final decision in your hands. We work as a team. I also recommend when to get in and when to get out while watching the trade every step of the way as I keep you updated personally on a regular basis as this is a major part of my service. May all the best trades be yours and mine.

  

FREE QUOTE- "Diamonds are made under pressure." -Peter Marshall 

 

 

 

FUTURES, OPTIONS AND FOREX TRADING IS SPECULATIVE IN NATURE AND INVOLVES SUBSTANTIAL RISK OF LOSS. THESE RECOMMENDATIONS ARE A SOLICITATION FOR ENTERING INTO DERIVATIVES TRANSACTIONS. ALL KNOWN NEWS AND EVENTS HAVE ALREADY BEEN FACTORED INTO THE PRICE OF THE UNDERLYING DERIVATIVES DISCUSSED. FROM TIME TO TIME PERSONS AFFILIATED WITH ZANER, OR ITS ASSOCIATED COMPANIES, MAY HAVE POSITIONS IN RECOMMENDED AND OTHER DERIVATIVES.

 

 

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERDLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STICKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT OPTIONS PRICES MAY ONLY MOVE A LITTLE.

 

THE LIMITED RISK CHARACTERISTIC OF OPTIONS REFERS TO LONG OPTIONS ONLY AND REFERS TO THE AMOUNT OF THE LOSS, WHICH IS DEFINED AS THE PREMIUM PAID ON THE OPTION(S) PLUS FEES.

 


 

 


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