Bought 300 VEN.TO @ 8.95, Stop 8.80

Update Oct 20: I raised my stop to 9.10 this moring. It got stopped out 2 minutes before the close for a small profit.

Following the covering of my short side play this morning, I sneaked back in to the gold bug camp. In particular, I bought some of my recent favourite gold miner, Ventana Gold Corp. (VEN.TO), a few minutes before the close.

Gold held on to the 1330 support as I’ve discussed this morning (see gold chart in this morning’s post). I also watched the closing 30 minutes of the market and VEN.TO respected its 8.90 support level too. See Figure 1. There was a brief touch below 8.90 but it pushed back up quickly (not shown).

This is a play inline with the direction of the recent rally. Just riding the trend. Nothing fancy.

Hard stop is $8.80. Mental stop is $8.88. Maximum risk is ($8.95 – $8.80) * 300 = $45 + $9.90 commission = $54.90 = 0.5% of account. There’s a risk of another gap down open tomorrow. So my position is small in case the market runs away overnight.

Ventana Gold Corp. (VEN.TO)

Sold 350 HGD.TO @ 10.84, Profit +2%

China not-so-surprised the market (their delayed Treasury report was a hint) with a 0.25% rate hike overnight (WSJ: China Raises Interest Rates). The US Dollar shot up, precious metals took a big hit. I close my gold short soon after the TSX market open to collect some quick profit. Rinse and repeat.

I did mention that this trade is a short term swing. I bought this Horizons BetaPro Gold Bear Plus (HGD.TO), a leveraged gold short, on Friday and unloaded it this Tuesday. I fought against my greed to hold just a little longer. But the ascending support line on gold is too obvious to ignore (Fig. 1). Thus I closed this short term position with this 5%+ gap up while the market is still deciding what to do.

Furthermore, I noticed the equities market are holding rather well at the open. S&P500 held onto 1170 price level. Asian markets were marginally green overnight. And even the CAC in Europe is fighting an intraday low as the North American markets open. Thus, the sky is not falling just yet.

I figured it would take more omph to push this market further down as we are indeed in a strong bullish move. At the very least I am expecting some retaliation from the bulls. This can’t be this easy for the bears, can it?

Gold

Net profit for this trade is ($10.84 – $10.27) * 350 = $199.50 – $9.90 commission = $189.60 = 2% of account.

I am sorry, My Precious: Bought 350 HGD.TO @ 10.26

I cannot believe that I am doing this. I am shorting my favourite asset, gold. Spot gold was trading at 1372 at the time of my short during lunch hour (see Fig. 1). I bought 350 shares of Horizons BetaPro Gold Bear Plus ETF (HGD.TO) to short gold. It is just more convenient to do that in my RRSP trading account at Questrade. I am well aware of the deteriorating value of a leveraged ETF (especially bearish ones). So I don’t intend to hold this for more than a few days.

The reason for this trade is simple.

Today Bernanke made it clear that QE2 is on (WSJ: Bernanke Makes Case for Further Fed Moves to Boost Economy). Coincidentally, note the orchestrated weakening upward momentum across precious metal (Fig. 1), currency (Fig. 2), and equities (Fig. 3). Perhaps this is a matter of buy the rumour and sell the news?

I am betting that this rocket is running out of fuel. If I am wrong, I have my stop set with a limited risk. If I am right, there’s a long way down from up here.

So this trade is merely a matter of exploiting good risk/reward.

Stop is set at HGD.TO $9.90. Anything below $10.20 will be a sign of caution. Maximum risk is ($10.26 – $9.90) * 350 = $126 + $9.90 commission = $135.90 = 1.4% of account.

Gold

EUR/USD

S&P 500

Canadian VIX: TSX to have their own volatility index

I don’t know if anyone noticed, but in my previous post discussing the TSX, I included a chart of VIX (S&P500 volatility index) versus S&P 500. VIX is one of the market indicators that I can’t live without. However, as much as the Canadian and the American equity markets are correlated, they are still separate markets. So using the VIX vs. S&P500 on an analysis of the TSX is like borrowing salt from thy neighbour. But there’s no more need for that soon as TSX is finally getting its own volatility index starting Monday (October 18)!

This is to replace the MX Implied Volatility Index (MVX) from the Montreal Exchange, which I didn’t have access to previously (aside from data published on their website).

One question I have is that the TSX VIX will be based on TSX 60 index options activity according on their press release, but the TSX 60 index options isn’t that active. So would the TSX VIX be as efficient as the S&P500 VIX?

An opportunity with the introduction of TSX VIX on the Toronto Exchange is that I can now place bets on market volatility in my self-directed RRSP trading account. Which is arguably more predictable than the underlying index these days… In any case, this will be a vital market indicator for Canadian market traders.

For more information on TSX VIX, see the product information page on Standard & Poor’s. And a hat tip to Option Matters (Montreal Exchange’s blog on options) for this news.

Three obvious reasons to watch 13,000 on the TSX

Talks of QE2 (WSJ: QE2 or Titanic and Econbrowser: Why is the Fed doing this?) and earnings season are pushing the market higher and higher. Gold is still pushing to new all time high and the dollar is breaking to new lows. The TSX, in particular, is testing 12,700 today. 13,000 is just around the corner.

13,000 price level is the line in the sand for the commodity-heavy TSX for three obvious reasons.

1. It marks the breakdown support level back in the 2008 crash.
2. It is the bottom of a prolonged congestion zone in much of 2007 and 2008 before that crash.
3. And most importantly, #1 and #2 are very easy to spot on the chart (potentially self-fulfilling).

It is likely that the TSX will be reaching 13,000 shortly in this earnings season. However, what happens afterward is anyone’s guess.

At this point, I am neither long or short for the long term. The reward/risk isn’t good for going long at this point with that much uncertainty. And the threat of QE2 and earnings release isn’t good for going short either.

I am watching the forex market closely for signs of a direction as that is a driver of the equity market these days.

S&P TSX

CBOE Market Volatility Index (VIX) vs. inverse S&P500