But I want you guys to turn your attention now to precious metals. In my Sunday night write-up, if you recall, I noted that August is typically a month of booby-traps and perilous action for the precious metals investor. Nevertheless, there are pockets of opportunity that turn up sporadically and can be seized. I believe there is a nice trade about to unfold in the precious metals space.

Firstly, let’s be candid here: the group has been absolutely annihilated as of late. I combed through recent history (last 5 years) to look for sell-offs similar to the ones we have recently witnessed, particularly, with the following majors: KGC, GG and AEM. The sum of the evidence? It appears these stocks have just experienced a sigma-3 event –an outlier oversold event which occurs about once or twice a year. Not only has the selling been of extraordinary proportions, but it has taken place in a short period of time, thus constituting a panic sell-off of sorts which has set up for a potential counter-tend fast-money trade.

Below, the results of the bludgeoning action in the aforementioned majors:

Aug 5 Low 32.43

% sell-off…..38.4%

05/11/06 to 06/13/06: 42.00%*

04/01/04 to 05/10/04: 33.00%

*Note that in the 2006 sell-off,between 05/26/06 to 05/23/06, there was a rapid 13% bounce that was quickly faded.

Thus far, in this latest sell-off, the greatest reflex bounce we have seen was 7% from 07/25/08 to 07/28/08 (trough to peak).

Aug 5 Low 48.43

% sell-off…….40%

08/10/07 to 08/15/07: 26%

05/06/06 to 06/13/06: 39%

Aug 5 Low 16.31

% sell-off…….36%

07/24/2007 to 08/16/2007: 31%

05/11/2006 to 06/14/2006: 32%

We are also sitting on upward-trending diagonal support for the GLD. Connect the dots between 05/01/08 and 06/12/08. The current level on GLD lines up with those lows.

Stochastics are also deeply oversold now for GLD.

Last year, the low in gold was made on Aug 16. The chart looked like death. Guess what? It looks pretty horrible right now, but the technicals seem to have aligned well for a move higher. Plus, we are just 9 days from that Aug 16 pivot low, so we’re pretty close to a turning point seasonally.

A roll-over in financials is important as well due to an extremely high correlation between SKF (inverse financials) and GLD. For your own experimentation: overlap both charts (SKF and GLD) and note a solid alignment of peaks and troughs.

Again, the chart is extremely scary right now. Nevertheless, I think there’s enough technical juice for a fast-money move on GLD to the $90 area (50-day). Then, we probably pull in a little and hang out before potentially pushing higher. It’s too early to say whether we will clear $1000 resistance this year, but there’s definitely room for a short-term, profitable push higher.

That’s just my take.

Good Trading to All!

Phil_from_Brazil