Saturday, 25 May 2024

By Murray Dawes Editor, Retirement Trader and Fat Tail Microcaps

[2 min read]

Dear Reader,

Buying short-term weakness to join long-term uptrends is an easy concept to understand but a difficult thing to execute.

There is a sea of grey out there in market land, so if you want to execute the simple statement above you need to come up with definitions for ‘up’, ‘down’, ‘short-term’, ‘long-term’, and you have to define what a change of direction in price looks like.

You won’t find a perfect answer. There will be trade-offs that you need to make along the way.

But without something to hang your hat on your decisions will be arbitrary.

As a long-term trend develops, there are periods when prices are out of balance and thus trending strongly. Then prices will be in balance and a range of some sort will develop over a period of time until the next explosive move is ready to happen.

Gold and copper have both seen an incredible rally over the last few months, but this week saw some serious selling erupt.

As I show you in today’s Closing Bell video we can’t be too surprised by the selling because both commodities were looking extremely overbought in the short-term.

Gold was trading over $400 above its 20-month SMA (simple moving average). The only two times it has done that in the past was just prior to the corrections in 2011 and 2020.

Even if we think gold is heading to the moon in the next few years, mean reversion events will occur along the way, and you will either end up shaken off by them or using them as a fabulous opportunity to jump on.

Copper was also looking stretched after running from US$4.00 to $5.00 a pound in less than two months.

Copper hit a new all-time high during the rally and I show you in today’s video that copper often has a false break after creating a new all-time high.

That means prices head above the all-time high for a short period and then selling erupts which sees the price rapidly fall back to Earth.

The long-term uptrend in both commodities is still up according to my definition, but a healthy correction back to the long-term moving averages should be expected. Such a move could set up some fabulous buying opportunities.

Are you long both commodities, and nervous after the volatile week?

Or hoping to build up exposure to copper and gold during this correction?

Either way, you will have something to gain by watching today’s Closing Bell.

Enjoy, and let me know what you think in the comments below the video on Youtube…

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps

Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.

He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).