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Saturday, November 19, 2011

Thinking out of the box: GLD, ERX, ERY

This article is only to make you understand how to think out of the box.

Next week is very crucial for trading, as US is imposing sanction on Iran on Monday, so oil prices is likely to go high.  US stock market is closed for Thanksgiving on Nov 24th, and Nov 25th, its open till 2 pm EST.  (More detail in next article)

So as you know in last two day ERX lost 20% and ERY gained 20%. ( I mentioned in my article on http://www.freefdawatchlist.com/2011/11/stocks-for-nov-16th-vxx-tza-amr-exel.html  on Nov 15th to short ERX and buy ERY)

Inspite of bad headlines oil kept rising and everyone started thinking Oil is safe haven. So why this sell off  all of a sudden ? The answer is thanksgiving. If the oil prices had kept rising, then less people would had gone for shopping and spending less which means bad new for the stock market. So the prices of oil had to come down before thanksgiving for the feel good factor. 

Another example is spot GOLD, it was trading at $ 1900 in September. More then 50% of the world production of GOLD is imported  by Asian countries especially, China and India and October and November is considered to be the best season for Gold. October being the religious month while November is the marriage month in Asia.

If you look at the chart, Gold pullbacked to $1600 in October , before rising back to $1700.

Fed announced in their FOMC meeting last month that they will consider QE once inflation is down, and guess what last week it showed inflation is at 0.

Everything is pre decided at the wall street, they create the trap to look everything is good and when many people are on board, they pull the trigger, trapping everyone. Don't be afraid but just be 
"Be in the right stock at the right time."

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Some trading ideas:

1. Since volatility is very high so don't use margin money to buy any stocks at least till December 1st week.
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2. Using option to buy stocks. I am not big expert of option trading but it has certain advantage.

Goldman sach (GS) is trading at $ 91.91 http://www.google.com/finance/option_chain?q=NYSE:GS

To buy 100 shares of GS, it will cost $9191, while using option you can buy Jan 21, 2012,  100 call for  $ 275. If GS reaches $ 100 by Jan 2012 you can easily make $800 profit.

The benefit is your investing $275 compared to $ 9191.
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3. This season looks like thanksgiving shopping is dead. There are less buyer compared to last year in Los angeles area. Every store is offering layaway which shows the condition of economy. Its like people going out to apple store playing with ipad but not buying it. 

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