Gold

[Sniper]

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The price of NEM moves when the price of gold moves. Here is a graph of NEM compared to the CBOE Gold Index:

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Just for clarification, the chart you posted does not support your statement!... The CBOE Gold Index does not represent the price of gold, it is an index of 12 Gold related stocks including NEM.

It is not surprising that there is some correlation between NEM and the GOX index where NEM represents 8.32% of its value. Its also not surprising that the GOX index would be highly correlated to the price of Gold!

[edtost]

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It is often 100% correct to WAIT and buy at X as opposed to X-1.

The reasons are related to the focused emotion of most players at pivotal price points.

Emotion of players are not distributed evenly across all prices. Thus pivotal points are created, setting up low-risk opportunities.

The chart of NEM illustrates how the $50 area was hit twice in 01/04 and 10/04. $50 is now a pivotal point where emotion is focused. Historical buyers in these areas are grateful to "get out even", now, selling at $49 and higher.

Most of these historical buyers are likely gone, now.

The strong evidence is any close over $50.

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Homie, NEM moves with the price of gold. Gold moves inversely to the value of the USD. None of this has ANYTHING to do with pivotal points or emotional players or ANYTHING you're talking about.

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duder, you need to accept that the behavioralists may be right every once in a while about the small effects irrational traders have on market prices, even though you have described how a rational investor would look at the company itself.

edit: note that i know absolutely nothing about this specific company and/or gold.

[Dan Mezick]

I'm a trend follower.

I perceive this thread has topped, and is now probably moving sideways...or likely, heading down.

And I've been a little overweight in terms of attention to this thread.

Probably a good opportunity to exit, or at least reduce my size.

I do appreciate all the diverse replies.

[eastbay]

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follow trends, avoid prediction.

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Follwing a trend is making a prediction, silly.

eastbay

[Sniper]

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Follwing a trend is making a prediction, silly.

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No more than playing AA preflop is a prediction!

For some reason, prediction and assumption have been used with negative connotations in recent posts. I do not belive that this is the proper use of these terms for odds based actions!

[Girchuck]

Doesn't that depend on why these historical buyers were buying in the first place?
What if most of these buyers anticipated a long-term upward trend for gold? In this case, why would they sell now when their predictions appear to materialize?

[Dan Mezick]

"why would they sell now when their predictions appear to materialize?"


Because of the pain of holding on for so long while experiencing a negative return. They are actually VERY happy to sell here and "get out even".

The typical investor sells winners and holds losers. Yes. The sale of the winner makes him "right" while (in his mind) the losing play is only a loser "on paper" till he sells. So he doesnt.

This behavioral finance link explains this "loss realization" dynamic very well.

http://loss-realization.behaviouralf...net/LoMa00.pdf


Here is the behavioral finance home page where this article is listed under "Loss Realization"

http://www.behaviouralfinance.net/

[eastbay]

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Follwing a trend is making a prediction, silly.

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No more than playing AA preflop is a prediction!


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Without further qualification, I respectfully disagree. Strongly.

It's fairly common knowledge that some instruments on some time scales tend to be mean-reverting rather than "trending." Although really, we're talking nonsense until we quantify "the trend" and specifically how to "follow" it. You want to start, since you're the one making the assertions?

eastbay

[Girchuck]

I have a very naive question. Forgive me if it sounds stupid, but how many trades can be made with the stock being at its top price? How significant is the number of people who actually bought the stock close to its previous maximums and held on to it? Doesn't the fact that it came down indicate a lot of selling activity?

[Dan Mezick]

Volume is a very important part of price action.

There has been a ton of volume here.

You can see that in these charts:

http://stockcharts.com/def/servlet/SC.web?c=gld

http://finance.yahoo.com/q/bc?s=GLD

...today and yesterday is about 2X normal volume.

Volume like this on down price action following a steep run-up often indicates at least a short-term top and creates or reinforces a pivot. The 500-510 area is gold is already a battleground (50-51 in GLD) and the level of volume here is not surprising.

It's perfectly normal to see a test of $500-$510 at this point.

If price can bounce, 500-510 becomes a pretty solid price support area.

If price cannot bounce, and pierces 500 by more than 3%, then it's likely a failed breakout and 500-510 remains resistance, fortified even further by all the new (naive) buyers who piled in at the 515-535 area.

These buyers will be happy to get out at $515 at a smallish loss close to even. They represent part of the force behind selling pressure on any rally.

They will likely sell into any rally.

Buying in the 500-485 area represents a low-risk opportunity to place a bet on the long side. The reason it is low risk is because of the price action. You can enter in the 500-485 area and place a tight stop loss at around 480, assuming you believe $480 represents a failure of the breakout over 500 (test after breakout pierced $500, and is 3% below)

Buying at 500, the worst possible price in the target range (500..485), and setting a stop at 480 defines risk as 4% not counting any price slippage on exit ("skid") and associated commissions.

Getting in VERY advantageously at say $486 stop $480 defines risk = 1.2%

One symptom of trader disease is selling just before price takes off or buying just before price breaks down. This is mostly a function of your entry and exit stop placement(s).

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Q: Why do I always place my stop loss at an exact high or low?

A: You're describing a condition known as trader's disease. It's caused by the market tendency to gravitate toward the price that causes the most pain. Options traders are especially vulnerable to this affliction. It's not really sinister, it's just the nature of the market.

Start by realizing that volatile stocks can't be traded with tight and scientific stops, because all their support-resistance levels are channeled. This pushes a stock back and forth through common stop levels but keeps the ongoing trend intact. If you get up close to a price chart, you'll notice there's large bar-to-bar overlap most of the time. This makes it hard to get your move without getting shaken out.

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