MACD Update & Seasonal Sector Trades: Gold & Silver Break Down
By: Christopher Mistal & Jeffrey A. Hirsch
May 04, 2017
As of the today’s close, both the faster moving MACD “Buy” and slower moving MACD “Sell” indicators applied to DJIA and S&P 500 are still positive. Recent sideways trading is putting pressure on the positive trends of the MACD indicators, but they still remain positive. To turn the slower moving MACD “Sell” indicator negative, single day losses by DJIA and S&P 500 would need to exceed 1.90% (397.62 points) and 1.68% (40.19 points) respectively. 
Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal.
Sinking Silver
Silver has a strong tendency to peak or continue lower in May, bottoming in mid to late June. Traders can look to sell silver on or about May 12 and maintain a short position until on or about June 23. In the past 44 years this trade has seen declines 29 times for a success rate of 65.9%. Prior to 2014, this trade had been successful for eight years in a row. Two years ago, this trade was successful while last year silver bottomed in early June resulting in a loss. This trade has been successful in 9 of the last 11 years. In the second chart below, the 44-year historic average seasonal price tendency of silver as well as the decline typically seen from mid-May until the low is posted in late June into early July is shown. This May silver short trade captures the tail end of silver’s weak seasonal period (shaded yellow) that typically begins in late February or early March.
[May Short Silver Futures Contract – Trade History]
[Silver Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]
ProShares UltraShort Silver (ZSL) corresponds to two times the inverse of the daily performance of silver. However, ZSL is not tracking spot silver price, rather it is tracking the U.S. dollar price for delivery in London. Nonetheless, ZSL has a solid history of rising when silver price declines. ZSL could be bought on dips below $35.40. If purchased, an initial stop loss of $32.21 is suggested. If ZSL then rises and closes above $38.95 switch to a 5% trailing stop loss. Use ZSL’s daily close to update its stop loss. This trade will be tracked in the Almanac Investor ETF Portfolio.
[ProShares UltraShort Silver (ZSL) Daily Bar Chart]
Gold’s Fading Appeal
Gold also tends to post seasonal bottoms in late June or early July, as demand increases when jewelers again stock up ahead of a the seasonal wedding event in India. Gold prices are also subject to spikes in demand from the investment community, as a hedge or protection from concerns over inflation or during times of economic instability or uncertainty. It is valued in terms of the U.S. dollar, so periods of dollar weakness can support gold’s value.
[Gold Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]
Shorting an August gold futures contract on or about May 19 and holding until the end of June has been fruitful in 27 of the last 42 years for a success rate of 64.3%. This trade’s best year was 2013 when stocks put up their best yearly performance in more than a decade. This trade has worked in 8 of the last 11 years.
[May Short Gold Futures Contract – Trade History]
The success of this trade and/or silver’s trade will likely depend on the Fed, what it does or does not do with interest rates and whether or not the Trump Administration can come through on tax reform. Traditional jewelry and industrial demand is likely to follow historical patterns but investment demand is the wildcard. Gold is an appealing store of wealth when the U.S. dollar is weakening and gold is clearly competitive with cash, especially in countries with negative interest rates. Those negative rates are no different than having to pay a storage fee for physical gold or an expense ratio for holding an ETF consisting of gold.
Instead of using a leveraged, inverse gold ETFs or ETNs a basic short position in SPDR Gold (GLD) will be the path taken to execute a trade. GLD could be shorted now as it has broken down through support with confirming negative stochastic, MACD, and relative strength indications. An initial stop loss of $120.00 is suggested. For tracking purposes, a GLD short position will be established in the Almanac Investor ETF Portfolio using GLD’s average trading price on May 5, 2017.
[SPDR Gold (GLD) Daily Bar Chart]