Summer Contrarian Update

In a previous article, I developed 10 contrarian ideas to consider for the summer. Since we have just passed the solstice, let's follow-up.

The first contrarian suggestion was to short gold using ProShares UltraShort Gold(GLL Quote), an ETF that tries to replicate 2 times the inverse of the London gold price. I suggested to look for an entry above $960 and, sure enough, gold broke above $960 and stayed there for a number of days, with a high of $981.75 on June 1.

Since I had cautioned against taking a short position in gold in front of a possible rally over $1,000, a logical way to try to short once gold was above $960 would be to put in a buy-stop order for GLL at $14.50, the approximate price for the ETF for gold at $960. If gold continued to rise we could keep following the rising price.

The buy-stop order would trigger a buy once a rise occurred to the specified level. This is just the opposite of the common practice of buying the dip in gold; it is selling the dip on the premise that a downturn is starting. The pullback to $960 occurred on June 5.

One could also buy GLL at the market after the $960 trigger was hit rather than using the buy-stop order. Buying at the close would have cost $14.54. Gold is now well below $960 and GLL closed Friday, June 19 at $15.04 for a 3.7% gain from $14.50.