Reduce Holdings in Gold Including Shares of Newmont Goldcorp

One of my themes in 2019 was to hold portfolio positions in gold with an allocation of 10%. Now it's time to reduce this allocation to 5% as Comex gold futures test their semiannual risky level at $1,610.6.
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One of my themes in 2019 was to hold portfolio positions in gold with an allocation of 10%. My primary focus being long the SPDR Gold Shares ETF  (GLD) - Get Report and gold miner Newmont Goldcorp NEM. Both are approaching risky levels where profits should be taken. It’s time to reduce allocations to 5%.

Reduce holdings on GLD on strength to its semiannual and monthly risky levels at $151.13 and $154.01. 

Reduce holdings on NEM on strength to its monthly risky level at $46.92.

Comex Gold Futures traded as high as $1,613.3 in overnight trading as Iran fired 15 missiles targeting U.S. bases in Iraq. This high was a test of its annual risky level at $1,610.6.

The SPDR Gold Trust tracks the spot price of gold and is said to be backed by gold bars in vaults in London. The ETF is up 3.5% so far in 2020. The ETF has been in recovery mode up 33.2% since trading as low as $111.06 back on Aug. 15, 2018. GLD set its multiyear high of $148.61 at the open on Jan. 8.

Newmont closed Tuesday at $43.23 in bull market territory 45.2% above its 2019 low of $29.77 that was set on May 7. The stock set its multiyear high of $44.08 on Dec. 31.

The Weekly Chart for Gold Futures

Gold Futures Tested Its Semiannual Risky Level At $1,610.6.

Gold Futures Tested Its Semiannual Risky Level At $1,610.6.

Courtesy of Refinitiv XENITH

The weekly chart for gold futures is positive with the nearby contract above its five-week modified moving average at $1,514.8. 

The contract is well above its 200-week simple moving average or “reversion to the mean” at $1,304.0. 

The 12x3x3 weekly slow stochastic reading is projected to rise to 64.05 this week up from 51.51 on Jan. 3.

Trading Strategy: Reduce holdings on strength to semiannual and monthly risky levels at $1,610.7 and $1,645.1, respectively. The downside risk is to its quarterly value level at $1,425.9.

The Weekly Chart for the Gold ETF

Reduce Holdings On The Gold ETF GLD.

Reduce Holdings On The Gold ETF GLD.

Courtesy of Refinitiv XENITH

The weekly chart for GLD is positive with the ETF above its five-week modified moving average at $142.33. 

The ETF is well above its 200-week simple moving average or “reversion to the mean” at $123.49. 

The 12x3x3 weekly slow stochastic reading is projected to rise to 65.00 this week up from 50.49 on Jan. 3.

Trading Strategy: Reduce holdings on strength up to its semiannual and monthly risky levels at $151.13 and $154.01, respectively. The downside risk is to its quarterly value level at $133.76. 

The Weekly Chart for Newmont Goldcorp

Reduce Holdings On Shares Of Newmont Goldcorp

Reduce Holdings On Shares Of Newmont Goldcorp

Courtesy of Refinitiv XENITH

The weekly chart for Newmont is positive but overbought with the stock above its five-week modified moving average of $35.30. 

The stock has been climbing its 200-week simple moving average or “reversion to the mean” since the week of Aug. 31, 2018, with the average now at $35.30. The 12x3x3 weekly slow stochastic reading is projected to rise to 83.20 this week up from 80.73 on Jan. 3.

Note that back at its lows of 30.28 in September 2018 the weekly slow stochastic reading was 7.31. A reading below 10.00 indicates that the stock was “too cheap to ignore.”

Trading Strategy: Buy Newmont on weakness to its quarterly value level at $38.14 and reduce holdings on strength up to its monthly and semiannual risky levels at $46.92 and $57.02. These are the horizontal lines on the chart. 

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual and annual levels. Each uses the last nine closes in these time horizons.

New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.