The stock market is overbought and overly loved from a sentiment perspective. This has made the risk-reward relationship less than desirable from my perspective.
With this in mind, I have been looking for ideas of where to put money away from the equity market where the risk-reward relationship was much more rewarding from a technical perspective as well as the sentiment picture.
I didn’t have to look very far as gold jumped right off the page at me.
The metal has been ignored and sliding for over a year now and it is oversold once again on its weekly chart.
Additionally, after a mild shift in the sentiment, the large speculators are right back to unloading their long positions.
The thing about the Commitment of Traders report for gold is that it hardly ever goes to a net short position (it has been over ten years), so you have to look at it from a relative standpoint.
Back in July the net long position was the lowest it had been in seven years. The price of gold rose 12 pecent in July and August.
The net long position gradually moved higher until late October, but over the last four weeks they have lightened up on their holdings once again. The net long position is under 50,000 contracts once again.
Prior to the last six months, you had to go back to 2005 in order to find the last time large speculators held less than 50,000 contracts long.
I see support for gold at the $1,200 level and resistance up around $1,450. This gives us a possible gain of 16 percent with a stop-loss of 4 percent for a 4:1 reward to risk ratio.
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