To every season there is a turn, it's a paraphrased Bible verse, a song lyric from the Byrds, and to Jeff Hirsch, a trading strategy for the unofficial start of Fall. Specifically, Hirsch, the editor of the Stock Trader's Almanac, and the Commodity Trader's Almanac, suggests Breakout viewers consider using seasonal weakness in crude oil and strength in gold to take advantage of the current counter-trend moves in each.
But don't pull the trigger just yet. Noting the huge move lower in crude over the last few months, Hirsch says "we've had down oil for a long time and need a rally to get short here."
Crude oil tumbled from $115 a barrel at the beginning of May to $80 last month, before a bit of a relief rally took Texas Tea back to near $90. Hirsch says it won't last and he's licking his chops, waiting for a move higher in crude to around $93 - 95 before making a bearish bet. The more timid among you can get negative crude via the United State Oil fund ETF (USO) (note: an ETF I view as particularly bad at tracking the underlying currency). More sophisticated traders could use a large variety of options strategies.
For Hirsch's money, making bearish crude bets in the options pits is too hot and shorting the USO is too cold. But buying the Proshares UltraShort Crude ETF (SCO) is just right. The SCO is a levered bearish bet on crude falling. In other words, the ETF hit it's lowest point while crude was topping out, then went from about $35 in early May to over $70 as crude plunged. If and when crude gets to Hirsch's target price on the upside, start buying the SCO.
Gold is more simple, if controversial. Hirsch thinks a seasonal move higher in the precious metal will be somewhat muted this year, with the highs near $1,900 an ounce acting as at least a temporary ceiling. But there's still a great trading opportunity. Hirsch is anticipating gold drifting lower to the $1,600 area where support of all kinds lurks. MACD, uptrends, oversold marks; pick a technical reason to buy gold and you've got it in spades at the $1,600 level.
Unlike the relatively complicated and levered oil trading options, gold trades can be executed using the SPDR Gold Shares ETF (GLD). The GLD is priced at 1/10 gold's spot price, in large part because GLD owns physical gold. The gold trade has become controversial of late, with the CME increasing margin requirements, various countries and institutions getting long, and a recently broken string of gold-related headlines dominating the press. All of which is well and good but misses the point for those trying to trade it. For traders, Hirsch's advice is simple: Buy the GLD at $160 and sell it at $190. Lather, rinse, repeat.
All of the above may seem unnecessary and complex for the buy-and-hold crowd, but long-time active players know that in today's environment, gains are hard-won. If an edge can be had by trading, it's logical and arguably prudent to trade the range. Jeff Hirsch is telling us his ideas for how to go about trading gold and crude.
As always, we invite you to share your personal techniques in the space below.
- Jeff Hirsch