Following a three day hiatus, the flight-to-safety trade came back with a vengeance in yesterday’s trading session. The financial markets experienced a short-term shift of sorts as money fled equities and raced into the welcoming arms of oil, or the US Oil Trust (NYSE: USO), gold, or the SPDR Gold Trust (NYSE: GLD), and to a lesser extent bonds, or iShares Barclays 20-year Treasury (NYSE: TLT) and the dollar, or Powershares DB US Dollar Index Bullish (NYSE: UUP). For options trading investors and others, oil seemed to be the largest recipient as the United States Oil Fund staged the strongest advance of 3.29% on the day. While oil’s performance may have bested the rest, the price action in GLD deserves some attention.
After failing numerous times to bust above the $139.50 level, GLD has finally breached this pivotal resistance area. Indeed, after first being rebuffed at this level around four months ago the bulls have returned to claim victory and may just be in the process of laying out plans for a continued northward march. On a cautionary note, GLD has come a long way over the last month by experiencing a virtually uninterrupted rise of 9%. In the short term some type of consolidation or pullback may be in the cards. On the other hand, yesterday’s fresh breakout may attract new buyers willing to pile in regardless of the current overbought conditions. Either way, the intermediate term outlook on GLD continues to look bright.
Those seeking bullish exposure may consider the purchase of a GLD May 140-145 Call Spread for around $1.95. Call spreads are an effective strategy for exploiting intermediate term trends. This hedged trade reduces the effect of time decay and volatility allowing traders to make a more pure directional bet versus buying call options outright. The purpose for going out three months to the May expiration cycle is to give GLD ample time to stage an advance to $145. Traders wanting more or less time may consider call spreads in other expiration months as desired.
SPDR Gold Trust (NYSE: GLD)
Follow Tyler Craig on Twitter @Tyler Trading.
