XAU at 4 Standard Deviations below 200 DMA

Discussion in 'Stocks' started by MAVERICK007, Aug 11, 2008.

  1. As of 8/11/08, the XAU stands at 3.98 standard deviations below its 200 day moving average.

    This may be the largest deviation ever for the XAU below its 200 day moving average.

    Its scary to get in front of a falling knife but it looks tempting to buy.

    http://stockcharts.com/h-sc/ui?s=$xau&p=D&b=5&g=0&id=0
     
  2. You won't pick the exact bottom on this sell-off, so don't wait for it, thinking you will. The way to play this is to decide on how many shares you ultimately want to buy, and start to build a position.

    For example: You want 200 shares, pick an ultimate stop price, and start buying 50 shares at a time. Each time the price goes below your previous purchase price buy 50 more. When you have 200 shares , stop buying. If your ultimate stop price is hit at any time, sell.

    Also, decide how and when you will exit if you have a profit. Just remember, bottom fishing is expensive.
     
  3. I agree with you 100%. Adding small positions makes sense in this kind of environment.

    This could qualify as a black swan event for the XAU since a level of 4 standard deviations below its 200 day moving average is such a rare event. The last period of time the XAU was even 3 standard deviations below its 200 day moving average was about 10 years ago, on 8/31/98 when it was 3.06 standard deviations below its 200 day moving average.

    Based on historical data back to 1994, the XAU rarely spends too much time at 3 standard deviations below its 200 day moving average. It tends to close the gap within a short period of time.