A Good Look At GoldCaptain Hook
Overly optimistic and unprepared investors were provided with a reality check in the precious metal markets over the past couple of weeks. And still you hear them, talking about how 'the powers that be' are attacking gold right now in connection with upcoming mid-term elections in the States, along with the unsold allotment European bankers could be dumping on the market. After all, what else could be causing all that selling? It couldn't possibly have been a bunch of foaming at the mouth bulls all leveraged up on margin. Oh no. Or bottom of the barrel commodities houses leading Johnny come lately's down the garden path, a common occurrence in all bull markets at or about the a time a top of some significance is being traced out. Nah - not a chance. Here, these types of investors are usually looking for the most popular game of the day, where they are ready and willing to jump on any bandwagon as long as it's going in the right direction. Do they care if all the fundamentals are in place for an extended run in gold or not? Answer: No. These types are momentum players, where it could be tulips they are investing in for all that matters as long as it's going in the right direction. Of course once the tide turns this means they are also eager sellers because again, predominantly they are just price follows, not fundamentally oriented investors who have actually done a little research into what they were putting their money into. Nope - not these guys. This of course does not mean that officialdom won't give things a nudge in the desired direction when it suits them, as it seems we are hearing from some bureaucrat or central banker daily now. Make no mistake about it however; if market internals (primarily sentiment) are not conducive for the desired result, it won't happen. That's right, and you had better get this understanding straight, as it could impact the way you view risk and your portfolio moving forward. Just as the Feds cannot monetize all the markets (stock and bond) all the time as some would have you believe, they also cannot cause gold to fall out of bed just by starting a rumor European banks are selling a pile of gold into the end of September to meet their quota. Moreover, this is especially true when it's common knowledge they will likely miss their quota this year. Nope - it was the flaming bulls that did it to themselves this time, as always in full measure, where the market toppled over on it's own based on excessively bullish sentiment. As seasoned investors, we of course welcome the appearance of volatility because it provides us with 'golden opportunities' to accumulate more of the metals at lower prices. Of course you have to be on the right side of the market to actually profit from such occurrences. And while we are not traders of our gold and silver bullion positions, as they are viewed as part of our core holdings, at the same time if you were planning on adding more, or trading futures, or trading liquid precious metals shares, I'm sure you will agree staying ahead of the curve is a very good idea. In this respect, let's review our comments on gold's prospects over the past few weeks, as follows:
Not to belabor the point we were quick to realize bullish sentiment was way out of whack in the gold market, the important thing for you to realize now is that gold and silver are a lot closer to being 'buys' than anything else already, and that these perspectives provided the other day in this respect are as good as any, as follows:
Fast forward to today, and we have a few updates pertaining to both sentiment and technical related considerations outlined above. And for organizational purposes, we will present this information in bullets as well, as follows:
Believe it or not, and not that it would make a difference in how most feel emotionally at the time, this would all be very normal not only from a technical perspective, but from sentiment related perspective as well, where without a doubt all the excessive bullishness seen in the sector of late would most assuredly have been driven out of the trade for a good long time. This would then set the stage for the next Primary Degree (big) advance. Is there any precedent for this variety of price action in recent history to provide us with clues as to the most probable outcome given the possibilities outlined above? Well, in attempting to compare apples to apples, meaning a previous Primary Degree B Wave correction to the current one, we would of course have to travel all the way back to the 70's. As you may remember, these were volatile times in the securities markets, where prior to the bone crushing two year 61.8 retrace in gold experienced between '74 and '76, essentially cutting it in half on quick calculation (from $195 to $103), the Dow had just finished doing the same during the two preceding years. (See Figure 3) Of course today with our fragile asset dependent economy(s) hanging in the balance, a very strong argument can be made such volatility could not be endured, and for this reason would not be allowed by the 'powers that be'. In the first place, and although without a doubt it's not difficult to observe they go to great lengths in influencing the markets today, as mentioned above, it should be understood authorities cannot monetize stock and bond markets as readily as many think (neo-cons), and that in fact it's all the negative bets (sentiment) set against adequate liquidity keeping stocks afloat in for all intents and purposes is a grand short squeeze. Knowing this, and realizing some day this condition will be sure to exhaust itself, and that stocks are most likely to suffer a very significant (Grand Supercycle Degree) meltdown, for our purposes we would simply like to point out that if gold is in a strong bull market, like stocks have been in over the past twenty years, when primary channel support is reached, it generally doesn't pay not to also consider such an advent 'primary support', and buy the heck out of it. This certainly was what happened when the S&P 500 hit primary channel support back in 2002, and although you may not have known, prices are now vexing the channel's top, although based on technical observations provided below, it appears if sentiment towards future prospects were to ever turn bullish, or perhaps even just a little less bearish as measured by index related open interest put / call ratios, the result could be a toboggan ride down a steep slope. (See Figure 4) This is all conjecture however, and not something one plans for through speculation, but through portfolio planning and risk management strategies of course. Additionally, this also does not mean keeping your 'eye on the ball' is not important, where we endeavor to do so as a matter of course in monitoring the health of all markets that concern us. Moreover, this is especially true in identifying high probability turn points which can prove quite rewarding through the full measure of time if you are a larger degree position trader, or looking to place some new money into gold. For example, if you are in that position now, today we could see a significant 'sell signal' triggered with a 3-day close below $582, which again, would be greater than 3-percent below the large round number at $600, and suggestive a test of the next interval of equal dimension at $500 is in the cards, as per Gann. Of course what we know about channel support identified above suggests we should be buyers in the $525 - 535 area if this occurs, especially if near the end of November coincident to Fib / channel support readings hitting the tape. At the same time however, one should also not be surprised if this support doesn't hold in needing to go down and test larger degree Fib related support in the mid-400's, as per the 70's. Certainly a traditional 3-box point and figure chart reversal measure is suggestive of a deeper correction as being a distinct possibility, not to mention the appearance of what could be characterized as menacing stochastic influences pictured on the weekly plot above. Who knows, right? Well, in putting this all together, and attempting to calibrate a likely target for a deeper correction based on a confluence of high probability targets married to harmonic patterns that have characterized previous impulses, if we compare the 500-percent initial Primary Degree move gold made in the 70's to the triple it just put in against a two-thirds retrace to what would be proportional today, not surprisingly 50-percent is the measure. In terms of the bull move thus far then, this brings us back into the $500 area as the most likely price target from this perspective, with the exact measure being $492, and potentially lasting in the neighborhood of a year and a half total in terms of a proportional time measure, as well. What's more, you can't help but like the logic associated with this target given 50-percent retracements have been a signatured feature of the entire move from 2001. Knowing this, where it appears patience may prove a valuable commodity in short supply these days if more recent sentiment readings in the gold market are any indication, all we need to do now is wait and see if Mr. Market has this in mind as well. In this respect, some will say that in the full scheme of things it matters little whether one buys gold closer to current proximities, or whether the large round number at $500 will come into play. Of course it's always nice to know the probabilities associated with these possibilities when making such decisions, which we at Treasure Chests continue to monitor for our subscribers ongoing. If this is the kind of service you are looking for, we invite you to visit our site and discover more about how an enlightened approach to market analysis and investing could potentially aid you in protecting your finances and family life into the future. And of course if you have any questions or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters. Good investing all. Captain Hook Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. 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