The golden triangles
My last article "gold stocks are breaking down" has incited a few hate mails from the gold bugs. Some of them wrote to apologize after learning that I've been a gold bull since 2001, and my last sell signal was primarily for hedging since many of our subscribers are holding long term profitable positions. However, despite the rally this week, nothing has changed. The "head & shoulder" topping pattern is still in play and will not be negated until the right shoulder is exceeded. And the good news is, until the neckline is violated, there is a good chance this topping pattern could be negated.
I've been trading the gold sector since 2001, with the first purchase around $275. After reviewing some old data stored in an old disk, I came across the following chart which reminds me of a very significant pattern in the gold sector, something which has helped tremendously during previous corrections.
Gold is a volatile commodity,
and the beauty of this market is that it constantly corrects
and consolidates, and therefore, it is quite normal to drop 10
to 20% very sharply after a rally to new highs, to begin this
self correcting process.
The third triangle dropped
about 10%, but lasted eight months.
How did gold stocks as represented by the $HUI do during these gold corrections?
Correction #1 dropped 30% and
lasted six months.
Correction #3 dropped 30% and
lasted 6 months.
BO #4 cannot occur until current resistance is broken at the minimum. Then the old high near .60 must be exceeded for a legit breakout because BO#3 failed to take out that old high after BO#2. In any event, time is on our side, and for those who watch the markets closely everyday, the next few weeks could seem like eternity as prices will likely remain very volatile within this major correction. Those holding long term positions can continue with the hedging until BO#4. Those in cash remain patient, wait for signals and set ups, and be prepared to be whipsawed a few more times if the signals occur before the major breakout. Conservative folks can simply sit it out until BO#4, you may end up buying higher but it will more than make up for the potential whipsaws short term traders are likely to suffer over the next few weeks.