Gold in a free fall
This week's special report may help answer many of the emails I received these past few days regarding the sell off in the gold sector. Many were caught and totally surprised by the plunge, after all, September is supposed to be seasonally favorable to gold.
From one of our subscribers. "Jack, I really appreciate your constant updates.... especially during turbulent times like now. I would be remiss if I didn't congratulate you on your timely warning that the last few days could be similar to the period of April 04. Sure enough, you called that one just perfect. (Besides your $80 call on oil and the May top in gold). Talk about credibility!
Keep up the excellent work....
and if you have time in one of your gold updates, could you tell
us what followed the plunge of 4/14/2004? Just curious."
So, why was April 2004 relevant to the current free fall in gold and gold stocks? Lets recap...
April 2004 - we had a buy signal in mid March and what appeared to be a breakout in early April, but was soon followed by a sell signal. Sentiment was extremely bullish at the time as the 2003 awesome rally was still fresh on everyone's mind.
Sep 8/2006 - we have a sell signal on 9/08 after what appeared to be a breakout also. Sentiment is also extremely bullish as the one year awesome rally from May 2005 to May 2006 is still fresh on everyone's mind.
Both of these false breakouts are what I call "failed recovery peaks", and they are the most dangerous situations in the financial markets as fakeouts are often followed by breakdowns. Another infamous "failed recovery peak" occurred in September (yes, September) 2000 in the Nasdaq.
So, is there life after a free fall? Certainly. We always get a buy signal once the plunge is over. The question is, will this be a major buying opportunity, or just a short term trading entry? If you listen to the gold bugs, every sell off is a buying opportunity, because gold can only go up in the long term, right? Personally, having lived thru a few bull and bear cycles, I do not make such an assumption anymore. I wait for the signals, buy and sell on set ups, and manage risk. I'll suffer a few whipsaws during a sideways market, taking small losses, and hitch a ride once a trend is established, and that is our bread and butter.
$XAU currently - is on a sell signal since 9/08. Traders should be short or in cash. Buyers must wait until we have a buy signal and a low risk set up, do not try to guess when it bottoms.
End of report