Saturday, January 29, 2011

Long term EW Chart shows a clear bullish reversal in gold



As most of you probably remember; I successfully called the top in gold a few months ago - at about the same time I pinpointed the bottom in the US dollar - and ever since, gold - and oil - have pulled back, but not as fast as I would have expected...

After studying the long term charts; it became clear to me that the most recent top was NOT "the top" in gold, but only the top of wave III in an extended wave 5, in an impulse that began in the year 2000 - about the same time the fed started injecting liquidity into the economy in an attempt to keep it from collapsing outright (a story for another day).

Once gold reaches "the top" it won't pull back in a controlled fashion, but rather it should fall at a rate similar to that of a gold bug, throwing himself from his 14th floor office window. That may sound shocking, but once gold tops it will inevitably correct back to wave 4 levels, somewhere between $125 - $250 per oz, just as the Dow will inevitably retest wave 4 (at or below $DJI 1000). Whether or not the $USD will be destroyed before that time is still debatable.

I'm not a gold bug, nor an advocate of gold ETF's (because gold held in a fund does not offer the same security as a gold coin held in your hand) but as long as the broader market continues to be propped up, and investors remain ignorant of the facts about gold, and greed continues to triumph above reason, I'll keep an open mind; trading whatever moves my account in the right direction, at the greatest velocity. This is going to require searching out the best opportunities in an otherwise sideways market, but I'm already on it, and up to the challenge.

It's a constant struggle not to let your bias get in the way of your trading style; I may be a permabear (for the foreseeable future) but I do know a bottom when I see one, and I know better than to fight a reversal. Fighting the trend - temporarily - is in certain cases a necessary risk when trying to engineer a top/bottom, but fighting a reversal will wipe you out in short order, as the Newbie gold short sellers are about to learn.

I'm afraid the same can't be said for the Market Bulls. The broader market reversal we saw on Friday looks like it was only another controlled/engineered pullback. In a market reversal we would have seen our short positions - in every sector - perform substantially better... tonight I see every last weak handed bullish futures trader being shaken out below SPX 1270, but I suspect futures are being both bought & sold by the Bulls, who intend to cover their shorts just before the open, and then drive the market up into the rest of the week, and beyond. If I'm wrong we'll get short again at the top of wave II, and stay short to 1220, but even after putting my bear face on - over the weekend - I remain skeptical. We saw a similar $COMPQ shakeout at the end Dec of last year, followed by more dirty tricks (a gap up). Money will be put to work tomorrow (mutual fund Monday) and again at the beginning of the month (Tuesday).

The powers that be know they must hold this market up in order to keep hope alive; both to rip off the retail investor, as well as to keep themselves perpetually enriched; but the time is soon coming when all hope will be lost, and the market will be dumped just as it was in 2008. The only difference is the market isn't going to bounce back this time; I predict we won't even see much of a bounce into primary wave 3 now that wave 2 has over-extended. At about the time; when we reach our final target; I may encourage my members to start exiting this market, and start planning for the worst. With any luck we'll be up nicely and able to keep playing with the houses money, but I do not expect that anyone will get paid, after the collapse; first the stock market; then civilization as we know it.

Economic collapse; Social unrest; and the disintegration of world Governments is a trend that most likely does not stop with Tanzania, Lebanon, or Egypt; It's much more likely to lead to WW III, but those who prepare for it, should come out the other side just fine. Food hoarding - by governments - has already begun, and this will inevitably push prices even higher, and when people get hungry they become unruly. I suggest you start shopping now.

I'm always amused by those who say "nobody can time the market":
Anyone who has been watching my charts - located in the public charts area of stockcharts.com (linked) - knew where long term support in gold was, and if you bought it with both hands (as posted in the 10 min chart notes) you're already up nicely; Congrats! All gold investors need to do now is to hold on to those shares with both hands - when the gold bears inevitably push back - and hold to target (raised substantially this weekend). As a trader I prefer to hold into the end of a powerful wave 3, before taking profits, unless wave 2 is obvious. With any luck the ETF market won't melt down (collapse) before gold reaches new highs.
GLD - Daily Candlesticks: "

via StockCharts.com
"

After Friday afternoons back-test; gold is already ready to run again, although OIL looks like it could consolidate a couple bucks, before ripping higher (possibly back to $150).
GLD - 10 min Candlesticks: "

via StockCharts.com
"
The $USO, and "OIL" charts are a tough read, but I've come up with a better alternative, which I'll be posting to the web site in the morning, along with several other relevant non-published charts. Until then instruction sent out with Friday's PM, Elliott Wave Hound alert still stand.

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