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Gold spent most of the winter of 2010 trading in a narrowing sideways range. Looking at the (GLD) ETF, the range is slightly uptrending due to higher lows, making it somewhat of an "ascending triangle" formation. This type of pattern of decreasing volatility (also can be seen in the Band Width Indicator at the bottom of the below chart), will eventually lead to a big breakout.
The direction of the breakout? Signs point to an bullish upside move, but it's not certain. Daily Percent R has mostly stayed above the 50 mid-level and GLD is trading above its uptrending 20 and 40 day Exponential Moving Averages (purple and red trendlines at top). But, MACD and DMI aren't showing much sings of strength, in my view.
Targets for GLD should the breakout occur soon? Upside, 145 looks a likely target, downside, 120 should be strong support. Advanced option traders who want to bank on a volatility expansion could consider buying GLD option volatility here with it priced around 18%.
The gold bull has been moving in very reliable Elliott Wave and Fibonacci patterns for many years now, but once in awhile the waters get a little murky for sure. Recently we have seen a fair amount of volatility near year end as position squaring and year end machinations take hold. With that said, it does appear that Gold should be poised to power higher near term, and I’m looking for a completion to a 5 wave rally that began from about $1,040 per ounce in February of this year.
Over the past several weeks, I see a clear Fibonacci trading day relationship on Gold’s swings from pivot highs to pivot lows. 8 days of correction, 13 days of rally, 8 days of correction is the recent pattern over the past 5 weeks or so. Below is a chart outlining these crowd behavioral based patterns that I rely on for both my trading service and market forecasting services. You can see the clear relationships, confirmed by the stochastics indicators at the tops and bottoms as well:
Based on the recent patterns, I believe we completed a minor wave 3 from the February bottom at $1424 a little over 5 weeks ago, and had a shallow period of 8 days to complete a wave 4 to $1,330. Now, we are in the final 5th wave up pattern to complete an entire 5 wave move from February of 2010. In the near term then, I’m expecting a pretty strong rally from this recent $1365 area to at least $1,480 per ounce, and eventually a good shot at completing the structure at $1525 ranges. Short term, we should begin a wave 3 up here, followed by a 4th wave correction, and then a final and terminal 5th wave. Below is a multi- month weekly chart view of where I see us heading and where we’ve been.
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The past week has been interesting to say the least. Gold is trying to find support while the SP500 grinds its way higher. Let’s jump into the charts and analysis to get better feel for what I feel is happening here.
Gold 4 Hour Chart
As you can see from the chart below gold has formed a possible double top. The fact that it made a higher high is actually a bearish sign for the intermediate term 1-3 weeks. When we see a higher high getting sold into with big volume it typically means the big money is unloading large positions into the surge of breakout traders and short covering that occurs when a new high is reached. Following the big money is very important to keep an eye on as it can warn us of possible trend changes before it occurs.
The current selling volume is not exactly a healthy sign if you are looking for higher prices in the near term. If this pattern breaks down I would expect $1340 to be reached very quickly.
Keep in mind gold it in a strong up trend still. Shorting is not the best play in my opinion. I prefer to see pullback which washes the market of weak positions then jump on the long side for another bounce/rally.
SP500 Market Internal Strength – 10min, 3 days chart
I watch these charts to get a feel for the overall market strength on a short term basis. The top chart shows the SPY etf breaking above a resistance trend line on Friday afternoon. This occurred on light volume meaning it is mostly likely a false breakout and Monday we could see a gap lower at the open or a pop & drop. The two other indicators are reaching an extreme level which normally tells us a pullback is due in the next 24-48 hours of trading. The question is, will us just be a bull market pause or will we get a decent pullback.
The red indicator in the top chart and the red indicator levels on the charts below that help us time the market as to when profits should be taken or to tighten our stops if we have any long positions.
The broad market is still in a very strong uptrend so moving stops up and buying on oversold dips is the way to play it.
Weekend Market Analysis Conclusion:
In short, both gold and the stock market are in a bull market (uptrend). Trying to pick a top to short the market is not a good idea. Instead I am looking for an extreme oversold condition to help reduce downside risk before taking a long position.
The overall strength of the market (SP500 and Gold) I think are starting to weaken but in no way am I going to short them. We continue to buy dips until proven wrong because indicators can stay in the extreme overbought levels for a long period of time. Generally the biggest moves happen in the last 10-20% of the trend.
When we think of Elliot Wave patterns, we think of one market analyst. David Banister of The Market Trend Forecast.Com. We can't think of anyone who has called the moves better in this market in 2010 then Banister. And as we move to critical resistance levels in this rally it's time to check in with him and see how much room is left in this bull run. Here is his most recent article from Monday evening December 6th.......
The Elliott Wave patterns that I use to forecast movements ahead of time in the SP 500 and Gold for my subscribers have been textbook perfect for quite some time. We can go back to the March 2009 lows and clearly identify 5 waves up to the 13 month initial rally high in April of this year. This was followed by a clear ABC wave 2 pattern to the 1010 lows on July 1st. Right now, the SP 500 is in wave 5 up since July 1st, and that means this is a terminal wave underway before a good sized correction ensues.
Investors should expect the SP 500 to rally up to 1285 as a minimal upside target, with the market likely peaking in the Mid January 2011 period prior to a new correction pattern. That correction will take the markets down to the 1150-1180 ranges more than likely from the January highs and knock the sentiment levels back to bearish before the next big advance. Below is where I see the current wave patterns, and as you can see, this is the 5th and final wave stage of the advance. Ride it up, but lighten up as we approach my figures is my advice. Subscribers to my TMTF service have been riding this stage of the bull long since early July, and we keep them updated every week on the action.
Gold has also completed it’s 4th wave corrective pattern at $1331 per ounce recently, and as I have forecasted recently should continue it’s upward trajectory to about $1480-$1525 before a good sized correction will ensue. Gold bottomed this summer in a classic wave 2 correction at $1155 per ounce, which was a 50% Fibonacci re-tracement of the rally up to $1225 from $1040. My objectives are for this pattern to complete around the same time as the SP 500 peak in Mid January as well. Downside objectives from there are likely to be to the $1310 per ounce range from the $1480-$1525 peaks, but more on that as we approach. I do not like to get too far ahead of myself in my projections, taking it one leg and pivot at a time.
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David Banister of Market Trends.Com has been hitting gold spot on. And we are lucky enough to get another guest post from him. Let's see what David is thinking about the possibility that gold will head to 1480-1525 before a major correction......
Gold has been consolidating other than a spike to an intermediate wave 3 top of $1424, for about 7 weeks or so now. It’s typical to see Fibonacci periods of time as part of consolidations whether it be an individual stock or a precious metal in this case. Gold was overbought at the $1425 pivot highs a few weeks ago, and that terminated what I label a “wave 3″ pattern. This led us into a 4th wave corrective pattern which we remain in now. My worst case pivot low is expected at $1,321 and so far we have seen $1,331 an ounce and then an ensuing bounce to $1370 ranges.
In the intermediate term then, I’m looking for further consolidation likely for another week or so followed by a breakout over $1425 leading to my objectives of $1480-$1525 to complete the entire rally from the $1040 lows in February of this year. Many are starting to get bearish on Gold and Silver up here, and to me that is bullish and indicative of “4th wave mentality”. In a 4th wave, there is growing bearish sentiment, but not so much as to topple the bull structure.
To wit, last week in my ATP service I recommended a brand new Core Position in a Gold,Silver stock and it rallied as much as 40% intra-week at it’s highs. We are in a super bull market for Gold stocks as I outlined in August of 2009, and we have another four years left to go. I’m seeing alot of amazing chart patterns in the Junior space that are in relentless climbs. Owning the the explorers that are finding the Gold is how best to take advantage of the remaining four years. At ATP, we are exposed to Rare Earths, Silver, Gold, and Oil and Gas related plays in our Core Positions. Make sure you own hard assets and precious metals resources one way or another. My silver forecast in late August was basically predicated on the small investor swarming into the Silver market to buy up coins, look for that to continue and Silver to be over $30 in the not too distant future.
Below is my updated Gold forecast using a weekly chart, remember to Keep it Simple!
