POT OF GOLD
Is there a pot of gold at the bottom of this rainbow?
I have extended the blue line designating the top of the flag pattern that has developed in the Gold market. If you notice, open interest is rising, and the commercial longs are dropping. What this means is that a higher percentage of long positions are being held by non-commercial buyers.
This is NOT what we want as a fundamental backdrop for a price rally. As I write this it appears that we will have a gap down opening this morning with 615.1 being the last trade. This market on a short term basis may be oversold, but it is not setup to be bought right here.
On the bullish side, the long term trend is still up, and the Commercials Proxy Index is indicating a buying spot coming. Historically, when we have had a 10 day low and a gap down opening, it has been a profitable short term buy. When we wait for this gap down open to rally back to the 10 day low it gapped below, and buy on a stop, the trade gets better. However, it is not a strong enough setup to take just stand alone. It averages about $162/trade.
Again, as I have stated before, if you are long term bullish on GOLD just buying these drops when they occur and walking away is what should be done. As most of you know, I do not share that view.