Am I just a Golden Fool or is this a top?
Gold is exploding this morning continuing its upward trend. This does not change the fact that it is setup for a decline. Being setup for a decline is different from a sell at the market call. We will have to see when the COT report comes out if this is the small specs again, but I suspect that it is. As you can see from the seasonal, mid month is about when the seasonal high kicks in, so this is par for the course here so far.
I have labeled a 5 point megaphone pattern that is in effect now which is a trap pattern I have written about previously that has been around for a long time. I did not create it, just learned of it. What is required for a short entry is a close below the prior bars low, so if that were to occur tomorrow, it would be a sell by this patterns rules.
Silver is a much weaker market by price pattern, and why I did the short trade I posted there this past month that worked out so well. That is also where I will be going to short this when I take another swing at it.
There is one possibility I can see for this market to really take off here and I will state that now. Rarely but occasionally, commercials ramp up the hedging they do like they are in this market by building a huge short position. They try and contain price will all their might. However, at some point they wind up losing more in this hedge than they can afford, so they capitulate, and give in. When this happens they go in and buy covering all of their shorts which causes a monster spike upward, that is quickly reversed. This is kind of like a rocket booster firing, it creates huge momentum for a burst, then fizzles out and a roll over of epic proportions happens. This is what occured in Natural Gas last year. It is very rare, but has happened a few times over the years so something that could happen here.
This is why it is very important to have entry and exit techniques that are sound. Just because we have this wonderfully setup market, it does not mean you just go out and short it, there must be some shorter term patterns to support the entry. Fundamentals are hard to time, you just have to watch them and be aware of them. The Gold bugs have completely different logic for their bullish view than this, it is not based on commercial positions but more on a gloom and doom economic view. They could be right, I am just a dumb trader.
If you think about it, so far my call for this market to top has been wrong, although I have said that this is a zone, not given an exact day for a top. However, I have made quite a bit of money on the short side in Silver over the last few weeks, while the market has basically gone sideways. This is what trading is all about.