GOLD CRASH OR LIFT OFF?
It is hard to find something that gets more favorable bias from the media than our beloved President, but there is one place still left to go.... GOLD. Can anyone remember or cite an example of some flat belly telling us to sell our GOLD? It is always buy buy buy and then buy more. Is this good advice right now?
Keep in mind one of the old adages is never listen to a man's opinion when his income depends on it. So it is with this market. The people presenting themselves as experts are affiliated with companies that sell Gold to you. Might there be a conflict or interest? Of course. I also love the spin in the reporting each day when it drops $20 is the the fault of Apple stock declining and people having to sell gold to cover margins ( my all time favorite idiotic excuse ). That is labeled a small decline. A rally of $10 is a huge rally, yet half of the amount labeled a small decline. Just keep this bias in mind. It is no different than anything else in life. When everyone agrees on something name one example where everyone got rich? Since most of the world is not rich it is generally not wise to do what everyone else is doing financially. It is wise to be with the trends in the middle but dangerous to be with them at the end and unfortunately that is when most people feel it is finally "safe" to wade into something.
My big picture bias is down in this market and has been for a couple of years. I do not trade off that bias, it has nothing to do with determining trades, but I wanted to state that just for the record. I am not a Gold bug. I am also not biased against Gold either. I just look at it like any other market, that is all it is to me. It will not make me rich or poor, it will not become the standard by which money is measured. It is just a commodity to trade. Commodities have a historical tendency to mean revert and it is more than a tendency. It occurs 100% of the time. In spite of all the brain surgeons with these new ideas of why it is different this time and why it will not ever revert and will soar to the moon, I see no evidence of that likelihood. They could be right you never know but I base all of my views on what has happened historically not what could happen for the first time ever. With that having been stated, let's look at how things look right now.
The chart shows strong Commercial buying along with a large Small Speculator short position. By COT rules this is a buy setup. It is also happening at a level that is clearly trying to be defended by the big players, this matters. We see this from time to time, the Commercials trying to defend a level that for whatever their reasons are is important to them. They are doing this now. What generally happens in these cases is a bounce occurs, but here is a chart of a similar situation where they tried to defend a level and that level broke.
The Yen above is an even more extreme example of the Commercials trying to hold a level. If you look at the level of the line on the chart you can see below that the Commercials had gone well beyond the level of net longs they had and the Small Specs well below the recent short levels. Clearly there was an effort being made to hold this level. When it broke you see what happened, the Yen fell off a cliff. This is why I have been saying I think this current level for Gold is so important. If we do break it I think we will see this same type of price movement. I cannot tell you what the probabilities are of a hold versus a break through of this level. What I can tell you is that fundamentally the COT data at this moment is bullish. The price action is not. If you are a Gold bug every dip is a buy so you certainly should be looking to the long side. It might not be a bad play to get long and just have a stop below this level for your exit and see if it holds. Often trading is about probing spots where you think movement will take place from. I follow rules in my trading just because I feel out of place just randomly buying and selling on intuitions.
I do not have any signals either way on the daily chart right at this exact moment. We did have a buy in this market in our Swing signals this past week that was basically a scratch making only a few hundred dollars. It initially moved up for us but then came back down. That pattern is now no longer setup.
In the basic rules of technical analysis they teach that triple tops and bottoms typically don't hold on the 4th attempt. I think this is true but have never specifically studied it. I just don't find many 4 point highs or lows when I peruse charts. What I am hoping for is for us to move sideways to up over the next couple of weeks setting up a short that could be a humdinger if the lows break. One thing I am sure of in this market is that the exits are going to be incredibly crowded when the break down happens. People have been lulled into thinking this can not do anything but rise and they are going to find out at some point, this market can go up or down just like anything else. As Dr. Evil would say, it will "be quite breath taking."