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Monday, April 15, 2013

GOLD BUBBLE HAS POPPED NOW WHAT TO DO IF YOU ARE CAUGHT ON THE WRONG SIDE?




Apparently nobody thought my picture of the FCM heads running with bags of money was funny? I guess I have to work on my comedy a bit. As we watch the unwind of what I have been consistently calling the biggest bubble in history if you go back and read all of my posts on this over the last couple of years, the question is what to do if you are caught and getting smoked? My answer will surprise most of you. Today was interesting reading all the takes on what has transpired and one thing came to mind that made me chuckle. There is a line from the newest Bond movie where the Bad Guy who is kind of funny says to Bond, "James all this running a shooting and fighting is just exhausting" as he was getting ready to shoot him. When I read through all the explanations of what happened, I got exhausted. I can't imagine working that hard and creating all these obtuse reasons to explain the obvious. The market was in a down trend and we got an accelerated move in the down trend. That is it, that simple. Big moves most often happen in the direction of the trend. Why get into all this exhausting screaming and fighting over it? Yes there were possibly big orders in to sell, but there always are big orders in the direction of the trend be it up or down.

YOU STICK TO YOUR PLAN

All of the things that surround bubbles and how they get built then ultimately unwound is pretty consistent. This is why I have been very good at spotting these things consistently. One aspect of the process is one that relates to what to do now if you are caught?

If you are convinced that it is a safe haven asset you should not be deterred by this one bit. That is a long term view of things and you should be buying more on these sharp declines if that is your plan. It is not mine and I am in the opposite camp in regards to that as readers know, but if that is your view stick to it. If you have identified a scenario where you are proven wrong if something happens, follow that also. I am addressing this whole notion of Gold being this magical savior in great detail in my Newsletter this month.

What often happens in bubbles is people go in with one objective and get moved by rhetoric and change their plans. I am sure there are some people who initially went in lightly then ultimately bought the story and levered up as prices rose. Now they are getting killed on the add ons and don't know what to do. This is why you always have to have a plan, it really helps during situations like this. Stay committed to it. If you are going to hold this for 10 years no matter what, don't listen to shorter term people. I have been on record as consistently warning this would happen and that was from a longer term stand point, so I have not been caught by surprise. However, if you are someone who has bought the story stick to your plan whatever it is.

I have one long term argument that I am sure bullish people are looking at on the chart above. If you are a wave counter you could certainly claim this as an ABC correction in an uptrend. There is very good symmetry to this which supports the argument. The next step is you place your retracement ratios on the chart and try to pick a point in space to buy. You will see my view on Fibs in my website in a video I have there, however some people live and die by them. To me this price action is more much like a wave 3 than a C wave in Elliott theory, so I would have a 1-2-3 count here which would call for far lower prices. It looks to me like the target on a monthly chart would be 724 at this point.

The main take away from this post is that stick to your plan. If you are a bull act accordingly, if you are a bear act accordingly. No matter what side you are on don't get tied up in all the BS stories on either side trying to explain things. It hardly matters what the explanations are. We are in a down trend now on even the Monthly charts. If you go back far enough you will see where I said when it breaks we will see consecutive $100 down days and that is what we are seeing. When bubbles pop they are great opportunities even though they are hard to time due to the nature of how they are constructed.

I have been saying I am getting a bad feeling about the stock market and we are starting to see the first sign of some real weakness today. For those who read the Newsletter and asked me about the difference in the pattern between the Russell and the ES, you are seeing how well that tool I gave you works. That alone is worth years of the cheap annual fee for these monthly releases. I hope some of you used that to your advantage in your trading. In looking at an ES chart, 1533 is the key short term level that needs to hold. I suspect Ben and company will be buying heavily during the night sessions if we get close to that level to try and hold it above it. If we do get heavy volume they won't be able to hold it up.






You can see in the above ES chart my highlight bars turn back to red if today's low is taken out tomorrow. I would not stress out about what they are you can see they have not been that great recently going back and forth incorrectly. We also are nearing a pretty significant short term pivot area. If we get below that we have the first sign of some further trouble. It is not nearly as significant as the Gold support level I had pointed out at 1530 ish, which was a level that had held for months. This is a very short term point. What I am looking for is a break of this and then a bounce. The Russell as already blown way through there, remember I pointed out how much weaker it was. This is likely where I will sell the bounce.

Stick to your plan regardless of whether or not Bill Gross, Chris Johnston, or Zero Hedge agrees with it. I think I have made my view pretty clear. We are experiencing an enormous melt down so there is going to be a violent snap back here at some point probably soon. If we were to get another big down day that is likely a good profit taking point.

 Man up!


3 comments:

KTMrider said...

Even though we have had a spirited debate on twitter, I really appreciate your perspective on the gold market top. I just wish I followed it with the gold I want to liquidate for personal reasons. I could have made more $$. Anyway I like the your perspective on Gold. especially this article. It solidified my plan on my gold holdings.

Keep up the good works...

Alain said...

GC: my take 1250

PD Quig said...

I admit to finding Fibs pretty useful--especially in the market I trade primarily. I've traded and watched that sucker for years and wouldn't be caught dead picking a profit target without using them. To each their own, however.

If I apply them to Gold I agree with you that this doesn't look like an ABC. It's already blown past the deepest normal retrace for an ABC and is, therefore, more likely to be an impulse down: based on the first move down off the high, the w3 target projected to 1312 and the 50% of the whole wave up = 1322.2. Those two together make a pretty darned good approx of where the down move stopped, no (1321.5)?

If it is an impulse down, a w4 bounce up to horizontal resistance at 1535 would likely, with the w5 downside target projecting to 1168 or so--which is pretty close to the 61.8% retracement.

If I were going to buy Gold on this dip, I'd be waiting for 1175 minimum.