Issue #29
Dear Member,
Yesterday’s trade saw gold and silver turn back down, with ProShares Ultra Gold (UGL) and Market Vectors Junior Gold Miners ETF (GDXJ) both hitting the new stops I recommended in yesterday morning’s issue ― stops I had recommended raising in expectation of a market reversal.
The stops worked their magic, and you should be out of those two trades, with gains of as much as 19.7% in GDXJ and 4.8% in UGL.
Importantly, many of you have asked what to do if an open trade is below my new recommended stop when you go to revise the stop per my recommendation.
It’s simple: Whenever a security I have recommended moves quickly and trades below my stop point — and you have not had the time to enter the new stop, for whatever reason — then just sell your position at the market.
That said, let’s move on to gold and silver and what they are doing right now. As expected, gold hit its resistance level at the $1,378 to $1,385 area and was repelled by it and heavy selling. Silver hit resistance in the mid-$23 level.
It’s too soon to say for sure if the rally has lost steam, but preliminary indications tell me the metals may be topping now, under the influence of the more important intermediate-term daily cycles which show a move back down heading into September.
For one thing, gold and silver are a bit overbought now, in terms of relative strength.
For another, the chart pattern on gold is not all that constructive. As you can see here, this rally brought gold right up to the major resistance level at the top of the channel. That resistance level repelled gold yesterday morning.
In other words, gold did not have enough strength to break down that door and move even higher.
It may still do that, but with important cycles pointing down into September, gold is running out of time. If it’s going to break through that resistance level, it must do so almost immediately, or it will begin to fail.
Looking again at that chart, you will notice two dashed downward sloped red arrows. The first one would be gold’s path if it does not break above resistance in the next couple of days.
The second one would be if gold were to breakout and move a bit higher, it would then find major system resistance on my models at the $1,420 and $1,433 levels — from which it would then turn back DOWN.
So either way, gold is going to soon head back down. The question is merely whether it does so now, or from higher levels.
This is entirely consistent with my models that tell me that gold has not yet bottomed. The picture for silver is very similar.
So what course of action do we take now for trading purposes? We wait and see whether gold can muster enough strength to close above that breakout resistance level on the chart. If so, I will recommend taking a long position targeting the $1,420 to $1,433 level to take profits and then reverse to a bearish position.
On the other hand, if gold does not breakout above that resistance area in the next few days, I will look to have you get short via inverse ETFs, almost immediately.
In other words, we have to watch the action carefully here. We will know soon enough which path gold and silver will take, and I won’t hesitate to act on it. But to put a trade on here, when both metals are in no-man’s land, would be the worst thing you could do.
What about mining shares? They have had quite a run-up recently so they too need to do some backing and filling on the charts. I see no new trades there just yet either.
Stay tuned though, new trades could come at any time.
Best wishes,
Larry
