Issue #86
Dear Member,
A few subscribers have written in upset that I mentioned in my last issue that gold’s recent rally may be indicating a cycle inversion, possibly pushing the final low in the precious metals off to May of this year.
Let me be perfectly clear: I do not control the markets. They have a mind of their own. Cycles sometimes elongate, sometimes they shorten up, and sometimes they invert.
Like you, I don’t want to wait until the next cyclical target for a final low in the precious metals.
But the markets are the markets. They are fluid and dynamic.
Sometimes they give us what we want, and sometimes they don’t.
But no matter what, to trade successfully, you have to accept what the markets give you. We can’t change the markets. We can only listen to what they have to say, and act accordingly.
Thankfully, a cycle inversion is not yet in the cards. Although gold did close above $1,226.70 on Friday basis the nearby February futures contract, silver did not give the equivalent signal as it failed to close above the $20.38 level in the active March silver futures contract.
This means that there is no confirmed signal indicating a
cycle inversion and that a January low is still in the cards.
Moreover, based on everything I am monitoring, it now appears that the recent rally was nothing more than a fake out, as I suggested it may be.
Consider for instance, this simple 180 minute chart of gold that I have for you and a simple Elliott wave count.
The first thing you will notice is that gold remains firmly within the confines of its downtrend channel formed by tying together the lows of November 25 and December 4, and a parallel line from the high of October 30.
That tells you that gold is still in a downtrend, even after last week’s rally.
Next, notice the Elliott pattern of five waves down from the December 12 high. Five waves down tells you the trend is firmly negative.
Now notice last week’s rally. While it was a sharp rally, the action was choppy, creating a series of overlapping waves. By definition, that means the rally was corrective in nature, and NOT the start of a new uptrend.
Based on Elliot wave counts, the next big move in gold should be to the downside, as noted by the dashed red arrow.
Now look at the downward sloped bottom line of the main trend channel. As you can see, support comes into play around the $1,150 to $1,160 level.
Curiously enough, on my proprietary reversal model, the next major support level and sell signal in gold stands at $1,162.20. Should gold close below that level at any time, then gold will fall further, to the next major support level on my systems, which is the $1,045 level.
For this analysis to pan out, gold cannot trade or close above the wave 1 high, which was $1,267.50 on the February NYMEX futures contract. The chart for silver looks similar.
Moreover, based on my reversal models, the prior signals I gave you to indicate that a cycle inversion is underway have now changed. In gold, we would need to see a close above $1,271.70 and in silver, a close above $20.53.
Put another way, volatility is rising, which is just what we want to see before a major move unfolds. In addition, all evidence continues to support a January low, so I have no problem at all with you sticking with your existing positions.
Should the metals move into a January low, it will probably be down around the $1,045 level in gold, and the $16 area in silver. The gains you would experience would be terrific.
Hold all positions and related protective stops. If we get confirmation that the bounce is over, then I would expect that a sharp collapse lies ahead for the metals. I would then opt to get even more aggressive on the downside.
Stay tuned and best wishes,
Larry
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