Monday, January 16, 2012

Gold Update - Topping Before Next Leg Down

Click on Chart to Enlarge

Gold appears to be in the process of topping on a counter trend rally at this point.  The daily stochastic is overbought.  And price has slightly exceeded a swing high from the downtrend which can be a stop running point and possibly lead to a breakout failure at that swing high.

Unless the high at point "B" is exceeded by the next blue vertical line in mid March, the trend remains down.  A break of the December low would be a likely continuation point and possibly lead to a large gap down and continuation move to the downside.  What would that move look like?  Use the Sept 2011 decline off the high as an approximation.  "A" waves are typically dramatic - sharp price moves but short lived.  The next move down will probably be like that.

The CoT data is locked in a bear market pattern with no sign of any type of bottom being made here.  Silver is in a very similar position to gold.  The same comments apply.

The pattern looks like completed "flat" pattern down from the highs, with the current move likely being an intervening "x" move, before another larger downside pattern unfolds.

As a side note, the CoT data is suggestive that oil has likely made a counter trend rally high.  Entry for short oil trades could be made ASAP or wait for a break of the December low as confirmation.  The target would be for a move below the Oct low at a minimum. 

As an additional side note, part of my bias in expecting a failed breakout in stocks here is that the real money CoT data in the commodity markets at large suggests a continuing deflationary theme.

1 comment: