As sentiment seems to be getting worse and worse for gold, it is hard to find anyone in the mainstream media who is not convinced that gold is definitely going lower. It seems to be the trade about which everyone is so certain. This gets me worried for those short in the market in the near term.
Last week, I noted that a drop below the 138GLD level can set up a bigger decline towards 127 or lower. However, when I review the charts this past week, I have to say that this marginal break of 138 has not completely convinced me that we are going to see the floor fall out below us just yet.
From a technical standpoint, I view the manner in which a support level is broken as much more important than whether or not it has been broken. Therefore, the manner in which we have broken the 138 support level can potentially set up a sling-shot for GLD right back to the 146 region, or even the 148 region. So, although this may not make you too happy, I am going to have revise my support for GLD at this time to the 134.50 region based upon the manner in which the current drop has occurred. And, until we can break that level, I can still see one more potential rally in the metal before the 127 region is attacked again.
As for market sentiment, well, it simply does not get much worse than this. Dennis Gartman has told his subscribers recently to short gold. However, his most recent gold trade has already been stopped out, just before gold had its recent decline. In his most recent interview on CNBC, he explained that the dollar rise is "ridiculously bearish" for gold, and especially miners. But, I am not sure if Mr. Gartman has even reviewed the dollar chart next to the metals chart. The last time the dollar was in this region, GLD was in the 152 region, and the dollar was at much lower levels when GLD saw its most recent decline. How he can correlate this action is really beyond me, and potentially suggests why he may be the most whipsawed analyst in the metals market. But, for those watching closely, he has been one of the best contrarian indicators in the market.
As for the rest of the market, Dave Kranzler published an article on Seeking Alpha recently, wherein he did a nice job in compiling the sentiment numbers across many of those tracking market sentiment. He cites the Market Vane and Hulbert Gold Stock Newsletter Index as two primary sources, which have presented record low levels of bullishness in the market.
Although I do not concur with his ultimate conclusion that "the low" has been seen in gold, sentiment is clearly in the toilet. And, with Mr. Gartman shorting once again, I think it is time we may see a rally that will generate some bullishness in the market, which, in my humble opinion, will set up the rug which will be pulled out from under those who get long and stay long.
Now, from an Elliott Wave perspective, I will tell you that the current pattern in which gold finds itself is a 4th wave, which is the most variable and unpredictable wave within the 5 wave Elliott structure. For that reason, I would not suggest that most trade this region, unless you are an accomplished and experienced trader. However, if such a rally is seen up to the 146/148 region in the GLD, it will most likely be a shorting opportunity for those looking for the next sizeable and low risk trade in GLD.
From my perspective, I am looking for at least one more drop to prior lows, or even lower lows in GLD (123.75-127 region next), and, ideally, even two drops, the second coming after the next drop and larger counter-trend rally. So, we may not see "the low" in the metals for months to come.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in GLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I took profits on my last short on Friday, and will look to re-enter the market.