In the desperate attempt to explain the recent "rally" in gold, the media has now blamed the Iraqi situation for the rise in gold. Since, Crimea has long since been forgotten, is it now time to turn to Iraq? Do we really think it will have any different result?
Let's be honest folks. GLD has rallied almost $4 since the recent lows, whereas the Iraqi issue has come to the forefront only during the last $1 of that rally. So, did Iraq really "cause" this rally? Or is it just another headline which coincides with gold rallying to which the media and other analysts will point to make the public feel better that they think they know the "reason" that the rally occurred? I mean, why not blame it on Cantor's loss as well? Isn't that what they were blaming the stock market decline on before Iraq became the main headline? This just gets more and more ridiculous for those of us who actually use our minds.
I am not sure if you have been following the markets and the news for the last few months. First, Crimea was the "reason" the metals were supposed to rally to soaring heights, as I warned they were topping. But, many were so sure of the continuance of the rising trend at the time, some even called for another 20% rally due to events in the news, specifically Crimea. However, the metals fell nonetheless, and are still much lower than the region from which they dropped.
Then we saw a small pop in price due to the Indian election, and out came the articles claiming that we are about to see a strong rally due to that news event. And, yes, disappointment set in yet again as the metals continued their downward trajectory.
They say that the definition of insanity is doing the same thing over and over, yet expecting a different result. And, based upon this definition, I am fully convinced that most in the metals market are insane.
So, over the last several weeks, while I have been questioning how the next set up to take the market down will play out, as it became a little less clear to me, many are now jumping on board of the Iraqi news, and playing the long side. I am not saying that gold will not rally. I am simply saying to ignore the media "excuses," and just focus on the metal itself.
Now, as I said last weekend, "[o]f course, I do see the potential to rally back to the 126/128 region, or even as high as the 140 region in GLD before heading down to new lower lows." But, I also said that "we have not even taken out the minimal resistance levels for me to even consider that potential."
With the immediate 122 resistance region having been broached in GLD, it has now opened the door to other possibilities. However, over the last several weeks since we began looking for this counter-trend bounce off our prior target of 119, I have noted the following to my subscribers at Elliottwavetrader.net:
As Elliotticians, we know one thing for certain: Impulsive patterns are easier to track than corrective patterns. For the last 3+ years, the metals have been in a corrective pattern, which takes many unexpected twists and turns. We have done quite well in tracking most of the twists and turns during the last 3+ years after exiting the metals at the highs, and that is because we have learned to be prepared for the unexpected.
However, due to the market being in a larger degree corrective pattern, I must be constantly vigilant and not simply assume that we will head down in an impulsive drop to new market lows. That would almost be too easy. And, since the metals move much faster than any other market, we need to be able to make decisions on the fly in a very rapidly moving market. So, we need to be prepared for alternatives before they make themselves known as higher probabilities.
For now, we are approaching the next resistance region just below the 124.30 level. As long as we remain below that region, we can see a strong drop towards the 109 region starting within the next week. But, since we moved through the 122 region, it did open the door to other possibilities as to how we get to those lower lows we expect. I want to continually reiterate that I still do not believe that the metals have made their long term lows just yet. And, even if the market was to move through the 124.30 region, and take us as high as the 140 region, we will still likely be heading down to lower lows in the market. But, such a move higher will simply delay the inevitable.
This week, I have included a chart of the two alternatives which I am tracking over the next week. And, again, as long as we remain below 124.30, I am expecting the next larger leg lower. But, through that region, then I would be looking for the 128-130 region next, and will determine at that time if the triangle count presented on the chart as an alternative is the operative higher probability pattern.
There is one thing I have to point out about this triangle count. It is the most widely viewed count I have seen in the metals. Everyone sees this count as the most "likely" count at this time, and this is why I question it. When most of the market is looking for the metals to rise much higher to complete this widely expected "triangle," it makes me believe we will either come short and crash, as in this wave ii potential we have on the chart right now, or there becomes a strong possibility that we break out of the potential triangle to head to the 140 region before moving down to new lows in the market.
Ultimately, the point I am making is that I do not believe that the bottom to the metals has been seen. Yet, to those attempting to trade this market to the downside, the main impulse pattern I was watching over the last several weeks has now invalidated, which now has us looking at other options as to how we will hit new lows. Always remember that corrective patterns are exceptionally variable, and you must be quite nimble in order to protect profits when trading such a market. So, I am suggesting caution to all those now attempting to trade the short side, as the easy money has now been made from 133 to 119.
For most market participants, it likely means that they want to be on the sidelines over the next week, unless you see an immediate strong break down, at which point you can assume that we are likely heading down to the 103-109 region within the next few weeks, as long as the market does not head back through the high we make before the downside begins. But, until that break down is seen, unless you are a nimble trader and are able to know where to take your low risk shots on the short side, this corrective pattern can still take us as high as the 140 region before taking us much lower.
Disclosure: The author is long SLV. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I also own intermediate term puts on GLD