Yes, yes, I know that most who have been following my articles over the last few months have been prepared to expect this whipsaw action. But, it sure was not any easier to trade, even though you were well warned that it was coming. So, imagine what everyone else must be feeling in the metals world. There is clearly much confusion abound.
So, this past week, again it was Russia, various economic data, the ECB, and who knows what else people come up with as an excuse as to why the metals move. The question one has to ask themselves is if the market moves in the same direction each time when one of these news events occurs. As an example, we have seen the market "supposedly" move up on Russian news, as well as move down on similar news. So, again, if you really believe that these news events will provide you with the direction of gold, then you have not been watching this market very carefully. Rather, you are just buying into what you are fed by the written and television media.
What I have become so saddened by over the last 10 years of my life is the public's belief that if something is in print, then it is correct, or even worth reading. The amount of printed material that lacks intellectual honesty has only grown with the advent of the internet, and so has the public's gullibility. I have met very few in my life who actually maintain a critical prism through which they siphon information before they accept it for truth. So, I implore each of you to judge everything you read with a critical eye, and simply not accept what you are fed as "truth."
For weeks now, I have been suggesting that my ideal set up for those lower lows in GLD would be to first drop to the 121-123 region, and then rally to the 130-133 region before we see the decline to the 95-105 region. This is the whipsaw scenario I have been warning about for the last month, and the market has played out almost to the penny, with the last low bottoming at 123.21.
Now, even though I do not discuss silver here, I have to note that I am unable to ignore the bearish set up in silver at this time. So, while I see the potential for GLD to still target the 130-133.50 region before the bigger decline begins, I am quite concerned that price may fall back down in my face should I attempt to trade for that higher target.
In fact, the latest Commitment of Traders report actually supports the dichotomy between the metals that I am seeing in the charts. Specifically, the commercial traders have added a large net long position this past week in gold, while they also went further net short in silver.
Ultimately, the upcoming week should see a pullback in GLD. The question I will need answered is how that pullback is structured, and what levels it will hold or break. I believe that in both the bullish and bearish situation, we will likely see a move down towards the 124 region. The shape of the structure of that decline will give me more clues as to whether we will ultimately break down strongly below 124, or if it is just setting up the rally we have been expecting for the last month to take us to the 130-133.50 region.
But, in my humble opinion, as long as this market remains below the 133.50 region, I believe that any rally towards that region is simply setting up a short trade to take us down to lower lows. And, it is still within the realm of possibilities that we can break down sooner rather than later. So, while attempting a trade to the 130+ region is something which many traders may entertain over the next week, I want everyone to recognize the risks inherent in such a trade if you chose to take it. And, should anyone attempt that trade, please make sure your stops are set just below the 124 region.
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 GLD puts.