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  • Gold for Bears: Long term 6 comments
    May 23, 2010 10:23 AM | about stocks: GOLD, GLD, SLV

    Gold has been in bull market for 9 years. And now it makes sense to short gold. The following technical analysis is dedicated to all the gold bears out there (i know we are not many).I also expect our community to grow in the near future. I estimate the bear market in gold to last until 2014. Check out these few points and i hope it will help in your trading.

    On 30 year channel of gold prices we can see a large diagonal channel divided in 2 subchannels.
    30 year gold channel
    In the past its boundaries were clearly marked by extensive trading, so there is no doubt these price levels have deep meaning for the market. This is why we are projecting a next parallel channel to find out next support/resistance levels. We can see that gold has set as a goal a maximum resistance at $1,800 , the top of the next channel. Note that 1066 was a key level, and the break above it opened a possibility for higher prices. At this time, and looking at this (monthly) chart gold is unquestionably bullish. It has all the technicals set up perfectly to go higher. So, i think, this is also a perfect time for the bears to consider market reversal.
    These are few technical reasons for this:

    1. The weekly.Gold Weekly
    On the weekly , the last week, we had a decisive close after another attempt to break resistance. We also have potential Head & Shoulders formation and a rising wedge (using closing prices). Yet it is still within the range, so caution should be taken for possible reversal and break above 1250. There are no sell signal yet here, it is only a "proposal".

    2. The monthly
    Gold Monthly
    On the monthly chart gold is more bearish than on the weekly. It made a well formed rising wedge. Rising wedge is typically a bearish pattern, but not necessarily they always resolve down immediately. Sometimes they can do a false break upwards and then prices fall. On this chart we are also seeing a potential Head & Shoulders formation yet to be completed. The neckline at 700 is a strong support area. On the break below 1066 this Head & Shoulders outlook will be confirmed. If confirmed, i am expecting a strong selling towards $700 area, where median channel line will prevent any further downside, and a new wave of correction should start towards test of 1000. By the end of 2012 i expect gold to make another top where a much strong selling wave will force all the gold bugs capitulate on all of their long positions initiated back in 2004-2005.

    3. Gold/Dow Ratio: a tricky numbers game

    Many gold bugs are expecting the DOW to crash badly and gold rise so DOW/GOLD ratio will drop to 1 or 2 and they then will sell their gold booking unbelievable profits. On the price level their prediction is something like:

      2,000 (NYSE:DOW) / 2,000 (NASDAQ:GOLD) = 1 (DOW/GOLD)
      5,000 (DOW) / 2,500 (GOLD) = 2 (DOW/GOLD)

    However, market can surprise gold bugs with a price at $750.00 with DOW/GOLD ratio = 2 Here is how it could happen, if both drop incrementally:
    Dow/Gold Ratio Trick
    At the end, you have 2 on DOW/GOLD ratio and gold at $750.00 , 40% down from current level.(this is not my projection it is just an example)

    The ultimate bottom projection
    Ultimate bottom for gold
    I know gold bugs are waiting for the repeat of 1980s. Well, the indicators on the monthly chart advance poorly. Check out the area of 1980s, do you see impulsive upside? Now check today. The impulse is weak. The RSI indicator, which means Relative Strength Index, is flashing overbought, it is in divergence with the price. It literally tells you that the moves lack strength. If gold's target is meant to be 2500 or higher, i would expect those readings readings to be much higher. My ultimate low for gold is $320, being the lowest boundary of the 30-year channel. Gold bugs say it is not possible. To do not restart this endless debate between bull and bear we are not going to get into fundamental stuff, mining costs or demand. Right now this is how it looks like to me, but it is a very long time perspective and many things can change. However what i want to point out is that 1066 support level is very important. It is like the 'sky' and 'ground' for gold right now. If it drops below that, it means all the run gold did from 2002 was a pure speculative play and now all those folks who bought this 'inflation' & 'money printing' game are going to pay for the remaining housing bubbles.

      - Put a non-aggressive short now or pick a higher price next week, i still expect a pull up to 1200-1208, probably on Thursday we will make the high for next week. (Stop above 1250)
      - On break below 1066 short aggressively. (i mean, closing price, not intraday, around 1030 or lower means break was successful) Move stops at 1085. Don't exit until 700.


    - There is still a possibility for the rising wedge to resolve up and cancel this bear outlook. This is how it may take place. False breakoutIf it happens, you can "safely" short at 1450 since it is a median line of the next parallel channel and chances that it will pull back to 1066 quickly are very high. One way or the other, these are two good selling trades, imho. Good luck.

    Disclosure: short SIN0

    Disclosure: Sort SIN0
    Stocks: GOLD, GLD, SLV
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Comments (6)
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  • Pompano Frog
    , contributor
    Comments (2033) | Send Message
    Wow. Very impressive. One of the best pieces on SA. I am a retired securties analyst and if you look at my prior comments I try to point out to readers of SA that gold is similar to previous commodity moves..


    Those moves eventually were brought under control because the spread between the selling price and the cost of production and development of new capacity became too large. Gold is already selling at a price sufficiently above the costs of new mines that every gold stock is bringing on one new mine a year.


    They have been through this before and that is the only reason they don't attack the issue even more aggressively. If you have a price decline in gold this new production will continue to flow as long as gold is over $450. It could get very messy.


    For some currencies to become weak you have other currencies which must strengthen. After seeing your charts I think I understand the position Paulson has taken.
    27 May 2010, 10:18 AM Reply Like
    , contributor
    Comments (664) | Send Message
    Author’s reply » thanks, when i read your first line i thought it was a gold bug sarcasm, this is the only thing i receive as comments. But yes, one thing many folks don't realize is that trading stocks is not the same as trading commodities. In stocks you have very trendy moves, little volatility (i mean historically, in 2007 this has changed towards more volatility, but the old pattern should dominate) comparing to commodities. Folks who know the risks call commodity traders as "terminal patients" because the volatility and the ability to leverage kills most of them. And now gold bugs became commodity traders, with no experience, no bases of technical analysis, i don't think this is going to end good.
    I heard on some radio show that a mine in Uzbekistan had their production cost around 175 dollars, but yes, 400 as average gives a lot of margin to drop prices.
    27 May 2010, 11:47 AM Reply Like
  • Vision Capital M.
    , contributor
    Comments (69) | Send Message
    Glad to see someone came to almost the same conclusion as myself although by using slightly different means. The main idea that I put in my last instablog about Gold price is that now Gold is more and more used only for hedging which twists its main service as an investment vehicle. This leads to changes in the correlation between Gold and Dollar which were not seen before. After the need for hedging is gone, all that gold ordinary people (and even institutions) once bought won't be needed anymore.


    Your article is very good by the way.
    Best regards!
    2 Jun 2010, 06:02 AM Reply Like
  • justin_3d
    , contributor
    Comments (313) | Send Message
    This is great men.


    I am also getting bearish on Gold...and just the fact that everyone and their momma want's in, is not good, and usually taken as an indicator that a top is close.


    As of today gold is trying to go back up, but 1,260 is becoming significant. Let's see if it tries to go back up, or fail and come down again, forming that Head and Shoulder you are mentioning.


    Keep me posted with your new views.
    7 Jul 2010, 05:47 PM Reply Like
  • tmosley
    , contributor
    Comments (360) | Send Message
    Hey guys, go all in short. It'll definitely go to $320. Ignore the man behind the curtain printing trillions of dollars. Ignore the fact that central banks worldwide are buying gold. Ignore the fact that a giant market has just opened in China, a historically gold loving society.


    Short based purely on technical analysis. Ignore fundamentals. There's no way you can lose!
    12 Aug 2010, 04:52 PM Reply Like
  • Analyste de Boston
    , contributor
    Comments (1362) | Send Message
    "The neckline at 700 is a strong support area. On the break below 1066 this Head & Shoulders outlook will be confirmed. If confirmed, i am expecting a strong selling towards $700 area"


    He's expecting $700, folks, because it sure looks good on the chart. I'm no gold bug, but honestly, this is typical chartist rubbish.


    1 Oct 2010, 04:52 PM Reply Like
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