GOLD - Is A sharp C-wave Drop Imminent?
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I have not been happy about the pattern that has been forming in gold since it plunged rather rudely and sharply around the end of February. The concern that was engendered by that plunge and the accompanying momentum breakdown, which we can see on gold’s latest 8-month chart below, were allayed by its managing to stabilize above its parabolic uptrend line and then rise off it. However, the rally this month has been hesitant and unconvincing, and it is now becoming clearer that it may be a B-wave bear Flag to be followed by a C-wave breakdown through the parabolic uptrend support line that would lead to a sharp drop probably towards or to the support shown in the $1240 area, where it would stabilize before later reversing to the upside again. If this is the scenario that is set to unfold, it is likely to happen soon, as the bear Flag looks about complete.
Obviously a near-term $70 or so drop by gold will inflict some pretty heavy damage on many PM stocks. We therefore require a strategy or strategies to deal with it. Basically the choice is to set close stops that take you out of most PM sector investments if gold breaches the parabolic uptrend, or alternatively, if you want to stay long, the losses can be cancelled out by hedging using Puts, using perhaps a mix of Puts in gold proxy GLD and in the gold miners 3Xleveraged bull ETF, NUGT, where it should be noted that spreads are considerably wider than with GLD, and there are other possibilities. If you get taken out of your positions due to such a drop, you then aim to buy them back at a better price as gold arrives at the support shown on our chart. Note that what is set out here overrides most comments made on individual stocks, which is because they are like sheep and tend to all move together during bigger sector moves. Finally, if you agree with what is set out here, you don’t need to wait to take this evasive action, and sell at lower prices by being taken out by stops, and also pay higher prices for Puts, you can take evasive action immediately. The scenario set out here would only start to be negated by a gold breakout above the top line of its bear Flag.
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
