Thursday, July 1, 2010

Looks like gold IS dropping like a rock as predicted, meaning trend reversal underway

A couple or so days ago, I posted the warning that gold was "heavy in a wedgie" and could drop like a rock. Well, ta-da! Andre Gratian had been warning that it was working on a 5th wave peak. Take all that, coupled with the negative divergence and how the indicators look now (including the DMI-ADX, trust me that's a bearish reading!), and we can confidently say that a trend reversal is underway. Question is, just how bad is this for gold bulls? It's easy to say, "holy carp" (that's an unhappy looking gold carp at upper left, LOL) this trend reversal is a BIG one. Because if you know Elliott Wave theory, you know that an ending diagonal triangle occurs when the 5th wave is probably also topping off a larger-level wave. Bottom line: This is a very bearish trend reversal that's really just beginning (just "confirming" for all those swing traders that look for confirmation entries).

This places gold into the "downtrending category" for quite a while - it will be not just days, but probably weeks if not months. What does it mean for other markets? Well, it might be bullish for equities, some believe, on the theory that money will come out of gold and into stocks. Personally, I'm not willing to commit to that theory, I'll prefer to analyze the stock indices on their own merits. There's a possibility that this will be bearish for equities too.

As for price targets - well, it's easy to think that GLD 114 to 115 may be a temporary objective - before or after it gets there, it may well want to re-test that broken channel trendline. Given this is a trend reversal pattern, though, I'll be looking for GLD under 107 again. Eventually we will want to look at the size of the wave that's finished its 5th-of-a-5th wave to develop more precise targets ... but I'm expecting those will be lower than most gold investors currently imagine. A re-test of the 681 level is not out of the question.

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