Loading ...As far as how I have been viewing the market in general, despite all the postings of the COT report being bearish and the technical indicators being overbought, this is what I wrote to my members last week to prepare them for the impending rally I was seeing:
As gold approached its highs of the past 3 years during this week, I am now hearing about how the RSI is hitting overbought levels, how the COT is suggestively bearish due to the commercial’s short positions, etc. But, very few understand these points within the appropriate context.
You see, if the market is indeed still within a bearish posture, then overbought indicators are indicative of the market preparing to turn down again. And, if the market had rallied in a 3-wave fashion, then I would clearly be viewing this overbought indication as significant.
However, when the market turns towards its bullish inclinations, as it has potentially done with a 5-wave rally off the May lows, simply reaching a level in an indicator which has been viewed as an “overbought” reading is not bearish. Rather, these indicators will embed during a strong bullish move (most specifically a 3rd wave). This often fools everyone who is reading the indicator in the same way during a bullish trend as they do within a bearish trend. The same applies to the COT. We have seen many instances where the market has entered very long periods of extreme bullish action against the positioning of the commercial traders. So, again, I would not view this as dispositive of the nature of the market.
Rather, the one focus which is the common denominator of truth in the market is price. And, as I said this past week, once GLD breaks out over 127.25, we have to be on high alert that a 3rd wave parabolic rally can take hold at any time, similar to what was seen in early 2016.
In looking at the SPDR Gold Trust (GLD) chart, this is what I am now seeing. With the breakout we have seen this past week, we now have a clear path directly to the $137/$138 region next. But, as you know, there are always going to be obstacles in the way. That is why, as prudent traders, we are always concerned about risk management.
While many deride my use of “alternative counts,” it is what keeps me on the correct side of the market the great majority of the time. If a primary count should fail, then I will know early enough to be able to adjust. So, I am always considering alternative perspectives as to where I may be wrong in my primary expectation, while continuing to follow my primary count. This is one of the ways in which I practice risk management.
There are quite a few miner charts that suggest this rally will take shape as a diagonal. So, I have to at least be concerned about the potential that GLD can morph into a similar pattern, while still remaining bullish in the bigger perspective. But, as long as it holds over the $129-$130 support region on all pullbacks from this point forth, it can accelerate to the $137/$138 region next.
Please note that a sharp break down below that support is unlikely to change its bullish overall larger degree nature; instead, it simply suggests that the pattern can morph into a diagonal. While I am not going to go into the difference this makes to the smaller degree perspective, I will say this: Should it morph, it will be more choppy over the coming weeks/months, as compared with a straight parabolic move higher followed by high-level and shallow consolidations, which I would normally prefer.
But I want to warn you that this market has surprised many investors and traders with this move up. In fact, many were even caught shorting for many reasons, as they did not see the impending rally as we did early on. And this market does not often allow a gentleman’s entry.
So, while some have stopped out on their short trades and are expecting the market to pull back so they can get an entry on the long side, experience has taught me that this can be a cruel market with regard to letting people on the train once it has left the station. While their analysis failed to recognize the rally setup before it began, they are now relying upon luck to provide them an entry opportunity, as they are now hoping for a pullback