Friday, October 22, 2010

BOTTOM IN SIGHT

Trying to pick a bottom in the gold correction at this point is probably a low probability strategy. The simple fact is that until gold forms a swing low there is no possibility of a bottom. So someone trying to jump in front of the correction might as well wait at least until a swing forms.

Ultimately though we need the value investors to step in to the gold market. Of course its tough to guess ahead of time at exactly what level we are going to get enough value money come into the sector to halt the correction.

I do have a couple of ideas of where that's likely to happen, being somewhat of a value investor myself.

The first level that should start to bring in big money is the psychological $1300 level. That level may or may not bring in enough money to halt the decline. We will only know after the fact of course. But if one wanted to try and pick a bottom that would be the first level to make an initial purchase.

A much safer bet in my opinion would be if gold can correct enough to test the $1265 breakout level. I expect enough value money will enter the gold market at that level that's it's unlikely gold will decline significantly below that point.


We have a bit of a dilemma right now. Similar to what happened back in January. Gold has begun to correct but the stock market is still resisting. As soon as the stock market rolls over into it's daily or intermediate cycle decline it's going to put added pressure on the gold correction. So trying to prematurely jump into the gold market here is risky (in so much as one will probably experience a drawdown. Of course being a bull market any timing error will eventually be corrected).

In a perfect world the dollar rally will strengthen and test 80 and in the process force the stock market to correct and gold to drop down to test the $1265 breakout. That's the point where I would advise investors to step back into the market heavily. I expect you will have a lot of company at that point and your chances of a significant drawdown will be drastically reduced.

31 comments:

  1. Hi Toby

    Does this week-end G20 Meeting mess all this!!!! Since they are going to talk about currencies strategy, it may change the trend of the Dollar next week. Don´t you think so?

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  2. I would be nice if the G-20 meeting would inspire the dollar to accerlerate it's counter trend rally and pop up to 80 by next week.

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  3. Toby,
    Cant the dollar correction just go sideways instead of your target of 80? It could show weakness on the bounce due to QE2. In a sideways move , the 'oversold' indicators could be relieved too, such as the slow stochastics and RSI readings already are. Is there a reason in your CYCLE method of training that a swing high cannot form here now or in 5 more days of continued sideways action?

    thx

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  4. Certianly it could. That's the 100,000 dollar question right now. Will the counter trend rally pick up steam or will the threat of QE kneecap the rally.

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  5. I think we have the bottom already in Gold at 1316.It will be very interesting if we get 1265 . The entire world is waiting for this test,so in my opinion we have a very quiet bottom and next week trend will be up.

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  6. Yes Ivan I think you could be right but this is very optimistic. There's a bullish elliot wave pattern out there that says it rallies a little more here.... Then another sell off.... Then back up and away. I just feel that if we can make it thru November without a major scathing or anything crazy happening that we're going to be at 1500 at the end of the year. It also seemed like there was quite a bit of support for the HUI right around the low 490 range and at that level I just think it's a huge bargain. Toby what are our chances here for the lows to be in here? Like one in ten, one in a hundred,.... (just don't say one in a million ok!). Sounds silly and all just in jest here so whatever you figure would be great. One last thing that may be on our side is that things looked aweful bearish there for a few moments which may be an indication of a low. Support's sure around and gold looks punchy which I like to see as I refresh the screen for the ten millionth time!

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  7. It will depend on what happens at the G-20 meeting this weekend. If the dollar starts to sink on Sunday night then the odds are good the dollar cycle is going to fail and gold has bottomed.

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  8. I've thought it through and I think that it's fairly simple really. If we get strong deflationary force or a dollar rally, bonds should rally as well. This will reinforce the ZIRP environment and gold gets some support there. This dynamic weakens the effect the dollar's impact until the market eventually goes back into risk on mode which is driving the hard assets rally. My big concern lately though is this new unknown variable lurking regarding this mortgage log jam fiasco. I mean we're talking about any mortgage from 1980 onward here being roped into this securitization scam. Even if you own your home outright, it doesn't matter! This kind of thing could be the catalyst to kick off the kind of panic selling that hit in 2008. But it could be brushed under the table too. I'm more sold on Martin Armstrong's theory that if massive deflation happened, there's no chance in hell America pays back the debt and this would cause a flight to gold because of default risk. However, if the planners inflate as they have been, which some say is their only choice, then there is a theoretical "kick the can" chance that debt could be paid in devalued peso amero bancor dollar credits (or something silly like that). So I guess I just can't come to any other conclusion that dollar devaluation will continue. I just can't stop reading my father's scary tales from EWI! I hope that stuff stays in the fiction section but an occasional read can spook the heck outta ya when you're a gold bug!

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  9. I very seriously doubt gold will fall to $1300, much less $1265.

    I very much hope gold does fall to $1265 however, as I have been waiting for the wise moment to convert a fair chunk of fiat toilet-paper for gold. Whenever I accumulate more than 10% of my wealth in dollars, I look for a smart place to buy gold and reset my dollar holdings to 2% again, which is where I want to keep it.

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  10. I'm afraid you may be right. Giethner clearly doesn't consider QE as currency manipulation so they are going to continue to print. I'm expecting the dollar to fall Monday which should form a swing low on the gold chart and that should signal the bottom of the daily cycle correction.

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  11. So Toby, dollar´s rebound till 80 is only a dream...... According to your expectation, investors on Monday should enter long on Gold...

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  12. If gold forms a swing low on Monday the odds will be good that the daily cycle has bottomed.

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  13. Ha ha Max you sound like me.... When silver started breaking out here I started cleaning out every last bit of monopoly money that I could. I've almost doubled my position and I feel the same way in that I only want to hold the bare minimum amount of monopoly money for transactions here in this phony world the puppet masters have so generously provided for us. What amazes me is how far away the general public is from this realization. I guess they just love distractions. I'm just concerned about what happens when and if they all get it. When a gallon of gas is ten monopoly credits maybe they'll understand that they shouldn't be so aloof.

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  14. Well Toby.... Here we are Sunday night and gold is rallying with the dollar down a bit as you suggested. Think we can relax and just watch some football here tonight or should we set the alarm for 4 in the morning and get the Tums ready?

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  15. Hello Toby...

    I'm confused. Who's writing these blogs, you or Gary? You both have the same blog entries (gold scents and smart money tracker).

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  16. Haven't you figured out by now that Gary and toby are the same person :)

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  18. So if I'm in Hawii in Dec and I am looking for a happy trader at the bar, do I call out Gary, Toby, Or just "has anyone seen a Gold Bull run by here?" LOL

    Gold is up and $$ down, but I always wait to see the 8:30 and 9:oo a.m. trading when it opens in the U.S. sometimes it changes, but it looks like we may get the nxt leg up from here.

    TOby, when do you offer a discount again, and why not try a 1/2 yr special. I would jump on that bait, but a year from now is a bit extended and left translated for me :)

    keep up the good work

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  19. I still believe dollar hasn't said the last word. We might hear from him sooner than you think

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  20. Eri.... You aren't reading those scary tales from the land of EWI, are you?

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  21. Au contraire, Noah.I think EWI is crap.
    I am reading it from my own charts.
    I have been wrong before, but i also have been right before.
    I am sure all of you have had pretty much similar experience with being wrong and right before,LOL.
    But if everybody and their sister are saying that dollar is going straight to hell, than it's only appropriate to have a contrarian view and load up on dollar.
    Crowd is always wrong

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  22. Sorry about misspelling the word "wright". Now i have to go and check if i also misspelled my charts,LOL

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  23. The thing is most of the time the crowd is right. It's only at extremes that the crowd is wrong. And I've seen the fundamentals push extremes to amazing levels before the turn comes.

    Case in point. By June of last year bearish sentiment had reached extreme levels on the dollar. Using contrary sentiment one would expect a trend change. However the dollar continued to drop for 6 more months before finally putting in a yearly cycle low.

    I've found that extreme sentiment still doesn't negate cycle timing bands. The current timing band for the yearly cycle low in the dollar doesn't bottom until late November. So I think it's unlikely we will get a significant trend change in the dollar until that time even though sentiment is getting bearish.

    BTW it's no where near as bearish now as it was in June of 09 and at that popint like I said there was still 6 months of declines to go before a bottom.

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  24. I can agree with you but you have to know that crowd's sentiment has already been priced in in market price. Such a rapid fall of the dollar of 15% in less than 2 months is just plain ridiculous and a result of the market inefficience where crowd always moves to extremes both upwards and downwards.
    You are correct when you say that extreme sentiments can go on for much longer than most people think. But i still believe that dollar will reach 80 in this leg

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  25. I also don't know *"%" about cycles and find that topic very interesting and i thank you for showing us some stuff.
    Only thing that you have to take in equation is amount of manipulation going on in both stock and currency markets. I don't have a slightest doubt in my mind that they can affect cycles in any way they wish to, like they can crush dollar or gold for that matter. It would only take couple of carefully chosen sentences from FED or ECB to bring gold down to 1000$ in a 2 days time. Only thing is that in this point in time it's in their interest to bring the currencies down.

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  26. Many people like to believe that there is some all powerful force out there that is controlling the global financial markets and if they can just figure out their motives they will have found the holy grail of investing.

    The truth is the financial markets are way too big for anyone to control. Sure they can be mnipulated for a day or two. The fed can print several trillion dollars and possibly keep a trend going a little longer than it would normally but no one will be able to alter the secular trends and any attempt to do so will ultimately just cause the real move to be even larger than it would have been otherwise.

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  27. Don't kid yourself nothing the fed says or does would bring gold down to $1000 short of another credit market implosion.

    $1000 gold is history. We are never going to see that again for the duration of the secular bull market. We may never see that again ...ever.

    We never saw $200 gold again after the last gold bull expired in 1980.

    There is way too much demand in the gold market for gold to get anywhere close to $1000. At this point I'm not even confident we will see $1300 again during this bull.

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  28. When i see words like "never", "never-ever" i become even more cautious. This kind of sentiment is exactly the sentiment that can cause massive losses. And this kind of sentiment is ever so obvious among gold bugs, my friends included, who all think that gold can't possibly go down.
    That's why everybody is buying gold at the moment "because it's the best investment right now and it can't possibly go down considering events around the world". I have bought dollar in the last couple of days "because dollar is worthless piece of **** and it's the worst investment one can ever make" or so is the concensus

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  29. I would point out that that consensus has been exactly right for almost 10 years now :)

    Until the fundamentals change (the Fed quits printing) holding dollars, other than for short periods of time, will be a losing proposition.

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  30. Toby, i am talking short term about both dollar and gold. I don't hold anything for longer than a month.
    Except i 've once had a girlfriend for almost three months,LOL

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