Thursday, May 5, 2011

NEARING THE BUY ZONE

Gold is on day 4 of the decline into it's daily cycle low. On average gold puts in a cycle trough about every 20-30 days. This one has stretched slightly long, no doubt driven by QE2. As a matter of fact almost all cycles have been stretched the last two years by the Fed's printing activities. Consequently all markets have been swinging wildly between bullish and bearish extremes.

Think of it as a rubber band. The further you stretch it the harder it snaps back once the pressure is released. Gold and especially silver were stretched extremely tight during the last couple of months. Now that the profit taking event is here it is understandably severe simply because the upside was so powerful.


However QE hasn't ended. So once the correction runs it's course we should see another massive swing to the upside, again driven by free money and the extremes to which gold moves to the downside. The further the correction goes the more powerful the rebound will be once selling pressure exhausts.


It will also be driven by the many investors and traders that got thrown from the bull during the correction chasing as the metals surge higher out of the cycle bottom.


I've noted in the subscriber reports that gold will usually reach certain short term oversold conditions at daily cycle bottoms. We are now getting close to those conditions with this mornings move.


As you can see a daily cycle correction will almost always drive the 5 day RSI into oversold levels before bottoming. We also usually see a tag or penetration of the lower Bollinger band at daily cycle lows. As I write gold is about $1499/$1500. The lower Bollinger band will rise to about $1490 today.


Someone trying to pick a bottom should be fairly close if they buy on a touch of the lower Bollinger band.

Stocks and oil are also moving down into daily cycle lows. Oil especially is very deep in it's cycle and due for a bottom soon. I would guess it will bottom within a day either way of gold. Oil is slightly ahead of gold and has already moved to short term oversold levels deep enough to form a cycle bottom. I doubt it will drop too much further than $105 and I certainly think buyers will step in at $100.


There is a possibility that gold, stocks and oil will all form a bottom sometime tomorrow on the May jobs report. If the report is weak (which is a strong possibility) we could see a gap down open. If the gap is recovered by the close and especially if the market can close positive we will probably have our cycle low in place.

We would then need to see a swing low on Monday to get the first confirmation that the correction has run it's course.

29 comments:

  1. It's prolly gonna be a few days; the price is still well above the 50 dma.
    But, you are right... the spring is compressing for a big boinnngggg upward. And the closer to the 50 dma we get, the bigger the advance will be :-).

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  2. What's your take on silver lows? Parallel to gold..

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  3. Margin selling...selling stampede.

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  4. It just goes to show how much speculative buying is involved in PM's and oil.
    Especially silver. Just pure speculation that drove price parabolic and now silver is falling of a cliff as expected.
    Toby, i don't see any buyers stepping in on 100$ oil.

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  5. Are we nearer the buy zone now?

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  6. Brian, thanks for the laff!!! We all need it now, lol.

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  7. I am going to say what we are all thinking...gary is wrong!

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  8. Wrong about the bull market? Not a chance.

    Missed the opportunity to convert silver to gold? Guilty.

    With the benefit of hindsight I should have just went ahead and sold into the big gap down last Monday but I generally don't sell into those kind of gaps. That hesitation cost dearly.

    The lesson if there is one is that turning points are probably going to occur premarket for the remainder of the bull and one will have to be willing to buy or sell into gaps when it's time to enter or exit.

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  9. Here we are with this stupid HUI merry go round ass kicking machine. You wait.... Gold'll be at 10000 and the hedge funds'll still be batting the HUI like a pinball between 5 and 6 hundred!!! Mining shares are turning into a joke. Gary, I think that a lot of bulls and pundits here have unrealistic expectations of the shares. Clearly, it appears that physical gold and silver are investments, whereas the mining shares seem like trading vehicles. Do you think this will EVER change? I mean this is getting ridiculous. The other side of the coin says that when every last bull is exhausted from this nonsense, and the longer that process takes, the higher the shares will eventually go (as many "experts" would say). What say you on this? The mining shares are more oversold than I've ever seen, except for 2008 which is why I'm concerned. The shares still want absolutely nothing to do with this. What's your first instinct on this? I will look forward to your response as always.

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  10. gary - are you still thinking that silver could go to $65 or 70 after this much deeper correction than previously predicted? (if in fact, we are still in the C wave, and not the D wave)

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  11. I will answer that question in the weekend report.

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  12. Looking forward to weekend report. How do you go from the all but guarantee on the C wave to looking to short silver? Somehow your strong, sure, convincing post of "get ready for blast off" needed to be softened. Words
    like "maybe", "perhaps"," I am(Gary) confused" rather than "95% certain", "last chance to get in on the wave"...talk about a wee bit too much ego. Shame on me for needing to learn again how easy it is to lose money despite drum beating and the expert's certainty. Beware of certainty in stocks. Just another illusion.
    Would really like to hear an honest self assesment from Gary about the limitations of his system and his need to own his limitations.

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  13. The simple fact is that I was ready to convert all silver holdings to gold last Monday. Unfortunately silver gapped down $3 on the open. I couldn't bring myself to sell into a $3 gap. Now with the benefit of hindsight I think any of us would think $3 was a gift.

    I certainly didn't have any idea we would see that kind of damage done in one week. No one else did either. If i had any inkling that silver would lose 25% in a week AI would have taken the $3 loss gladly.

    Sometimes the market just catches you. This was one of those times. If it wasn't for the correction starting premarket I would be sitting in gold with almost all gains intact.

    Unfortunately whats done is done so now we just have to pick ourselves up and get back to making money. There will be several more C-waves before this is over and a bubble phase at the end.

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  15. I'm a big believer on the gold story and will continue to be for as long as the U.S. continues with it's monetary policy. However after seing what happened last week I'm scared. Not scared from doubts in the gold story, but doubts in how far the market manipulation will go.

    If the COMEX and CFTC can raise premiums on futures contracts whenever they want they will continue to fuck guys like us. Nobody finds it odd that Soros pulled out of SLV at $48 just hours before the COMEX started manipulating the market? It’s pretty obvious that somebody tipped him off…afterall he is the #1 donator to Obama. The way I see it the Gov't, the Fed and the Indexes will do whatever it takes to prove Keynesian Economics is the solution, how are we supposed to follow logic?

    Is this going to be the start of an era where all the speculators try to outdo each other in timing when the next big COMEX intervention is going to manipulate prices?

    Is this why Bernanke has no worries about commodities rising…claiming they're "transient" when we have 9% unemployment and a deficit we’ll never pay off on? It’s no secret that the Gov’t does not want Americans investing in gold…the only outcome of every American investing in gold would be currency collapse and a default on our debt. For as long as our markets aren’t free this serious rigging will continue. I read that the COMEX did this same exact shit in the 1980's when Silver ran up.
    Does anybody think that if gold were to go parabolic the Indexes wouldn’t intervene with the end result of eliminating 4 years of gains?
    I'm not running from precious metals anytime soon but I have extreme pessimism at the moment.
    Maybe I’m being naïve and not seeing how guys like us can defend against this?

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  16. Gary or Toby, whatever, you have been wrong before,you are wrong now but so were or are all of us. You don't have to be bothered with it and all defensive about it.
    You offer different perspective and i appreciate that.

    Anyway, it's quite obvious now that PM stocks are complete and utter waste of time and money.
    They behave just like regular stocks and the problem i see is that people who invest in general stock market DONT invest in PM stocks, and on the other hand people who invest in gold and silver DONT invest in any stocks, including PM stocks. I know i don't.PM's at this moment in time are all about buying physical metal and nobody wants any part of Fraud Street including shares of PM companies.
    At least, that's how i see it.
    Cheers

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  17. JPD,
    I can guarantee that the government doesn't care the least little bit whether or not you buy gold or silver.

    If you remember we severed the gold standard back in the 70's. Governments are now free to print as much money as they please. They made gold irrelevant when Nixon closed the gold window.

    Hell if they didn't want anyone to own gold & silver then why in the hell are they minting gold and silver Eagles.

    Seriously you have to quit reading the GATA nonsense and just listen to your own commonsense.

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  19. No one can be always right about the market. Markets are things supposed to be elusive. I still appreciate all the useful insights provided by Gary. His predictions are still the most accurate I have seen so far. If you followed him earlier, you only lost some profits, but did not lose any money.

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  20. Gary,

    I agree that the Govt doesn't directly care if we own gold per se...although I'm skeptical, if not for anything else other than tax purposes...they're certainly not gonna reward those who made huge profits on PM by not investing in the false "recovery". But they certainly care about the price of oil and agriculture...isn't easy money Kenesyian policies driving them up as well as gold? Didn't the silver market manipulation last week drive down the price of all commodities?

    Anyway, I bought back some slv at $34.50 on Friday...we'll see what happens.

    Can somebody tell me why the COMEX changed the rules on silver contracts 3 times last week in the middle of the game? And why did Soros get out of slv at the most opportune time?

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  21. Gary,

    I agree that the Govt doesn't directly care if we own gold per se...although I'm skeptical, if not for anything else other than tax purposes...they're certainly not gonna reward those who made huge profits on PM by not investing in the false "recovery". But they certainly care about the price of oil and agriculture...isn't easy money Kenesyian policies driving them up as well as gold? Didn't the silver market manipulation last week drive down the price of all commodities?

    Anyway, I bought back some slv at $34.50 on Friday...we'll see what happens.

    Can somebody tell me why the COMEX changed the rules on silver contracts 3 times last week in the middle of the game? And why did Soros get out of slv at the most opportune time?

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  22. What drove commodities down was the rally in the dollar.

    Silver was in a parabolic rally and at extreme risk of a profit taking event. Now maybe the margin hikes exacerbated the move or sped it up but they didn't cause it.

    Margin hikes are completely normal whenever a commodity becomes extremely volatile. They are done to keep people from blowing out their accounts.

    After what happened last week it's apparent they should have been raised much earlier.

    George Soro's just exited a trade that he thought was overvalued and at risk of an extreme correction. I was prepared to do the same thing. I just waited one day too long and then got caught in the $3 gap down on Monday morning.

    In hindsight I should have gone ahead and sold into that gap but at the time I couldn't bring myself to do it. I thought the correction would be much milder than it turned out to be.

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  23. Did the USD really rally, or did the EUO just take a dive?

    The magnitude of USD rally didn't seem to justify the size of the commodity correction....isn't that bullish for a good bounce!

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  24. I suspect commodities are sniffing out that the three year cycle low is being formed in the dollar. Not to mention oil is 60+ days into it's intermediate cycle that rarely lasts more than 60 days trough to trough. And gold is 36 days into it's daily cycle that rarely last more than 25.

    Both of those had gotten very stretched and were at great risk of a profit taking event. The dollar rally exacerbated it.

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  25. Gary,

    Makes a lot of sense...thanks for the technical analysis.

    Do you think a further dollar rally will bring silver below its $33 support level or has it been beaten up enough?

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  26. JPD,
    In the weekend report I went over what I think the most likely scenario is.

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  27. Clark,
    I don't really have much of a suggestion for you. The only way I am willing to play the downside is with options so I know exactly what my risk is and have a large enough profit potential to make it worth taking the trade.

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  28. Fiat silver is a game for traders who can regularly pull the trigger without emotion. There is no evidence that there is physical supply for cover for the big shorts. The fundamentals of the metal appear to remain unchanged.

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