I want to expand on my last post because I finally feel like something clicked with respect to gold and where it’s headed. Let’s review:
-In a post on October 11th, I looked at gold on a daily chart (each candlestick represents one day’s price action). My view was that a cup-and-handle was in play, with the cup spanning from early May to late August. The handle piece was still not confirmed and needed to set up in a hurry in order to be viable. But, if it happened, the overhead resistance level would be $1,420 and projected to somewhere around $1,700.
-Within that post, and acknowledging the possibility that a low was not yet in, I suggested an alternative theory that the cup was really a left shoulder and part of a larger bottoming formation that could span well into 2014. Again, the neckline would be $1,420, but the bottom had yet to be found. Still, borrowing from Jim Rogers and others who think it could go as low as $900 to $1,000, the projected target would be something like $1,800 to $1,900.
-Enter today’s thinking. On an even longer time frame, where we look at price in terms of weeks instead of days, the chart is suggestive of an inverse head-and-shoulders about halfway through, this time with $1,800 as the key level of overhead resistance. But, by virtue of the larger scope, the target would be significantly higher. If the price had found a bottom at roughly $1,200, then the minimum projection would take us to $2,400. But, again, accepting Jim Rogers’ rough forecast and using $1,000 as an eventual trough, the new projected target could be at least $2,600. In this scenario, we are talking about a pattern that is apt to take another 18 to 24 months to resolve.
What am I going to do about it?
-The key is to watch the $1,420 level, which is less than $100 away as I write. A break above and I’m playing a move towards $1,700. And any pullback along the way should produce higher lows and a trend line will inevitably develop that one could to use to trade in and out. Or you might just buy some long-dated out-of-the-money calls with the break of $1,420.
-If the cup-and-handle doesn’t materialize, then we are probably headed lower. Without an instinct to where the fall would stop, $1,000 seems like as good a forecast as any, so I’m buying when we get there. Again, probably some LEAPS and I’m giving myself enough time to let the head on both the weekly and daily charts play out. I’m selling them when we get back above $1,700.
So far, either scenario seems to bring us to the same place as far as selling this initial trade.
-Once we get up to the $1,700 to $1,800 level, a correction of some depth will come as the right shoulder develops. My expectation is that the support will exist between $1,500 and $1,600. And the right shoulder itself should take 9 to 12 months to form, bottoming out somewhere in the middle of that period. And if I’m smart enough to see it, I will again consider adding to physical and LEAP positions at around that level.
-Now it’s time to see the bottoming formation complete itself. And it probably says 2015 on the calendar as that happens. But then the fireworks begin.
(Breathe.)
Obviously, this could all be moot. But, if I’m wrong, it doesn’t really matter yet, because I’m not going to do anything right now. But, if I’m right – and I kind of have to believe that if I’m convinced that the bull market will continue – then all of the above seems reasonable. And, to bring Jim Rogers back to the discussion, a cup-and-handle or an inverse head-and-shoulders, all within an even larger inverse head-and-shoulders, taking place over 3 or 4 years… well, that sure sounds like a “complicated bottoming process”.
