August 27, 2018
For those that follow me regularly, you will know that I have been tracking a set-up for the SPDR Gold Trust ETF (NYSEARCA: GLD), which I analyze as a proxy for the gold market. I also believe that gold can outperform the general equity market once we confirm a long-term break out has begun.
Since it seems that some of you have been confused by what my perspective for 2018 has been when it comes to GLD, I would like to take a moment to outline it again so we can all be clear:
As far as my expectation for the metals, when we came into 2018, I was quite bullish the metals as they had a strong 1-2, i-ii set up to the upside. I have noted many times that if a chart that presents a long-term bullish perspective, such as metals, provides a shorter-term bullish potential set up, I will always defer to that set up as my primary expectation. That is what I did with the metals coming into 2018. But, I provided a clear guide that this will remain a strong perspective only if GLD remains over 119. I noted quite clearly that if GLD were to drop below 119, it would make me question that immediate perspective.
Moreover, when GLD then broke below 117.40, I said many times that this immediate bullish set up will now take months to resurrect. I also noted that I thought the 113 region would likely be tested, and if broken, would suggest that GLD would not bottom until we reached the 105-109 region. Thus far, this seems to be what is playing out.
And, as I said last weekend:
As the market has certainly followed through to the downside as outlined above, the potential for seeing that 105 region has increased. But, first, I want to see the market bounce back up towards the 115-116 region. While I am also tracking the potential that we struck a bottom to gold this past week in the overnight market, I don’t see that as the higher probability at this time. Rather, the market will have to prove that to me with an impulsive structure through the 116.50 region. So, I will be watching the next rally quite closely for the structure it develops up to the 115-116 region resistance. Should it be clearly corrective, then I will be looking down for a fifth wave drop to the 109 region, with the potential for an overly emotional reaction as deep as the 105 region.
In the seven years since I have been writing publicly, anyone who has closely followed me knows that I am neither bull nor bear. Rather, I simply follow what the market is telling me. So, when I turned bearish on metals in late 2011, many thought me to be wrong, or simply crazy. And, when I turned strongly bullish again at the end of 2015, many thought me to be wrong, with fewer people thinking I was crazy.
Now, when I was very bullish coming into 2018, many seemed to be quite happy about that. But, they seemed to have retained that view of me all the way down, rather than listening to the me or the market. You see, once the market breaks a support, one has to recognize that something has changed, and you must change your perspective along with it. And, when the market broke 117.40, I changed my perspective, wherein I looked for a drop down to the 113 region, and potentially even as deep as the 105-109 region. Yet, many viewed me still as being bullish in the smaller time frame all the way down.
This brings me to yet another point about market analysis and trading/investing. You must know and understand the time frames with which you are dealing. For example, while I was still “bullish” based upon the much larger degree perspectives, my shorter to intermediate term perspectives certainly changed when we broke 117.40. And, the closer we get to our lower targets, the more you will see me turn towards the bullish side of the market again, just as I did towards the end of 2015.
Remember, markets are non-linear environments, and one has to align their thinking with such an environment. So, I sincerely hope this assists those who read my analysis in understanding how to view the perspectives I present in my write ups.
This past week, one of my members noted a comment made by a well followed market pundit. The comment reiterated a sentiment that seems to be making the rounds regarding gold. It seems that the reason that gold has been dropping precipitously is because millennials don’t care about gold. Rather, according the common theme today, the millennials are more interested in novel investments like cryptocurrencies, which is what has been driving demand away from precious metals.
I have one question for all of those who believe in this ridiculous perspective: Have you looked at the two charts lately?
Gold has been dropping since April and the crypto-currencies have been dropping since January. This is one of those occasions where my third-grade teacher’s wisdom rings true once again: put brain in gear before engaging mouth. This is one of the problems I have with this type of analysis. People say things that may sound good to the masses, but that simply does not make it true.
So, allow me to present an alternative perspective which actually aligns itself with price trends. If the assumption is that the millennials are willing to pay more for something that is rising, which has taken money away from gold which has been declining, then it is quite obvious what that something is: alcohol. After reading this article in Fortune, it became abundantly clear that it was not the buying of crypto-currencies that has caused gold to drop, but the fact that millennials are paying more to get their buzz. This reason at least aligns well with the two price trends and certainly makes a lot more sense than the reasons espoused by the pundits above.
As far as the GLD is concerned, as long as we remain below the 115/116 region and do not see an impulsive structure breaking out through that resistance, I am looking for a lower low before a long term bottom is struck. Moreover, that low can even be as deep as the 105 region, wherein we have an a=c target for this larger degree 2nd wave we have been mired within for the last 2 years. And, should we be able to see a strong break out in the coming two weeks through the 116.50 level, then it opens the door to gold having bottomed. But, unfortunately, there are still a number of miners that will likely take a bit longer until they complete their pullback.
The fact that the market has dropped as deeply as it has can either be a point of frustration for you, or a huge opportunity. Much depends on how you control your emotions and view the market. But, I would strongly suggest you view this larger degree pullback as an opportunity to own assets in this complex at prices you may not again see in your lifetime.
See charts illustrating the wave counts on the GLD, GDX, YI, NEM & ABX.