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We warned last weekend about a possible over extension of many of the commodities, including precious metals which would lead to a possible reversal. Normally, we take profits when a signal is given, but when presented a number of pieces of evidence that a top is near, coupled with good gains, we may exit a position, set very tight stops or scale out prior to an official signal.
If you check out the current watch list you'll see a number of signals generated, as expected. For illustration purposes we'll examine the pattern generated by GLD:
This week GLD exhibited a bearish dark cloud cover pattern whose definition is the following:
Market goes up with an uptrend. Then we see a strong white candlestick followed by a gap suggesting that bulls retain the control. However, the rally does not continue. Market suddenly closes at or near the lows of the day so the second day body moving well into the prior day’s real body. Longs are shaken somehow and short sellers now have a benchmark to place a stop, which is at the new high of the second day.
Notice GLD declines and hugged the top of the cloud in late april, only to soar once again. The current reversal if it pans out should bring GLD back down to around the 85 level, and possibly closer to 80. The Elliotwave set up see's a much lower level, so we'll pay extra attention if GLD does breach the lower band of the cloud.
SLV has been in a much more bearish disposition, but nevertheless rallied through the cloud since April. Being much more volatile, we could see the first test of resistance just under the 14 level. A break below that sees another downside target just below 12. Again Elliotwave sees this as a much more severe declien potential taking it all the way back to last Octobers low. If SLV breaks below the cloud then we have to give this scenario serious consideration, but we'll be in cash anyway so it will be a wait and see.
On Wednesday we saw a major pullback in the metals. Silver has a 1 dollar intraday reversal which often signifies a trend change. The following day we saw the markets reverse as often they do near tops when buyers attempt to take advantage of lower prices, only to see the gains wiped out the next day. This occurred in almost a textbook fashion.
GDX was also a strong dark cloud cover signal. We're out, but expect the signal to be a full blown sell later this week. There is quite a way down to reach support, with the first zone around 36 followed by a lower boundry just below 30. If the Elliotwave scenario plays out we might see even lower levels.
Once more, almost all of the sell-if signals are medium to high reliability. (silver and DBA is a little weaker). So the chances are high that these signals (with the exception of DBA) may solidify into full blown sell signals this week. The metals are always quick on the decline, so an option is to sell full or partial positions to capture any gains.
The Elliotwave analysis shows this a very possible C wave down, the one they have been expecting. Their target price for gold is 680, and silver around 8.38, around the area of last Octobers low.
We entered DBA last week on official buy signal. Price action was positive for a while but drifted lower to issue a possible sell signal.
Notice how the action stalled right at the lower boundry of the cloud. The cloud wall is thick and offers signficiant resistance. So what we would hope to see is the prices consolodate and stay near current levels so that we enter the cloud, and therefore are at a more neutral stance. DBA hasn't had the massive gains as some of the other ETF's and we do not believe any pullback will be as sharp as some of the other commodities. So patience is key, and if the signal evolves into a sell signal we will exit for the time being. It was also a good idea to enter with a 1/2 a position first in order to watch how the signal evolves, especially when some of the other markets are toppy.
Oil is also poised to take a breather, along with the general stock market. Although, we may see a situation where gold and commodities preclue a general stock market decline. Remember according to elliotwave we are not in the wave C yet (the big one) down. So general market prices may drift higher this summer.
Recall several weeks ago we got multiple sell signals, which were all shrugged off. Many have reappeared in concert again this week. If these signals are confirmed then we should see the official medium term top of the metals and commodities.
FAZ is one ETF we are tracking and has progressivly sunk week after week. This week we got another buy-if signal.
This pattern is a bullish doji-star. Explanation is as follows:
Explanation:
Usually a star that follows a long black candlestick in a downtrend indicates a change in the market environment. Bears were in control during the downtrend but now a change is implied by the appearance of a star that shows that the bulls and the bears are in equilibrium. The downward energy is dissipating. Things are not favorable for continuation of a bear market.
This is a highly speculative ETF that would be under the 'special situations' of our portfolio. Should this signal be confirmed there is a good chance for profit. However if the market rallies again then we may see this signal rejected. However an excellent speculative play should we enter the Wave C delcline on the Elliotwave count.
This is going to be an important week - and we'll have more data as the week unfolds and determines if the signals triggered are confirmed.
