BOTTOM LINE
28/11:
EW Trend: Up (?)
Price Trend: Up
Trend Strength: Strong
Broker Consensus: n/a
TECHNICAL DISCUSSION
28/11:
VIDEO ANALYSIS (2 mins 49 secs)
LAYMANS: It was discussed in the last review (19/11/07) that Gold usually rallied into the end of the month of November before declining again in early December. This last surge higher probably got the bulls interested again but I feel they're about to be cleaned out over the coming weeks. I would not be surprised to see Gold reverse back toward $750, perhaps lower. The recent advance from September has been nothing of extraordinary, in fact such a parabolic advance has only occurred three times since 1980 and of the first two there was a dramatic selloff; one of 44%, the other of 23%. If we're to see a reversion to the mean in this instance we may see Gold back at $700.
TECHNICAL: How do we measure a parabolic rise compared to a healthy rise? What I did was take the 200 day moving average and plot it against price itself. I then went back to 1980 (the start of my data) to determine what was extreme, i.e. greater than 3-standard deviations from the mean, and what was normal. Normal was a reading of 50 or below. Extreme was a reading of 100 or higher. In 1983 Gold hit an extreme reading of 113. The following few months saw prices drop over $200. In 2006 the reading hit 144 followed by a price collapse of $165. The recent peak was 136. The fall to follow? We'll be seeing soon enough I guess. From an Elliott Wave perspective the corrective movement is also yet to run its course. Yes we had a 3-wave counter trend rally but time wise it was simply not long enough and price wise, not deep enough, to be considered complete. As such the best interpretation is that we've completed a wave-B high and we'll now see a 5-wave impulse down to complete wave-C - maybe as far as $720 being the major support where prices broke out from back in September.
TRADING STRATEGY
28/11:
I'm not suggesting the long bull run in Gold is done. Far from it with the Federal Reserve continuing to cut interest rates. What I am suggesting is that we're more than likely going to see a very healthy corrective movement before prices continue higher again. The obvious ploy here is put options or at least tightening stops on long Gold positions.
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