Gold blows through upside resistance - the chase is on
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Last week, I put out an article outlining my expectation for a pullback in GLD before we head to the 200+ region. Within the comments section, I outlined my plan as to how I am going to play for a potential pullback. However, that pullback has not yet materialized.
For those that have followed me closely for years, you know that I have been heavily long physical metals and mining stocks since I started accumulating them again in 2015, after calling the top in 2011.
Moreover, the manner in which I have been playing the market since that time is to hold my long positions, and simply hedge those positions when we approach resistance points which can elicit pullbacks. And, I have outlined to the members of Elliottwavetrader how I use options to hedge my positions at those resistance points.
To date, we have caught just about every pullback over the last 5 years and I have done rather well with those options plays during that time. But, as we have progressed during this rally in the metals, I also warned my members that we would come to a point in time where the market was going to blow through the resistance at which I was attempting to hedge.
This week seems to present me with such a scenario for the first time in 5 years. GLD has now blown through the 179 region, and has made it much more likely that we are on our way towards the 200+ region in a more direct fashion.
Allow me to take a step back and explain my methodology, so you may understand why I hedged where I did.
You see, we utilize a methodology called Fibonacci Pinball within the standard Elliott Wave structure. For those that want to understand a bit more about this, you can read the background of our method in this 6-part EW Intro series I wrote some time ago.
But, the main point is that when the market provides us with a rally towards the .618-.764 extension of a wave 1-2 set up (if you review the materials above, you will better understand this reference), I expect a further i-ii structure to develop before we break out over the .764 extension. That is what occurs in the great majority of circumstances when we track bullish structures.
However, a minority of the times, the market develops as a series of 1’s and 2’s off the lows, and we then see a direct break out through the .764 extension in the heart of a 3rd wave. That seems to have been what we experienced recently in the GLD chart. Unfortunately, this is not something that I am able to foresee all the time. Clearly, I was unable to foresee this potential in GLD most recently.
But, if you noted my positioning in my disclosure, you would know that I have been quite bullish of the market for some time, and have retained my long exposure. But, as I noted, I did attempt to hedge for that potential pullback at resistance. And, the market blew through that resistance.
This now changes the parameters in the near term, but it does not change our expectation of rallying to 200+ in GLD in the coming months. But, it does seem as though many are finally taking note of gold and the chase seems to be on.
Support has now moved up from 161-66 to the 174/76 GLD region, and as long as all pullbacks now hold that support, I expect that we will head to the 190 region next, which will then raise support up to the 179 region, as we then target the 202-207 region next.
Again, for those that have followed me for years, you know that I do not view linear markets from a perspective of certainties. Rather, I approach the market as one should - based upon probabilistic analysis.
Moreover, within our methodology, we have a built-in objective standard which outlines when our primary expectation is wrong, and we are able to switch to our alternative relatively easily. In this case, the market moving through that 179 level has made it much less likely that we see any pullbacks that break below 174/76 upper support. Should we see such a break below that, then I will look at it as an opportunity. However, as it stands now, it is looking much less likely at this point in time.
Lastly, please consider this my last post on metals for quite some time, as I really do not have the time to be writing many articles on a weekly basis anymore. But, I am expecting us to rally over the 200GLD region in the coming months before we see a major bout of weakness in the complex lasting many months.