GLD: I Don't Think We Break Down... Yet
Sep. 28, 2014 3:13 AM ET
Summary
- There is much "hope" in the metals market.
- Most need to get "real" about how the metals market moves.
- Upcoming week's expectations.
With the double bottom being seen in gold last year, most of the metals world believed in the birth of the new bull. And, many are still holding onto those hopes.
But, as Ben Franklin once said, "he that lives on hope will die fasting." And, unfortunately, I believe that maintaining such hope will only lead to more pain in the coming months. Yet, for those willing and able to endure such pain, there should be a reprieve in 2015.
But, what is amazing to me is the levels to which "investors" are willing to go in order to convince themselves that they are right about the metals market. Let's be honest, folks. If the metals go up, most people simply "know" that is what they are supposed to be doing. Most don't see this market as a two way market. That lack of understanding is abundantly clear from the comments I get on a weekly basis.
In fact, the most common perspective I see is that if the metals are not going up, then they are simply being manipulated to go down. But, there is no one that exerts that much control on this market, even though some people believe there is in their hearts of hearts. Furthermore, the market moves based upon sentiment patterns so clearly most of the time, that it is very hard for me to believe that someone is controlling it to look like a natural sentiment pattern.
But, at least from my perspective, it seems that those who scream and complain about manipulation the most are those that have been on the wrong side of this market for the last 3 years. Just ask yourself "if the market was going up, would you be considering it was manipulated?" This is where you test your intellectual honesty about this market.
In fact, is there a single market on the face of this earth that does not go up and down? Corrections are a natural event within markets. But, for some reason, people in the metals world do not seem to believe in the fact that the metals can correct.
The fact is that markets move in two directions. And when someone is caught on the wrong side of a market, it is difficult for their ego to accept they are wrong, especially if they are an analyst with a following. And, we see this most in the metals world. So, if the market is going down rather than the direction that everyone "knows it should be going," then claiming it is being manipulated is much easier than admitting that fundamentals led us astray, or that they were simply wrong. Claiming that it is being manipulated is the easy way out, and the manner in which many can save face, while holding losing positions that they "know is right."
I have said this before and it still amazes me. But, this is the only market I have ever seen wherein an investor can take a 65% loss in their position (those holding silver since the market highs), and yet staunchly claim they are still 100% correct.
Now, I can understand the perspective of those that buy metals and simply hold it as insurance against financial collapse. For them, the metals are not viewed as an investment, but rather as insurance. And, I believe that everyone should have some amount of physical metals in their portfolio for this reason alone. But, please do recognize that owning it for insurance purposes is very different than owning it for investment purposes.
However, those that own it for insurance purposes are not the ones of whom I speak. Rather, the ones who have been buying for investment purposes seem to turn into the "insurance buyer" when the market goes down, and then claim the market is being manipulated. When the metals are strong, they are screaming it is the best investment in the world. However, when metals go down, they claim it is manipulated to do so, and that the reason one should be owning it now is for insurance purposes. So, are they to be owned for investment purposes, or for insurance purposes? Are they not being manipulated when they go up, and only being manipulated when they go down? In my humble opinion, these folks lack any form of intellectual honestly, and should be summarily ignored.
I believe it is akin to a bully, who acts as such when metals are at their highs, and then when faced with someone who scares him (an "unexpected" market decline), runs behind mommy's skirt (the insurance buyer) and yells "manipulation."
Ultimately, one has to be honest with themselves if they want to make money in this market, assuming you are an investor and not an insurance buyer. So, if you own metals for insurance purposes, then you are happy to be able to buy more insurance at a cheaper price. If you are an investor, learn to accept that markets move up, as well as down, and attempt to find a methodology which can warn you of potential down turns so you can at least hedge your position against 65% losses. I am sorry, but no one should have to endure a 65% turn down in the value of an investment without protecting themselves properly.
As for the near term expectations in GLD, while I could be wrong, the lack of strong downside follow through early this past week tells me that any break down in GLD below 2013 may be delayed until the 1st or 2nd week of October. Based upon the patterns that I am watching, the immediate set up to take us below the 2013 lows this past week did not trigger, which tells me that I believe we will now hold the 115-115.50 region as support, and see a nice bounce in the GLD in the upcoming week or two.
My main resistance region for this bounce is the 119.50-121 region. From this region, I will re-evaluate the market to determine if this is the optimal point to short for a drop to the 105 region, or if the market has designs on targeting, or even breaking over 123 first. A strong break out over 123 will again have me considering the 130-133 region target. But, for now, it has become quite dangerous to short the GLD, as long as we remain about 114.50.
Now, from a broader perspective, many of you have been asking me to "ring the bell" when it is time to start buying heavily into gold. Well, that time will likely begin in mid-October, assuming we do not see a break out before then. The patterns I am watching are at a very important inflection point.
Based upon the greater likelihood at this time - while I am seeing a bounce higher coming in the metals - it seems that this bounce would likely be a shorting opportunity for VERY aggressive traders who know how to use stops appropriately.
I can tell you that those who followed me over the last few months have done very well shorting the metals, despite everyone telling us it was a fools trade from which we would be stopped out quite quickly. However, we have now cashed in a great majority of those shorts for nice profits, and are willing to risk some of those profits for another attempt at a short over the next few weeks in the resistance region cited, based upon how the market moves up into that region. If we see early indications that the region will not hold as resistance, we will clearly not short the market and may even attempt a long trade. But, as I say, that will be a game time decision.
Now, assuming that the resistance region will hold, I am expecting a strong drop into the middle of October that will likely take out the 2013 lows in gold, which confirms that we are on our way to completing this 3+ year correction in 2014. My ideal target for that break down will be the 105 region in the GLD, with the potential to extend beyond that depending on how emotional the longs become when support is taken out. But, the minimum region I would expect to be struck is the 105 region.
And, depending upon what the pattern looks like at that time, it may be the signal that you must engage in long term buying. Yes, I am now signaling that I think you should begin your buying around the mid to late October time frame, assuming we get the break down I am expecting in a few weeks.
Assuming we see that break down, that low in October is only likely to be the first of two lows I am expecting before the market completes this 3+ year correction. I would expect to see a bounce back towards the 114 region from that low, which I would expect to hold as resistance, and then send us back down to make the final lower low in this long term correction. That, my friends, should be the buying opportunity you will not see again for many years to come.
Alternatively, we have to respect any market that is within a larger degree corrective pattern. They can take many twists and turns, which seem "unexpected" to most. However, we need to be prepared for those twists and turns, and be able to recognize when they are about to trigger. So, as I said before, the market is at a very important juncture. It can chose to complete this long term correction with a corrective bounce into the next week or two, which will set up the final lows in 2014.
However, should the market break out over resistance, rather than setting up for the lower lows we will see before this long term correction is over, then we will likely see a rally back to the 130-133 region, which will only then set up the run down to the final lows into 2015.
In summary, we have a very important inflection point before us over the next two weeks which will determine if this correction ends in 2014, or 2015.
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