5-15 Can it or Can’t it?

SPX –  They just dont sell it off for long anymore, do they? New highs.

Due to my travel early Tuesday morning, I didn’t think that I would have a report, but a valid topic for conversation came up in the comments section, so why not just throw out a short report to discuss it.

The topic was “Could Gold or GDX actually drop down to the Dec lows ( Prior ICL)?“.  The discussion isn’t “Does it have to?”  or ” Must it drop there?”,  but simply,  is it possible or even likely?  I personally think that it could happen. I have been through MANY MANY ICLs, I choose not to underestimate them. So this isn’t to say that we must see things play out this way, but this adds visuals to what we can look for when the anticipated selling starts.

.

To start with,  The drop into the ICL serves as a way of changing sentiment.  At ICLs, it is almost impossible to feel comfortable buying.  There are rare occasions where they do not drop into a crushing low,  I will discuss that in the future,  but usually they cause the Bulls to hate Miners and lose their bullishness & desire to buy.

.

I could see that another drop now will cause many to see a Head & Shoulders pattern and start to fear buying.

The question raised is,  Does Gold have enough ‘time’ to drop that deep though?  Let’s say we are talking about the next FED MTG in mid June.  That is 1 month away. Is 1 month long enough to drop gold quickly?

This is a chart of Gold in 2006, and the set up was pretty similar. This did drop to the former lows, and it did so in an interesting way…

Notice how rapidly Gold can drop in just 2 or 3 days at the first arrow and the last arrow. Even with a strong rally n the middle, Gold slammed down to prior lows.  Bulls became bearish.  This helps me to visually see that ‘Yes, it is possible for Gold to slam down quickly in just days or especially weeks’. Most of that total drop was 3 days at first and 3 days at the end.

SO THIS IS GOLD NOW – I admit that that would have to be a pretty big drop.

But looking here, we see that we had a wicked sell off last Nov to Dec Fed mtg (blue box). IF I overlay that here it would it would drop from above the April highs to Dec lows.  Does this prove that Gold will tag the Dec lows? No. Does it historically tell us that Gold can sell off like a waterfall and drive everyone out to Dec lows?  It does show us that it ‘could’ happen and it could happen rapidly.

Finally – That sell off last Dec was pretty extreme, so let’s just look at a few other milder sell offs on a weekly scale too. Take any of those 3-4 week slam downs into ICL and lay it at out current dcl. I want you to notice that each red box was also a ‘shake out’ slightly below prior lows.  This removes bullish sentiment.  Please read the chart.

May the above visual aides help you to see how things could unfold.

.

So my point in this lesson is simply a visual aide when discussing sell offs to an intermediate cycle low.   I personally like to be aware and alert to all of the possibilities, and I do look  into MANY things whenever the ICL timing approaches.  I share these things with you to help all of the readers to have an advantage in the tough sell offs.  Visual aides can be helpful when contemplating our expectations.  The above charts are like that old saying,  “Seeing is believing”.

Sidenote: We also know that Silver & Miners can fall very sharply, deeper and faster than Gold. This actually looks like a drop into an ICL in Silver already. I am wondering if most of the selling in Silver is finished and maybe it will bottom out and consolidate for a month as Gold drops?  A slight break of recent lows could act as a stop run.  Time will tell. Silver went from New highs in April to Dec lows in May. I would love to see it do a stop run and then hold up and base out like AG has  ( See the next chart).

I’d love to see Silver start doing this.  I think that this chart of First Majestic is shaping up very nicely.

I would also take into consideration GG, ABX, & NEM and look at their charts to see whether they could get to the Dec lows for GDX.  Those charts do look as though they possibly could tag Dec lows.

.

Enjoy your Tuesday trading!

~ALEX