She’s Breaking Down…How Bad Is It?

We saw GOLD break to new yearly lows yesterday and I read in several different places that people were going short for the drop to below $1000  (Again).  We will discuss why I do not agree that this is the time to be going short.  NATGAS remains interesting and OIL and Energy Stocks continue to have my attention too, so First lets look at a few other charts.

SPX – The markets stalled at the 200sma and a down trend line that I mentioned earlier. We could  drop to the 50sma, but timing wise, we are due to go higher soon.This may be a pause before breaking above that 200sma.

The USD has been strong , but it may be due for a rest.  Yesterday was a short term topping or reversal candle, but it is not  a strongly reliable one. If the dollar is due for a rest,  what might that do for the commodities that are now being heavily shorted? 

WTIC – I expected a small bounce in Oils downtrend and drew this on Nov 13.  This is NOT exactly the path that I think oil will take, it is basically drawn to show that I do not expect oil to drop straight down.

Lets look at OIL in possibly a more accurate sell off.  In the last sell off, notice that OIL struggled , unable to get above the 13sma. You MIGHT see that again.  With a small a-b-c down finished, I expected a bounce in OIL , but notice that those can also just move sideways to that 13sma. I thought that we could bounce to the MAGENTA line when the 13 sma was there,  now we will have to see if OIL can really get that high as time draws the moving averages down. That MAGENTA line could be drawn from Sept lows to Oct lows. We are almost there now.

NATGAS –  I drew this Monday expecting a possible quick drop & reversal.  We may have completed that with yesterdays drop & Reversal.

Midday yesterday I noticed that NATGAS did that drop & reversed higher.  I captured this chart of a perfect back test.  As a day Trader,  this is exactly what I would look for and I’d buy that reversal on the red line with a stop just under  the red line.

As a medium term trader, I would still be in NATGAS.  That would not have shook me out, although I would possibly raise my stops.  It is tough because NATGAS is not rocketing higher,  it is mostly sideways at this point.  Thursdays have been rough on NATGAS at times with the inventory reports.

GOLD SILVER & MINERS

This is the big story.  With Yesterdays break down in Gold  ( breaking the July lows and breaking to new yearly lows),  many have gone short expecting their crash to $1000 to finally come in capitulation fashion.  I believe that this will not crescendo into a crash mode at this point, so I would not recommend going short here.

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2 possible ideas on my mind – we should quickly review both since we cannot tell at this point which one will occur.

I have mentioned both of these ideas already, this is a review.

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1. We will either find a dcl (Daily cycle low) soon and bounce, but that will roll over, followed by another dip lower into final lows- 

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2. We will put in that deep trade-able low  (ICL) and rapidly move higher. 

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( 1. From above )  Timing-wise I wouldn’t be shorting because a daily cycle low is due.   IF we only get that 4th daily cycle… That would produce a “Bounce” and my chart from the weekend report would play out like this. You could then short that bounce.

( 2. From above )  I drew this in my Nov 4th  report.  An ICL in mid November  would match what we have seen recently.  ICL’s have been arriving faster at 4 month intervals in very steep drops.

Yesterday GOLD broke to new fresh lows.  You can see that we are in the timing that a low is due to be put in place at day 32.  It could be that ICL and we could then move higher for weeks.  Now that many are shorting and the COT has been improving, this could be the case  ( Today is the release of Fed Minutes).  We wont really know until the move starts unfolding. A 4th daily cycle would become weak and roll over as left translated by day 5-8 most likely. 

GOLD CURRENTLY –  We saw GOLD undercut last night and reverse higher.  That could be the “test of the lows”. Lets see if it holds.

As GOLD broke down to new yrly lows, it is good to note that both SILVER & THE MINERS did NOT break to new lows  (yet) .  Silver & Miners usually lead moves down and up. Is this a sign of strength in the lead sectors, or will they play catch up? 

On Yesterdays chart of GDX , I mentioned how we had a swing low in place in July, and then it got undercut.   I pointed that out so that if it happens again, we have expected that possibility and it doesnt surprise us .  We did undercut lows  yesterday too.   Lets review.

The chart from Monday night –  read what was written on the left side about that low being undercut. Price was rejected at the 9 EMA.

Another chart of GDX showed these wedges.  I wrote in my report that these can drop and test the break out too.

GDX yesterday – GDX can drop further, but on day 33 I personally would not be shorting Miners now.

 In conclusion – I hear from many traders here, and I know that some were buying yesterday anticipating a low ( long Miners),  and other short term Traders will try to buy a reversal / swing low when Miners begin to bounce.   With that ,  I would keep the more bearish out look in the back of your mind.   You may want to try to catch the lows for a trade , but remember that if this is a 4th daily cycle, it will roll over soon  ( And DUST may be the trade at that point). 

What would that look like  and does it fit the bigger picture of GDX??  This is the GDX WKLY.  We could do a quick plunge now to the lower trend line, or bounce and tag it later. A bounce & Tag would lead to the Dec Fed Mtg.

GDX DAILY Longer term – This view is showing how another daily cycle would likely unfold, and I’ve shown past late daily cycles in Blue.

Today the FED minutes are to be released. On that Fed Wednesday Gold reversed lower quickly and started its sell off.   We had volatility.  Wouldn’t it seem odd that the release of the minutes would now cause a reversal and a run higher?  We are due for a low though, and odd things do happen in these markets.  In my head – another possibility with the release of the Fed Minutes is  that we get a quick slam down to lows (  1 or 2 days).  That would match the reaction that we got on that Fed Wednesday.   That also fits the above 2 charts for miners, bringing the price to the lower trend line in crash form.  It also might drop GOLD to the 1033 support area discussed last summer.

 So at this point I am advising patience to see what happens after the Fed Minutes are released.  If we are putting in an ICL,  you do not need to catch the lows the minute that they happen, although experienced traders can just use my reports as a guide of possibilities to enhance their own trading style.   As you can see from this report,  there are still a number of possibilities that lie immediately ahead.  Best wishes!

~ALEX