GOLD DROPS $113!

Hey, it did happen a few yrs ago, but now that I have your attention 🙂  I need to review something in the GOLD – SILVER –  MINERS section of this report.  First a quick review of the markets.

As expected , Follow through in the DJIA, SPX, NASDAQ, etc

I pointed out that the sentiment was so pessimistic , we were likely seeing an ICL .  I would expect this to play out as such with pauses and pullbacks along the way.

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$WTIC –  Oil is interesting , because if this is a bear flag, I expect volume to dry up. We had a good surge in the volume Tuesday. The next goal would be a move above the 10sma, but as I said yesterday ,  Oil is quite oversold and may go up to tag the 50sma.

Many energy stocks are looking very interesting again too, with reversals and some breaking above their 10 sma after the recent sell off.  I do not own anything, because the break down in oil should be a warning at this point. The chart above is not a story of recovery yet.

$NATGAS –  this broke out and then dropped Tuesday. It remains above the 50sma and the trend line , so it hasnt violated anything technically.  (Clickable chart for a close up )

GOLD SILVER MINERS

I think I need to clarify what I am saying and seeing in the precious metals sector.  As I write this report  (Tuesday night )  Gold is Green , but can it drop in a serious way still? The answer is yes. If that is surprising to you, please go back and re-read the weekend report.   I did not declare an ICL yet.  I didnt declare a Daily Cycle Low  in Gold either , even as of yesterday.   I simply pointed out some bullish implications and wanted us to be alert and ready in case we get Lows at a time that would seem early.

  I definitively did say that the C.O.T. report is at levels where prior ICLs  (meaningful bullish lows) came in.  It COULD mean that we get a summer rally soon , so we needed to be watchful. 

Let me put it this way , and then I will do a quick review for the benefit of all.  The COT report shows if “SMART MONEY”  is long Gold or Short gold.   We dont like to go against them, they are almost always correct.  They short gold on the way up and when they have extremely high short positions, you dont want to bet against them.  Gold usually drops.  When gold drops they gradually close short positions into the selling.  They are called smart money because they are almost always on the right side of the trade.  SO — If GOLD was about to drop from $1140 to $900,  would they close their shorts now and happily miss the move?  Very unlikely.  So if they are closing shorts here , we could get a rally soon and then the big drop, if that big drop is coming.   Meanwhile ,  DUMB money is still calling for a break down.   Dumb money is positioned  short.

With that thinking, lets review a few things that I said.

This was the weekend report. I gave 4 possibilities. 

Did I say we are now seeing an ICL?    No , I said with COT levels at the same point as prior ICL’s,  we should watch carefully what happens this week.   Scenario #4 still holds out a rapid drop to 1033 or more is possible. A chart of that drop was included.  ( See the clip below from my wkend report)

Below is a clip from Tuesdays report -I posted this , read the RED UNDERLINED AREA.  No trendline break or above 10sma yet. That means no confirmation of a low yet.  “The count continues” .

I posted this GDXJ Tuesday as an observation that Gold was down and many Miners were Green.  I stated :  “Still below the 10sma, we would need follow through…” .  To encourage patience, I pointed out that the last ICL didn’t just burst higher, it could take days to confirm.

NOW LETS SEE TUESDAYS ACTION

GOLD – Still  no break higher,  we could be on day 5 of a DCL, or we could be on day 27  ( And they can extend into the 30’s).

GDX – No follow through, no break above the 10sma. Very light volume.

So why the big review?  Some may be confused and think I “called an ICL”.  I actually was asked , “Since you called the ICL, what Miners are you recommending at this time.”  I need to be clear that we are watching everything and we could be close to a meaningful low and a great summer rally based on smart money closing shorts so early (the COT) and other factors.   Pessimism towards the Precious Metals sector is at an all time high  ( that can be very bullish if short covering takes place).   I did point out that a few silver stocks SSRI, AKG, and a few gold stocks didnt drop when SILVER traded at 5 yr lows , that seems bullish for Miners.

The markets dont always make sense ,right?  And just when it looked like the SPX, NAZ, etc were going to drop fast,  I saw the Put Call ratio at prior ICl levels  (lows that produce a nice rally).   I heard Way too many bears growling and sentiment indicators were suddenly very bearish.  As a contrary indicator, they called the lows.

Again, Markets don’t always make sense.  Yes,  Gold should drop to $1000 , yes Silver broke to new 5 yr  lows , Gold bears are very bold ,  but smart money closed a good amt of short positions at Gold $1140??   And pessimism is at extremes.  Seems bullish at this point.

I had these 2 charts for a weekend report 2 weeks ago and never posted them-

This should happen , a measured move to $900

MAYBE a summer rally first to throw the bears off? A lot of shorts would be caught short.

The 2 charts above show that we are somewhere in the middle. I dont think it will be too long before we find out, but I have not declared an ICL at this point.

I will come back in the morning and post a few trade ideas in a whole new report, I just wanted to get this out tonight to clarify a few things.  

~ALEX