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“We were not alone in suggesting gold and silver shares would breakout last week. Some of our better analyst friends and associates felt the same and made the identical suggestions we did. About twice a month some trader with a five minute attention span sends nasty e-mails and calls us names. We don’t mind as it goes with the territory. However, we encourage traders to look at the larger picture for the longer term. If you are substantially lower in your PM shares at this time, we recommend not selling but holding them for a rebound during the last quarter of 2007. The getting there, between now and November, will be an adventure for sure. But, there is no point in selling something right now for a larger haircut.” – Traderrog
Gold the Metal and Gold Shares Diverge
Precious metals markets for today have shown a divergence. The shares have fallen but the physical gold prices moved very little. The gold GLD ETF fund is indicating bullish and bearish patterns as well. From last fall through the present we see a bearish parabolic top, which conceivably could cause selling as low as 55 to 60 support on a new base. The bullish signal is the inverse head and shoulders for the shorter term of May through June of this year. So, which one do we believe? For now, we have to wait; and suspect either way could arrive soon.
Gold ETF (GLD) Weekly Chart Patterns Signal both Up and Down.
Notice the saucer or, parabolic bullish base in 2004 through September, 2005. This
is just the upside-down reverse of the bear version in process of unwinding in 2007.
December Weekly Gold Futures 8-16-07 AM Pattern A-B-C
Correction with Higher Lows, Which is Bullish.
Gold futures are bullish but remain stuck between $660 and $680 in a trading range. For gold to really take-off and show us some strength, it needs to break through overhead resistance above $710. In the shorter term of those remaining trading days this month, we think the best we’ll see is $685-$695 followed by a selling pivot reverse. Look closely at August and September of 2006 at the chart’s left.
Something similar can happen again this year but we think more gold buying can appear through the end of next week. Our reasoning was the disruption of cycles and time earlier this year delaying gold’s normal date moves by roughly one trading month. For today, we see a continuation triangle with the apex arriving before August 31. When price hits this pattern area it has to rally or sell. We expect selling with a new buying cycle after Labor Day next month.
Traders should expect continuing market turmoil with credit market issues until at least the week ending September 7, 2007 after the Labor Day holiday. Many traders will be on vacation during that week but should get down to fall business beginning September 10th.
At that time, markets could decide whether they will continue this volatility or, in fact, believe it is over with and finally settle down. Even with $500 Billion of wreckage the damages are quite small relative to the overall markets’ size. The unknown fly in the ointment is the amount of leverage against the $500 Billion which could increase the damages exponentially.
In our view, the amount will be much higher but we have faith in the Plunge Protection Team to keep pouring in the banker’s cash and save the day. CNBC reported this morning the injection of cash by using repro’s managed by the Federal Reserve and the U.S. Treasury is in fact an interest rate adjustment within the trading realm. This helps the dollar, and avoids the politically messy idea of a rate cut which would terrify the world in our view.
What Should Traders Do for Now?
If you are holding shares with gains and could reasonably exit them with profits we suggest you do it. If your shares are underwater significantly, we would hang on and wait for a rebound in late October or, sooner. Junior precious metals investors would make a mistake, we think, if they exit in fear at this juncture in the cycle. On the other hand, we would not be a buyer at this point in time either.
Over the past few days, we have seen some top drawer senior silver companies sell-off as traders took profits to meet margin calls on other less attractive shares. Some of the selling has been caused by fear and great concern of something potentially much worse. Be very careful not to over-react. Just remain on standby watching and waiting. - Traderrog
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