Thursday, November 6, 2014

I've been putting increasing emphasis on "counterintuitive" trades during these tutorial sessions, since some of our old tricks have not been working as well. Mainly, it has been a case of gorgeous ABC patterns stopping us out, sometimes more than once. A promising solution is to look for patterns that make us feel a little queasy when initiating a trade. B-C correction legs that retrace almost to the point 'A' low are a good example of this. In this lesson, we consider several such patterns while looking to get long or short well outside of our usual comfort zone.

The 2037.50 target displayed here earlier is persuasive -- not only for purposes of getting long for an implied 20-point ride worth as much as $1000 per contract, but for reversing the position and going short at the target. My hunch is that buying one's way aboard will be nerve-racking in any event, since the rally that began Wednesday's session used up the one fetching prior peak we might have used to craft a usable, minor ABC entry pattern.  My suggestion for getting long nonetheless is to wait for a pullback like the one shown.  At that point, bulls will be mildly discouraged, and even we would be looking to get short. Instead, and as long as there's a low at least a tick above A=1195.25, you should buy-stop your way aboard if the rally from that low goes at least 6.50 points. Be sure to take profits on half the position if the rally continues for another 6.50 points. After that, you can swing for the fences.

The current tout for December Gold spotlights a very important rally target at 1137.50 that engendered a mildly encouraging bounce during Wednesday's regular session. There are, however, no such encouragements to be found in Silver's charts. All signs point lower -- possibly much lower -- and although some of the lesser charts allow for a dead-cat bounce from here or there, the daily chart (see inset) suggests that a Hidden Pivot at 13.769 may be the best that bulls can hope for over the near term. Numerous bounces off the 19.317 midpoint are sufficiently exact to lend authority to the target, which in purely visual terms looks unavoidable. There is of course no possibility that Gold's so-far fragile low will survive if Silver is about to take a 10% header. I am not going to attempt to reconcile the two simply because one or the other will decide the matter for us, and soon. Traders should plan on bottom-fishing at the target, just as they should already be long from Gold's recent low. But extra caution should obtain, since, considering the weight of the evidence in Silver's chart, the burden of proof remains on bulls.

Gold fell yesterday to a bear-market target at 1137.50 that has been 15 months in coming. Clearly, this is an important number, and one needn't be a chartist to appreciate the sinuous beauty of the downtrending ABC pattern that produced it (see inset). However, its usefulness lies not in any ability to predict the future, since we never pretend to have a crystal ball. Rather, it can serve as a reliable benchmark for determining whether the bear market is spent. According to our proprietary method of technical analysis, a decisive breach of the support would be akin to the groundhog seeing his shadow: six more weeks of winter. Whether or not the bear market would persist for a mere six weeks is an open question, but the implication would remain nonetheless that still more pain awaits gold bulls. What would constitute a decisive breach of the support?  Given the beautifully etched perfection of the pattern, a print perhaps 4-6 points below the target would suffice -- either that, or a two-day close beneath it. Alternatively, if bulls are about to take charge, ending a bear market that recently entered its fourth year, we should expect to see abcd rally patterns in all time frames start to exceed their 'd' targets regularly. It is for that reasons that bulls should take encouragement from Wednesday's initial rally off the long-term Hidden Pivot target. The rally need only have achieved 1,150.10, but it actually topped 2.40 points above it, at 1152.50. This is a good start. However, the futures had given up nearly all of the day's gains by Wednesday evening and were threatening to take out the intraday low at 1137.10. If so important and compelling a target were to provide support for only a day or two, that would be quite