August

There was hubris in my assertion last week that the perfectly formed head-and-shoulders pattern that has been taking shape since April would mutate into a 'surprise' breakout to the upside.  However, the chart shows what to expect if this forecast proves to be flat-out wrong. There is that possibility. The August futures would fall to 2204.20, completing the H&S pattern, before they could find traction. Moreover, the Auggies would become a juicy 'mechanical' short if they rally over the next week or two to the green line (x=2408.80).  The pattern is quite gnarly because of the double top, but I've seen this set-up work perfectly in the metals before (do NOT tell your friends if you plan to bottom-fish there, as you should). Rest assured, however, that even a $200+ dive as described would not mar the otherwise bullish look of the long-term charts. If you're still worried, here's a continuous monthly chart that shows the ostensibly distributive head of the H&S to be occurring above the 'D' target of a completed pattern stretching back 15 years. That is inarguably bullish no matter how nasty this correction gets.

August gold finished the week with a second consecutive bottom at the 2304.40 'd' target of the reverse pattern shown. Equally encouraging was a reversal at week's end that left the futures sitting more than $40 above the lows. Someone in the chat room argued that gold's $430 run-up earlier this year needs and deserves more consolidation, and that may be so. However, we should be alert to the possibility that this newly resurgent bull market will not be so accommodating of investors who want more time and better prices to do their bargain hunting. Bull markets in their dynamic stage are characterized by nasty swoons and quick recoveries.  In any event, our short-term bias should be bullish as the new week begins, and we should look for minor, uptrending ABCD patterns that reach or exceed their 'D' targets. Correspondingly, we'll also watch for corrective abcd patterns that surpass their midpoint Hidden Pivots. That is the most finely nuanced signal we have for flagging changes in larger trends.

Although we expect the bad guys to inflict as much pain and doubt on bulls as possible, Friday's $102 plunge seemed just a tad excessive.  The low fell a hair beneath early May's 2308 low and $4 above round-number support at 2300. Many bulls would have been stopped out there, lightening the load for whatever bounce occurs this week. It may include two or three false starts, since few bulls could have expected the selling to reach the untested levels that it did in a single day.  At best, the rebound will mirror the plunge that took place after August Gold slightly exceeded the record high 2471 achieved in mid-April. Any less than that will put the futures in jeopardy of falling another $100 to test a plateau formed there in March.

Gold has repeatedly resolved double tops in favor of bulls for many years, but always differently. The current pair of peaks is tightly spaced, giving the impression of weighty distribution. The 2530.40 rally target on this continuous weekly chart is viable nonetheless, and there is no reason to presume it won't be reached. But that does not preclude a sharp pullback first to the red line (p2=2071.70). It makes a logical target if bulls are to be rebuked yet again for their steadfast belief in the quaint idea of gold's historical primacy as money.  For now, let's draw our inferences from the lesser charts of August Gold, which currently provide an easy path down to 2300-2320. ______ UPDATE (June 7, 12:15 p.m.): Gold has in fact followed an all-too-'easy path' south, to a so-far low today of 2320.20. That is the upper threshold of the corrective range I'd forecast. However, I'd be surprised if the futures did not take out May 3's 2308.70 low and then diddle 2300 just for good measure. 

We need to keep reminding ourselves that even during those frustrating cycles when gold is being treated like garbage by investors, it is still in a long-term bull market. However, it has been so slow in developing that even hard-core bulls will find their patience tested to the limit. Accumulation is the strategy of choice, coupled with perseverance and discipline to make the ordeal seem worth the wait. To that end, we should be prepared for the correction begun from May's all-time high at 2112 to come down t0 at least 1908 before bulls are sufficiently rested to mount another charge (of the Light Brigade?). The corrective segment shown in the chart has yet to trip a 'mechanical' short, but it would on a rally to 1983.40. Check for details in the chat room if the set-up should ripen, since the $10,000 theoretical entry risk on four contracts can be cut by 95% if we do it right.

As usual, Gold is taking its sweet old time going anywhere, never mind to the 2027 midpoint Hidden Pivot of the pattern shown. We'll need to see how buyers handle this resistance before we can judge the likelihood of a rally to the 2154.20 target. The August contract is on a theoretical 'buy' signal at the moment, but the only way to use it with risk tightly controlled would be to set up a 'camo' trigger on an intraday chart. Stay tuned to the chat room if you care, since I may be able to signal a timely opportunity tied to this vehicle's wonted morning reversals. _______ UPDATE (Aug 4, 8:43 a.m.): Gold has slipped back into its accustomed 'garbage mode', in a bull market more reminiscent of The Flying Dutchman in search of land than its 1970s heyday. Here's a chart that shows an 1895.10 downside target for the October contract.

August Gold spent the week consolidating just above the green line, where a theoretical buy signal triggered the previous week. We should assume minimum upside to p=2028.30, a not very ambitious target but one that would nonetheless fix $2000 in traders minds as support. That's assuming the futures can close for at least two consecutive weeks above the midpoint Hidden Pivot (p).  They should be trade with a bullish bias in the meantime, using 'reverse-pattern' triggers drawn from the lesser charts. Stay tuned to the chat room and email 'Notifications' if you trade this vehicle.

Although I am watching August Silver closely for signs of a bullish breakout, August Gold's price action calls unambiguously for a 'mechanical' short using the green line. I've suggested paper-trading this one, but I will be tracking it closely nonetheless in order to effect a 'camouflage' short that would limit entry risk to a practical minimum. As of now, that implies using an $8.50 trigger interval off any rally that hits 1969.40 or higher. ________UPDATE (Jul 18, 6:23 p.m.): The paper short would trigger on a drop to 1979.50, but I am no longer recommending it, even if your camo 'chops' are up to snuff. Bulls should want to see the trade stopped out, since the 'textbook' features of the 'mechanical' set-up made it a pretty good bet. If the short doesn't work, it would add to the evidence that bulls are finally in command again. ______ UPDATE (Jul 20, 1:45 p.m.): Our paper short is profitable, and that is not a happy sign for gold. We'll keep a close eye on gold, since the picture would darken further if minor abcd patterns start to exceed their d targets, or even p midpoints. _________ UPDATE (Jul 21, 12:19 a.m.): Thursday's impulsive selloff points toward 1957.70 (60-min, A=1985,90 on 7-20 at 7:20 a.m.). Now let's see if sellers have grown a pair.

The unorthodox reverse-pattern shown has worked so well, generating three profitable 'mechanical' buy signals at the green line, that we should confidently expect it to produce yet another winner when it trips a 'mechanical' short at D=79.68. The trade will require some adroit calculations in real time, however, since the most efficient trigger interval that I can come up with at the moment is 78 cents, implying entry risk of at least $780 per contract.