While that resistance line was broken, there was no gusto to it. Everything since red 1 still looks corrective to me and it concerns me that it is again finding resistance not only at the 38.2 fib but also at the green overhead resistance. Something has to give here very soon.
Zooming out we can see where the overhead resistance came from and why it really should take the power of a 3rd wave to break out of. This has all the telltale signs of a DDT which is why we should pay close attention if this somehow gaps above it, especially now that it is kissing it from below. I've mentioned the concept of the one inch punch in the past. In case you forgot, Bruce Lee made the concept famous. He had a technique for delivering power starting only 1" away from the target. This gave very little room for acceleration and was thus very unusual to see.
Stocks are generally the same way. They don't move up against an object and then gap through. Not usually at least. When they ease up to resistance the resistance generally holds and this eased up to resistance. Because of this we should recognize the importance of a breakout here should it occur.
Why am I talking about the possibility of an unexpected breakout so much in this post? Why isn't this just another ugly bearish chart with little hope for near term redemption? Well to be fair, my primary path remains down here but EWI says that the gold bounce has begun and so it is mainly out of respect for their views that I am sleeping with one eye open with respect to a M+M breakout. Having said that, Avi thinks we still have downside. So far, Avi has not called a bottom in gold but EWI did so a couple months ago and were wrong. Now they have done it again and if they are wrong again then it will be clear evidence that they are out of tune with the gold count and that Avi is in tune. That would be great news for buy and hold gold longs because Avi's view is that once gold bottoms this next time, that's it. That's the end of the 2011 M+M bear and its the end of a 2nd wave which means a 3rd wave up awaits in the wings.
In case you are getting lost in Avi's wave charts (they in fact suck badly on 3 fronts: black background, low resolution and not enough context/assumes too much familiarity with the zoom in - Avi, pull your head out and ditch the useless but trendy black background!!) please refer back to this post which provides the ending diagonal model below that Avi seems to be aligned with:
As you can see below, my version of Avis chart is a good deal more readable than his. The grey construction lines help you align between the two models. The big take away here is that while Avi is looking for one more lower low, it is not expected to be very much lower in price or further out in time. Of course if you read his article he left open the option that the market could do a panic freefall to as low as $700 for a very short time which is why he is leaving some powder dry. Such a melt down could be triggered by gold breaking down below $1000. This is not his primary model of course but there are fib levels down there that could still make sense for a low.
Make no mistake: gold is still badly hated, a pet rock, etc. But also make no mistake that these kinds of sentiment extremes mark once in a lifetime opportunities for those who see that there are no true valuations, only herding behavior and the EW models are telling me that the hating period will likely soon be over.
2 comments:
One thing that is interesting this time around while pegged at your resistance is how the commercials really aren't short according to the CFTC reports. I realize that's just one piece of data to consider but perhaps this is a better set up than we've seen in the past to break resistance. Commercials historically have huge short positions on the emtal at similar junctures. Next couple of weeks should be interesting.
http://snalaska.com/cot/current/charts/GC.png
EWI's EWFF and STU letters point to this quite heavily as well as other sentiment based indicators that they anecdotally / tangentially use to support their version of the EW count. It is this body of evidence beyond my own wave count that is the reason I pony up for EWI's subscription service. Having said that, the better I become at counting (and knowing that there is a statistical limit of how good anyone can count), the less important and useful I find these other indicators because they can exist for a long time in extreme conditions to the point where they lose meaning. Thus these indicators have been falling into the realm of directional noise for me for well over a year now. In other words, they are useless as the basis of short or even medium term course correction. The fact that I add some of these things to my blog simply means that I also understand that people like to work from some kind of data basis for everything. Whether this is because we find it entertaining or because it satisfies some other need of ours I cannot say. But very very few are able to work by charts alone and ignore all else.
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