Since silver and gold topped in 2011 investors have been struggling
with these positions hoping this cyclical bull market for metals
continues. The simple truth is no one knows for sure if prices will
continue and make new highs and those who say its a for sure thing we
all know deep down is full of bull crap.
All investments move in cycles, waves or trends which ever you want
to call it. The market has 4 simple yet distinct stages each require a
completely different skill set and trading tactics to navigate.
Stage 1 – After a period of decline a stock consolidates at a
contracted price range as buyers step into the market and fight for
control over the exhausted sellers. Price action is neutral as sellers
exit their positions and buyers begin to accumulate the stock.
Stage 2 – Upon gaining control of price movement, buyers
overwhelm sellers and a stock enters a period of higher highs and higher
lows. A bull market begins and the path of least resistance is higher.
Traders should aggressively trade the long side, taking advantage of any
pullback or dips in the stock’s price.
Stage 3 – After a prolonged increase in share price the buyers
now become exhausted and the sellers again move in. This period of
consolidation and distribution produces neutral price action and
precedes a decline in the stock’s price.
Stage 4 – When the lows of Stage 3
are breached a stock enters a decline as sellers overwhelm buyers. A
pattern of lower highs and lower lows emerges as a stock enters a bear
market. A well-positioned trader would be aggressively trading the short
side and taking advantage of the often quick declines in the stock’s
price. More times than not all of stage 2 gains are given back in a
short period of time.
I do show some of my trade setups using these exact stages free here: https://stockcharts.com/public/1992897
Now that you know the stages and what it looks like its time to review the gold, silver and miners charts.
Gold Chart – Weekly
Gold has been in a bull market for several years but is starting to
show its age in terms of the size of the price patterns, volume levels
and extreme bullish sentiment. Back in 2011 a week before price topped
we exited precious metals because the short term charts and volume
levels were warning of a sharp drop. Since then I have not done many
trades in either gold or silver because I do not like shorting in bull
markets. Waiting for a bullish setup/price pattern before getting
involved is my focus.
Gold has pulled back with a bullish 5 wave correction the last 5
months and at key support. While the long term charts are pointing to
higher gold prices you must be aware that if gold and silver start to
breakdown things will likely get ugly quickly. To be honest I do not
care which way it goes, I just want it to either rally from support here
and make new highs or breakdown and crash. Both will be very profitable
if traded properly.
Silver Chart – Weekly
Silver has a very similar chart to that of its big sister (yellow
gold). This shiny metal has the energy of a 3 year old making it a very
volatile investment. I have touched on the topic of gold and silver
being so called safe havens and if you have been reading my work for a
while you know that any investment that can move 18-45% in value within 1
month is NOT a safe haven.
While it has done well in the past decade and boosted a lot of
retirement accounts the day will come with these things collapse and
most people holding them will give back most if not all the gains they
had simply because people get attached to large positions and most do
not know when to just exit a position.
Gold Miners Chart – Monthly
This chart gives me cold sweats because I know how many people own
gold mining stocks and I know how fast these things can move. If the
price closed below the green support line the bottom could fall out and
be very painful for those who get paralyzed by denial and do nothing but
watch their accounts lose value week after week.
Precious Metals Investing Conclusion:
In short, this report is to show you the very basics of how
investments move in stages. It is also to show a warning that precious
metals are technically very close to a major breakdown which the big
money players are watching closely. This thinly traded sector can move
extremely fast when everyone rushes for the door.
Do not get me wrong, I am not saying a crash is about to happen,
actually it’s the opposite. All I am doing is planning the idea in your
subconscious so that if prices continue to move lower you will remember
that these price levels and take action with your investments. Remember,
you can always buy the investment back at any time again if the outlook
changes in a week, month or year.
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Today
Egon von Greyerz warned King World News that the Western world is now
fully engaged in a perpetual motion Ponzi scheme and a collapse is
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