A
lot of newsletter and analysts are calling a bottom. Technically it's
just a consolidation pattern. Consolidation patterns are a continuation
pattern, meaning if
the previous trend was down, which it was from 2011 till now, the odds
favor price will continue lower after this consolidation.
If
this
consolidation does happen to be the bottom then we can classify it as a
stage I base. Gold and gold stocks will start a new bull market, but
price needs to break to the upside of this consolidation pattern. Until
it breaks to the upside, it is still in a down trend.
Gold
topped out over three years ago. And I am in no
rush to try to pick a bottom and be a hero here. I'm just going to
continue waiting on the sidelines until price confirms either a new bull
market has started or for price to breakdown and we get another leg
lower.
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Oil Outlook
Taking
a look at the big picture of crude oil the chart looks bearish. It too
has been trading in a range since 2011 and the price is nearing the apex
of a consolidation pattern.
It's
important to know that a pennant formation which is what crude oil has
formed are the most predictable when price breaks out of the pattern
within the first 1/3rd of the formation.
The
longer price consolidates and gets squeezed into the narrowing apex of
the pennant pattern, the more unreliable. The trend breakout will be,
and it becomes at best a 50/50 bet.
Crude
oil's previous trend was up, but it's been consolidating for such a
long
time that price is now squeezed into the apex. This negates that bias
for the previous trend to hold true so we have no idea which why it will
breakout but when it does expect an explosive move.
A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar
also. I can see $1 USD being equivalent to $1.20 Canadian in a year.
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My Gold and Oil Conclusion
Looking
at the US dollar, it has been rising partly due to the euro falling.
This strong dollar will put a downward pressure on commodities overall.
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Gold
and oil have not been that exciting for investors since 2011 when they
topped out, but both are
setting up for massive moves that should last month, if not year or
more. Once these new trends emerge expect to see them in the headline
news every hour.
It
does not matter which way these commodities breakout of the
consolidation patterns. With the dollar continuing to rise and the
bearish chart patterns for both gold and oil there is a
good chance much lower prices are ahead.
This
will catch most investor's off guard. It's human nature to try to
predict tops and bottoms in the market. But this is why most investors
get caught on the wrong side of the market. The market always has a way
of catching the majority of people on the wrong side of a position.
I
am happily sitting in cash with some of my investment capital waiting
for gold and oil to breakout of these large patterns. I would not be
surprised if we see $900 gold, gold stocks like the gold bugs index $HUI
to be at $150, and $70 per barrel for crude oil. I am not saying this is what I
want, but you should be mentally prepared so you can get back
into cash position and so you can take advantage of falling prices with
me.
Big
money will be made on the next price movements in these commodities.
Whether we have to go long the market or short sell the market. Either
way, we can make money. So don't be a hero and
try to pick a top or bottom, just wait for confirmed breakout then
invest with the trend.
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