Welcome all Safety in the Market traders to this month’s dedicated newsletter.
Markets across the globe have gone berserk and it might sound crazy when I say ‘how good has it been!’ But analysis has been indicating for some time there were profits to be made on the short side, although the speed of the fall was surprising.
This month I want to update our work on the Dow from the June newsletter and also revisit a long term forecast for Gold that I first shared with you back in March, 2008.
Chart 1 below displays the up-to-date Dow Jones $10 Futures (DJ-SpotV) including the Lows Resistance Card for the 6,460 low of March, 2009. All the way up from the low the market was giving important clues/proof of the tremendous value of this Resistance Card. While the final top on 2 May, 2011 (12,827) was 93-points short of the 200% target of 12,920 (6,460 x 2), it was close enough for me. This is ‘big picture’ analysis and 90-odd points is well under a 1% difference from our target. Letting the chart have the final word proved successful.
Chart 1 – Dow Jones $10 Futures 6,460 Lows Resistance Card – Success
click chart to enlarge
In the short-term I think the Dow Jones is now oversold and Time by Degrees indicates the current low of 8 August has real potential. My overall outlook is still bearish and any upturn may be nothing more than a dead cat bounce.
The Gold story is still unfolding but it has already provided profit opportunities trading into the forecast.
Chart 2 below shows the monthly Gold Futures (GC-SpotV) and we can see the 1976 to 1980 bull market range repeating from the 2001 bear market low.
Chart 2 – Gold Monthly Chart – 1976 to 1980 Bull Market Range Projection from the 2001 Low
click chart to enlarge
The first major success of this analysis was the March, 2008 high, which came in on the 100% milestone. The market surprised with its strength and moved through this pressure point (some months later) to the 150% Pressure Point. On the way up to 150% the market paused for a few months at the 125% Pressure Point, further confirming the value of this analysis.
There was a market reaction when the 150% Pressure Point was reached but it lasted little more than a month as the runaway bull market was by now in full swing. In the March, 2011 Safety in the Market newsletter I shared a view on the significance of this 150% level:
“Some would say the next big point would be the 175% pressure point, not me. I’d suggest that if we see a clear break of this 150% level then $1,801 per ounce (200%) becomes a target. Now that is a huge call at this point and not so much a forecast, but a projection of what the theory says can happen and should be watched for if another strong rally gets underway, my goodness, $1,800 per ounce? It’s only theory at this stage, but it is a possibility!”
That possibility has become reality. Last night, the December Gold contract traded to a high of $1,801 per ounce and in today’s session (11 August) reached $1,817 per ounce. That’s still ok with this target considering the ‘big picture’ nature of the analysis. As I write, Gold is trading at $1,755 an ounce.
Gold was a major topic in tonight’s news, a sign for contrarian traders that things are overheated. Gold has risen nearly $200 an ounce in just few sessions and it hit the 200% target in a fashion that has the hallmarks of a blow-off top. This could be huge.
The market is currently very volatile with ranges exceeding $50 per ounce in a day, a movement of more than US$5,000 for a single contract. Movements of this magnitude makes for ‘extreme trading’ and you need to know exactly what you are doing and the risks involved when completing your trading plan.
With likely continued volatility within equities markets, Oil moving like crazy and the above set-up on Gold, there are plenty of opportunities out there for the educated investor. Those who have invested in their education through the Platinum Program or other advanced classes would be well-prepared for times like these. If you have neglected your education and are feeling a twist in your stomach about missing out on the opportunities available in today’s markets, remember it is never too late to get the knowledge.
Until next month...
Professional Derivatives Trader