Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
The Likely Path of the S&P and Gold Through February
01/18/2011 1:04 am EST
Gold is headed lower before it heads higher, according to my charts. My most recent forecasts for the S&P 500 and gold have been calling for interim peaks in both around mid-January. Gold, I told MoneyShow.com readers a few weeks ago, was definitely topping and likely to drop to $1270-$1280 per ounce before resuming the bull market advance. For the S&P 500, I have forecasted a 1285-1315 topping area since the 1175 pivot lows on that index, and we are very close in that regard as well.
Gold has been in a nine-plus-year bull market since 2001 and has another three years plus left on this bull run. However, pauses must occur along the way, and this should be a fourth wave corrective Elliott pattern if my views are right. This is taking the form of a 3-3-5 correction from the $1430 top. We are in the final five waves down now, and it’s about to get ugly in the near term, so buckle your seatbelts!
My chart forecast is below, and if I’m right, there will be excellent opportunities to pick up some good juniors and also the precious metals themselves around that $1270-$1280 area. Following this correction, we could have a run to about $1515 per ounce, and I expect this entire pattern to take six months to a year to play out from the $1430 top to the “$1270ish” bottoms, and back to $1515.
The S&P 500 is completing the final fifth-wave movement from the 1010 July 1 lows this past summer. This is only the first full-wave pattern movement of a big five-wave leg up from July 1. What this means in English is that we have a near-term top likely in the 1285-1315 areas, followed by a wave two correction to around the 1175-1180 area. Sentiment right now is running at major extremes last seen at interim peaks in January and April of 2010, where I had also forecasted tops within days of the peaks. Below is my chart forecast.
I am looking for the S&P 500 to end up around 1600 on the index after this coming wave two correction, but I like to take it one pivot and step at a time.
By David Banister of MarketTrendForecast.com
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