Gold apparently is not ready to correct, reports Avi Gilburt.
On Monday, I put out an article outlining my expectation for a pullback in gold, specifically the SPDR Gold Shares exchange traded fund (GLD) before we head to the 200+ region. I outlined my plan as to how I am going to play for a potential pullback. Numerous other technical measures have pointed out the oversold nature of the precious metals sector. However, that pullback has not yet materialized.
For those that have followed me closely for years, you know that I have been heavily long physical metals and mining stocks since I started accumulating them again in 2015, after calling the top in 2011.
Moreover, the manner in which I have been playing the market since that time is to hold my long positions, and simply hedge those positions when we approach resistance points which can elicit pullbacks. And, I have outlined to the members of Elliottwavetrader how I use options to hedge my positions at those resistance points.
To date, we have caught just about every pullback over the last five years and I have done rather well with those options plays during that time. But, as we have progressed during this rally in the metals, I also warned my members that we would come to a point in time where the market was going to blow through the resistance at which I was attempting to hedge.
This week seems to present such a scenario for the first time in five years. GLD has now blown through 179, indicating a push towards 200+.
We utilize a methodology called Fibonacci Pinball within the standard Elliott Wave structure. The main point is that when the market provides us with a rally towards the 61.8% extension of a wave 1-2 set up, I expect a further i-ii structure to develop before we break out over the 76.4% extension. That is what occurs in the great majority of circumstances when we track bullish structures.
However, a minority of the times, the market develops as a series of 1’s and 2’s off the lows, and we then see a direct break out through the 76.4% extension in the heart of a 3rd wave. That seems to have been what we experienced recently in the GLD chart. Unfortunately, this is not something that I am able to foresee all the time. Clearly, I was unable to foresee this potential in GLD most recently.
But, if you noted my positioning in my disclosure, you would know that I have been quite bullish for some time and have retained my long exposure. But I did attempt to hedge for that potential pullback at resistance. And, the market blew through that resistance.
This now changes the parameters in the near term, but it does not change our expectation of rallying to 200+ in GLD in the coming months— it does seem as though many are finally taking note of gold and the chase seems to be on.
Support has now moved up from 161-66 in GLD to 174/76, and as long as all pullbacks hold that support, I expect that we will head to 190 next, which will then raise support to179, as we then target 202 to 207 next.
One should approach the markets based upon probabilistic analysis. Within our methodology, we have a built-in objective standard, which outlines when our primary expectation is wrong, and we are able to switch to our alternative relatively easily. In this case, the market moving through 179 has made it much less likely that we see any pullbacks that break below upper support at 174. Should we see such a break below that, it as an opportunity. However, that is looking much less likely.
Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.
