Gold Is Bottoming
Source: David Banister, Market Trend Forecast (2/2/11)
". . .and longs soon to be rewarded."
The rally up from the February 2010 $1,044 lows has been a large "Wave 3" structure, which is not yet complete. We have completed 3 of the required 5 waves for this structure, and the current correction is a 4th wave. This pattern looks like what I call or Elliott termed a "3–3–5" pattern. This means you see 3 waves down, 3 waves up, and then 5 waves down to complete the correction. Note the following chart, which I sent my subscribers several days ago forecasting a possible pivot at $1,310.
Now, as you can see above we did end up dropping back down from $1,345 an ounce to $1,310 last week and pivoted higher. This confirms a possible 4th wave bottom after a seven to eight week correction period. This type of movement works off the overbought sentiment levels of traders. In addition, we had the exchanges increasing position limits in the new year and caused some additional liquidation selling.
The long-term views now are for $1,287 to hold as a worst-case bottom in this 4th wave, and the 5th wave to begin if it has not already to over $1,500 per ounce at the next interim highs. I expect this could take quite a few months before we can even consider attacking the $1,430 areas, but in time we should climb back above that wall. See my updated long-term Elliott Wave-based chart below. The general advice for traders is to take a long position with a stop at $1,285, but add to your position on any tests of $1,310 and down to $1,287.
Gold is in a 13 Fibonacci year bull market. This is much like the tech stock bull from 1986–1999 in fact, and this would be similar to 1997 in the tech bull—still a lot of room on the upside to come for both gold and gold stocks yet. The Fibonacci 8 year period ended around $905 last August, which is when I forecasted a huge five-year bull run in gold and gold stocks to commence. Don't fall off the wagon on the shakeouts.
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Gold Is Bottoming and Longs Soon to Be Rewarded