The futures has rallied strongly in November, however many of the bars on the each day chart have been weak. This makes the rally extra prone to be a bull leg in a buying and selling vary that began in September, and the beginning of a measured transfer up. E-mini futures down most likely on subsequent 10% transfer.
are turning down on the weekly chart. That is most likely the beginning of a buying and selling vary that may final many months.
is pulling again from a parabolic wedge purchase climax on the each day chart. Merchants ought to anticipate a minimum of a couple of weeks of sideways buying and selling.
Gold weekly chart turning down from wedge purchase climax just under 2011 all-time excessive
The weekly chart has sold off since the August high. The reasons I am showing it is to remind traders that TV experts are often incorrect, and to explain some things that are going on in the E-mini and bond futures markets.
If you watched any financial show this summer, you repeatedly heard how gold was early in a bull trend and that it was going far above the 2011 all-time high. The soundbite was “interest rates to zero and gold to infinity!” All of the experts were linking the two.
Where have the experts gone now that gold is down almost 15% from the high? No one is talking about gold now, because they don’t want to remind everyone about how bullish they were in August when gold was testing the top of a buy climax and testing the 2011 all-time high.
The bears are hoping that the gold market is forming a double top with the 2011 high. They want a bear trend reversal. The rally since the August 2019 high has had 3 legs up. The bears hope that this is a wedge rally to a double top with the 2011 high. They know that this is a reliable reversal pattern.
A reversal down from a buy climax typically has at least a couple legs sideways to down. The current selloff is now in its 3rd leg down. But since the 3-month selloff is in a tight bear channel, it is probably a complex 1st leg down. If so, traders will expect the 1st rally to fail. They then would look for a 2nd leg down.
At that point, if there is a reliable setup, they might buy for a resumption back up to the 2011 high. More likely, the weekly chart will enter a trading range. This process will take 20 or more bars, which means 6 months or more.
This selloff is now in search of an initial bottom. A reasonable target would be around the June low, which is a little more than a 50% retracement of the rally that began in March.
A wedge reversal often retraces to the start of the wedge bull channel. That is the March low. That is also at the July 2016 high, which is the top of the 2013 to 2019 trading range.
The news is always extremely bullish just before a reversal down
It is important to understand that when a market is in a buy climax, the news is always extremely bullish. It has to be, otherwise the market would not be racing up.
But the mistake is to assume that the news is right. The experts on TV are constantly giving all of the reasons why the trend is early, and it will go much higher. They are very confident, and they arrogantly look down at the fools who are not already long. They wear nice suits and have impressive titles, but they are idiots.
The church of gold
This is especially true in the gold market, which is more of a religion than a commodity. When it is up, they say you must buy because it is going higher. When it is down, they tell you that you must buy because it will soon race back up to the high.
Ask them what would make them sell. They will tell you that there is never a reason to sell, and there is always a reason to buy.
Do you think that is useful advice? If you bought gold for $2,100 in 2011 and watched it lose 40% of its value in 6 years, do you think that was the best choice for your money? Gold
Buy climaxes lead to profit-taking
Now, why does a market reverse down from a strong bull trend? You cannot have a buy climax unless everyone is bullish. FOMO… Fear Of Missing Out. Smart traders buy early and look for an extreme buy climax to take profits. They buy low and sell high. Also, smart bears start to short when there is an extreme rally, and they sell more higher.
The last buyers are the momentum traders. And don’t forget the dumb money traders who missed the move. They believe all of the hype and are desperate to buy at any price.
The momentum traders are buying because the market is going up. Once it stops going up, they quickly exit. Their panic selling once they sense that the bulls are starting to take profits accelerates the reversal down.
They are not investors, who are willing to use wide stops or no stop at all. Investors will buy more during a collapse because they are in it for the long haul. They are confident that gold will be higher 10 or 20 years from now, and will use selloffs to buy until they have the desired amount in their portfolio.