Gold Is in a Bear Market -- Will It Break Out or Break Down?

By Adam Sarhan  APR 15, 2014 12:04 PM

Expect sideways action to continue until either support or resistance is breached.

 


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Gold Is in a Bear Market

Gold was down over $30 this morning, and everyone is asking why.

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The simple answer is, gold is in a bear market.

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Since last June, gold has been trying to make a bottom. It is forming a very large double-bottom pattern and has been bouncing between support at $1,179 and resistance at $1,434, or the middle of the double bottom.

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Next Move Wins

One of my trading rules is the next move wins. This simply means that when markets are moving sideways, the best move is often to wait for a breakout above resistance or a breakdown below support to occur before entering a new position. Jesse Livermore, the subject of the popular investing and trading book Reminiscences of a Stock Operator, had a version of this rule, which was to wait for the path of least resistance to develop. This requires tremendous patience on the part of investors, but their patience is well rewarded if they are able to catch a new trend early. Right now, gold is in this category. By definition, one should expect this sideways action to continue until either support or resistance is breached. Trade accordingly.
No positions in stocks mentioned.