Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Gold's Fourth Wave Consolidation Nears Completion, Breakout

By

Aggressive investors would be wise to get long the metal on the pullback from the fifth and final wave.

PrintPRINT
Back in August with gold running to parabolic wave 3 sentiment-induced highs, I warned of a major top and multimonth correction.

We all know that the fundamentals for the shiny metal are stronger than ever, but you must keep in mind that the market prices all that in well in advance. Coupled with excessively bullish sentiment that was capped off by a USA Today cover with gold on it, it was easy to see a major sentiment correction, and therefore price decline was at hand.

If we fast-forward a few months from my then-blasphemous call for a top and multi-month consolidation, we can see that gold has lost favor with the taxi-driving crowd and the shoeshine group both. What has in fact happened is we have had what I call a fourth wave triangle pattern, which works to consolidate prior gains.

Triangles simply let the economics of the underlying security or commodity catch up with the prior bullish price action. In this case, gold was in a powerful wave 3 stage advance from the October 2008 $681 lows and over a 34 Fibonacci month period of time. When everyone on the stage was convinced this act would continue, it was time for the curtains to draw.

The fourth wave so far has been characterized by a typical pullback in terms of price and also time. The drop to the $1,530s is a normal 31% Fibonacci retracement of the entire 34-month advance. In addition, the pattern that has clearly emerged lines up as a typical fourth wave triangle pattern, which has five total waves within.

Waves 1, 3, and 5 are down, and 2 and 4 are up. We are currently finishing wave 4 to the upside from the low $1,600s and likely to see a wave 5 near term to the downside. As long as gold holds above $1,681 levels, I expect we will see a breakout north of $1,775 to confirm that wave 5 up in gold has begun.

Targets for the fifth and final wave of this suspected 13-year cycle of gold begin at $2,360, and then we will update from there. Below is the chart I sent to my paying subscribers last Thursday, and we can see that this pattern is still playing out. Aggressive investors would be wise to get long the metal on this final pullback, with a stop below $1,680 to be conservative.



Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE