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Gold, Silver, and Miners Remain Junk-Grade Investments

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Precious metals are technically very close to a major breakdown.

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Since silver and gold topped in 2011 investors have been struggling with these positions, hoping this cyclical bull market for metals continues. The simple truth is, no one knows for sure if prices will continue to make new highs, and those who say otherwise are wrong.

All investments move in cycles, waves, or trends -- whichever you want to call it. The market has four simple yet distinct stages and each one requires a completely different skill set and trading tactic to navigate.

Stage 1 – After a period of decline, a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers. Price action is neutral as sellers exit their positions and buyers begin to accumulate the stock.

Stage 2 – Upon gaining control of price movement, buyers overwhelm sellers and a stock enters a period of higher highs and higher lows. A bull market begins and the path of least resistance is higher. Traders should aggressively trade the long side, taking advantage of any pullback or dips in the stock's price.

Stage 3 – After a prolonged increase in share price the buyers now become exhausted and the sellers again move in. This period of consolidation and distribution produces neutral price action and precedes a decline in the stock's price.

Stage 4 – When the lows of Stage 3 are breached, a stock enters a decline as sellers overwhelm buyers. A pattern of lower highs and lower lows emerges as a stock enters a bear market. A well-positioned trader would be aggressively trading the short side and taking advantage of the often quick declines in the stock's price. More times than not all of Stage 2 gains are given back in a short period of time.



Now that you know the stages and what they look like, it's time to review the gold, silver, and miner charts.

Gold Chart – Weekly

Gold has been in a bull market for several years but is starting to show its age in terms of the size of the price patterns, volume levels, and extreme bullish sentiment. Back in 2011 a week before price topped my firm exited precious metals because the short term charts and volume levels were warning of a sharp drop. Since then I have not done many trades in either gold or silver because I do not like shorting in bull markets. Waiting for a bullish setup/price pattern before getting involved is my focus.

Gold has pulled back with a bullish 5 wave correction the last five months and is at key support. While the long term charts are pointing to higher gold prices, you must be aware that if gold and silver start to break down, things will likely get ugly quickly. To be honest I do not care which way it goes, I just want it to either rally from support here and make new highs or break down and crash. Both will be very profitable if traded properly.


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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.

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