Gold and Oil on the Verge of Something Big - Hero's Rarely Win
Everyone has been calling for a bottoming Gold the last year. But the fact
is that gold and gold stocks are still clearly in a bear market. Just look
at the 200 day moving averages. The previous trends were down and prices have
been moving sideways for the past year.
A lot of newsletter and analysts are calling a bottom. Technically it's just
a consolidation pattern. Consolidation patterns are a continuation pattern,
meaning if the previous trend was down, which it was from 2011 till now, the
odds favor price will continue lower after this consolidation.
If this consolidation does happen to be the bottom then we can classify it
as a stage I base. Gold and gold stocks will start a new bull market, but price
needs to break to the upside of this consolidation pattern. Until it breaks
to the upside, it is still in a down trend.
Gold topped out over three years ago. And I am in no rush to try to pick a
bottom and be a hero here. I'm just going to continue waiting on the sidelines
until price confirms either a new bull market has started or for price to breakdown
and we get another leg lower.
Oil Outlook
Taking a look at the big picture of crude oil the chart looks bearish. It
too has been trading in a range since 2011 and the price is nearing the apex
of a consolidation pattern.
It's important to know that a pennant formation which is what crude oil has
formed are the most predictable when price breaks out of the pattern within
the first 1/3rd of the formation.
The longer price consolidates and gets squeezed into the narrowing apex of
the pennant pattern, the more unreliable. The trend breakout will be, and it
becomes at best a 50/50 bet.
Crude oil's previous trend was up, but it's been consolidating for such a
long time that price is now squeezed into the apex. This negates that bias
for the previous trend to hold true so we have no idea which why it will breakout
but when it does expect an explosive move.
A breakdown in crude oil will send price to the $70 or $75 per barrel range,
and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent
to $1.20 Canadian in a year.
My Gold and Oil Conclusion
Looking at the US dollar, it has been rising partly due to the euro falling.
This strong dollar will put a downward pressure on commodities overall.
Gold and oil have not been that exciting for investors since 2011 when they
topped out, but both are setting up for massive moves that should last month,
if not year or more. Once these new trends emerge expect to see them in the
headline news every hour.
It does not matter which way these commodities breakout of the consolidation
patterns. With the dollar continuing to rise and the bearish chart patterns
for both gold and oil there is a good chance much lower prices are ahead.
This will catch most investor's off guard. It's human nature to try to predict
tops and bottoms in the market. But this is why most investors get caught on
the wrong side of the market. The market always has a way of catching the majority
of people on the wrong side of a position.
I am happily sitting in cash with some of my investment capital waiting for
gold and oil to breakout of these large patterns. I would not be surprised
if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150,
and $70 per barrel for crude oil. I am not saying this is what I want,
but you should be mentally prepared so you can get back into cash position
and so you can take advantage of falling prices with me.
Big money will be made on the next price movements in these commodities. Whether
we have to go long the market or short sell the market. Either way, we can
make money. So don't be a hero and try to pick a top or bottom, just wait for
confirmed breakout then invest with the trend.
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