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Gold: Eyeing the Climax Bottoming Phase

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Stocks in this article: GLD

Gold! Just the sound of it gets the heart pumping! Thus, if you are going to trade the yellow metal you must do so with the knowledge that your emotions are going to be challenged in the process. Personally, I keep emotions and trading as far from each other as possible.

Almost every trader has an opinion about the current and future price of gold. You are about to read mine in short order. But first, know that I have been a gold ( SPDR Gold Trust ETF (GLD)) grizzly bear since last year.

I patiently waited for a bearish pattern to develop, one that would offer the edge to the gold bear.

That pattern appeared on my charts in February ( see: 3 Peaks and the Golden-Domed House). GLD had coiled back then, around the $160 level. The RSI and slow stochastic had both turned down, signaling (for me) that the odds highly favored the short side player in GLD (gold).

Experience has taught me to stay with a successful directional bias until either that bias goes off the proverbial tracks or the set-up exhausts itself. Thus GLD is still in my crosshairs, the end game and climax for this mega-bearish cycle the target. I think of technical analysis as part science, part science fiction. And much akin to astrology, the analysis of what any chart portends is: 1) in the eye of the beholder and 2) relative to where the analysis begins in time and place. The key inflection points in value are only important relative to where the profitable analysis began.

Thus, I instantly negate all opinions from any "expert" who did not get the critical and initial moves correct in the first place! That will not stop the plethora of such "expert" opinions that you will find on a daily basis throughout the financial media. As for GLD I know I got "it" right back in February. I have that quiet confidence to make the next attempt, which in this case is the quest to find the price level for the climax of this GLD bear cycle.

To begin this process I am using the fall period of 2005 when GLD was trading around the $45/share level. Add that 45 to the top hit in August of 2011 of about $185/share. So, $45 + $185 = $230. Divide $230 by 2 to get $115. That is the half-way point between the high and low for GLD over this 8 year cycle.

Remember, I keep things simple. However, I also know enough of the time that the KISS method pays off. As for all the "experts" opining about the bottom you might Google this phrase: "bottom for gold". Read the myriad of opinions that have already erroneously attempted this feat. Most likely what they all have in common is that every one of them did not call the top in GLD (gold).

The $115 level makes trader-sense to me because: 1) 50% retracement over a good deal of time has historical merit; 2) short covering as well as new buying greed should begin to grow roots around that number; 3) new short sellers will probably be positioned in size by then, confident that gold will soon break down to $1,000 (for GLD, $100); 4) the gold miners will probably have dramatically cut new production plans, reducing the overhead future supply; and 5) this bottoming call of $115 as of now has little or no company that I know of.

Note: I posted a trade on GLD yesterday on OptionsProfits on GLD yesterday on OptionsProfits. The trade is a 100% controlled risk trade.

OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits.

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