Precious Metals Set to Swap Trends With the Stock Market

NEW YORK (TheGoldAndOilGuy.com) -- Two big trend reversals are about to take place, but they have not yet started. Everyone has been waiting a year for this to occur.

While I do think 2014 is the year we see gold, silver, miners and many other commodities rally, it is important to follow the trend and wait for a reversal to form before getting overly excited and long commodities.

Each time we see the daily chart form some type of bullish pattern, gold market traders become instantly bullish. And each time this happens they get another reality check about their trading technique, which is trying to pick a bottom.

I just published a book in December which teaches readers how to identify trends and stages in the market: Technical Trading Mastery -- 7 Steps to Win With Logic. Buying into a bear market rally is not a high-probability winning position. Odds favor that sellers will pull the price down, likely to new lows.

This January is one of those times. Gold market traders are getting excited and buying long positions. While the bottom may in for precious metals, buying a bounce in a bear market is tricky. You had better have some trading discipline to exit if the price starts to sell back down.

Eventually we will see the stock market roll over and break down below its support trend line. Then gold will rally. But keep in mind, some of the largest percentage-based moves take place just before a reversal. What does that mean? It means that the stock market could easily go parabolic and rally for a few more weeks, then reverse down sharply. And precious metals would do the opposite: sell off, make new lows, then reverse back up and start a new bull market.

This chart illustrates the trend line between the S&P 500 and the SPDR Gold Trust (GLD).



And these are  two more charts showing my big picture trend analysis for silver and gold miners.


In short, the precious metals sector is still in a bear market and has not yet reversed to the upside. I don't pick bottoms or tops that go against the longer term trend. In this case the trend is down for precious metals, so I am not trying to pick a bottom.

While I am starting to get excited about the eventual bottom in gold, I am still sitting on the fence with my cash.

If you would like to get my analysis every day and my gold trades be sure to join me at www.TheGoldAndOilGuy.com

At the time of publication, the author was long on the S&P 500 e-mini futures index ES, but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Chris Vermeulen is founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com. There he shares his highly successful, low-risk trading method. Since 2001, Chris has been a leader in teaching others to skillfully trade in gold, silver, oil and stocks in both bull and bear markets.

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