Gold / GLD Update

Gold is a tough one because it has been long associated with QE as an asset that benefits from QE, but if we are honest, it was an asset that benefitted immensely from March 2009 through September 2011 when we called an Intermediate top at minimum and perhaps a primary top (meaning gold goes in to a bear market and not as media defines as a 20% correction which has NOTHING to do with trend classification from a Dow Theory standpoint which is the official viewpoint of market participants, the -20% is a dumbed down version as Dow Theory can't be explained on CNBC in a 30 second spot).

When I taught my students Dow Theory trend classification of the 3 trends: Primary, Intermediate and Short (most technical traders have added a fourth Sub-Intermediate), this was the most difficult concept of all to teach and being it was not necessary for them to use it to the letter of the law unless they were financial commentators (beyond that of CNBC), I gave them an easier way to determine trends for the most part using moving averages.

The way I put it was this, a Primary trend is represented by the direction and if price was above or below the average and in the same direction (for instance the average moving down and price under the average), for a Primary trend this was a 200 day moving average, by that count GLD would be in a primary down trend, a 50-day represented the Intermediate trend which GLD would be in an Intermediate neutral moving to a downtrend after just having performed a counter trend rally, and sub intermediate would be a 22 day,  GLD would be Neutral in that classification and short term a 10-day and that would have just turned from up to down.

The point is, even during Operation Twist, Twist light and QE 3, Gold has NOT benefitted from QE, so the current conventional wisdom of the week is that Gold rallies on a "Taper OFF" view and Gold falls on a "Taper ON" view, when the last 2 years have proven this to be exactly wrong.

It was just last week that gold was acting as a flight to safety, now it's suppose to be acting as a QE determination, it's ridiculous.

That brings me to the next point, no one knows what gold's correlation is from 1 week to the next, but the last 2 years have shown that it's difficult to say, but it has not benefitted from QE3, in fact since the announcement of QE 3, it has moved down dramatically!

This is a 200 day moving average so you can see where the Primary trends would have turned, also where we called a top in gold which I still celebrate as I warned a fund manager who was a gold bug, he mocked me and then got creamed, sorry, but no need to be nasty when someone is trying to help you.

The first of the lower highs and lower lows (red lines) was EXACTLY at the announcement of QE3, so you see how gold performed during QE3, it's not exactly what everyone is claiming this week. You can see the concept I simplified for my students as well with trend classification.

So don't be quick to judge what gold's movements mean or what conventional and weekly changing wisdom says they mean.

There's a decent chance gold is making a head fake move, today would be the day to do it, but volume hasn't picked up so it may have to head for the whole number at $125 to hit substantial stops.

Here's what we have so far.

 This is GLD's 10 min chart, it's the more important chart because while I believe gold has more downside to go, I also think it has another counter trend rally in it, this is one asset to be very careful with as far as initial knee jerk reactions considering what you saw above about its behavior during QE3, it contradicts EVERYTHING being said of gold this week and it is proof, not words.

Today may be a stop run and on a QE day, if gold is actually a flight to safety trade which it's inverse market correlation would suggest, then after a knee jerk, gold may in fact press much higher if the taper is announced today which I think will be a trial balloon of 15% or so and mostly in Treasuries and not so much in MBS.

 Note the trend is opposite the SPX, as the accumulation range for the SPX was late August.

This is a descending triangle, this is a technical price pattern that is a BEARISH consolidation/continuation pattern, being the preceding trend was down, it fits perfectly here and the break below the triangle is EXACTLY what technical traders are taught to look for, making this an ideal head fake move as Wall St. knows how technical traders will respond to this classic price pattern.

So far it looks like the break hasn't hurt the 3C trend at all (2 min).

Gold Futures look even better, so don't be too quick to judge this asset or accept this week's conventional wisdom when you saw what the last 2 years have done, that's the real wisdom.