GLD / Gold Long Trade Set-Up

In the Daily Wrap, you'll see how this all fits together, but I suspect we get an entry for a long Gold/GLD trade within the next day or so, I suspect at the same time that bonds and the averages are ready to bounce.

I can't answer the longer term question I have suspected for some time at this point, "Is this a long term bottom for gold and is it about to make a new primary uptrend?"

For our immediate purposes, this question is not that important, but if you are looking at additional information and you think my hunch may be right (I only have a problem with it based on the $USD correlation for now, but that may change substantially in the near future), then if you like the trade idea, you might consider choosing an asset that would let you hold for a longer period of time in case this is that moment. In other words, you're not going to capture a primary trend with options. You may or may not be able to capture it with a leveraged ETF like UGLD as the pullbacks will cause more drawdown than something like GLD, that all depends on your risk tolerance and how much you like the trade. I'm just bringing up the issue for your consideration as we will not be specifically dealing with that aspect (long term trend) of GLD in this post, this is about a near term set up-perhaps tomorrow.

And again, I'll show you how this fits in to our ballet that is largely $USD based and likely because the carry trade is unwinding and is exerting more influence on the market and structural damage that will have a profound influence in the near future than most anyone realizes.

The WSJ (I believe or perhaps it was Bloomberg) said that a full 1/3rd of professional Wall Street traders had never seen a rate hike. The last rate hike was 2006, that means a lot of Pro and probably a majority of retail traders (if we consider the global market with the millions of new accounts opened in China every month -sometimes in a week, than we can say the clear majority of traders have never seen ...) A) a rate hike, B) a bear market, C) a Carry trade unwind or D) a "semi-normal" function market devoid of incessant central band tinkering and policy accommodation... This is NOT the norm.

That tells me the one thing I have believed for years is more true now than ever...THOSE WHO UNDERSTAND THE GAME AND ADAPT HAVE THE OPPORTUNITY OF NOT ONLY A LIFETIME, BUT LIKELY MULTIPLE GENERATIONS IN FRONT OF THEM. While the vast majority will be in territory they have never seen, most seem to not even be aware there's such a thing as a bear market. Finally, nearly all of these people say the same thing that has been said at every asset bubble since the Dutch Tulip Craze in 1637... 

"This time it's different" 

I've long been a student of the markets. In fact around 2007/2008, I put out a 5-part video series on market bubbles, which I can only find 2 parts of now. The phrase above was uttered in one form or another in all of these bubbles, that's what they all had in common...

The: Dutch Tulip Craze/Mania, The South Seas Company, The Railway Mania, the Missisippi Company, the Speculative building bubble in Florida in the 1920's (Jesse Livermore was involved), The Roaring 20's (led to the Great Depression), The Asian Financial Crisis, the Dot.Com bubble and numerous real estate bubbles worldwide just to name a few.

Gold was getting like that in 2011. A lot of you old timers may remember a certain hedge fund manager/investment letter writer who was a big gold bug who had asked my opinion of gold in 2011, after being nearly laughed off an email, I never heard from him again, but if you remember that then you'll remember this...

 This is gold during the QE era at #1. Note the near perfect adherence to the trend line and even more so to a 150 day simple moving average until #2 in which price "seemingly" bullishly pulled away from the trend line and the long term 150 ma for a move up on an increased rate of change in price, one of the earliest signals that a trend change is coming. This is a red flag that has me looking to get out of a position rather than celebrating as people often become extremely emotionally attached at that point and all kinds of cognitive biases take over once price turns down that cause them to lose a lot of money. In Dow Theory this phase is actually called the "Excess" phase

We called a top around the very high in 2011 in Gold and this hedge fund manager was a huge gold bug, I don't even know if he owned anything else so he didn't like what I had to say for sure. We forecasted in advance that gold would either enter a primary downtrend or an Intermediate downtrend from there. Just before entering a downtrend, note the head fake move above the obvious triangle at #3. As I often remind, head fake moves occur in every asset on every timeframe. In addition, large triangles like this or the ones we are just loitering around now are NOT consolidation/continuation triangles, they are most often tops or bottoms depending on the previous trend.

At #4 we started to notice some strange signs mixed in intermittently that looked like gold was forming a base to rally from, but they have been on and off several times , each over periods of months. At #5 we have what looks like a stop-run head fake move we'd expect to see just before a trend reversal to the upside. Again, I'm not covering the long term picture in gold right now as there's too many factors with the $USD that skew the interpretation of data.

 This is a daily 3C chart and positive divergence near the apex of the triangle and after a potential head fake move, thus there's still a very good chance that gold enters a primary uptrend,  however inflation data doesn't support that thesis right now as gold is typically bought in advance on expectations of inflation.

This is where our trade set up resides...

 The long term 60 min chart has a clear positive divergence especially since April where/when a lot of things happened/changed.

The 30 min chart is also leading positive.

As is the 10 min chart so at this point we have pretty strong multiple timeframe confirmation of something going on in gold that looks a lot like some deep pockets have been accumulating.

 More recently this 5 min chart is nearly vertical leading positive. I almost considered this a position now just because of this chart, but there are other elements that I'll address in the Daily Wrap.

Interestingly, gold has the same 3C intraday pullback signal that I hoped and expected to see in the market averages today and gold shares a correlation with them recently which you'll see in the Daily Wrap.

I looked at Gold futures as well and found much the same in confirmation...

 "YG" Gold Futures 60 min leading positive divergence like GLD.

 This is the 30 min gold futures leading positive like GLD.

And the 5 min, I didn't draw an arrow, but just compare price and the level of 3C at point "A" and "B".

Intraday on a 3 min chart, gold futures are pulling back like the market, this is our potential trade opportunity (long).

And while less liquid, the 1 min gold futures chart shows the same.

I'm looking for a pullback likely at least to fill the gap just below, but am setting price alerts at all 3 levels, $114, $113.50. $113 and $112 so I don't miss the opportunity.

We just need to see the short term intraday charts show accumulation on a pullback, if we can get that, GLD or whatever derivative asset you decide you like, will likely be a well timed swing+ move, maybe more as mentioned at the top of this post.