Apparently it can only get worse for gold: CNBC: “Gold headed to $800” — Bloomberg: “Don’t catch a falling knife” – Yahoo!Finance: “More pain coming.” Is that enough bearishness for gold to carve out a major bottom?
“Gold sports a bullish RSI divergence and reached our long-term target of ‘new lows below 1,178.6’. Gold seasonality for November is bullish. Sentiment, seasonality and the bullish technical divergence increase the odds of an upcoming buying opportunity. “
That’s what the Profit Radar Report stated on November 5.
It’s probably safe to assume that gold’s $70 rally caught many by surprise.
- Bloomberg: “Don’t’ catch a falling knife! ABN sees gold at $800 next year” – November 6
- Yahoo Finance: “Gold bulls beware: ‘More pain coming’ before the metal finds a bottom” – November 10
- CNBC: “Here’s why gold could be headed to $800” – November 12
I’m not implying that any of the above sources are dumb by any means, but when a strong consensus builds, the market usually does the opposite.
In my humble opinion, such bearish sentiment (the above headlines are just a small selection, confirmed by other sentiment extremes) was worth to take a stab at ‘catching the falling knife.’
Risk management is crucial when dealing with ‘sharp knives,’ so via the November 5 Profit Radar Report I recommended the following: “We will dip our ‘toes in the water’ and buy gold (futures) if it dips below 1,130 and moves above 1,140.”
As the chart shows, a dip to 1,130 followed by a move back above 1,140 required trade to fall below the descending green trend line (target) and rally back above minor resistance.
If the market is able to rally strongly after hitting a down side target, it generally has the strength to rally further. This approach limits risk.
Since the above gold futures move happened overnight, I included this recommendation for ETF traders in the November 10 PRR: “Today’s pullback offers a low-risk entry for the SPDR Gold Shares ETF (NYSEArca: GLD), as it retraced 78.6% of the recent bounce, and filled an open chart gap at 110.49. If a low of some degree is established, GLD should move higher from here.”
Gold is currently one of my favorite trades, and there should be another opportunity to jump in for those who missed the initial up move. Additional buy trigger levels will be discussed via the Profit Radar Report.
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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