Source: http://scottpluschau.blogspot.com/2013/03/gold-has-potential-lethal-bearish.html
There are no guarantees with patterns, and a potential pattern doesn't always reach the breakout point either, however it is important to recognize them early in my strongest opinion. Developing a plan puts a trader in control. A trader with no plan, is at the mercy of the market. A market that is in control of the trader is usually not a good thing for a trading account.
As well, I believe observing the reaction of the market with patterns builds intuition for the future situations that are similar or bound to repeat.
In Gold the pattern on the Daily chart right now is an "Inverted N", which I highlighted in the blue oval. The patterns that are most important to me are fractal, meaning they appear in all timeframes. The larger the degree timeframe the more stable a pattern is, or the smaller the degree timeframe the more likely the pattern is to fail due to "randomness" or "noise" from larger degree timeframe traders.
With that being said the pattern in Gold I have seen many times, in fact on Friday it appeared in the Nasdaq 100 and it was "lethal", making a move for 20 points without looking back much.
There are a few things a trader can do when they identify patterns. Do nothing, such as stay on the sideline and observe. Use them in an attempt to capitalize on a future profit making opportunity, whether that be with confirmation or failure of the pattern. Or exit open positions for risk management reasons. One can always get "back in" or re-enter if there is no follow through on an expected increase or decrease in the probabilities for increase or decrease in supply and demand.
There are areas and patterns on the weekly chart in Gold that I am looking at in order to buy/invest for the long term, which I will get into later in the weekend update for the "Hard Asset Model Portfolio".
In the meantime, here is a look at the chart in Gold and the pattern I am referring to along with another observation on the smaller degree 30 minute chart.
First, the left hand side below is a trendline on the 30 minute chart that broke down initially, and the large bottoming tail (blue oval) was a sign of demand (large tails on candles should never be ignored in my opinion). The re-take of that trendline catapulted GC up nearly $30.00 an ounce, or about $3,000 per contract before the close.
However, the path of least resistance in Gold is lower until a prior support/resistance area is taken back with authority, or there is confirmation of a bullish reversal pattern. So the next day the trendline gave way again, and down she went. The phase of development a market is trading in the bigger picture is priority number one.
On the Daily chart is the blue oval of the "Inverted N" pattern. The lows haven't been taken out yet, but to give an example of the momentum this pattern can carry, below is the chart where this pattern appeared on Friday in the Nasdaq 100.
I have no position in Gold, and I am prepared for anything, a failed breakdown, or whatever pattern develops next.
(Click on charts to expand)
March 1st, 2013 NQ 5 min chart left hand side below. Breakout from the top of the N was strong for 20 points, or $400 per contract.
I have been cautious trading due to the bearish negative divergence in major Commodities compared to Equities, and the Price Volume divergence in Equities. There is relative weakness in many assets compared to the S&P 500, and those risk assets with relative weakness are likely to get pounded when the global "Risk Off" environment returns. Are you prepared for all scenarios good and bad?
When there is carnage in financial markets there is opportunity. Opportunity to short and make profit, and opportunity to scoop up the bargains that show relative strength. Recognizing Bullish Bottoming or Bullish Reversal patterns early and especially after a "Washout" will be extremely important. When bullish confirmation comes with these patterns it brings opportunity to add to a position for what will initially be seen as just a "dead cat bounce", then just a "short squeeze", but in many cases I believe it will be a new bull market trend beginning in the "Hard Assets".
New Subscribers seem to be excited about the new model portfolio, and I am just as excited to bring the service to you. Stay in tune with the chart patterns with one of the premium services here.
The first weekend update in the Long Term Investing Hard Asset model portfolio will be sent late afternoon today Sunday March 3rd, 2013, there is still time to join.
After this weekend the model portfolio services will be closed to new subscribers for the next four weeks.
Here is a link to a current list of some Exchange Traded Funds or Notes that might be used to invest in the Hard Asset model portfolio. Some foreign Currency ETF's have been eliminated since they no longer trade. Futures will be used in the analysis but all investing will be done in ETF's, ETN's. http://scottpluschau.blogspot.com/p/hard-asset-model-portfolio.html
Email for interest ScottPluschau@gmail.com
