How many times have you scratched your trading head wondering why
gold or silver were either rallying hard or dropping hard on seemingly
bearish or bullish news? How about the general stock market represented
by the SP500 Index? Has it ever rallied when the headlines were
horrible or tanked when the news seemed good? Well, welcome to crowd
behavioral dynamics and investing!
At my TMTF service, I use Elliott Wave Theory combined with a few
other indicators like sentiment gauges and Fibonacci relationships to
forecast the coming bottom and top pivots in Gold, Silver, and the SP
500 indexes in advance. In doing so, I often ignore the day’s headlines
completely and rarely if ever use them to forecast the next movements
in the precious metals or broad stock markets.
Let me give some examples of why you should learn to ignore economic
indicators, headlines, and talking heads on CNBC and elsewhere and focus
on crowd behavioral patterns. Learning to scale in long when everyone
is getting bearish and taking profits when everyone is universally
bullish is much easier if you follow Elliott Wave Theory, and apply that
theory correctly. If the matter between your ears is unabashedly
biased, it will not work… one must be objective and open minded to
change to survive these volatile markets.
Recently with Gold, we had a major drop from $1557 to $1482 over brief
window of time. When I last wrote about Gold several weeks ago
publicly, I presented a bullish and a bearish case. I had said Gold must
close over $1551, otherwise it may have a truncated top and correct
hard. Sure enough, a few days later Gold hit $1557 intra-day and could
not get over $1551 on that close. Within days it collapsed and dropped
below $1500. How did I know this in advance? Crowd Behavioral Patterns
are repeated throughout the markets over and over again and again.
Here is the original chart I sent out many weeks ago showing the
possible drop:
Gold did end up dropping to the 20 week Exponential moving average at
$1480 range, and as it did I noticed a clear “ABC” weekly pattern. Now
this is an Elliott Wave pattern that can warn you of an imminent bottom
in Gold in this case. In late June, after this major correction I wrote
up another chart and showed a potential bottom coming in Gold around
1480, and then on July 5th I confirmed the Bull views on Gold were
coming back into play, which you can see with the June 29th chart I did
below for my TMTF subscribers:
We were able to adjust our views from short term bearish to moving
back to bullish and still catch the big swing in Gold. The precious
metal rallied from $1480 ranges to $1610 recently, and now is likely to
go through a minor correction to $1568 or so. All of this is the
crowd’s action together pushing positions into overbought stages of
hysteria, and back to oversold stages of pessimism…I simply track those
patterns and try to forecast the next move ahead of the crowd running in
or out.
Another sample is Silver as it collapsed from $49 down to $32-$33 per
ounce not long ago. After the dust settled I sent out a chart and told
my TMTF subs we would likely see Silver trade
in the $34-$41 range for quite a while, before mounting another attack
back towards $50. Right now I see Silver soon running to $45-$47 per
ounce once it takes a breath. Below is the original early June silver
chart I sent to my TMTF subscribers: We had an ABC strong rally which we
forecast at TMTF in late August 2010 ahead of time, and once those
rallies are over it takes quite a while to work off the sentiment.
Silver has indeed consolidated as forecast for about 7 weeks now between
34-41, having recently hit $40.80 and backed off. I expect Silver to
break out over this range soon and attack $60 by year end as possible,
but certainly $46-$50 by the fall. Last Wednesday I finally went
bullish again based on crowd patterns and told my subs to go long at $37
as you can see below in the chart sent out then with a target of $46
likely coming. The herd of investors had formed yet another ABC weekly
pattern, and it was time to go long.
Finally we look at the SP 500 which I forecast on a regular basis as
well using Elliott Wave Theory and other indicators. This past week or
so we saw a huge drop in the SP 500 and broader markets supposedly on
Italy concerns and Eurozone issues. Although I am well aware of these
issues, they are used to explain what just happened in the stock market,
but not forecast it. Late last week I sent out the chart below to my
subscribers and said as long as 1294/95 pivot holds, I remain very
bullish on the markets. The SP 500 hit 1295 and has since rallied 31
points in a few days catching everyone off guard. That is Crowd Behavior
101 if I ever saw it!
The bottom line is understanding that the
precious metals and broader markets tend to move based on major swings
in sentiment from optimistic to pessimistic. The collective psyche of
the herd is the most important because we can have periods of very bad
news where the market will continue to rally, and also periods of
seemingly great news when the market is dropping.
David A. Banister-
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