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Archive for 21/01/2011
A good old-fashioned crush
21/01/2011 by Philinje.
Last Friday did not look good and there was a minor recovery, then yesterday the big push came to drive longs out of gold and silver. Volume was relatively light in gold but high in silver, and everyone knows JP Morgan needs to cover its silver shorts.
Interestingly, the Euro is still rallying. It seemed like that would end early this week but it hasn’t. So gold in Euros has caved to under the 1000 mark and the dollar has stayed under 79, except for a brief spike yesterday.
So is the carnage over? Tough to say. The ABC correction became a five-leg move down. Sure it could go farther, but also this could be it.
According to Alf Fields, now the most respected Elliot Wave analyst alive because of his accurate call on gold from the beginning of this bull market, as long as gold stays above $1337 we are in a minor wave 5 up that has sub-divided into 5 small waves, and this is wave 4 down, to the region of $1337.
Alf thought wave 4 might have ended at $1355 before the pounding yesterday, so he is already slightly wrong. And if gold falls below $1337 then his minor wave 5 theory is blown away. But it looks feasible still and just about an hour ago gold just about touched $1337. It bounced quickly to $1345 and maybe today we’ll see it stabilize around there.
Ideally there will be a bounce to above $1356 today, but somehow that seems unlikely. Silver is not moving any lower today - its corpse has flatlined. So the bulls are in a temporary daze.
This reminds me of the bear raids of recent years. We saw one right on Jan 3 and now this one was designed to scare every weak hand. It will look bad on the weekly chart, and both metals just failed at the 50-day MAs. So technical signs are not good.
But keep in mind the Euro porblems are not going away. We have a temporary improvement in perception. Here is a view from inside Europe by James Turk:
Short covering on the Euro will die out soon. Then there will be a reversal. And maybe some new spark of bad news will cause a new round of risk aversion, a crashing Euro and a spike in gold. It was a good time for JP Morgan to pull the pin on gold and silver - they have to pick their shots carefully.
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