Gold shall tank soon.

I last discussed Gold a month ago, and thought that if price broke above $1,250, I’d be wrong about Gold reversing. However, gold has tried to break above $1,250 several times now, and failed. I think the next big surprise in gold will be to the downside.

Notice Gold’s daily chart above. First, there is a 5-wave progression from the 1040 low set on Feb 5, 2010. 5-waves are usually followed by reversal. Second, Wave-V from 1040 looks to be forming as an ending diagonal, which as you know, reverses strongly. Third, notice the MACD divergence with price. And forth, notice the declining volume as gold is “breaking out” to new highs with bullish sentiment. Volume should be increasing sharply if this breakout were real.

I think all these factors should lead to a sharp decline in the price of gold in the near future.

Another leg down coming up?

Last Wednesday, bloggers and readers were going nuts as the market was dropping sharply. Crash call after crash call was being published, and it seemed impossible for the market today rally. Of course that was the bottom, and here we are, 70 points higher! I am noticing a bearish pattern that I’d like to share. I consider it valid as long as SPX stays below 1120.

Notice that the drop from 1216 can be counted in a series of first and second waves. Wave1 ended with the ‘flash-crash’, Wave2 was the sharp reactionary rally. Wave-i of Wave3 retested 1040, and now Wave-ii of Wave3 appears to be unfolding as a flat (3-3-5). Notice that volume has been trending higher with the declines, and lower with the rallies. This tells me that we’re still prone to selling off. Today’s breakout above 1105 probably convinced a lot of bears to capitulate, as is apparent from today’s price action. We’ll see what happens!

Will the EUR/USD Collapse?

I had been shorting EUR/USD from 1.51, and closed out the trade when the EUR hit 1.2700. However, I acknowledged in that post that there was the potential for more downside. We did in fact continue selling off hard, to below 1.20! Commensurate with this selloff has been the creation of a massive bear herd—now it’s obvious that the euro WILL collapse! I think the EUR/USD will bottom soon and test 1.3250.

Take a look at the chart above. From an Elliot Wave standpoint, we are nearing the end of an extended decline. Wave-V from 1.52 is nearly complete, and was approximately as long as the distance from the beginning of Wave-I to the end of Wave-III; this is a common occurrence when Wave-V extends. Wave-iv of Wave-V formed as a triangle, and triangles often indicate a move is nearly exhausted. If we do bottom, a rally to 1.2750 followed by a rally to 1.3250 seems reasonable.

The chart above shows the USD Index. I show this chart simply to highlight the triangle that USD broke out of. This sort of thrust is usually terminal.

The next few weeks should be very interesting!