Gold Breaks Out Again

Gold and stocks moved up together today and gold moved to new all time highs. The trend in gold is clearly up, but I do expect the move will be volatile in similar fashion to the move from October 08 to February 09, which means sharp pullbacks will keep the bulls on their toes.

The question before us now is what next with stocks? The one thing that is clear at the moment is that the move up from the October 2nd low in the Qs is not impulsive, and it does not appear to be impulsive for the Dow and SP500 either. If this is correct then lower prices are to be expected, whether soon or a few days from now.

Based on the comments, it appears that we have alot of work to do to reconcile the wave counts. Looking over the stock indexes, I realized that much of the confusion on my part is that I tend to concentrate my efforts on the Qs. Unfortunately, the rally in the other indexes does not match up with the Qs in that the Qs made a higher low in July, while the SP500 and Dow did not, which makes the analysis difficult. They don't have to be completely aligned, however.

I think the point to always keep in mind is that we have many tools that we can use other than elliott wave to help keep us on the right side of the trend. In particular, our main tool is price itself. So far, other than a negative divergence MACD sell signal, there is little that would compel us to short this market at the moment. Therefore, the real question is how long do we want to be right now?

As I have been recommending since late August, I have been lightening up on long positions going into October. (I don't want to be the last one standing when the music stops.) And if everything goes to plan, I will be out of all longs save my core positions by mid to late October.

We may see another new high for the rally this month. Depending on how it behaves then, it may be an opportunity for shorting this market, but the difficulty will be that the impending correction will most likely not be impulsive, and therefore will be difficult to trade. Smaller size and wider stops will help.

I would like to take moment to emphasize a point that perhaps has gotten lost since March. Over and over again back in March, April and May I stated that the risk in this market is to the upside. Since March we have had a historic rally, and now the bears are out in force again. Most of the ones I read are saying that this is it for the rally, and we are going to new lows in Q1 of 2010. I cannot disagree more. Nothing in my work supports this view. In fact I am still looking for higher highs in 2010 regardless of the wave count. The technicals and cycles, quite apart from elliott wave, support a continuation of the rally into the summer, and perhaps fall of 2010. The upcoming correction will be just that - a correction, which is not ideal for shorting. Again I repeat, the risk is to the upside, but I am expecting an opportunity to re-enter at better prices.

Of course, I could be all wet, but that is where price comes in. It will tell us what to do, just like it did with gold. I was wrong on the short side of gold, but now I am long - not wrong. If the market wants to break down to new lows, we'll know soon enough, but we are nowhere near that point yet.