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All markets will ultimately recover but how and when we cannot say with great confidence at this point.
Gold is certainly one bright spot amongst all the charts I look at. We can see from the chart below that gold is in a five wave impulse move higher:
click to enlarge
Note however the oscillator. An oscillator comes into its own when we use it in wave four pullbacks. We look for the oscillator to come back to about zero – plus or minus 10 on the index.
However in recent days the index has fallen to about 35. If the index falls to about plus 10 this indicates that profit taking has not been significant and there is still confidence about the way forward. So when the oscillator falls well below the zero line this indicates there is uncertainty and traders are lacking confidence.
The other point to note is that the wave four is not yet complete thus we could see gold head lower. On the other hand it could head higher and the line to wave five indicates that at this point we expect the wave five will ultimately be met – but with vacillation along the way.
That is the story for gold but when we look at gold stocks we can see that they got a little ahead of themselves and thus do not necessarily look strong at the moment. A contributing factor is that share markets have bounced in the last month and it is not so easy to be a brave heart to buy in at these current levels. So there is a perception that we could see profit taking generally and if that becomes excessive at a time when we see any bad news we could see another reversal down.
As so often happens, it is just about as clear as mud. But one day the waters will clear.
Enjoy the ride
Tom Scollon
Chief Analyst
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