With Friday's drop gold decided to take the lower fork and should now be moving down towards a DCL. This is great news in the sense that it allows us to formulate a framework and set of expectations.
Gold has moved to Day 19 of a Daily Cycle that typically runs between 20 to 30 days. For final Daily Cycles, the number is closer to 20 days while for 1st Daily Cycles the number is almost 30 days. With gold moving lower this deep in the Cycle, I strongly feel that is not a 1st Daily Cycle.
There is an outside chance that Friday marked the mid-point or Half Cycle Low of what is to eventually be a long (30+ Day) 1st Daily Cycle. In such a case I've made allowances for trading such an outcome within the report. But at this point the evidence now better fits the profile of being the final Daily Cycle that is turning over to form a DCL, ICL and YCL.
Click to enlarge
The good news is that with the culmination of this Daily Cycle we should be starting a new Investor and Yearly Cycle and it should be good for at least a $200-$300 move. Even if the bear market still has a hold on gold, we should expect violent counter-trend rallies. We know there is no way of knowing whether this will end up being the start of a major new bull trend. But in the least, this is shaping up to be a powerful and bullish setup.
If you look at the above chart, the new framework should be pretty easy to identify. Basically if somehow (not my expectation) Friday's reversal ends up being a 1st DC Half Cycle Low or a very short final DCL, then we will quickly cross back over $1,487 followed by a Weekly Swing Low at $1,495. Gold has no business back above these lines, unless either of these conditions is in play. Under both conditions, the future would be very bright and getting a position upon such a trigger would likely end up being successful.
That covers the upside breakout potential, but the concern for investors should be the short term downside risks. Remember that the primary trend for gold is lower and this means that the overall pull of the Cycle is coming from below. As bullish as the COT and Sentiment reports are, the entire sector remains hated and the bears are technically still in control. We need to be mindful of this and not rush our trades in an attempt to capture $50 of upside. The downside potential here is a $200 washout, it's just not worth the risk. Once gold resumes a new primary uptrend, there should be $500-$1000 of upside in that move, why risk capital going for $50 when it will eventually be needed to capture the "easy" primary trend move.
This as is an excerpt from the Midweek's premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. If you'd like to receive real time alerts as well as the most up to date reports, you may want to take their FREE 15-day trial to fully experience what they offer. Coupon code (ZEN) saves you 15%.