On the daily chart I have drawn a potential Head and Shoulders reversal pattern and annotated the head and each of the shoulders. Notice the right shoulder has not formed yet, therefore the use of potential. The reason I am really focusing on this pattern is because I am trying to find a reason for price to return to the 50 area (magenta oval). This gap formed and ever since I have had my eye on it. The reason for this is virtually all gaps fill, better than 90% of the time. The closer the gap, the more likely it will fill. In this case it is an almost certainty. So in short I am looking for a mechanism to get the job done.
A projection can be established from a head and shoulder formation. To do this, one has to establish the "neckline", which is a line connecting the points where each shoulder joins the lows formed on either side of the ultimate high or the head. Once the neckline is established (magenta dotted line), then a measurement is made from the head to the intersection of the neckline. This distance is then extended downward to establish a projection for prices, in this case to the downside. As can be seen, a confirmed pattern suggests a re-visit to the 40.50 area. Since we have not established confirmation at this point, it behooves us to watch for it. The red dotted line is a short-term downtrend that may be the first indication that the odds are climbing regarding confirmation. Strong support exists at 45.75 and a breach there in my mind confirms the pattern. The blue dotted line is a suggestion as to what the price action might look like.
So what to do? I am inclined to sell covered calls with a 45 strike. This will protect my position down into the gap. Profound weakness at that level would compel me to uncover my shares then sell outright, anticipating a full manifestation of the projection.
Daily: "
Now for the real bad news. There also is a Double Top reversal pattern that may be forming. To see it, we must look at the weekly chart. It is annotated with the blue 1 and 2. Well, looky there, where does the Fibonacci 38.2% retracement lie? You got it, right around 40. That is close enough to the 40.75 head and shoulders projection for government work. I think that price level is beckoning in a big way. The double Top is confirmed with a failure there, and the projection is equal to the height of the pattern measured from the base to the tops, in this case from 40 to 55. Therefore, the projection would be 40 - 15, or 25! Told you it was bad news!
Can this really happen with the strength of gold? Well, that remains to be seen. I suspect a stock market crash will hammer the mining stocks in a similar manner as seen in 2008. The difference this time is that I believe we will see a hyper inflation that follows and the mining stocks will absolutely fly off the chart as the broad market goes ballistic back to the upside. So my thinking is to preserve capital during the crash and then go all in.
Now let's see how this thing plays out. Keep an eye on the ball and hold on.
Can this really happen with the strength of gold? Well, that remains to be seen. I suspect a stock market crash will hammer the mining stocks in a similar manner as seen in 2008. The difference this time is that I believe we will see a hyper inflation that follows and the mining stocks will absolutely fly off the chart as the broad market goes ballistic back to the upside. So my thinking is to preserve capital during the crash and then go all in.
Now let's see how this thing plays out. Keep an eye on the ball and hold on.
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