Charts Forecast Gold, Silver, Market Moves

by David Banister | July 20, 2011 1:53 pm

It seems like a week doesn’t go by when there are great rallies or drops in gold, silver and the S&P 500 Index even though the news is opposite to what the underlying does. We’ve all seen great up moves when the headlines were horrible or the market tanked when the news seemed good. Well, welcome to crowd behavioral dynamics and investing!

I use Elliott Wave Theory combined with a few other indicators like sentiment gauges and Fibonacci relationships to forecast the coming bottom and top pivots in gold, silver, and the S&P 500 index in advance. I often ignore the day’s headlines completely and rarely if ever use them to forecast the next movements in the precious metals or broad stock markets.

Let me give some examples of why you should learn to ignore economic indicators and headlines and focus on crowd behavioral patterns. Learning to scale in long when everyone is getting bearish and taking profits when everyone is universally bullish is much easier if you follow Elliott Wave Theory, and apply that theory correctly.

Gold recently had a major drop from $1557 to $1482 over a brief time period. When I last wrote publicly about gold several weeks ago, I presented a bullish and a bearish case. I had said gold must close over $1551, otherwise it may have a truncated top and correct hard. Gold soon hit $1557 intraday and could not get over $1551 on that close. Within days it collapsed and dropped below $1500. I knew this because crowd behavior patterns are repeated throughout the markets over and over again and again. Here is the original chart I sent out many weeks ago showing the possible drop.

Gold did end up dropping to the 20-week exponential moving average at the $1480 range. I noticed a clear “ABC” weekly pattern. Now this is an Elliott Wave pattern that can warn you of an imminent bottom in an underlying. In late June, after this major correction, I wrote up another chart and showed a potential bottom coming in gold around 1480. On July 5 I confirmed the bullish mood that gold was coming back, which you can see with the June 29th chart I did for my TMTF subscribers:

We were able to adjust our views from short term bearish to bullish and catch the big swing in gold. The precious metal rallied from $1480 ranges to $1610 recently, and now is likely to go through a minor correction to $1568 or so. All of this is the crowd pushing positions into overbought stages of hysteria, and back to oversold stages of pessimism. I simply track those patterns and try to forecast the next move ahead of the crowd running in or out.

Another sample is silver as represented by the iShares Silver Fund (NYSE: SLV[1]) as it collapsed from $49 down to $32-$33 per ounce not long ago. After the dust settled I told my subscriber we would likely see silver trade[2] in the $34-$41 range for quite a while, and then mount another attack towards $50. Right now I see silver soon running to $45-$47 per ounce once it takes a breath. Below is my original early June silver chart.

Silver has indeed consolidated as forecast for about seven weeks now between 34-41, having recently hit $40.80 and backed off. I expect silver to break out over this range soon and attack $60 by year end as possible, but certainly $46-$50 by the fall. Last Wednesday I finally went bullish again based on crowd patterns and told my subscribers to go long at $37 with a target of $46.

Finally we look at the S&P 500 Index using the S&P 500 Index Options (CBOE: SPX[3]) which I forecast on a regular basis as well using Elliott Wave Theory and other indicators. This past week or so we saw a huge drop in the S&P 500 supposedly on Italy concerns and Eurozone issues. These issues are used to explain what just happened in the stock market, but not to forecast it. Late last week I said I remained very bullish on the markets as long as the 1294/95 pivot holds. The S&P 500 hit 1295 and has since rallied 31 points in a few days catching everyone off guard. That is Crowd Behavior 101 if I ever saw it!

Understand that the precious metals and broader markets tend to move based on major swings in sentiment from optimistic to pessimistic. The collective psyche of the herd is the most important because we can have periods of very bad news where the market will rally, and periods of seemingly great news when the market is dropping. The perception of the news of the day and how the crowd decides to react is more important than the news itself!

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  1. SLV:
  2. silver trade:
  3. SPX:

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