Gold Bottoming? - Richard Russell - Financial Sense

Gold has risen a fantastic ten years in succession. Gold, of late, has been receiving a lot of interest and publicity and advertising. Gold is probably overdue for a correction in this ongoing bull market. Analysts are talking about “gold correcting down to 1200 or even 1000.” However, I believe that the more important picture is that the gold bull market has much further to go on the upside.

I’ve been reading the McClellan Market report for years. It’s one of the better and more intelligent reports that I read. McClellan does a good deal of research on cycles, and I must say some of their cycle studies work out quite well.

McClellan has discovered that there’s a cycle low that appears for gold roughly every 12.5 months. The cycle lows have run as follows: Jan 6, ’06, Jan 8, ’07, Jan 7, ’08, Jan 5, ’09, Jan. 4, ’10, Jan 8, ’11. McClellan puts the next cycle bottom for gold at February 8, 2011. Which means that the cycle low for gold should arrive at any time between now and February 8, give or take a few weeks before or after that date.

Interestingly, the McClellan cycle bottom for gold is due to arrive amid a good deal of professional bearishness regarding gold (“gold overdue for a major correction”). Thus, many traders have traded out of their gold positions, just as we near the date for the McClellan cycle bottom. Below, the red arrows mark the McClellan cycle lows.

The Russell view — It’s virtually impossible to successfully time in-and-out trades during an ongoing primary bull market. Usually what happens is that the trader has moved out of the market just as the bull trend resumes. Thus, the bull market does what it’s supposed to do — advance while leaving most traders and Johnny-come-latelies behind.

Today I received the “Bullish Review of Commodity Insider”. I’ve been reading this excellent publication for years, and it’s proved its accuracy many times over. The “Review” is based to a large extent on the action of traders (large speculators, commercials and small speculators) on the COMEX. The latest issue of the Bullish Review has just arrived, and it features gold. About gold, the Review writes, “Commercials were quick to jump on a relative small price correction; with enough buying to trigger a major COT (commitment of traders) buy signal.”

So as for gold, we have a McClellan cycle bottom and a COT major buy signal from the Bullish Review, both in force in the current area. So let’s see what happens. Above I show a P&F chart of GLD. If GLD hits the 128 box, it will be giving a sell signal for GLD and obviously for gold as well. GLD has support in the 114 to 122 zone. GLD closed at 130.10 on Tuesday.

BULLS WIN — The stock market is a “weighing machine.” Daily it weighs the net opinions and actions of millions of traders and investors in the US and around the world — all attempting to discount the future. When opinions are divided, the stock market reflects this by becoming erratic and almost schizophrenic. Which is where we are now. However, I have my faithful PTI to depend on. My PTI has been bullish for months on end, and during the few times when it has turned temporarily bearish, it immediately swung back to the bull side.

Conclusion — This has been a difficult stock market to follow, but the verdict must go to the stubborn bulls.

Source: http://www.financialsense.com/contributors/richard-russell/gold-bottoming