GC Breaks Back Above 1923.7 Downtrend Line

After stating I would get short yesterday, I instead exited my short. The reason being because ES broke above 1681 which I believed it should have not tested again.

After stating I would get short yesterday, I instead exited my short. The reason being because ES broke above 1681 which I believed it should have not tested again. I know I stated in the past that I would hang on until 1767 and that I would tolerate Gold briefly trading above the 1923.7 downtrend line but when I made those comments I wasn’t expecting a break above the 1923.7 downtrend line to occur as it did yesterday.

This market looked like a good sell yesterday morning but it reversed 50 points in the other direction by midday following the Fed comments. This says very clearly to me, that my ideas on this market are dead wrong. I could not see any sell setup forming yesterday and it became very certain that Gold was headed higher. If you know you’re going to lose money then there is no point staying in a trade. Overall since making a lower low below 1535 the Gold market has not acted at all as I expected and yesterday’s explosive move up left me no choice but to exit my position.

Reviewing the whole trade, I shorted GLD at 150, 162.5 and covered both at 163 for a total loss of $1300. I shouldn’t have gotten short below 1550 as I did instead I should have been patient enough to wait for a good sell setup. I made good attempts to short Gold at 1600 and around 1645 which both briefly worked but I was eventually stopped out and I still defend getting short yesterday even though I was stopped out. Those are the points where I should have waited to short Gold at.

So why did I short Gold below 1550?

...for the same reason I shorted Crude below 98

So why did I short Gold below 1550 anyway? I remember how Crude collapsed in 2008. It broke the 50 uptrend line and made a lower low below the previous swing low around 98 in September 2008. I got short at this point (via USO) and rode out the bounce to 110 and eventually exited the trade when Crude dropped to 85. If you compare the 2008 Crude chart to the Gold one they look very similar. When Gold dropped below 1535 for the second time it broke the 681 uptrend line and made a lower low below the previous 1535 swing low. I felt I was in the same situation as 2008 and it turns out I wasn’t.

Looking back I should have exited my Gold short when Gold broke above 1643.7. It was at that point that the trade should have begun making me worry. But I was stubborn in my belief that Gold would collapse and I acted irrationally.

So what now? There is no sell setup on Gold right now but if Gold tops below 1767 (like right about now) and presents a good sell setup then I would get short again. If Gold rallies above 1767 then I believe Gold is headed to 1804. I still think Gold will drop at some point and backtest the 1923.7 downtrend line around 1650-1670 but Gold is pretty heavily correlated to the stock market right now and waiting for a Gold pullback is like waiting for an ES pullback. I don’t see one coming yet.