Signs are pointing towards a possible climax run for $GLD but please note that this may only be the beginning. Climax runs can push stocks and commodities to extreme levels with parabolic shapes at nearly 90 degree take-offs. Gold is starting to make a similar run, right now!

Well, Gold is now off 16% from that climax top post in August and more than 19% from the ultimate top which is within 1% of a confirmed bear market for the metal.

More important is the recent chart pattern which resembles a Dow Theory Breakdown or 1-2-3 breakdown. This pattern suggests that Gold has further downside.

I don’t know what 2012 will bring but for now, I continue to remain bearish on Gold, especially considering the strength in the US dollar.

With that said, this is the market and things can change in a day so stay tuned to my daily twitter updates (featuring charts and 140 character analysis).

I have nailed several climax tops in the past and will use two prominent examples to highlight the extreme runs they made before dropping hard. These examples will also show us what to look for when selling into exhausting strength and possibly taking the opposite side of the trade on the down side.

Both Platinum $PL_F and PetroChina $PTR formed climax tops that I highlighted in real time on the blog back in 2007 and 2008. I started to notice both climax tops early in the run so use that information when analyzing my take on the current $GLD chart. I am most likely early and I feel that gold may have more rebound power if it does start to drop. What do I mean? I mean that Gold may drop hard (short-term), only to find support and then resume its up-trend.

I don’t know if Gold will fall apart the way that Platinum and Petrochina did a few years ago because the global economy is in bad shape and humans have been programmed to turn to the shiny metal as protection against “all things bad” – such as fiat money, recessions and depressions, etc.

Platinum Climax Top? | February 18, 2008

What catches my eye is the extreme run-up over the past two months as the metal seems to be making a climax run (out of character during the 10-year up-trend). Similar action started to happen in PTR and I highlighted it in the exact manner as I am doing here with $PL_F in a post titled The Real PTR Climax Run.

The Real PTR Climax Run? | October 10, 2007

…the HUGE volume on the latest push to new highs clearly indicates something is going on.
…a climax top is where the stock has advanced for many months and suddenly races up for one or two weeks much faster than any prior one-or two-week period or since the beginning of the stock’s long move up.

How did I determine that? A new high, a failed high and now a challenge to the minor low (see chart for visual). It’s essentially a Dow Theory reversal setup.

• December 12, 2008: Dollar falls, Crude up
• December 02, 2008: Dollars, T-Bonds and Crude Oil
• November 26, 2008: Oil a Value Buy?

It’s still the trade that intrigues me the most. The official buy signal that we look for on this blog has not triggered so yes, I am playing with fire. I considered the position a “value play” in December and that is the truth but I also admit that I have not followed my traditional rules of entering a position.

I grabbed shares that represented 25% of my typical position size so my risk is greatly limited but I am looking to add shares, only this time with an official buy signal. I did not get a signal to enter DXO but the current charts are showing that potential with a jump above the moving average or abreakout on the point and figure chart.

A strong move above $3.75 on the point and figure chart will be a major buy signal, especially if it is accompanied with heavy volume. Buyers and sellers are struggling to take control of the commodity as the economic turmoil attempts to give us some type of direction across all markets.

I’ll be honest; it might be too early (still) as the chart could drag along the bottom of the moving average for months before it decides to pick a direction. However, when it does, I’ll be ready to pounce and add shares to my first position.

Let’s wait and see but don’t let this one off of you watch list.

What is a point and figure chart? Click here to learn!

DOLLAR IN NEW SPIRAL…

…biggest one-day slide against euro

OPEC deepest oil cut to rescue prices…

YET PRICE TUMBLES BELOW $40 FOR FIRST TIME SINCE ’04…

Let the charts do the talking…

12/02/08: Dollars, T-Bonds and Crude Oil

I started to mention Oil as a possible value buy in November:
11/26/08: Oil a Value Buy?

Here’s what I was thinking:

I mentioned my idea last week: Crude Oil ETN’s. My wife and I have agreed to start purchasing a stake in crude oil investments, starting this week with a 25% purchase of our fully anticipated position (DXO is the instrument). The crude oil charts have not turned positive and I have not received any buy signals such as the ones I highlighted in the dollar earlier this year but I am viewing this more from a value perspective rather than technical. Maybe I will strikeout big time but I am swinging for it anyway.

Too many Middle East talking-heads want to cut production and raise the price of oil. Maybe I am extremely early to this “rebound/ bottom-picking game” but I can’t seem to reason how oil will stay low for long (talking years here, not a short term position).

It will be fun to see how this plays out.

12/17/07: US Dollar Snapshot

UPDATE: You can trade the USD like a stock by buying the long or short ETF:
Long: PowerShares DB U.S. Dollar Bullish (UUP)
Short: PowerShares U.S. Dollar Bearish (UDN)
I will cover these in an additional post later this week.

The metals have been weak; especially Platinum and Gold (see this February post, 02/18/08: Platinum Climax Top?, where I highlighted the climax top in Platinum). I’ll admit: these things take time but typically work out if you stay with the signs and have the patience to pounce when the move begins. The signs started in February but didn’t give the signal until July.

What catches my eye is the extreme run-up over the past two months as the metal seems to be making a climax run (out of character during the 10-year up-trend). Similar action started to happen in PTR and I highlighted it in the exact manner as I am doing here with $PLAT in a post titled The Real PTR Climax Run.

Petrochina, currently trading at $150, is now 50% off of its high of $266.81, a number reached during the climax run. I was a little early with PTR when I wrote the post Petrochina (PTR) Climax Top? back in September 2007.

Based on my PTR analysis, wait for the breakdown in Platinum to begin prior to picking a top, if it even happens. This is a game of odds and we can’t be 100% certain that Platinum is going to breakdown and correct by more than 20% over the next six months. However, I will establish a position when the ideal entry presents itself. The ideal entry could be a large reversal on heavy volume while making new highs early in the day and/or week or it could be a series of large down days on increasing, above average volume.

I do want to be clear that I am not suggesting that the long term multi-year run in Platinum is over but a correction of more than 20% may be in the works.

What do you think?