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by Hank Swiencinski, AIQ TradingExpert Pro client fro over 20 years, founder of ‘The Professor’s One Minute Guide to Stock Management’. Later this month Hank will be presenting an AIQ webinar covering some of the techniques he teaches, like cycles and stick patterns. Here’s a taster of his depth of analysis on GLD

During the week, we saw gold (GLD) fall in response to the release of the Fed minutes. I know that many of you are following gold, so I thought it would be a good idea to check the charts to see if it everything was still on track with my gold scenario.

I know that a lot of my subscribers were involved in gold last summer when GLD moved from the 150 level to near 175. That’s when stocks like Royal Gold (RGLD) were leading the Dean’s List and making nice moves almost every day as it rose from the low 60s to over 100.

Then in early October, things started to change and gold stocks started to decline. And as I write this, gold stocks are still pulling back. So I thought it would be a good idea to do an update on gold, mostly because I don’t talk about it a lot now in my Daily Updates. That’s because I’m usually NOT interested in things that have negative DMIs.

But let’s take a closer look at gold. The thing we need to determine is “Is gold behaving normally, or is it doing something strange? Something we don’t expect.

If it’s behaving normally, then we shouldn’t be concerned about the pullback. On the other hand, if its doing something that we don’t expect, then we need to change our outlook on gold, and any scenarios associated with it.

OK, now I want you to look the attached chart for GLD, which is the ETF for physical gold. What do you see? Hmmm? I want you to think about all the things you learned in Class, because almost EVERYTHING we talk about in class is on the chart.

Now I don’t want you to read any further until you actually look at the chart. Remember, this is a learning process, and not a Lou letter where he just tells you to buy something.

I want you to understand what’s happening with gold, so stop reading and go look at the chart.

OK, here’s what I see. First of all I see a stock that is in an Uptrend with its 50 > 200. However, the DMI is negative now and has been negative for the past 3 months. This is why I’m on the sidelines.

As for the pattern, I see a stock that has just finished a Major Wave 4 triangle after a Major impulse wave 3 UP. Is this normal? Do we expect a triangle to form AFTER a Major Wave 3 up? Yes.

During the formation of the triangle, did it have 5 waves? Yes.

Did the 5 waves form a Three Lows to a Bottom Pattern? Yes.

Is this what we expect for wave 4s? Yes.

OK, so now after answering Yes to all of the questions, there appears to be a high probability that the triangle that took a full year to form was a correction of the Major Wave 3 up. So once it completes, the Major Wave 5 up should start.

Before we get into wave 5, let’s ask ourselves…How do we expect wave 5 up will develop? What should it look like? How many waves will it have? How far up should it go. All of these questions should be thoroughly understood in your mind BEFORE you make a commitment to trade gold in the future. Otherwise, minor setbacks, like the release of the Fed minutes will get you confused as to what is really going on.

So let’s move on.

OK, I would expect wave 5 up to develop in 5 waves. After a TLB Pattern, I look for two things in a wave 1. The first is a‘Rope Jump”, or to see the price cross back above the 50 and the 200. Remember, IF we’re going to move back into a long term Uptrend for Major Wave 5 Up, we need to have the 50 move above the 200. And the only way this can happen is IF the price gets back above the ‘ropes’. Did this happen with GLD? Yes.

The second thing I want to see is the power of the move. In other words, IF GLD is going to enter a Major Wave 5 up, then it should start to hit specific targets as it moves up. Well, what was my first target for wave 1 up? Where did the target come from? Hmmm?

That’s right…from the Three Lows to a Bottom Pattern that formed as the Wave 4 triangle developed. The target is the interim high between the first two lows. Remember? So, did GLD hit it first target? Yes. (See the magenta line on the chart.)

OK, so now after hitting that first target, what would we expect? Hmmm? Here’s the part that most of you don’t like to hear. Right. We expect to see a wave 2 pullback. It’s perfectly normal to see a pullback. As a matter of fact, the pullback MUST happen for GLD to go higher.

How do we expect the pullback to form? Will it be 5 waves or three? Correct, it should be three-wave a-b-c pullback. Wave 2s are almost always a-b-c- pullbacks. Is GLD forming an a-b-c pullback? Yes. So the probability is high that the current pullback is a normal wave 2 that is correcting the gains of wave 1.

Ok, so now let’s look at a few projections. When I make projections using the Professor’s Methodology, I use Hockey Sticks. So let’s take a look at a few.

The first HS is the big one formed using the stick of Major Wave 3 and the Blade of the triangle, or Major Wave 4. How big is this? Go measure. It’s BIG. This is why I’m interested in gold stocks in the first place. But for now, let’s just concentrate on the smaller Hockey Stick; the one that developed for waves 1 and 2 of Major Wave 5.

The‘Stick’ of wave 1 up of Major Wave 5 up was about 28 points. So if wave 2 down stops near where we are now, the minimum for wave 3 UP of 5 should be close to the 188 area. GLD closed at 160 on Friday. The old Wave 3 high for GLD made on 26 August 2011 was 184.82. So If GLD moves above the old high on the next move up, it will enter the ‘Free Willy Mode’ and once this happens, there is no telling how high it can go after that. Once a stock enters the ‘Free Willy Mode’ everyone who owns gold will have a profit. That’s when you will hear the folks on CNBC talking about gold stocks every day.

UNTIL 12/31/2012

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Market review and AIQ Expert Rating analysis + IBD meetup

Market review and AIQ Expert Rating analysis + IBD meetup

The Professor’s take on GOLD (GLD)

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