A GREAT TRAMLINE TRADE IN THE GOLD MARKET

From John C Burford, Sept 23,2011

Today I want to briefly follow up on gold from yesterday to illustrate (in almost real time) the tremendous power of my tramline methods for putting in price targets.

When I left the gold market early yesterday morning, it had broken minor support at the $1,800 level, where I put on a short trade.

Then the market fell to my second level of support at the $1,770 level. I noted that if this level gave way, it was off to the races.

After signing off, the market collapsed, along with just about everything else.

For the gold bears, it was truly exciting action, and I was pleased to be amongst them.

My target was hit within hours

I had drawn in my tramline pair and said that my first target was the lower tramline at the $1,730 area. I had little idea that this target would be hit within a few hours!

Here is the updated chart:


(Click on the chart for a larger version)

I have marked the point where I had signed off yesterday with a yellow arrow. The market collapsed right to my tramline for a gain of $50, or a profit of £500 per £1 bet (going short).

Note the oversold momentum reading at the tramline where a bounce would be expected.

But what now? Will the lower tramline hold?

Beware: the ‘bond bubble’ is about to burst

Right now the flow of money into UK government bonds is frighteningly high...

Thousands of private investors are blindly pouring money into bonds in the hope of getting a safe return, while pension funds and fund managers are ALL using them for a big portion of their portfolios.

But they could be making a lethal mistake.

As I write, the market is staging a fight-back:

(Click on the chart for a larger version)

The first bounce off the tramline has taken the market right to my central tramline, which lies mid-way between my original lines! This is marked by my green arrow.

Very pretty. And that was also a great place to short again.

This central tramline sports some nice touch-points, as marked by my purple arrows. I believe I can rely on this line.

If gold goes below $1,700, much lower prices beckon

OK, the market is trying to get back to this central tramline as I write.

Longer-term, yesterday's low in the $1,720 area is only $20 above the crucial $1,700 support from August. If this gives way, that would confirm the double top and much lower prices would beckon.

Of course, long-term traders who believe we have seen the tops would still be holding their short positions – and adding on rallies.

As I have said before, traders who see the potential early in the trend will reap the most rewards.

And don't forget to be searching for those tramlines on your charts.

Have a great weekend!

Got a comment on this article? Leave a comment on the MoneyWeek website, here.

Best wishes,

John C Burford

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