I still have not bought gdx - 3/27/12

In the last four days GDX made a new bottom followed by a five wave flagpole that broke out of a month long downtrend channel. After breaking out it formed a two day, three wave, flag that rested on the downtrend channel break out. The description sounds almost perfect, but I didn't buy and GDX is lower this morning. Why did I not buy what appears to be a perfect set up?
I will describe what happened with the charts. The top chart is a four week long, ten minute bar, candlestick chart of GDX. And the lower chart is the last eight days of the top chart.

The chart above shows the channel, the break out, and the two day flag. This chart ends on 3/27/12.

This chart is the same as the end of the first chart. First we have the double bottom which occurred on 3/22/12. The second bottom was $0.03 above the first. It would have been nice to buy there and make a few percent, but I mistook the weak flag that formed for a triangle and thought it would go down the next day. After the second bottom, the five waves up are labeled 1 -5 and the two waves down are labelled A, B, & "C?"  Most of my buys are single day flags, but I do buy multiple day flags when the set up is right and this looked right.
The first hint of a problem came just before the point labeled B which is at the end of a one day bearish flag. In the last few seconds of trading that day I saw at least 10 blocks of 20,000 or more shares sell. Normally, those that bought in at the bottom would not sell all of their shares just after a channel break out, but the big players were definitely selling. That told me to watch out.
The next day, 3/27/12, GDX formed a very nice flag resting right on support, but the gold bugs index ($HUI) spent most of the last ten minutes of the day below support, only managing to peak above it at the close. This was another warning.
The end of a two day flag usually rises off the support and ends up forming a white candlestick on the daily chart, but this flag formed a black, bearish engulfing candlestick the day after a hanging man candle stick. That's double bearish and another warning.
The last half hour of trading in the general market was marked by a series of new lows for the day, forming bearish shooting star candles on the charts. If the general market goes down, it can easily pull gold stocks down. Another warning.
Finally, only two of the ten big sellers bought back at the end of the day on 3/27/12. If it was truly a bullish flag, I would expect them all to buy back in. That was enough for me and I decided to wait for confirmation. GDX is plunging today so I'm still waiting.
Happy trading.

Elliott wave and intraday trading

There was some confusion over my use of Elliott Wave theory to examine GDX in a recent post. I'm certainly not an expert in Elliot Wave theory, but I know the basics and these can be a great help in trying to figure out market direction and finding the end of a correction. I do not trade based on Elliott Wave theory, but I do get ready to pull the trigger on a trade when I see the correct patterns developing. Here is a chart I used recently which shows five up waves:






 Here are the basics of Elliott Wave theory:
1) A move in the direction of the main trend consists of five waves (labeled 1 -5 on the chart above)
2) A move against the trend (a correction) consists of three waves, usually designated as A - B - C.
3) Wave three can not be the shortest wave of waves one, three, and five.
4) Wave four can not overlap wave one.
5) Wave two can not go lower than the start of wave one.
6) The waves are fractal, which means each wave can be subdivided into smaller waves and each of them can be divided again into still smaller waves.

On the chart above, wave one is from the bottom up to the number 1 and ends at the number 1, wave two starts at the number 1 and ends at the number 2 and so forth.

Note that the congested area inside the green ellipse can not be designated as waves three and four for two reasons. First, the lower part of the congestion overlaps wave one and violates rule four above. Second, using the top of the congested area as wave three makes wave three too short, violating rule three.

Note how all of the rules are met by the count I have shown and a decline immediately ensued.
Here is a chart of what has happened since the original chart:



 The red number 5 is in the same place as the number 5 on the first chart. Prices declined from the 5 in an A wave, went back up in a B wave and then started down for the C wave.
Remember how I said the waves are fractal? The C wave is shown here divided into five waves with blue numbers.
So why, you ask, did it go up in a sixth wave and down again in a seventh to where the "C?" is?
Once again, the waves are fractal so wave number five is itself dividing into five waves which, combined with the first four waves will look like nine waves down on the chart.
Confusing? Sometimes.
Helpful? Sometimes.
That's why I watch it, but don't trade by it.
Happy trading.