This update will focus on I Am Gold (IAG) and analyze its most probable bullish and bearish outcomes based on tomorrow’s rate announcement. But first, let’s review the precious metal itself. It is important to know where gold is at in its downtrend because if it is not yet at a reversal point, then that would seem to confirm further weakness for the gold miners.

Gold – Elliott Wave Breakdown

As I was going through some market stuff yesterday, I came across an Elliott Wave chart for gold. As mentioned above, I feel it is important to understand where the precious metal may be in its corrective process. Here is the chart I came across yesterday from Elliottwave.com.

Analyzing an Elliott Wave Breakdown for Gold the Metal; The Breakdown Was Obtained From Elliottwave.com

What the above chart illustrates is that the “minimum” requirements for a Bearish Impulse wave pattern have been met and the chances for a successful reversal can take place in the very near future, possibly starting tomorrow. Also consider this, the above move from the highs to the current lows took five years to complete and represent Wave A of a correction. Wave B is next. If Wave A took five years to complete, Wave B should have plenty of gas for its rally upwards. I think that is why Elliott Wave stated “sharp rally imminent”.

Here is an excerpt from the article that contained the above chart (article was dated December 8, 2016).

Gold prices are in the late stages of an ending diagonal, which, when complete, will finish a five-wave decline from the September 2011 peak at $1921.50. … Over the past week pessimism has grown more intense, which is consistent with an impending rally, the same message conveyed by the completion of a diagonal pattern.

The Ending Diagonal wave pattern is consistent with my analysis that the rebound for gold is about to resume. Ending Diagonal wave patterns are seen at the end of a downtrend, such as in a Wave 5 of a Bearish Impulse wave pattern.

This article made me feel like I needed to analyze the gold miner stocks one more time and develop some bullish expectations in addition to the bearish expectations I have written about for the last month.

I Am Gold (IAG) – Bearish Outlook

Let’s stat with the bearish outlook, the message I have conveyed for the last month.For the bearish outlook, I don’t have to look further than the previous charts that I’ve posted for IAG.

This 1 year daily candlestick chart has some of my previous expectations drawn on it. IAG’s share price reached the $4.65 mark on 11/9/2016 and developed a 3 Black Crows candlestick pattern over the next 3 days. IAG’s share price has not yet negated the resistance area from this bearish continuation candlestick pattern. The resistance area is defined as the closing share price of the 1st candlestick in the pattern and the opening share price of the 3rd candlestick in the pattern. For IAG, the resistance area is from $4.35 (close of the first candlestick) down to $3.84 (open of the 3rd candlestick). How does IAG negate the resistance area? Print a $4.36.

Using a Fibonacci Retracement & Extension Tool to Develop Expectations for IAG’s Share Price

From the low of $1.15 to the high of $5.87, IAG’s share price has performed a 50% Retracement of that uptrend. It’s share price has not yet reached the 61.8% Retracement, the most common retracement after a new uptrend develops. The run from $1.15 to $5.87 is the new uptrend I am referring to.

I imagine that the Fed will need to stay “dovish” at tomorrow’s meeting. “Dovish” comments would include something along the line of a “wait and see” approach for more rate hikes. Or maybe it is a small number of rate hikes anticipated, like 1 or 2. Without any dovish comments though, it is difficult to see IAG’s share price push below its main supporting trendline. It has not broken below the supporting trendline yet. An even if IAG’s share price does push below the main supporting trendline, it will most likely be a move that doesn’t last long below the trendline.

The one item that has me thinking a push down to the $61.8% Retracement Line is still possible is the lack of capitulating volume. Maybe the capitulation comes when the Fed sounds dovish. Even though the risk of a continued downtrend exists, starting to scale into a long position around the 61.8% Retracement Line seems like a good idea. 

I Am Gold (IAG) – Bullish Outlook

Let’s say the Fed states that the economy is picking up and they anticipate more than 2 rate hikes next year to help keep inflation at bay. This seems like the bullish scenario that can send IAG’s share price higher. The first thing to watch for in a new uptrend is a gap-up. Does one happen Thursday morning?

Triangle chart patterns typically continue the trend that preceded the Triangle. In IAG’s case, that would be down. However, there are times though when a Triangle pattern acts as a reversal pattern rather than a continuation pattern. When I outline IAG’s recent price activity with the 2 trendlines, I see a potential Ascending Triangle chart pattern. This could be a reversal pattern rather than a continuation pattern based on IAG’s refusal to drop below its main supporting trendline.

Expectations Based on Hawkish Comments From the Federal Reserve Regarding Future Rate Hikes

I’ve illustrated what I think are the most likely bullish moves for IAG’s share price. The first move would be to re-test the $4.64 area and then fade on light volume back towards $4.20. The $4.20 breakout area would be the initial purchase zone. If you don’t want to purchase shares before the announcement and the share price starts to run too far too fast, then definitely wait for a pullback to the $4.20 area before scaling in.

IAG’s next next move would be to rebound from the Ascending Triangle upper border and push up towards the resistance area from the Falling Window candlestick pattern (gap-down). That resistance area is another area where you can sell some shares and then look to repurchase them on a pullback back towards the $4.60 breakout area. Most successful breakouts come back to re-test their breakout area before continuing on extended runs. Any remaining scale-in purchases that you want to make should be done by this point. Hold onto all repurchased shares as IAG attempts to break through the resistance area from the gap-down.

While I didn’t include a chart with moving averages, IAG’s share price is close to developing a Golden Cross, but it has not yet developed. I have illustrated before how the first pullback to the 200 Day moving average after the development of a Golden Cross can be lucrative. That may mean that we have a little time on our side to analyze and get into the trade in the right areas based on its action after the Fed announcement.

I Am Gold (IAG) – Summary

Whether its a gold miner or even gold the metal, the time to buy some gold shares is very, very near. If you are a gambling man or woman and have some time on your side, go ahead and scale into a small position before the Fed’s rate announcement. But make sure it is a scale-in purchase only and keep additional capital on the side in case of a further drop in the share price. That way, you can average down with another purchase based on the bearish analysis above.

If you are risk averse, you will definitely want to wait until after the Fed announcement to make your first scale-in purchase. Even if IAG makes a bold bullish move on Wednesday and Thursday, there is almost always an opportunity to jump in on the trade at slightly higher prices. That would be the pullback to the $4.20 area I described in the bullish scenario above.

I will be out at a client site tomorrow for a half day – it figures it would be in the afternoon where I am unable to watch IAG’s reaction to the announcement. But that is ok. I actually feel more comfortable waiting on the decision and then making a move based on my expectations above.

While I am a gambling man, my stack of chips is currently all-in and I will have to sell something before I can purchase any shares. That’s ok though, I would rather be more certain about a move at this point rather than continuing to gamble. My “gambling” has already gotten me in enough trouble this year with SUNE & VRX. I would rather look for more clarity in the pattern before I gamble at this point.

Whether you purchase shares tomorrow or wait until after the announcement, these next purchases will be crucial in building a position for the next leg up.