13.10.2019 - Under The Hood

USERX
This week I want to look deeper under the hood of the USERX index. Lets examine the USERX SKI first.

 At the first glance this chart looks like a bullish falling wedge. Some analysts see it as a head and shoulders but not me. USERX is about to trigger a 16-20 buy, probably in the next 5 trading days. Optimally it would be above or around the supporting trend line, as shown in the picture. If the trend line doesn't hold the next support is 50% fibo level at 8.16. It is not far away and it would make sense to briefly touch it just in order to flush out the weak hands aligned behind the trend line. Going further down towards 61.8% fibo at 7.76 would look scary and would make SKI sense only as a quick and sharp v shaped bottom. Prolonged and slow approach of this level would almost certainly produce a 92-96 sell immediately or during the next rally. I wouldn't exclude this scenario since it would scare the most people out of the market just to make them then watch a sharp rally and never produce the 92-96 sell. I do not give much chance to this scenario and the next few charts explain why.

This is a weekly traditional TA USERX chart. See how USERX is carving a gargantuan shallow pan bottoming formation. It started in 2012 with the final breakdown to the bottom. The 2016 rally marked the middle of the formation and then, since the Sep 2016 top, it formed the second half of the formation at an elevated level. For all this time the most difficult level to overcome was at around 8.10-8.20 level. It was attacked unsuccessfully 3 times before 2016 and 3 times after. The fourth attempt was successful in 2016 and then recently in July this year. Ever since this level was broken in July this year I assumed that 10.25 was the initial target (top of Sept 2016) and then 13.76  (top of Dec 2012). If this formation is true then the 8.10-8.20 level must be a very firm support that is hard to be broken.
This leads me to the next chart.

This is the long term SKI chart. The falling wedge is approaching the 881 echo and the apex of this bullish formation points at the 881 right at 8.10-8.20 area. The 881 is on the buy for 395 days, roughly half cycle, and it is time to be touched/tested. If you remember the 2008 year bottom and later sequence of events the 881 was behaving as the perfect tell between a bull and a bear market  hence I assume it should act as a long term support here. There is more, any quick drop would immediately produce supportive 660 buy and any breach of 881 at 8.10 level would also trigger a parallel 660 buy. And there is even more, I'm not going to show it but on the monthly USERX chart the closest support is at the 8 month MAV which at the moment sits at 8.0 and will enter 8.1 zone in a few days.
Ideally the USERX chart for the next 15-20 days would look like this.

Now let's have a look at the rest of the charts.

SandP 500

Since the gold stocks are recently most correlated (inversely) to the SandP it is interesting to see where is this chart going. The SandP is flirting with the all time high but is in a very inconvenient set up. It needs to overcome the 3027 level in such a way that would defuse the land mine in a form of a double/triple sell that is looming in the next 20 days. In practice this means it needs to shoot up in a convincing manner, goes over 3027 and stays above it long enough to correct unfavourable order of underlying echoes.

In order to shed more light at the SandP lets have a quick look at the Russell 2000 which is a broader reflection of the USA market and it seems like it is breaking down. for the sake of clarity I removed all other lines and left only 35-39 and 92-96.

Since the 2018 December low SandP achieved a new all time high but Russell never confirmed it. It stayed under the down trend line and started flashing some bad signals, like Aug 2018 double sell and also a failure to overcome the down trend, that aligned with the 35-39 and 92-96 echo, in September. Since then it has been all down and now it looks like it has found some traction. It could finally trigger a double buy 35-39/92-96 but the trouble is if it doesn't shoot strait up and breaks through that down trend line it will double sell again and this time it could be pretty ugly. This chart screams trouble! The requirement is exactly the same as for the SandP but it is more obvious that a bad outcome could turn quite bad. If successful in overcoming the resistance it could be rather explosive to the upside. In my opinion this perfectly aligns with the USERX chart, rally to the upper resistance would coincide with the USERX fall to the 8.10 level. The ensuing Russell 2000 breakdown would be positive for gold and the breakout would be a failure of the USERX 8.10 to hold. In my opinion the presented evidence favours a bullish outcome for gold. 

UUP - dollar ETF

For today's chart of UUP I magnified the action of the last 9 days. While the UUP has been in an uninterrupted bull market for 456 days and still going strong it is important to notice that the first touch of the 2008 high produced immediate drop and then the first small weakness manifested itself  for the next 8 days. Nothing is broken yet but, as I said before, it is important how the dollar acts at this important juncture. Dollar and gold moved in tandem recently and opposed to the SandP. It is interesting relation but in the end something will have to give up or, maybe, we will see gold and dollar going up in tandem. Who knows.

TLT - 20 year bonds ETF

Double sell worked like a charm. My target is the 92-96 echo, for now.

This week's action still underlines a strong bull nature of this gold rally. Nothing is broken so far but having said that I still have to anticipate some nerve wracking testing of the support this and the next week. I am long and strong.

Good luck to everyone!