USERX
USERX held for two days around 8.80, long enough to sell the 92-96 echo and then exploded up to buy simultaneously the 35-39 and the 92-96 echo for a true bull double buy. Last week I said "The current action is how impulse legs look like in bull markets. The only thing that is now missing is a quick sell and a rebuy for a true bull... The most bullish pattern would be to finish the V bottom recovery by price rising back above the 35-39 echo at around 9.54 and stay there for a while before attacking the high at 10.61." This is exactly what happened and while I still stand behind the statement that this unfolded action was the most bullish possible I honestly thought that the other scenario was more probable because the current pattern would be too good and required 'threading the needle' which we usually don't get in these markets. I also had some thoughts on why I wouldn't like this scenario but I didn't write them down so let's do it now. What I do not like about this signal?
First, it is happening below the resistance line marked by the 2016 high which was proven to be too strong to overcome three times so far. I would have preferred the signal to have marked the breakout above this level. The strongest SKI signals are those that are corroborated by the traditional TA.
Second, the signal is happening while the major 92-96 echo is on the rise. The best 92-96 buys normally have a different structure; after the signal the price goes up and the index goes down. This means the signal comes after a long period of declining prices to form this typical bullish picture. The current picture is the one that is more typical for the tops; after the signal both the price and the index are going up making it more difficult for the price to stay above the back prices. The end of long rallies are usually marked with one or two fake signals like this one might be (I am not saying it is) and like the previous one was.
Third, from the psychological point of view, this setup is easier to trade because it has a tight stop, unlike a one where the price and index would go opposite ways. I feel that most traders are really keen on taking this trade on as opposed to a difficult proper bull structure where the stop loss would be far away and for that reason riskier to trade; traders are usually uncomfortable with these. None of the true bull setups from the past that ended up as big winners had this current type of setup.
Fourth reason would be contextual. I was expecting decoupling of GMs and goldies because that would guarantee the absence of the downward pressure on gold in the case of a renewed fall in the share market, which is expected and probable. It didn't happen, the GMs are potentially rolling over but not in a convincing way, at the same time the goldies are rallying and that could be interpreted as decoupling but what would really convince me is if I saw them first falling together and then separating.
What would really help to mitigate most of these weaknesses is if the current rally continues for at least two more days to bring the price close or above the recent high at 10.61. I assume that for this to happen gold should break above the 1730.00 level and move closer to 1800.00 where I would be happy to reduce my position again and wait for the correction.
Let's see now what I do like about this setup.
First, it is a simultaneous double buy. The only formation stronger than this would be a simultaneous triple buy, therefore technically this is a very potent signal.
Second. I have started doing these SKI signals analysis based on the hypothesis that the most successful SKI signals happen simultaneously on various indices. All good signals in the last 20 years were like that. This double buy signal with all its technical weaknesses is happening while most of the other indices are in similar structural position but without the faults of the USERX signal. For example, gold is above its previous high it is on a true bull signal and on its way to test the all-time high. HUI, XAU and GDX are all above the recent high and far above the 92-96 echo to be immediately worried about hitting stop loss. That makes the weaknesses of the USERX unconfirmed while the structure seems sound.
Third. As I explained before, the structure of this signal is more consistent with the end of a prolonged bull market than with the beginning of one. Having said that we could notice that the bull market preceding this signal wasn't a typical bull market regarding the size and the time. As you can remember the bull market generated in June 2019 was first cut short when compared to average successful bull signals and then it was followed by the bull market signal with the biggest drawdown in history. These two signals didn't really leave an exhausted price level to be worried about. There should be much more energy left in the gold and gold stocks to be able to stage a strong rally.
Fourth. Since the year 2000, the fundamentals for the gold bull market have never been better. Similar fundamentals, on a much lower scale, after the 2008 crash have made the gold stocks double up in the next twelve months. I sure expect much bigger gains this time around.
Fifth. In my blog from the 13th Apr in my long term SKI analysis, I established that the 218-222 echo is the border between the bull and the bear territory and that the main resistance is the 881-885 echo. This last leg up has broken through the 881-885 echo which means that the long term resistance has now been overcome.
regular
long term
This last week I succeded to add some gold shares to my trading position but because of a weak correction, it wasn't even close to what I wanted. The most shares I added were PRU but I couldn't get a decent price for the SLR which I wanted the most. I am 80% long mainly physical gold and silver. Because I consider the 218-221 echo the border between the bull and the bear territory and because I am trying to establish a long term position I will use this echo as the stop loss, not the 92-96.
Good luck to all,
Branko
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