Ever since the March low the main development I was looking for was a decoupling of the gold market and the broad market, where gold would start a multi-month rally while SandP would drop further down before it finds the bottom a la 2008/09. It seems the decoupling finally did happen but the other way around, gold is dropping together with the dollar and bonds and the SandP's unstoppable rise continues. The only way I can explain this is that in the current environment gold, dollar and bonds are perceived as safe havens and the SandP and bitcoin as risk assets. This is probably because the traders see the markets only through the covid 19 glasses, disregarding all other risks including inflation, deflation and recession. In the last 3 months, only news regarding the covid vaccine were able to move the market. Gold, dollar and bonds in one direction and the broad markets and bitcoin in the opposite direction. Even the USA presidential elections had no lasting impact, it was just nonevent which really surprised me because I was preparing myself to take some serious positions after the elections.
This situation is obviously unsustainable but how long will it last we will see. In my last post, I suggested that SandP is forming a cup and handle and if broken to the upside the technical target is $4000. At the time, this seemed totally crazy but, to my great surprise, not anymore. Today SandP is at $3700 and it seems determined to attack $4000 in no time.
Let's see the charts.
USERX
Userx just sold the 92-96 bull market. Back in July, this seemed like an event that will happen months in the future and at the price far above. Months have passed but the price is around the same level where it was in July. Pretty disappointing considering the action in other markets. When I look at this chart and the longevity of this correction I get the impression that the March crash was just a noise. The trajectory that existed before the crash was regained in no time and then just continued like nothing had happened. Structurally this correction looks like the continuation of the ascend started in May 2019 with the wave one finished in September 2019, the wave two finished in November 2019, the wave three finished in August 2020 (this wave includes the crash) and the wave four finishing about now. 
The 92-96 index has sold but the whole action is not corroborated with the traditional TA, it is happening above the long term support and the price is back into the uptrend channel emanating from the above mentioned May 2019 bottom. That doesn't look like a breakdown. Also, from the TA point of view, the whole correction looks like the test of the July 2020 breakout. I will not consider this 92-96 sell a breakdown unless the low of 24th November is broken to the downside. I will buy every time we approach this level again, with a tight stop below.
When I look at the possible bullish outcomes the first week of January looks like a good setup for reinstating the bull market. The first week of Jan 2021 is, as you will see in the other charts, well suited to bring all gold indices in sync again. Also, if we move up from here it would rectify the discrepancy that exists between SKI indices and the traditional TA. All we need is the price above $14 by 4th Jan 2021 and beyond.
HUI
HUI highlights my points above even better.
The July 2020 breakout (which is being tested now) actually coincided with the 2016 top at 286.05. This has been the most important level since 2013 breakdown of the same area. Considering this, I think that the support at the recent low is very strong hence my plan to buy on any occasion when the price dives into this area.
The first week of January 2021 is a good setup for the breakout, if and when.
XAU
XAU never fell down enough to reach the 2016 high so it looks a bit stronger than HUI but otherwise, everything is the same including the setup for the first week of Jan 2021.
GDX, GDXJ
Same as USERX and HUI
GDX
GDXJ
GLD - gold
GLD sold the 92-96 as well but it is still well inside the traditional TA uptrend channel so the same analysis applies as for the rest of the indices. The first week of Jan 2021 is the window for the new bull market. We need the price above the 2011 high for this to happen. That would require a price surge of 7% or more.
Further decline would be indicated by the breakdown of the recent low. In that case, the target would be around 218-222 index support.
SLV - silver
SLV chart is a bit different than the other charts above. SLV still hasn't sold the 92-96 bull but it looks like it is very probable during the next two weeks. If it sells but stays above $23 by Feb 2021 it will be in the bull market again.
S and P 500
Back in July, I posted the analysis that suggested that the S and P could go all the way to $4000 if the cup and handle formation was broken to the upside. I certainly didn't expect that to happen but here we are, the S and P at $3700 and climbing. All indicators are tilted in the overbought zone so a short term retracement could be in the books but the trend is definitely up. I wonder if that first week of January could be of great importance for the S and P the same way it is for the gold market?
A crazy idea is crossing my mind again. What if we are witnessing a crack-up boom that is going to go into the final stage in the first week of January and will take the SandP far above $4000 and gold to $2500 before everything comes crashing down? In this case, both inflationists and deflationists would have their 15 minutes of fame and after that, with the coronavirus gone we could go back to normal markets driven by the economic parameters.
TRAN - transport index
If you remember back in Jan-Feb 2020 I was using this chart to explain that, according to Dow Jones theory, the bull markets in the Dow and SandP are not confirmed and a recession could be in the cards. Since then the TRAN has managed to reach the new high territory and if it can sustainably stay above it that would finally confirm the bull market.
It certainly is hard to believe that the crackup boom scenario described above in the SandP section is possible but if the TRAN breaks through and gold breaks through in the first week of January it definitely could be the start of total craziness.
UUP has broken down and 23.5 is an obvious target.
TLT - bonds
The same as the dollar, bonds have broken down and the target is below $150.
XGD Australia - Australian gold stocks
Australian gold stocks have retraced 50% of the rally from the March 2020 low. XGD has found the support at the uptrend line that started in Sep 2018 and coincides with the 218-222 index support. They sure are oversold and should have a short term rally to sell 16-20 index. The first week of Jan sure looks like an opportunity to regain the bull market but it is a tall order compared to HUI and XAU.
BTC-USD - bitcoin
Bitcoin chart looks like we all, back in April, expected the gold chart will look like by this time of the year. The bull is now 190 days old and the price gain is 102%, more than 0.5% gain a day on average. The 35-39 sells and rebuys produce instant surges as they should in the bull market. Since the bull started there were two 35-39 buys so in terms of USERX that should mean a significant correction should ensue after the next top.
It is hard to swallow the fact that bitcoin is outperforming gold again but it is what it is. I will sure look to expose myself to bitcoin in the future. I had my finger on the buy when the bull was generated but refrained because at the time the gold was already on the bull signal and outperforming the bitcoin. A lesson in diversifying learned.
Inflation
Inflation is in an uptrend. Inflation chart together with the dollar chart and TLT chart favours the idea that gold should turn around soon and start heading back to an all-time high territory. It is short term overbought but back in Sept, the 50mav crossed the 200mav which should create long term support for higher inflation numbers.
As I said I am 50% long my core position and will add on price reaching the support levels again. My stop loss is at the November bottom.
Good luck to everyone,
Branko
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