Wall Of Worry II

This last week a lot has happened and nothing has happened. 

The Friday nasty drop in gold was the third biggest one day drop in the last 12 months. The biggest being the one when the covid vaccine was announced in August and the second one was the one when the covid news came out of China in February 2020. What is the reason this time? I suppose Trump's defeat but I cannot be so sure why would Biden's reign be so bad for gold? I do not have the answer.

The 'nothing has happened' part of the last week's action in gold price is that nothing has been broken yet. Everything that I spoke about the last week still stands, the gold price is still inside the rising channel and above the support, the same as the HUI, XAU, GDX, GDXJ and other indices.

The sentiment is gloomy and depression among the gold bugs is widespread. It seems that every news is bad news for gold and we just need the final shot in the head for everyone to give up. On the other hand, isn't that how the wall of worry should feel and look like?

Let's check the charts.

USERX

The USERX price is trending up inside the channel. The double buy signal that has been generated last week marked a top so far and caused this nasty drop. Coupled with the bearish triple 1down2up it seriously looks like trouble brewing. All important tops in the last 20 years were marked with this run pattern and to worsen the problem if the price keeps falling for another two days it could generate the death run top run pattern. There is also a possibility for an ultimate bearish triple sell in February but let's not go too far ahead for now. 

So what is good news? The good news is that the coming 92-96 sell will take the xxing off and set up the stage for a true bull signal if the price manages to stay above 13.30ish till Feb 1st. If during this period it also manages to buy the 16-20 before the 92-96 it will generate a super bullish double buy.

As you can see the stage is set up for a big move. There are two setups one which is a very bullish one and the other one which is a very bearish one. The time is running out and the market will tip its hand by the end of January. 

My stop loss is a new 35-39 sell signal. 

HUI

The price of HUI generated the 35-39 buy and so far this is the top of this move up. The Friday's crash moved the price back below the 35-39 index and it seems like the double buy scenario from the last week is setting up. If the price drops down to 285ish and then turns around a double buy will be generated right at the support. 

If the 16-20 buy cannot stop the drop the first target is 250 and then 230, that is 20-25% drop from the current level.

In my HUI weekly chart analysis, two weeks ago, I presented why $285 is very important and firm support. If this support gives up I believe that drop to $230 is possible but I still do not think that it is the more probable scenario. 

XAU

Similar to USERX this chart has generated xxed double buy to mark the top and now is in the process of selling the 92-96 which is going to set the stage for a true bull signal. Nothing has been broken so far and an event that would signal such a thing would be a 35-39 sell. 

GDX

Similar to HUI, double buy is setting up. The level that must hold is $33ish. 

GDXJ

GDXJ is the only gold index that didn't buy 92-96 so its configuration is a little bit different. There is the potential for a double buy but it seems that more probable is a drop-down to test the previous low at $48.

GLD

GLD price bought the 35-39 index but it fell short of buying the 92-96. No technical damage has been done yet. After the Friday's drop the price, which looked like breaking out of the contracting triangle is back inside the triangle and the double buy 16-20 and 35-39 is possible if the current level could be defended. If the gold price falls out of the rising channel probable target is $158 (61% fibo retracement of the recent rally). 

SLV

Silver jumped out of the contracting triangle just enough to buy the 92-96 index and then dropped back inside the triangle on Friday which will cause the 92-96 index to sell and turn xxing off. This sets the stage for a new bull signal if the price can stay above 23.50 by the beginning of February.  The stop loss for this chart is a new 35-39 sell signal. 

S and P 500

S and P moved further up and I'll just repeat the last week's comment.

S and P is in an uptrend and the price is moving along the uptrend line originated at the 2019 low. It is overbought on all timeframes and probably prone to short term correction. The projected target, based on the break of the cup and handle pattern discussed in my previous blogs, is $4000+. 

I have discussed before the possibility of a melt-up run to the top if the UUP breaks down through $24.41, gold generates the bull signal and the transport index confirms the bull market by breaking through into the blue sky territory.  The dollar has closed bellow 24.41 but I am waiting for the gold and the transport index to confirm.

TRAN - transport index

The TRAN chart is the most interesting chart at the moment because I think it is going to be the tell, melt up top or the end of the bull now.

Transport index has had a strong week and is back above the level needed to confirm the new bull market. At the same time, the TRAN generated the new 16-20 sell index for resistance. As described in my last week's analysis this is setting up the stage for a nasty double sell right at the critical level. The price must now rise further up otherwise the sell will execute. 

UUP

The dollar is in the downtrend but it has shown some strength last week.

 I do expect some more strength from the dollar at least to touch/sell the 16-20 index before it resumes the downtrend. However, I have checked the long term weekly chart and the case could be made that the long term dollar chart is in the process of finishing the right shoulder of the mega bullish inverse head and shoulder pattern. If that is true then the possible breakdown of the gold chart should not be treated lightly, on the contrary, it is very very dangerous. 

TLT - long bonds ETF

I was very wrong the last week thinking that the bonds have bottomed. That thinking was on the premise that the 35-39 index will buy but it didn't. Instead, the crash happened and now the price is threatening to sell the very long term 218-222 index. This crash could be one of the reasons for the gold's hard sell-off.  

If the 218-222 sell happens it might mark a temporary low but the long term consequences of such a sell would be very negative for the bond market. 

 

Bitcoin

The mania continues

XGD - Australian gold stocks

Recently Australian gold stocks never disappoint to disappoint. They always follow the USA market down and never follow them up. If the XGD price breaks the support the next stop is 6900 and then 6500, which if it happens will cancel all gains from the March breakout. 

The chart looks worrying but not broken yet. 

Inflation expectations

Still in an uptrend but look short term overbought.

I think that the charts are telling us that the big shift is happening in the financial and equity markets. I think we are switching from the 'covid trade' to the 'Biden economy trade' and the starting positions are being taken. How are the gold bullion and the gold shares going to perform I am still not sure. The charts sure look like the wall of worry is still underway but the picture can change at any moment. 

I am still 100% long, my stop loss is a new 35-39 sell signal. If the gold fails to establish a new bull trend by the end of January it will be time to regroup based on the new configuration. 

Good luck to all,

Branko