Wall of Worry III

My theses for the last three weeks have been that there is a possible wall of worry unfolding in the gold market that eventually should lead to the birth of a new bull trend.  During the week this theses has been tested to the extreme. Prices have fallen to test the support and eventually started generating double buys across the sector as a potential confirmation that the bottom is in. For the bullish outcome of the current action, these double buys should hold and then follow through to new 92-96 buys. 

Let's see the charts.

USERX

Since the last time, the USERX price fell further down to touch the lower boundary of the uptrend channel. The channel was breached for a day while at the same time a 16-20 buy signal was generated to enforce the support. The price bounced back immediately and is back inside the channel now. In my books, this is a very bullish behaviour because the action is happening above the support level. All xxing is off now and the next 92-96 signal, if it happens, will be a confirmation of the new bull trend. The stop loss is still new 35-39 sell signal (bellow trendline). 

It is important to point out that we are not out of the woods yet and that there is a bearish setup in the second week of February if we do not lift off from here. 

HUI

The double buy scenario that I described three weeks ago is now close to confirmation. The HUI price moved down to test extremely important $286 level and it seems that the support held (lowest close was 284.53). The direction of least resistance is now up (assuming that the 35-39 is going to buy). The 35-39 buy will be on the path of trades and not xxed out. That should push the price toward the 92-96 index quickly.  

XAU

XAU never sold the 35-39 index but it did sell the 92-96. All xxing is off now and if price makes it to $155ish in the next two weeks new bull will be on. It is important to generate a new 16-20 sell soon.

GDX

The GDX price held easily above the support line and generated the double buy signal. The 35-39 is not xxed out and this signal should push the price towards the resistance and help the new 92-96 buy in February. 

GDXJ

The GDXJ price, similar to the HUI, is testing the 2016 top breakout from the above. The double buy has been generated and the whole correction pattern looks like a double bottom. The 35-39 is not xxed which makes the signal more potent. The breakout through the downtrend should coincide with the next 92-96 buy. 

GLD

The GLD price is squeezed at the apex of the contracting triangle and is about to generate the double buy except if the price tomorrow crashes 3.36%. The 35-39 buy is not xxed therefore more potent. The path of least resistance is up. The new 92-96 buy is possible in the first week of February. 

There is still bearish setup in Feb if the price fails to lift off. It is worth keeping an eye on this possibility. 

SLV

The SLV price is above the resistance and is set to generate a true bull buy signal. Depending on the trajectory the signal could be single or double buy. A new 35-39 before the 92-96 signal would trigger the stop loss. 

S and P 500 

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, transport index looks like a breakout and the only thing missing now is the gold bull.

TRAN - transport index

The transport index price is holding above the breakout level and if it can keep it up for another week the danger of the possible double sell will diminish. Such a development would be positive for the S and P 500 further advance. 

UUP

The dollar price is in the downtrend. I said last week that I expected some short term dollar strength, at least until the 16-20 index is touched or sold. The sell has happened now and so far it has marked the top. The price is still under the pressure of the declining resistance line so I do not expect a breakout for the dollar without some more struggle. 

If the gold is breaking out and the S and P is about to start the melt-up run this chart should not break out. 

TLT - long bonds ETF

Bonds price has sold the long term 218-222 index and is now in a completely bearish configuration. So far this sell has marked the low but this chart looks very bad long term. I am not sure how to reconcile this chart with the gold chart though. Normally, it should be negative because it would imply interest rate hikes but in the current environment that is not the probable outcome. Maybe it is just the indication of the upcoming inflation because in such a configuration it is logical to expect deteriorating TIPS/TLT ratio. 

Bitcoin

Finally, the bitcoin price started a consolidation or maybe even a correction. Since 100 days (full cycle) have passed since the last 35-39 index buy I would think that correction to touch sell the 35-39 could be in the cards. I would be interested to establish a small position under $24000.

XGD - Australian gold index

The XGD price held the support and is on the way to generating a double buy. If the buy results in a rally the price needs to go over $8500 before the new bull trend is confirmed. 

The important detail is that the support held at 218-222 long term index, the same index that marked the March low.

Inflation expectations

Inflation expectations price is in a firm bullish uptrend.

So, the Biden economy era begins. The day of the inauguration has been marked with multiple double buys across the gold sector to hopefully mark the end of the correction. I do not think this coincidence is by chance. Also, I need to remind you that the most valid SKI signals are usually happening simultaneously and, because that is the case here, I have a lot of trust in this current development. Over the next two weeks, we should see these double buys morph into new 92-96 buys to mark the beginning of a new bull period and the end of the wall of worry stage.  

I am 100% long gold sector. The stop loss is a new USERX 35-39 sell signal.

Good luck everyone,

Branko

 

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