Bottom or Breakdown for Gold?

 Last week was pretty quiet but these coming two weeks should give us the answer if the gold price has bottomed or we will suffer more weakness. My view is that the support underneath is strong and we should see at least short term relief soon. 

The problem with the overall picture is that the dollar is also very oversold and should, the same as gold, have at least short term rally. Can they rally together that is the question? They were able to decline in parallel recently so my guess is it is possible, but I wouldn't expect that to last for too long. They have to decouple eventually. 

USERX

 I combine the SKI charts with the traditional TA and in my opinion, the best way to recognise valid SKI signals is to confirm them with simultaneous TA signals and also with simultaneous SKI signals across the other gold indices. The USERX sold 35-39 and 92-96 but these events have not been confirmed by the traditional TA yet. 

The USERX price bottomed on 24th Nov by touching the long term uptrend line. After the touch, it rallied but it also sold the 92-96 index which is quite atypical because the 92-96 usually sells on the way down. The price is now back into the long term uptrend channel and that doesn't look like a confirmation of the sell signal to me, on the contrary, it looks like the signal marked some kind of a bottom. A short or long term bottom, that is the question? I think that as long as the Nov bottom holds the SKI sell signals are not confirmed. 

There is a cluster of SKI indices coming together around Christmas day and such clusters usually behave like price magnets. My opinion is that we are more likely to see price heading that way than falling through the support. I could be wrong but then we will see a break of the November low soon.

It is worth mentioning that a 16-20 sell this week would significantly strengthen the underlying support.

Here is the weekly chart of USERX. 

It is visible that the 2011 high (upper horizontal red line) behaves like resistance and that the support lies at the lower BB around 12.35. We certainly could try to close the gaps around 10.50 but I think that that is not probable before we see some kind of a counter-rally to 13.50ish to set up for the drop. 

It is worth mentioning that the weekly chart looks like a bull flag with a lot of space for further correction without damaging the bullish structure of the chart (not a prediction).

HUI

HUI is in a similar situation as USERX. 

The November bottom lagged the sell signal by two days. The signal generation coincided with the breach of the 2016 high that acted as the resistance on the way up and now it seems like it is being tested from above. So far the support is holding and a 16-20 sell in the week(s) ahead would further strengthen it. The 38% fibo retracement of the March rally falls in the same support area, as well as the lower boundary of the correction channel. This strengthens the potential for support around this area.

If the support is broken then the 218-222 index is the target, it sits at the 62% fibo level at around 230ish. 

The same as the USERX there is a cluster of SKI indices coming together around Christmas day and I am expecting that area to be visited in the weeks ahead.

HUI weekly looks even better than the USERX weekly. It is sitting at the firm support and even if it is going to break down it is more likely that we will see 330ish before we see 260ish.

GDX, GDXJ

The same as HUI 

GDX

GDXJ

GLD

Back in August the GLD price pierced through the 2011 top level and then peaked and retraced.

In September/October/November the GLD price went sideways (between 2011 and 2012 peaks) and then dropped down to test the 2020 breakout level (green support line). This breakout level also coincides with the 50% fibo retracement of the March rally and the lower boundary of the correction channel. After touching this important support the price immediately jumped back inside the sideways channel. Meanwhile, the 92-96 was sold but this action still looks like bottoming to me especially if it manages to sell the 16-20 soon. 

The weekly chart peaked when the ADX(14) went over 45 like it always did in the 2001-2011 period.

 I have stated that fact before but at the time of happening I thought it might have some more fuel in the tank, probably for another month or two, but it didn't. The correction is now lasting more than 4 months and that is the minimum time requirement for such a correction, therefore we could have seen the bottom already.

The bullish outcome requires GLD over $185 and the bearish outcome requires GLD below the recent low (target around $145).

SLV

SLV has been going sideways since September and if there is a chart that worries me the most that would be the SLV. The reason is that it has just sold the 92-96 and the 35-39 simultaneously and there is no immediate long term support visible. If it breaks $21 again it could quickly drop down to $19. On the other hand, a sideways or an up move would instantly double buy 35-39 and 92-96. We will see but my core position is mostly silver so I don't like this.

S and P 500

S and P is in an uptrend, blue sky territory. As I said last week it is overbought on all timeframes and short term correction might be unfolding now. The next stop might be a 16-20 buy.

TRAN - transport index

TRAN needs to hold above the horizontal red line to confirm the Dow Theory bull market. So far it couldn't do it but a 16-20 buy (probable in the next two weeks) might help. This chart together with the gold and dollar charts imply that around Christmas this year we might witness the launch of a new leg up. 

One detail to support this claim. 22 days ago a new on the path not xxed 35-39 signal was generated simultaneously with a new long term 218-222 buy signal. That is pretty bullish especially inside a 92-96 buy signal. 

The rejection of this level is clearly bearish and such events in the past have been predictive of upcoming recessions.  

UUP - dollar ETF

As I presented in the last week blog the dollar is in the downtrend and any further deterioration could mean serious trouble.  

To illustrate this potential breakdown let's look up the UUP weekly chart. 

The chart shows a giant uptrend that started in 2014 and was dangerously broken two weeks ago but then the last week it has shown some support. If this support is permanently broken we could see the UUP going down to $23 as the first target. 

I mentioned the last week that we might be in a process of starting an insane 'crack-up boom' final stage of the 11 years old bull in the share market. If that is true this chart will signal it by price going below the December low ($24.41). If not, the bottom for the dollar should be close at hand with the first upside target at 16-20 sell ($24.80ish).

TLT - bonds ETF

Bonds have found some support at the major trendline going back to 2018. 

The support has been confirmed by a true 16-20 buy signal that executed 8 days ago and sold on Fri for a nice profit. If a 35-39 buy follows we could see a new bull market being born in January. On the other hand, the break down through the double bottom marked by above mentioned buy signal could lead to testing the long term support at 218-222 index.

BTC-USD - Bitcoin

Bitcoin has been digesting the recent gains after the rally to a new all-time high. On Friday it has generated the 16-20 buy signal but I think it is probable that it will try to break/touch the 35-39 before the bull resumes. I'd be a buyer at about $16000 with tight stops.

RINF - Inflation expectation ETF

Inflation expectations are in an uptrend. In my opinion, the price is more probable to touch the 50 mav first than to break above the recent high. In the short term, we should see some consolidation/retracement. 

It is clear from the charts that we are at a very important juncture and that the next 2 to 3 weeks should decide if the next big move is up or down. 

I have added to my 50% core last week when the Aussie stocks had a very bad day. I bought some RMS and SLR and now am 65% long. I will add on every weak day but will also sell some if the opportunity presents itself. The idea is to increase my trading position and/or cash by Christmas day. I expect some serious moves starting in January. 

My stop loss is at the November low.

Good luck to everyone,

Branko

Update 5/12/2020

I haven't posted since the middle of July when I went for my surgery. Partly this is due to me selling in August and not being focused on the markets so much as before and partly I was just too lazy. I sold all my short term trading positions and 50% of my long term positions. I am sitting on my 50% core ever since and have tried to establish new long positions a couple of times but was stopped out both times.  I have bought a sizable short term trading position on 25/11/2020 when the Aussie golds hit the bottom of the trading channel and sold it this past Thursday so I am again just 50% long my core position.  

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 - dollar

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

Charts 2/12/2020

 GLD

USERX

BITCOIN

Quick update

More positive development in the gold market during the last week.



GLD - physical gold ETF
GLD has been on a true bull signal for 79 days and is now trending above its uptrend line while it is approaching the upper border of the channel. It is approaching my first target at 174.00. There is no more danger of a double sell, all indices are in the right order and the picture is clearly bullish.
The 174.00 level was a significant weekly high 4 times during 2011 and 2012, also, it is marking the upper boundary of the rising channel that GLD is inhabiting. For this reason, I am expecting some significant resistance around this price before the GLD is able to move on and attack the all-time high at 185.85.

After 174.00 is cleared I would expect acceleration into the new all-time high and then forming of the first multi-month high of this bull market. During 2005-2011 bull market there were three such highs and all of them were precisely marked with weekly ADX(14) over 45 and have been followed with corrections lasting between 3 and 6 months. Currently, this indicator is at 37.94.
Firm support lies at 169.73 and then at 167.54.


SLV - physical silver ETF
SLV is on a 6 days old true bull signal and is doing well. It has closed the week at 18.01 which is the upper boundary of the 17.50-18.00 resistance area. It feels like it has enough momentum to break through and push further towards 19.71, the 2016 top. If it does so I would still expect it to revisit this area in the weeks ahead to test the breakout from above.
Firm support is at 16.80.

USERX - Gold and precious metals fund

USERX bull signal is on its 58th day and looking healthy. So far the average rise per day is 0.52% but that should accelerate. I expected some more consolidation last week but it was short-lived and by the end of the week the price already broke out to a new multi-month high. If the price can keep above the upper boundary of the channel than the acceleration that I was talking about might have already started. 

The next target is at 13.75(very close), the support is at 11.00.

XGD Australian gold index

XGD is on an xxed out 92-96 buy, 67 days old averaging 0.3% per day.  The week before last week the price hit the new all-time high. The indices are aligned in a bullish manner.  

The target is around 9700.0, support at 8229.6

HUI gold index
HUI broke out above the 2016 high and is in a bullish configuration. Target is at 372.74, the support 283.07.

. 

XAU 

XAU broke out above the 2016 high and the indices are in a bullish order. The next target is at 196.71. The support is at 124.02.

GDX

GDX broke out above the 2016 high and the indices are in a bullish configuration. The next target is at 55.25. The support is at 35.25.

GDXJ

The last week GDXJ broke out above the 2016 high, indices are in a bullish order. The next target is at 69.48. The support is at 47.93.

S and P 500

GSPC has bought the 92-96 echo. The price is no more in the no man's land and the momentum is pointing up. There is a strong support around 2900.00.

By examining the daily chart it is visible that the current pattern looks like a gigantic cup and handle that is about 1000 points deep. If it was broken to the upside the long term target is $4000.00!! Sounds crazy but the extension of doom and gloom sentiment out there could actually make it happen. 

UUP dollar

For the last 6 months, there were several times when it looked like this chart is establishing a new trend but every time that the price broke up or down it was instantly reversed. Currently, UUP is on a 29 days old double 35-39 and 92-96 sell plus 218-222 sell which, in SKI books, is super bearish. The 92-96 sell and the 218-222 sell have happened on the same day which additionally aggravates the situation but so far this event only managed to mark an exact low. 

Last 16-20 sell signal caused a nice drop, as expected, but it has transformed now into a 16-20 index buy signal that is on the path and not xxed. This signal should represent some strong support but so far, after 5 days, it is at a small loss. If it fails it could mean more dollar trouble. Major support lies at 25.54.

TLT - bonds

TLT finally bought back the 35-39 inside the ongoing 92-96 buy signal. This means an acceleration to the upside should occur soon. 

Along with TLT, I am showing the TIP chart here as well. This is to illustrate that the inflation-protected bonds have more momentum than TLT.

Inflation expectation
The inflation chart has made some progress over the last two months but there is still no evidence that inflation is dominating the current market because the 50 day MAV is still under the 200 days MAV. Deflation is still in control but based on my TIP/TLT analysis from two weeks ago I expect this to be challenged in the months ahead.

Bitcoin

Bitcoin is on a strong, properly constructed, true bull 92-96 signal. Currently, it has sold the 35-39 index and needs to buy it back to signal the start of the new leg up. Bitcoin seems very tightly related to the S and P 500. The weakness of this chart is that the 92-96 true bull is currently underwater by 3.42%. 

I am 100% long and trying to stay that way. I was expecting some protracted consolidation before an acceleration into the multi-month top but now I am not so sure it is going to happen. My stop loss now is at USERX 92-96 sell signal. It shouldn't happen for months.

Good luck to everyone,

Branko

Not cruising yet

A very positive development has happened in the gold market last week but we still need some more obstacles removed before we are firmly in the bull territory and can relax while on automatic pilot.


GLD - physical gold ETF
GLD recently bought the 35-39 index inside its true bull 92-96 buy signal. Also, it closed above the recent high at 164.96, therefore, broke into the bull zone with the first target at 174.00. There is no more danger of a double sell, all indices are in the right order and the picture is clearly bullish. 
The 174.00 level was a significant weekly high 4 times during 2011 and 2012, also, it is marking the upper boundary of the rising channel that GLD is currently in. For this reason, I am expecting some significant resistance around this price before the GLD is able to move on and attack the all-time high at 185.85.

Once the 174.00 is cleared I would expect acceleration into the new all-time high and then forming of a first multi-month high in this bull market. During 2005-2011 bull market there were three such highs and all of them were precisely marked with weekly ADX(14) over 45 and have been followed with corrections lasting between 3 and 6 months. Since the SKI is not ringing bells at the tops during bull markets I'll be watching for these indicators to signal the top.

Currently, the first line of support is around 164.00 and the second is around 158.00.

SLV - physical silver ETF

In my last blog, I said that SLV needs to overcome the short term resistance that originated at  01.06.20 to confirm its SKI bull 92-96 signal. It has done it so that is good. Also, I said that I would ignore the 92-96 sell signal as long as the price holds above the trend line that originates from the March low. That also has happened and the new 92-96 buy has been produced while the price held above the rising trend line.

The momentum is clearly up but there is still an unfinished job to do. There is a serious horizontal resistance between 17.50 and 18.00 before SLV can attempt at 19.71, the 2016 high. 

Once this resistance has been overcome silver should accelerate dramatically.

The first support for the next week is at 16.55 and the next level of support is at 15.89.

USERX - Gold and precious metals fund

USERX bull signal is on its 53d day and looking healthy. So far the average rise per day is about 0.5% but that should accelerate. Last week the price hit the upper boundary of the rising channel therefore, I would expect some consolidation in the week ahead. 

The next target is at 13.75, the support at 10.77

XGD Australian gold index

XGD is on an xxed out 92-96 buy, 62 days old averaging 0.33% per day.  Last week the price hit the new all-time high. The indices are aligned in the correct order. 

The target is around 9700.0, support at 8176.0.

HUI gold index
HUI broke out above the 2016 high and is in the bullish constellation. Target is at 372.74, the support 251.20. 

 

XAU 

XAU broke out above the 2016 high and the indices are in the bullish order. My initial target was at 140.94 and the price is very close to hitting this target. If exceded the next target is at 196.71. The support is at 122.03.

 

GDX

GDX broke out above the 2016 high and the indices are in the bullish order. My initial target was at 39.08 and had been hit last week. The next target is at 55.25. The support is at 34.78.

GDXJ

The last week GDXJ broke out above the 2016 high and the indices are in the bullish order. The next target is at 69.48. The support is at 46.88.

S and P 500

Two weeks ago I concluded that the SandP is in the no man's land but that the path of the least resistance seems to be up. So far it seems that my conclusion was correct because the SandP had been strong for two weeks and is about to buy the 92-96 echo. This signal will be xxed but, in my opinion, the momentum is still to the upside and I expect the price to keep heading towards the pre-crash highs. 

The weekly chart looks like a bullish flag with a minimum target at 3404.00 (September top ???) and solid support around 2900.00.

If gold is right and we will see a rally in the gold stocks it is hard to imagine a hard drop in S and P at the same time. It seems that gold and SandP will be heading in the same direction for a while. 

UUP dollar

I believe that the answer to the inflation/deflation question lies in this chart. For the last 6 months, there were several times when I thought that we got the answer but every time the price broke up or down it was instantly reversed. Currently, UUP is on a 24 days old double 35-39 and 92-96 sell plus 218-222 sell which, in SKI books, is super bearish. The 92-96 sell and the 218-222 sell have happened on the same day which additionally aggravates the situation but so far this event only managed to mark an exact low. 

Last 16-20 sell signal caused a nice drop, as expected, but it has transformed now into a 16-20 index buy signal that is on the path and not xxed. This signal should represent some strong support. If it fails it could mean more dollar trouble. 

TLT - bonds

TLT finally bought back the 35-39 inside the ongoing 92-96 buy signal. This means an acceleration to the upside should occur soon. 

Inflation expectation
The inflation chart has made some progress over the last two months but there is still no evidence that inflation is dominating the current market because the 50 day MAV is still under the 200 days MAV. Deflation is still in control but based on my TIP/TLT analysis from two weeks ago I expect this to be challenged in the months ahead.

Bitcoin

After the most amazing recovery performed over the last four months, bitcoin has generated a strong, well set up, true bull 92-96 signal. Currently, it has sold the 35-39 index and needs to buy it back to signal the start of the new leg up. Bitcoin seems very tightly related to the S and P 500. The weakness of this chart is that the 92-96 true bull is currently underwater by 2.39%. 

I am 100% long and trying to stay that way. I am expecting a week or two of consolidation in the gold market before the acceleration into the multi-month top. My stop loss now is a USERX 92-96 sell signal which shouldn't happen for months.

Good luck to everyone,

Branko