Allow me to share a simple sketch I drew that was part of an NFTRH interim update for subscribers last night. The black line is where we have been. The blue line is a projection of what a typical correction (whether a healthy interim one or a bear market kick off) might look like.
We used real charts of the Dow, S&P 500 and Nasdaq 100 to gauge the entry into the current correction and now the resistance points to the expected bounce off of the US market’s first healthy sentiment reset in quite some time. But our cartoon above gives you the favored plan on how the correction could play out.
 Adding the daily view of GLD-SPY from this morning’s NFTRH ETF update. I’d say some progress is being made here as GLD-SPY threatens to join several other indicators in a macro phase. The trend is still down, but this is impulsive stuff.
For all you gold vs stock market sports fans, here is the big picture view of gold measured in S&P 500 units. Though the stock market is making bearish technical signals and indicators are flashing a counter cyclical warning, the best that the Gold-SPX monthly chart can say at this moment in time is that MACD is getting interesting, RSI has a positive divergence and momentum to the downside by a Rate of Change (ROC) is slowing down.
The macro is changing in a big way, but we continue to note the poetic justice that would be satisfied if gold fills the 2008 ‘fear gap’ before resuming a bull market vs. SPX. Given the damage that the US market is incurring, this could be satisfied with one final plunge with gold declining faster than the SPX or it could happen by other means. Or it could not happen at all if MACD furthers its signal.
But it looks like we are grinding around, leaving one macro phase and entering another in the coming months.
Gold vs. Oil is rising; a condition that mining operations would like to see continue.
Gold vs. Stock Market is slightly elevated; a condition that gold sector investors would like to see continue.
First off, if you have an interest in the price of gold and have not already done so, I highly recommend you check out Steve Hochberg’s 2-part Elliott Wave video presentation on gold (disclosure: free sign up to Club EWI brings a small commission to yours truly ). With all his zigs, zags, waves and patterns he ends up at the same place I do with my simple version. I may use less cluttered methods, but I find this stuff very interesting.
With markets at a key juncture, the US dollar over bought (but bullish), the precious metals, commodities and increasingly, global markets over sold but bearish and US stocks acting as if October 2014 could at least recall memories of October 2008, I want to try to weave all this together around the simplistic monthly chart of gold, which is the asset that would provide liquidity for asset market refugees if the macro really were to get very negative.
It is important to simplify folks. Gold is not going to go up because of Modi and Indian Wedding season. It is not going to go up on China demand and it is most assuredly not going to go up because the US stock market is going up, as if it were simply an asset class that got left out of the party. Commodities actually would have a better chance at that than gold.
Gold is going to go up (at least in relation to most assets) when confidence in policy making starts to wane… period. I am going to keep this simple monthly chart on radar going forward because it has long-since broken the Triangle and it is a gauge on the macro.
Shorter-term data points indicate that a bounce is very possible if it has not already begun. But the Triangle pattern and distance from support to resistance measure to 1000 +/- and what I find more interesting than the raw chart is the idea of closing out the misery of 2008 in a final declaration that policy making has succeeded (in cleaning up the disaster created by previous policy making leading into 2008).
Markets are often poetic and they are even more often ruthless, as this one will probably be toward those caught revering or worse, taking for granted, the job Policy Central has done post-2008. When gold is ready to bottom, we would then likely start finding out the details of just how damaging the current clean-up of previous damaging policy has been.
What to Look For
If silver begins to lead gold and there is a bounce in the sector along with commodities it would be a counter-trend play. Read more into it than that at your own peril. Further, if you hear the usual suspects coming out with Indian Weddings, China demand or worse, the end of the world talk about the US stock market, be very careful (unless gold is above 1400 at such time, which is doubtful any time soon, and US stocks are completely broken down). If things get bullish near term please keep your tender gold bug heart steeled against the promoters who cannot wait to sound the call once again.
While we are managing what was a fully expected decline in US stocks this October, we should be aware that it feels just a little bit scripted. Ooohhh, it’s October! Ha ha ha… the corrective activity in the stock market could ultimately be a healthy thing to reset the over bullishness that made every stock jockey with a couple well-known symbols look smart.
Another possibility is that the stock market bull really is over (there are some beneath the surface indicators we follow that are bearish) and that gold has not finished leading the way down amidst a deflationary pull. So we should also manage each market on its own and in consideration of its individual role in the macro.
Going back to gold, its simple big picture chart is bearish until it either gets above the Triangle’s nose at 1300 and/or rises above 1400. The time seems about right for a counter trend bounce (watch 1247 as initial resistance) to embolden some in the gold “community”. But a renewed decline to 1000 +/- would likely be a time to get very bullish because not only would a very relevant technical juncture be attained, but the poetic justice of closing out the 2008 economic and market disaster could represent a psychological critical mass where confidence in policy makers – tops out.
Guest Post by EWI
The Gold Bug is Set to Bite Back
Watch Elliott Wave International’s chief market analyst Steve Hochberg’s 2-part presentation on gold
Since hitting a record high of $1921.50 per ounce in September 2011, gold prices have erased 30% in value. By the end of day on October 3, 2014, gold prices were circling the drain of a 15-month low.
After such devastation, the global community of gold analysts, advisors and investors finds itself scattered as an anthill colony after being stepped on by a giant bear paw. This recent Forbes article captures the divisiveness among gold watchers:
“‘Survey Participants Split Over Gold Price Direction‘ as a potential decline in the U.S. dollar competes against ‘geopolitical reasons’ for prices to bounce.”
This magnifies an important point, namely:
Mainstream financial analysis uses news events to gauge where prices may be headed. The problem with this strategy is that it does not anticipate trend changes — it only reacts to the changes that have already happened, almost always leaving you one step behind.
Naturally, this reliable unreliability leads to uncertainty among those invested in the market’s trend.
Elliott wave analysis takes a radically different approach. Rather than looking outside the market for clues into future price action, Elliotticians look to the price charts themselves. There, they identify fixed and finite patterns which shape the market’s near- and long-term character.
You can use gold’s 3-year-long sell-off as a prime example. Back in 2010-2011, gold’s bullish “fundamental” picture was allegedly in the bag. The U.S. Federal Reserve just launched its $1-trillion-a-year quantitative easing program, which was widely expected to fuel gold’s inflationary fire. An August 25, 2011 Gallup Poll confirmed:
“Americans Choose Gold as the Best Long-Term Investment.”
Elliott Wave International, however, saw a different outcome for gold on the metal’s price chart: an impending decline. In the September 2011 Elliott Wave Financial Forecast, our analysis included the following chart, which showed gold prices at or near the end of a decade-long, 5-wave advance.
“Gold’s wave structure is consistent with a terminating rise. [Elliott waves progress and therefore top out in 5 waves]. As this monthly chart shows, prices exceeded the upper line of the channel formed by the rally from the 1999 low in what Elliott terms a throw-over. A throw-over occurs at the end of a fifth wave, and represents a final burst of buying. The pattern is confirmed as complete once prices close back under the upper line, which currently crosses $1650.”
So, that was then. What about now?
Today, the mainstream is divided between opposing fundamental forces. But at the San Francisco Money Show in August 2014, Elliott Wave International’s chief market analyst Steve Hochberg identified a very compelling reason to form a united front in gold’s future — an Elliott wave triangle pattern.
You can hear the exact point when Steve shared this exciting development to his audience via this clip from his Money Show presentation:
Steve goes on to explain how pinpointing this triangle helps him lay down a forecast for “what gold is going to do from here on out.”
Would you believe that gold prices should “rally” for a year, maybe even two??
Would you also believe you can watch Steve’s entire Money Show presentation on gold (not just the 30-second preview featured here!), FREE?
Well, you absolutely can. For a limited time only, Elliott Wave International is releasing Steve’s Money Show presentation on gold — in two 5-minute long videos.
This very special offer is FREE to all Club EWI members. Simply complete your free Club EWI profile and get instant access to Steve’s presentation >>
Mark Hulbert checks in with some not so great news for gold bulls. Do you know what that news is? Gold bulls are alive, well and ready to call a bottom at the drop of a hat.
According to Hulbert…
“On the contrary, we now know — courtesy of the HGNSI’s jump late last week — that gold timers’ bearishness was only skin-deep, and that they stand ready to become bulls again at the drop of a hat. True bottoms typically are accompanied by bearishness that is much more stubbornly held than that.”
This does not necessarily reflect on the gold market’s ability to take a counter trend rebound, especially since the reading below was taken on Thursday, before the big price drop on Friday and according to Hulbert, even after yesterday’s upside HGNSI was at -34%. I think that what he did not like seeing is how readily gold timers jumped bullish trying to be ‘the guy’ calling a bottom.
I think a rally can get going off of 1180, but bigger picture there very well could be some unfinished business; namely the business of killing off anyone who would be bullish on gold’s price*.
* An important distinction as always is gold’s assigned ‘price’ vs. it’s long-term ‘value’ in a system of remotely managed inflation operations by authorities world wide.
Well, here came the short covering rally in the precious metals. By calling it that I don’t mean that it cannot turn into something more, but today was most assuredly driven by short covering as the US dollar unwound some of its speculative sponsorship. One can assume that large speculators took it on the chin on both ends, in the USD and in gold/silver as the Commercial traders had been aligned increasingly bearish and bullish, respectively.
Guest Post by Steve Saville
Gold vs. Silver During Precious Metals Bull Markets
It is widely believed that silver outperforms gold during bull markets for these metals, but that’s only partially true. It’s true that silver tends to achieve a greater percentage gain than gold from bull-market start to bull-market end. It’s also the case that silver tends to do better during the final year of a cyclical bull market and during the late stages of the intermediate-term rallies that happen within cyclical bull markets. However, the early stages of gold-silver bull markets tend to be characterised by relative strength in gold. This is a point we’ve made in the past, including in TSI commentaries earlier this year, but warrants revisiting due to the recent price action.
The gold and silver Commitments of Traders data are out and what do you know, they improved again. Lot of good it has done precious metals investors thus far, but maybe next time people will take seriously those times when the goons are gathering short while at the same time the promoters are popping off about Ukraine, Chinese demand and Indian Wedding Season.
First off, I want to say that the plan explained by Steve Hochberg in the video associated with the previous post (free sign up required) meshes well with how I see gold currently. The 1000 +/- level is very doable, folks. Not a given, but quite doable. That would close out investors’ fear from 2008 by having made a completed cycle on the rebound in greed.
In the short-term, gold was probably ready to bounce even before the war stuff hit the news yesterday. Sentiment had become just deplorable, with gold bulls puking left and right. The geopolitical thing is a negative, as it always is but the Hulbert HGNSI is quite a positive, as the gold timer community (ha ha ha…) plummets well into net short territory.
So, geopolitical aside (and I always take that seriously as a negative for gold because it gets the worst of the gold “community” back to pumping) gold can see some decent rally activity off of sentiment and the improved Commitments of Traders structure. But I think more downside may follow over the next few months. Then? Cyclical bull.
Meanwhile, I am using gold as a macro tool; probably the best macro tool I have when comparing it to other assets that are positively correlated to economies. Gold is just a tool around here after all; a tool for market evaluation and a tool for monetary value. It’s not an idol. When the ones who obsess about gold with wildly glaring eyes are back on the pump, take caution.
Separately, also at MarketWatch we see that the word is getting out that these ‘golden’ and ‘death’ crosses that inexperienced TA’s often get hysterical about are indeed opposite to the hype. The supposedly bullish golden ones are more bearish than the death ones. Too funny, and sadly all too true.
What I like about market management is that there is no shortage of bullshit out there to decode and debunk, but casual observers tend to take it seriously.