Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
On previous week we’ve scrutiny discussed fundamental situation on gold market and US economy. On passed week I do not see any significant changes here. Rumors, concerning gradual reducing of QE program have got confirmation in Fed rhetoric, while another data on US durable orders also has shown improvement. A healthier-than-forecast reading on April orders for U.S. durable goods, which range from toasters to aircraft, also knocked gold lower as the need for a safety play eased investor concerns about the U.S. economy. Currently I do not see any hazard for long-term bearish sentiment for gold market. Although many analysts have talked about upward splash on gold on Thursday due declining of stock markets, but hardly it could be called significant and probably was just shallow reaction on previous Fed speech.
Despite this upward retracement the SPDR Gold Trust, the world's largest gold-backed ETF, reported at the close of Thursday that its holdings had fallen by another 1.5 tonnes, bringing its total outflow for the week to 19.8 tonnes. That is more valuable confirmation that overall fundamental picture on gold stands intact.
CFTC report shows the similar picture as on previous week – light reducing of Net Long position that is accompanied by Open Interest growth:
Many investors now discuss the possibility of Double Bottom on gold market, and we also talk about it, since this pattern has not been vanished and setup for it is still valid. Thus, Ole Hansen, the vice president of Saxo Bank has said: "This week presented something for everyone. The bears have not seen any evidence of them being wrong, while the bulls got a bit of safe haven and on balance a rather dovish Bernanke. "Bottom line, we are still in dangerous territory having failed so far to move back above $1,414. The double bottom which is now in the making might give technical traders some comfort, but for it to be confirmed we ideally need to see a $1,432 print, so it's not yet something to lean against."
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Monthly
Here we have no significant changes. On monthly time frame market looks extremely bearish. Trend is down, market has moved below yearly pivot support 1 and this is strong bearish fact itself. But as May close price currently stands at extreme low – possible VOB (Volatility breakout) signal could rebound. Take a look at DOSC indicator again – market now stands at all time extreme point that is lower than the previous extreme value in 2008.
If May close will happen somewhere in this area – this significantly will increase probability of 2-step downward action as AB-CD. Other words, it will mean that downward move will get an extra mile. And will give much more confidence with deeper retracement, may be even 850-1000 area.
At the same time this carries problem for us. Since it becomes very difficult to treat oversold and overbought conditions. For example, now market is strongly oversold, but since this comes due fundamental globe flow of funds out of the gold, we can’t definitely say solely by oversold analysis, whether market continue move down or will show bounce up. Since normal behavior of indicator is distorted now by fundamental influence.
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Weekly
Here as well as on monthly time, we do not see many changes – only small inside candle that indicates consolidation near previous lows. On weekly time frame, despite of deep oversold and solid support area around 1320, market was able to show just minor 5/8 retracement to K-resistance area, tested MPP and turned right back down. Situation with stronger than ever oversold condition on monthly makes weekly analysis rather difficult. May be market will totally disrespect this and fundamental factor will again dominate over market for sometime, but we can’t rely on this, since we do not know this definitely. Our task is dealing with probabilities. If we will take a look at weekly gold from this perspective, then there are two points that we should be focused on here. First is – if we will take short position, we have to be extra careful or even avoid keeping it significantly below current 1320 lows, particularly due monthly deep oversold. Second is – since 1320 area is 1.618 extension target and MPS1 market still could show deeper bounce by Double Bottom pattern. One thing that worries me with Double Bottom is that everybody talks about it now. Anyway, If we will have the chance to take short position on lower time frames – we will have to find target somewhere near 1320, since market could get problems with proceeding lower. Also it will be interesting what will happen around 1320. If there will be some sort of Wash & Rinse, Rail Road Track pattern (some kind of bullish engulfing for those who do not know about RRT) then it really could be Double Bottom.
Daily
Gradually we are approaching to time frames, that are most useful for our analysis and daily is one of them. Looks like we’ve got the pattern that gives us huge assistance – I’m talking about bearish stop grabber. Although it suggests taking out just 1338 lows, but it is very difficult to imagine that gold market will leave 1320 lows intact in this case. Besides, when you’ll see by which pattern this downward move could happen, you understand that we can see even lower levels. That’s why I think we can treat it as stop grabber for major 1320 lows… In general this tight consolidation looks like bearish flag, so its breakout could lead to even more serious consequences.
4-hour
This analysis is very similar to EUR currency – there we also have bearish butterfly on 4-hour chart. That is the way how stop grabber can start to work. This pattern has a lot of advantages. First it is clearly indicates target and invalidation point, second – minimum target stands below 1320, hence, we should be focused on 1.618 target at 1290, because stops will acelerate downward action and market probably will fly below 1320 with a whistle. And finally, invalidation point stands in red square – it is very close to current price action, that gives acceptable risk level for short position. Logic is the same here – if market will move above 1415 highs, then it will erase both bearish patterns and it will be key for upward continuation.
1-hour
Here we do not have any significant add-ons, just some levels to watch for in the beginning of the week. First is WPP and major one is support of flag pattern – let’s call it in this way. Previously we also have talked about H&S pattern, but as I’ve said, I’m a bit doubt about it, since it appears not at top but somewhere in the middle of action and this is not suitable for mechanics of this pattern. So, we have the shape of H&S and may be it will work, but it is not quite H&S by its nature. Anyway, we have bearish patterns and should be focused on them and control invalidation point around 1415.
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Conclusion:
Technically and fundamentally gold market stands in long-term bearish motion, but extreme oversold level on monthly time frame puts limitations on positions and targets that we can get on lower time frames. That’s why currently it is very dangerous trying to keep shorts significantly below current lows around 1320.
Currently situation is very similar to EUR, as gold is driven mostly by USD fluctuations by now, rather than supply/demand for gold itself. Thus, as on EUR we have the same bearish patterns – stop grabber on daily and 4-hour butterfly “Buy” that suggest taking out of previous lows and potentially move even to 1290 area. If market will erase both of these patterns and move above 1415 highs, this probably will make move to previous highs around 1470 possible and appearing of Double Bottom will get more odds.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
On previous week we’ve scrutiny discussed fundamental situation on gold market and US economy. On passed week I do not see any significant changes here. Rumors, concerning gradual reducing of QE program have got confirmation in Fed rhetoric, while another data on US durable orders also has shown improvement. A healthier-than-forecast reading on April orders for U.S. durable goods, which range from toasters to aircraft, also knocked gold lower as the need for a safety play eased investor concerns about the U.S. economy. Currently I do not see any hazard for long-term bearish sentiment for gold market. Although many analysts have talked about upward splash on gold on Thursday due declining of stock markets, but hardly it could be called significant and probably was just shallow reaction on previous Fed speech.
Despite this upward retracement the SPDR Gold Trust, the world's largest gold-backed ETF, reported at the close of Thursday that its holdings had fallen by another 1.5 tonnes, bringing its total outflow for the week to 19.8 tonnes. That is more valuable confirmation that overall fundamental picture on gold stands intact.
CFTC report shows the similar picture as on previous week – light reducing of Net Long position that is accompanied by Open Interest growth:
Sponsored by Pellucid FX - Premium STP Forex Broker >>
Monthly
Here we have no significant changes. On monthly time frame market looks extremely bearish. Trend is down, market has moved below yearly pivot support 1 and this is strong bearish fact itself. But as May close price currently stands at extreme low – possible VOB (Volatility breakout) signal could rebound. Take a look at DOSC indicator again – market now stands at all time extreme point that is lower than the previous extreme value in 2008.
If May close will happen somewhere in this area – this significantly will increase probability of 2-step downward action as AB-CD. Other words, it will mean that downward move will get an extra mile. And will give much more confidence with deeper retracement, may be even 850-1000 area.
At the same time this carries problem for us. Since it becomes very difficult to treat oversold and overbought conditions. For example, now market is strongly oversold, but since this comes due fundamental globe flow of funds out of the gold, we can’t definitely say solely by oversold analysis, whether market continue move down or will show bounce up. Since normal behavior of indicator is distorted now by fundamental influence.
Sponsored by Pellucid FX - Premium STP Forex Broker >>
Weekly
Here as well as on monthly time, we do not see many changes – only small inside candle that indicates consolidation near previous lows. On weekly time frame, despite of deep oversold and solid support area around 1320, market was able to show just minor 5/8 retracement to K-resistance area, tested MPP and turned right back down. Situation with stronger than ever oversold condition on monthly makes weekly analysis rather difficult. May be market will totally disrespect this and fundamental factor will again dominate over market for sometime, but we can’t rely on this, since we do not know this definitely. Our task is dealing with probabilities. If we will take a look at weekly gold from this perspective, then there are two points that we should be focused on here. First is – if we will take short position, we have to be extra careful or even avoid keeping it significantly below current 1320 lows, particularly due monthly deep oversold. Second is – since 1320 area is 1.618 extension target and MPS1 market still could show deeper bounce by Double Bottom pattern. One thing that worries me with Double Bottom is that everybody talks about it now. Anyway, If we will have the chance to take short position on lower time frames – we will have to find target somewhere near 1320, since market could get problems with proceeding lower. Also it will be interesting what will happen around 1320. If there will be some sort of Wash & Rinse, Rail Road Track pattern (some kind of bullish engulfing for those who do not know about RRT) then it really could be Double Bottom.
Daily
Gradually we are approaching to time frames, that are most useful for our analysis and daily is one of them. Looks like we’ve got the pattern that gives us huge assistance – I’m talking about bearish stop grabber. Although it suggests taking out just 1338 lows, but it is very difficult to imagine that gold market will leave 1320 lows intact in this case. Besides, when you’ll see by which pattern this downward move could happen, you understand that we can see even lower levels. That’s why I think we can treat it as stop grabber for major 1320 lows… In general this tight consolidation looks like bearish flag, so its breakout could lead to even more serious consequences.
4-hour
This analysis is very similar to EUR currency – there we also have bearish butterfly on 4-hour chart. That is the way how stop grabber can start to work. This pattern has a lot of advantages. First it is clearly indicates target and invalidation point, second – minimum target stands below 1320, hence, we should be focused on 1.618 target at 1290, because stops will acelerate downward action and market probably will fly below 1320 with a whistle. And finally, invalidation point stands in red square – it is very close to current price action, that gives acceptable risk level for short position. Logic is the same here – if market will move above 1415 highs, then it will erase both bearish patterns and it will be key for upward continuation.
1-hour
Here we do not have any significant add-ons, just some levels to watch for in the beginning of the week. First is WPP and major one is support of flag pattern – let’s call it in this way. Previously we also have talked about H&S pattern, but as I’ve said, I’m a bit doubt about it, since it appears not at top but somewhere in the middle of action and this is not suitable for mechanics of this pattern. So, we have the shape of H&S and may be it will work, but it is not quite H&S by its nature. Anyway, we have bearish patterns and should be focused on them and control invalidation point around 1415.
Sponsored by Pellucid FX - Premium STP Forex Broker >>
Conclusion:
Technically and fundamentally gold market stands in long-term bearish motion, but extreme oversold level on monthly time frame puts limitations on positions and targets that we can get on lower time frames. That’s why currently it is very dangerous trying to keep shorts significantly below current lows around 1320.
Currently situation is very similar to EUR, as gold is driven mostly by USD fluctuations by now, rather than supply/demand for gold itself. Thus, as on EUR we have the same bearish patterns – stop grabber on daily and 4-hour butterfly “Buy” that suggest taking out of previous lows and potentially move even to 1290 area. If market will erase both of these patterns and move above 1415 highs, this probably will make move to previous highs around 1470 possible and appearing of Double Bottom will get more odds.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
