Sive Morten
Special Consultant to the FPA
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- 18,760
Fundamentals
As we’ve suggested on previous week – bad NFP data had shallow effect on overall sentiment on gold market. COT report continues tendency of increasing of OI at decreasing of net long position. On Friday we’ve got miserable plunge on gold market and slightly missed with start point of it, although our suspicion that upward action looks too choppy to call trend and had no impulse nature.
Fundamentally many traders explain current plunge down by different factors. Gold dropped below 1500 for the first time since July 2011 and shows the biggest weekly decline since Dec 2011 as well. Ones speak about Cyprus, that it intends to sell its gold reserves, others speak about drop in US Retail Data that hurts stocks and supported US Dollar. General thought currently is that investors will put assets in other safe-haven tools, such as bonds. BoJ takes a course on increasing inflation and in long-term perspective may be even yield of Japanese bonds will be attractive. As Gold was used as safe assets with unknown risks of QE’s and on fears of huge jump in inflation – currently these fears looks blur on moderate recovery in US.
My thought is nothing drastical has happened on previous week. Hardly this fall has happened due Cyprus possible bullion Sell-off. If you will look at the chart, you’ll see that Cyprus has smallest gold reserves. Besides, the purchasing and selling of gold by central banks takes not large part in total demand supply that is around 4500 tonnes annually.
View attachment Gold_Reserves.bmp
I think that current action takes pure technical foundation. Everybody knows that long-term sentiment is bearish now, everybody knows that current pullback should become just a retracement and most traders have waited this opportunity to enter short. COT Report has not shown any surprises and decrease of Net long position with growing of OI is rather stable. Currently Speculators have nominal and lowest net long position since Dec 2008. When market has dropped below 1530 area – it has triggered huge stops, hedgers and really big players on the market – that just has added fuel to downward action. I do not know what about you guys, but I really do not see any drastical and sensational fundamental events on previous week that could trigger such a move. This was just downward continuation – that’s all. When trend develops it not necessary means that every time something new happens. It just means that overall bias and foundation for this trend still holds, that situation has not changed. Here, I think what we have now.
Take a look on CFTC chart, and pay attention not to most recent data but to relation of OI and Net position. What do you see? OI is growing with decline in Net Long. It means that more and more short positions appear on market. The same we’ve seen on Silver on previous week.
Do we see any changes on other data? SPDR has lost tremendous value of physical gold, but OI is climbing up.
The same is here – OI grows with price decline:
All these moments suggest what we’ve just said – bears gradually get more power.
And now again it’s time to repeat our long-term technical forecast.
This picture could be treated as pure technical or as fundamental as well, since it shows really big scale – gold market since 1970’s. This is annual chart of gold. The conclusion that we could made from this picture (this comes from one of the elders DiNapoli experts – Kevin Riordan) is rather exciting. By looking at previous strong retracement in 1980-2000, clone and drag it on now days, thus to measure the harmonic swing – we will get the end point of retracement around 1250-1300 area – right at major 3/8 Fib support. But that is not over yet. Although I do not have 3x3 DMA on this chart, but most recent thrust up is no doubt – perfect example and it is a context for DiNapoli annual B&B “Buy” that could start right from Fib support and harmonic swing target. Let’s keep this in mind. It could sound scaring, but pure technically, as we’ve noted – even move to 1200-1300 will be just minor retracement to major 3/8 support level.
Monthly
Now it’s time to shift to pure technical moments. Curiously but here we can see how even small move on monthly chart (in the scale of monthly time frame of cause), could drastically change all analysis.
But first I want to chill you out a bit, since April bar has not closed yet. Market will feel tremendous pressure by oversold condition and it will be extremely hard to continue with this pace down.
Thus in May or at summer’s eve I expect at least flat action, if there will not be backward move. Take a look that market was previously such tremendously oversold only in 2008 (and may be only in 2008 at all), and look what has happened next – huge upward jump. Although we have to take into consideration the overall context – market in 2008 and in 2013 is a quite different tune. Anyway, if even there will not be jump up, we should be ready for choppy and flat action with 1-2 months possibly.
Let’s finish with oversold and speak about another tool. Gold, in fact, could stand on the eve of volatility breakout (VOB). Since it never has been as oversold as now – this could be VOB. How to trade it – we’ve discussed in most recent EUR/JPY research. Here I just want to tell, that if it will be so, this moment will give us a lot of confidence with downward continuation. But even without VOB we have a lot of things to think about.
Second moment is harmonic swings. You can see that market has exceeded it and we know that usually price moves in doubles. Thus it gives us potential destination – the same as on annual chart around 1250$.
Third significant moment here is September 2011 bearish engulfing that could be triggered only now if April will close below 1530. Two year of expectation have made the borders are extremely important support and resistance levels. Target of this pattern and following rectangle consolidation gives the same destination – 1250. This is, as we know all time 3/8 support…
Finally, yearly pivot support 1, currently it is broken. We will see – was it a real breakout or not, but if it will be real, this will tell us that current move is not just a retracement and this will be significant from the sentiment point of view. This will give us confidence with downward action.
That’s being said as fundamentally as technically gold is bearish in long-term. But despite how curious it will sound – we will mostly trade Long, or if even will take short position – take profit at current low. The reason is huge oversold on monthly chart. When this disturbing condition will be resolved and gold will leave this area – then we will be able to focus purely on bearish trend.
Weekly
Here we do not have a lot of information – no patterns, directionals or anything of that sort. Interesting, but market is not oversold on weekly, although it at oversold on monthly. Still there is no contradiction here. Let’s try to base our tactics on points that we have. We see that market has broken significant 1530-1535 area. This is very important. First is because price very often re-tests broken levels from the other side. By this fact we know what level to watch for if retracement will happen. Second – this gives us a caution. If market is really bearish – price should not return right back inside of long-term consolidation. If this will happen – it could be W&R and we will have to expect move to 1800…
Second, we have Marubozo candle that assumes solid bearish momentum and that it should continue after retracement. Marubozo is separated by 1530 level at 50% approximately. That stands in a row with our expectation if upward retracement will happen.
And finally where we have to take profit? As we’ve said in monthly analysis – previous lows is the target, since market is oversold. This is 1480-1475 area.
Daily
Daily time frame is very interesting. At first glance, by taking a look at Oscillator Predictor we could think that here we have VOB again. But this is not the case. In reality, if you will take a look at DOSC (that’s why I like this indicator) you’ll see that market has reached even greater oversold in August 2011 and the same level in 2012. Thus, we do not have VOB, but still market is oversold significantly.
Analysis of harmonic swings tells that we stand at completion point of downward swing (or we have AB=CD from two most recent ones, if you like it in this way). But upward retracement swing suggests move to 1565 but not to just 1530. At the same time we’ve said that it will be a bit worrying sign, if market will return right back in consolidation. What we should to do?
I can’t give you absolute answer, but if we pay attention to speed of harmonic swing, then we will see that they were equal till current one that is much faster. Second, 1530-1535 is rather strong level, and it is also K-resistance at daily. I suppose that we will be able to try enter short from it despite upward harmonic swing target, because there is a great probability of its respect by price. Thus, even if market will proceed higher – we will be able to protect our position, or even close it. In the same manner as we deal with DRPO on previous week.
1-hour
In a very short-term perspective hourly chart shows how particularly retracement could start. That is mostly for scalpers who can try even to take Long position by the pattern if it will appear, of cause. Here we have excellent thrust down that could become perfect context for either DRPO “Buy” or B&B “Sell”. If it will be DRPO, then we probably will get an action to 1530. If it will be B&B, then retracement probably will stop somewhere between WPP and 3/8 Fib resistance, but when B&B will reach its target, some deeper upward AB=CD price action could still happen. So let’s keep a close eye on it.
Conclusion:
Fundamental picture has not changed much, sentiment on gold market is moderately bearish and downward move should continue in long-term perspective if market will hold below 1530 area. If this will indeed happen then our next long term level is 1200 area.
As technically market is oversold on monthly chart we can’t be focused on 1200 right now, besides we do not trade gold on monthly time frame. Due monthly oversold, very probably that lower time frame context will be mostly bullish in nearest future and we will have to take long positions on retracements, then reverse to the downside but with target at current lows, until monthly oversold level will not be adjusted.
Speaking about perspective of nearest 1-3 days analysis shows that market at support and oversold and re-testing of 1530-1535 area looks very probable. Thus we can either take long position by intraday patterns (if any will appear) or just wait the ending of retracement to enter short.
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.
As we’ve suggested on previous week – bad NFP data had shallow effect on overall sentiment on gold market. COT report continues tendency of increasing of OI at decreasing of net long position. On Friday we’ve got miserable plunge on gold market and slightly missed with start point of it, although our suspicion that upward action looks too choppy to call trend and had no impulse nature.
Fundamentally many traders explain current plunge down by different factors. Gold dropped below 1500 for the first time since July 2011 and shows the biggest weekly decline since Dec 2011 as well. Ones speak about Cyprus, that it intends to sell its gold reserves, others speak about drop in US Retail Data that hurts stocks and supported US Dollar. General thought currently is that investors will put assets in other safe-haven tools, such as bonds. BoJ takes a course on increasing inflation and in long-term perspective may be even yield of Japanese bonds will be attractive. As Gold was used as safe assets with unknown risks of QE’s and on fears of huge jump in inflation – currently these fears looks blur on moderate recovery in US.
My thought is nothing drastical has happened on previous week. Hardly this fall has happened due Cyprus possible bullion Sell-off. If you will look at the chart, you’ll see that Cyprus has smallest gold reserves. Besides, the purchasing and selling of gold by central banks takes not large part in total demand supply that is around 4500 tonnes annually.
View attachment Gold_Reserves.bmp
I think that current action takes pure technical foundation. Everybody knows that long-term sentiment is bearish now, everybody knows that current pullback should become just a retracement and most traders have waited this opportunity to enter short. COT Report has not shown any surprises and decrease of Net long position with growing of OI is rather stable. Currently Speculators have nominal and lowest net long position since Dec 2008. When market has dropped below 1530 area – it has triggered huge stops, hedgers and really big players on the market – that just has added fuel to downward action. I do not know what about you guys, but I really do not see any drastical and sensational fundamental events on previous week that could trigger such a move. This was just downward continuation – that’s all. When trend develops it not necessary means that every time something new happens. It just means that overall bias and foundation for this trend still holds, that situation has not changed. Here, I think what we have now.
Take a look on CFTC chart, and pay attention not to most recent data but to relation of OI and Net position. What do you see? OI is growing with decline in Net Long. It means that more and more short positions appear on market. The same we’ve seen on Silver on previous week.
Do we see any changes on other data? SPDR has lost tremendous value of physical gold, but OI is climbing up.
The same is here – OI grows with price decline:
All these moments suggest what we’ve just said – bears gradually get more power.
And now again it’s time to repeat our long-term technical forecast.
This picture could be treated as pure technical or as fundamental as well, since it shows really big scale – gold market since 1970’s. This is annual chart of gold. The conclusion that we could made from this picture (this comes from one of the elders DiNapoli experts – Kevin Riordan) is rather exciting. By looking at previous strong retracement in 1980-2000, clone and drag it on now days, thus to measure the harmonic swing – we will get the end point of retracement around 1250-1300 area – right at major 3/8 Fib support. But that is not over yet. Although I do not have 3x3 DMA on this chart, but most recent thrust up is no doubt – perfect example and it is a context for DiNapoli annual B&B “Buy” that could start right from Fib support and harmonic swing target. Let’s keep this in mind. It could sound scaring, but pure technically, as we’ve noted – even move to 1200-1300 will be just minor retracement to major 3/8 support level.
Monthly
Now it’s time to shift to pure technical moments. Curiously but here we can see how even small move on monthly chart (in the scale of monthly time frame of cause), could drastically change all analysis.
But first I want to chill you out a bit, since April bar has not closed yet. Market will feel tremendous pressure by oversold condition and it will be extremely hard to continue with this pace down.
Thus in May or at summer’s eve I expect at least flat action, if there will not be backward move. Take a look that market was previously such tremendously oversold only in 2008 (and may be only in 2008 at all), and look what has happened next – huge upward jump. Although we have to take into consideration the overall context – market in 2008 and in 2013 is a quite different tune. Anyway, if even there will not be jump up, we should be ready for choppy and flat action with 1-2 months possibly.
Let’s finish with oversold and speak about another tool. Gold, in fact, could stand on the eve of volatility breakout (VOB). Since it never has been as oversold as now – this could be VOB. How to trade it – we’ve discussed in most recent EUR/JPY research. Here I just want to tell, that if it will be so, this moment will give us a lot of confidence with downward continuation. But even without VOB we have a lot of things to think about.
Second moment is harmonic swings. You can see that market has exceeded it and we know that usually price moves in doubles. Thus it gives us potential destination – the same as on annual chart around 1250$.
Third significant moment here is September 2011 bearish engulfing that could be triggered only now if April will close below 1530. Two year of expectation have made the borders are extremely important support and resistance levels. Target of this pattern and following rectangle consolidation gives the same destination – 1250. This is, as we know all time 3/8 support…
Finally, yearly pivot support 1, currently it is broken. We will see – was it a real breakout or not, but if it will be real, this will tell us that current move is not just a retracement and this will be significant from the sentiment point of view. This will give us confidence with downward action.
That’s being said as fundamentally as technically gold is bearish in long-term. But despite how curious it will sound – we will mostly trade Long, or if even will take short position – take profit at current low. The reason is huge oversold on monthly chart. When this disturbing condition will be resolved and gold will leave this area – then we will be able to focus purely on bearish trend.
Weekly
Here we do not have a lot of information – no patterns, directionals or anything of that sort. Interesting, but market is not oversold on weekly, although it at oversold on monthly. Still there is no contradiction here. Let’s try to base our tactics on points that we have. We see that market has broken significant 1530-1535 area. This is very important. First is because price very often re-tests broken levels from the other side. By this fact we know what level to watch for if retracement will happen. Second – this gives us a caution. If market is really bearish – price should not return right back inside of long-term consolidation. If this will happen – it could be W&R and we will have to expect move to 1800…
Second, we have Marubozo candle that assumes solid bearish momentum and that it should continue after retracement. Marubozo is separated by 1530 level at 50% approximately. That stands in a row with our expectation if upward retracement will happen.
And finally where we have to take profit? As we’ve said in monthly analysis – previous lows is the target, since market is oversold. This is 1480-1475 area.
Daily
Daily time frame is very interesting. At first glance, by taking a look at Oscillator Predictor we could think that here we have VOB again. But this is not the case. In reality, if you will take a look at DOSC (that’s why I like this indicator) you’ll see that market has reached even greater oversold in August 2011 and the same level in 2012. Thus, we do not have VOB, but still market is oversold significantly.
Analysis of harmonic swings tells that we stand at completion point of downward swing (or we have AB=CD from two most recent ones, if you like it in this way). But upward retracement swing suggests move to 1565 but not to just 1530. At the same time we’ve said that it will be a bit worrying sign, if market will return right back in consolidation. What we should to do?
I can’t give you absolute answer, but if we pay attention to speed of harmonic swing, then we will see that they were equal till current one that is much faster. Second, 1530-1535 is rather strong level, and it is also K-resistance at daily. I suppose that we will be able to try enter short from it despite upward harmonic swing target, because there is a great probability of its respect by price. Thus, even if market will proceed higher – we will be able to protect our position, or even close it. In the same manner as we deal with DRPO on previous week.
1-hour
In a very short-term perspective hourly chart shows how particularly retracement could start. That is mostly for scalpers who can try even to take Long position by the pattern if it will appear, of cause. Here we have excellent thrust down that could become perfect context for either DRPO “Buy” or B&B “Sell”. If it will be DRPO, then we probably will get an action to 1530. If it will be B&B, then retracement probably will stop somewhere between WPP and 3/8 Fib resistance, but when B&B will reach its target, some deeper upward AB=CD price action could still happen. So let’s keep a close eye on it.
Conclusion:
Fundamental picture has not changed much, sentiment on gold market is moderately bearish and downward move should continue in long-term perspective if market will hold below 1530 area. If this will indeed happen then our next long term level is 1200 area.
As technically market is oversold on monthly chart we can’t be focused on 1200 right now, besides we do not trade gold on monthly time frame. Due monthly oversold, very probably that lower time frame context will be mostly bullish in nearest future and we will have to take long positions on retracements, then reverse to the downside but with target at current lows, until monthly oversold level will not be adjusted.
Speaking about perspective of nearest 1-3 days analysis shows that market at support and oversold and re-testing of 1530-1535 area looks very probable. Thus we can either take long position by intraday patterns (if any will appear) or just wait the ending of retracement to enter short.
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.
