Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
Gold rose on Friday after data showed U.S. job creation slowed sharply over the past two months, fueling speculation that slowing economic momentum will force the Federal Reserve to keep its current stimulus. For the week, gold was up almost 2 percent for its largest weekly gain in five weeks, boosted by safe-haven demand driven by tumbling currencies and assets in emerging markets. Bullion, however, failed to hold on to highs hit earlier Friday after U.S. nonfarm payrolls rose only 113,000 last month after a meager 75,000 gain in December. The metal's rise was limited by an over 1 percent rally in the S&P 500 equities index as expectations of further economic strength more than offset the weak reading on the labor market, which was blamed partly on the weather.
The payroll numbers are certainly weak, and I don't think the Fed can afford to change its current monetary stimulus policy," said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC. "Gold's gains are hanging on hopes that the Fed will back off from tapering, but it is still vulnerable to a sell-off in the near term," McGhee said.
Last week, the Fed decided to trim its bond purchases by another $10 billion as it stuck to a plan to wind down its extraordinary economic stimulus despite recent turmoil in emerging markets. VTB Capital analyst Andrey Kryuchenkov said the Fed is not going to change its forward guidance due to a lack of inflation pressures. "However, from an investor point of view, this still suggests a strong dollar going forward," he said.
Gold prices have risen around 5 percent since the beginning of the year, though investors continue to regard recent mixed U.S. economic data and emerging-market turmoil as insufficient to derail the global recovery. Silver, tracking gold, was up nearly 5 percent this week - its biggest weekly gain since mid-August. It was last up 0.5 percent on the day at $20 an ounce. Platinum group metals also posted small gains for the week on supply worries due to a possible strike in South Africa. However, latest news about government-brokered talks between mine union AMCU and the world's three biggest platinum producers to end a two-week wage strike limited further gains.
Recent CFTC data shows very interesting picture. We can see significant increasing in net long position and simultaneous decreasing of open interest. It means that recent upward action was not supported by trading volumes. This makes it fragile. Second interesting fact here is activity on gold market decreases during the recent year. Take a look that since last January – open interest is gradually decreasing right till current moment, despite how net position has changed and it stands at the level of March 2013. As current move up was not supported by volumes, we should be ready either for deep move down or even to downward continuation. Anyway be careful with any long position on daily time frame and higher.
Monthly
Just on previous week we’ve discussed how it could become important to get clear bullish engulfing pattern here. But right at the last week of January upward candle has diminished twice in size. Market has erased almost 50% of upward January action. As result we’ve got much shyer engulfing pattern that in fact, stands at the edge to be called as “englfing”. Still, as we’ve said that our invalidation point is previous lows – let’s see. Chances on upward action still exist here.
Trend holds bearish. Appearing of 1361 Yearly PP could get special meaning from possible retracement point of view. It could become possible nearest upside target. Yearly PR1 is also very significant. We know that gold likes to re-test previously broken lows and consolidations. 1540 area is monthly overbought, YPR1 and low border of broken long-term rectangle. As market was strongly oversold, why it can’t reach overbought? This is very typical action for any market.
As another application of significantly oversold we’ve suggested retracement up. Thus, we’ve made an assumption of possible deeper upward retracement that could take a shape of AB=CD, and invalidation for this setup is previous lows around 1170s. In fact current move up could be the last chance for possible upward bounce, if, say, market will show something like double bottom. Currently price action is very suitable for that – W&R of first bottom. This action in general is very typical for double bottoms and fake breakout could be the first sign of possible retracement up. Bearish market has no other reasons to stop right here, since there is no support right now – it has passed through 3/8 support, it’s not at oversold. Currently we should keep a close eye on move up.
At the same time fundamental data, still stands very unstable and fickle, seasonal trend and physical demand from time to time also do not quite support upward action, at least right now. May be a bit later situation will change, but market will enter seasonal bearish trend in February and it will be even more difficult to continue move higher. Recent CFTC data also does not encourage optimism...
Weekly
Trend stands bullish here. On previous week we were very happy with this bearish engulfing pattern (at least from bullish point of view). Still, if treat this pattern as a part of reversal H&S on daily chart, then it becomes more acceptable. But resolving of this riddle will happen possible even not on coming week.
Anyway, past week candle carries not much new information. This was inside week and it has not clarified situation with bearish engulfing pattern, since it has not either vanished it or triggered. Market just holds inside its body. From that standpoint we still could say that bearish pattern is valid. At the same time we can point on bullish sign – market has tested MPP and remains above it. So, currently here we can’t say that our medium term bullish expectation has been erased, but at the same time bearish engulfing has not been cancelled as well. It seems, as usual we have to search answers on lower time frames.
Previously we also have noted that we’ve got solid bullish divergence with MACD. By treating valleys as AB=CD pattern we’ll see that minor extension stands almost right at Yearly Pivot Point, and 1.618 extension stands slightly higher than Yearly PR1. This is really interesting agreement.
Daily
The one negative moment that could overrule all positive ones is uncertainty. Every market is uncertain, that’s right, but gold market is especially uncertain. On daily chart we see why. We’ve touch this topic on Friday as well. Market has formed opposite patterns. First one is stop grabbers and on Friday we’ve got another one. They are bearish and assume taking out of 1238 lows at least. At the same time market is forming upward action with higher lows while trend holds bearish. This is the sign of bullish dynamic pressure and this could mean that market is preparing to upward breakout or at least challenging previous highs. It looks like market feels resistance but does not show deep bounce down and coiling around it, a kind of building energy for strong action. That’s why I’ve said on Friday that it is tough task to trade gold right now.
4-hour
Here, although market still looks heavy and may be even is forming something that looks like wedge pattern, that potentially could be bearish, we could get short-term bullish action. Market has formed bullish butterfly that has target right at WPR1 and suggests some short-term upward breakout. Trend holds bullish here but doesn’t deserve relation since MACD lines cross with very flat angle. And this is the pattern that could clarify everything. If market will reach 1280 it will vanish stop grabbers, while if price will pass through lower support line it will simultaneously move below WPP and erase butterfly pattern. Butterfly here could be used as some sort of clarifier, filter of sentiment.
Another moment to watch for is big butterfly. What if this triangle is a left wing of potential bullterfly?
Conclusion:
Upward action in big picture looks shy and not impressive. Weekly chart shows bearish engulfing pattern that probably will impact on market on coming week. But despite on all these moments market has not totally erased possibility of reversal yet. This will happen only if current lows around 1180 will be taking out.
In short term perspective we see that after solid AB-CD down from the top of 1278, that was really fast, market has not shown logical continuation down, as it was suggested by the nature of the CD leg, but after acceptable retracement has turned to upside still, with this current triangle.
Taking this moment in consideration, we probably could come to conclusion that some improvement on Gold market is not an occasional issue. Although market has formed contradictive patterns almost on all time frames, I suspect chances on upward action are better, but I wouldn’t bet on it. Since one deal is to suspect and assume while quite another one is to get clear foundation for your assumption, but we do not have it now. That’s why gold trading is accompanied by significant risk and we should think twice before taking position here. The reverse side of all this stuff is strong action that will follow when situation will clarify. Since most investors stand in uncertainty they probably will not be ready for any solid action. But precisely in such situations market movements are strong when nobody has been prepared for them.
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.
Gold rose on Friday after data showed U.S. job creation slowed sharply over the past two months, fueling speculation that slowing economic momentum will force the Federal Reserve to keep its current stimulus. For the week, gold was up almost 2 percent for its largest weekly gain in five weeks, boosted by safe-haven demand driven by tumbling currencies and assets in emerging markets. Bullion, however, failed to hold on to highs hit earlier Friday after U.S. nonfarm payrolls rose only 113,000 last month after a meager 75,000 gain in December. The metal's rise was limited by an over 1 percent rally in the S&P 500 equities index as expectations of further economic strength more than offset the weak reading on the labor market, which was blamed partly on the weather.
The payroll numbers are certainly weak, and I don't think the Fed can afford to change its current monetary stimulus policy," said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC. "Gold's gains are hanging on hopes that the Fed will back off from tapering, but it is still vulnerable to a sell-off in the near term," McGhee said.
Last week, the Fed decided to trim its bond purchases by another $10 billion as it stuck to a plan to wind down its extraordinary economic stimulus despite recent turmoil in emerging markets. VTB Capital analyst Andrey Kryuchenkov said the Fed is not going to change its forward guidance due to a lack of inflation pressures. "However, from an investor point of view, this still suggests a strong dollar going forward," he said.
Gold prices have risen around 5 percent since the beginning of the year, though investors continue to regard recent mixed U.S. economic data and emerging-market turmoil as insufficient to derail the global recovery. Silver, tracking gold, was up nearly 5 percent this week - its biggest weekly gain since mid-August. It was last up 0.5 percent on the day at $20 an ounce. Platinum group metals also posted small gains for the week on supply worries due to a possible strike in South Africa. However, latest news about government-brokered talks between mine union AMCU and the world's three biggest platinum producers to end a two-week wage strike limited further gains.
Recent CFTC data shows very interesting picture. We can see significant increasing in net long position and simultaneous decreasing of open interest. It means that recent upward action was not supported by trading volumes. This makes it fragile. Second interesting fact here is activity on gold market decreases during the recent year. Take a look that since last January – open interest is gradually decreasing right till current moment, despite how net position has changed and it stands at the level of March 2013. As current move up was not supported by volumes, we should be ready either for deep move down or even to downward continuation. Anyway be careful with any long position on daily time frame and higher.
Monthly
Just on previous week we’ve discussed how it could become important to get clear bullish engulfing pattern here. But right at the last week of January upward candle has diminished twice in size. Market has erased almost 50% of upward January action. As result we’ve got much shyer engulfing pattern that in fact, stands at the edge to be called as “englfing”. Still, as we’ve said that our invalidation point is previous lows – let’s see. Chances on upward action still exist here.
Trend holds bearish. Appearing of 1361 Yearly PP could get special meaning from possible retracement point of view. It could become possible nearest upside target. Yearly PR1 is also very significant. We know that gold likes to re-test previously broken lows and consolidations. 1540 area is monthly overbought, YPR1 and low border of broken long-term rectangle. As market was strongly oversold, why it can’t reach overbought? This is very typical action for any market.
As another application of significantly oversold we’ve suggested retracement up. Thus, we’ve made an assumption of possible deeper upward retracement that could take a shape of AB=CD, and invalidation for this setup is previous lows around 1170s. In fact current move up could be the last chance for possible upward bounce, if, say, market will show something like double bottom. Currently price action is very suitable for that – W&R of first bottom. This action in general is very typical for double bottoms and fake breakout could be the first sign of possible retracement up. Bearish market has no other reasons to stop right here, since there is no support right now – it has passed through 3/8 support, it’s not at oversold. Currently we should keep a close eye on move up.
At the same time fundamental data, still stands very unstable and fickle, seasonal trend and physical demand from time to time also do not quite support upward action, at least right now. May be a bit later situation will change, but market will enter seasonal bearish trend in February and it will be even more difficult to continue move higher. Recent CFTC data also does not encourage optimism...
Weekly
Trend stands bullish here. On previous week we were very happy with this bearish engulfing pattern (at least from bullish point of view). Still, if treat this pattern as a part of reversal H&S on daily chart, then it becomes more acceptable. But resolving of this riddle will happen possible even not on coming week.
Anyway, past week candle carries not much new information. This was inside week and it has not clarified situation with bearish engulfing pattern, since it has not either vanished it or triggered. Market just holds inside its body. From that standpoint we still could say that bearish pattern is valid. At the same time we can point on bullish sign – market has tested MPP and remains above it. So, currently here we can’t say that our medium term bullish expectation has been erased, but at the same time bearish engulfing has not been cancelled as well. It seems, as usual we have to search answers on lower time frames.
Previously we also have noted that we’ve got solid bullish divergence with MACD. By treating valleys as AB=CD pattern we’ll see that minor extension stands almost right at Yearly Pivot Point, and 1.618 extension stands slightly higher than Yearly PR1. This is really interesting agreement.
Daily
The one negative moment that could overrule all positive ones is uncertainty. Every market is uncertain, that’s right, but gold market is especially uncertain. On daily chart we see why. We’ve touch this topic on Friday as well. Market has formed opposite patterns. First one is stop grabbers and on Friday we’ve got another one. They are bearish and assume taking out of 1238 lows at least. At the same time market is forming upward action with higher lows while trend holds bearish. This is the sign of bullish dynamic pressure and this could mean that market is preparing to upward breakout or at least challenging previous highs. It looks like market feels resistance but does not show deep bounce down and coiling around it, a kind of building energy for strong action. That’s why I’ve said on Friday that it is tough task to trade gold right now.
4-hour
Here, although market still looks heavy and may be even is forming something that looks like wedge pattern, that potentially could be bearish, we could get short-term bullish action. Market has formed bullish butterfly that has target right at WPR1 and suggests some short-term upward breakout. Trend holds bullish here but doesn’t deserve relation since MACD lines cross with very flat angle. And this is the pattern that could clarify everything. If market will reach 1280 it will vanish stop grabbers, while if price will pass through lower support line it will simultaneously move below WPP and erase butterfly pattern. Butterfly here could be used as some sort of clarifier, filter of sentiment.
Another moment to watch for is big butterfly. What if this triangle is a left wing of potential bullterfly?
Conclusion:
Upward action in big picture looks shy and not impressive. Weekly chart shows bearish engulfing pattern that probably will impact on market on coming week. But despite on all these moments market has not totally erased possibility of reversal yet. This will happen only if current lows around 1180 will be taking out.
In short term perspective we see that after solid AB-CD down from the top of 1278, that was really fast, market has not shown logical continuation down, as it was suggested by the nature of the CD leg, but after acceptable retracement has turned to upside still, with this current triangle.
Taking this moment in consideration, we probably could come to conclusion that some improvement on Gold market is not an occasional issue. Although market has formed contradictive patterns almost on all time frames, I suspect chances on upward action are better, but I wouldn’t bet on it. Since one deal is to suspect and assume while quite another one is to get clear foundation for your assumption, but we do not have it now. That’s why gold trading is accompanied by significant risk and we should think twice before taking position here. The reverse side of all this stuff is strong action that will follow when situation will clarify. Since most investors stand in uncertainty they probably will not be ready for any solid action. But precisely in such situations market movements are strong when nobody has been prepared for them.
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.
