Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
On Friday we’ve traded gold market to upside due RRT pattern that has appeared right at daily 1.618 ultimate AB-CD target and extremely low price level that was not seen here for 3 years. But that was a technical issue. Fundamentally, since market is approaching to quarter end, we’ve seen the short covering and book-squaring. As a result gold has surged at 2 percents. Bullion's 2.3 percent rally was particularly impressive on a day that had little macroeconomic news and no dramatic movements in other commodities and financial markets. Silver jumped 6percent for its biggest one-day jump since January 2012. Still, by end of quarter market has shown 23% drop - its biggest decline since at least 1968, Reuters data shows. Some investors aggressively bought back their bearish bets on fears gold could rebound, while others squared their books on the last trading day of a dismal second quarter after Thursday's 2 percent drop as funds polished portfolios through the practice of window-dressing, as Reuters said.
Situation with physical demand stands poor as well. While there was significant demand after April’s drop on physical gold in Asia and India now situation is rather shy - U.S. Mint's American Eagle gold coins in June stand at only 47,000 ounces, a fifth of what was sold in all April, when sales hit a 3-1/2year high. Silver Eagles sales are down 20 percent.
Investors, not individuals, are likely to hold the key for prices in the second half. The world's eight largest gold ETFs lost 530 tonnes of gold in the first half of 2013, equivalent to about 10 percent of annual gold production.
So, when any market and especially gold enters at such mess, we should keep in mind two major moments. First is – drastical changes on the markets usually happen when everybody either bullish or bearish. Because in this time there are nobody on the other side, and market starts to reverse. When your grandma will ask you about selling of her old gold earrings since gold is dropping – the time of reversal is near. Second – gold is approaching to price level of 1000$ at which miner companies meet the breakeven point of gold production. As production of gold will be either contracted or even put on hold for sometime – price will go up, since supply will ease. Gold still has some room till that level, but keep in mind that gold will enter in seasonal bullish trend at the end of August. I see some non-occasional coincidence all of these multiple moments. And we should be extra careful now to any hints on reversal patterns and signs on gold market. "You've seen an over-run on the downside here. I am not positive that this is the low but we are very close to it," said John Hummel, AIS Group's chief investment officer, who manages $400 million in assets including a managed futures fund by Reuters report. And in general it is difficult to argue with this opinion. By our analysis gold probably will show two-leg move down in some kind of AB=CD, but BC upward retracement could start soon, may be even within nearest 2-3 months. Don’t forget either that gold now stands at all time 3/8 Fib support level at extreme oversold level. Despite huge moves that market shows now to the downside, it seems that some tiredness is starting to accumulate here. Now major event has happened – Fed has announced how it will deal with QE and what it will be watching for. Major reaction on gold market has followed, but now more and more investors sit on the hands and just wait first possible signs of inflation or other data that could be bullish for gold. When any of them will appear – that could be explosive move to the upside, since gold now is like wrapped spring and trigger that holds it – absence of bullish data. So, the bullish pressure is already here – market just needs the trigger to release it. I do not want to tell that gold is changing sentiment. I just want to tell that bearish activity peak of first downward move (first leg) fall behind. You may argue with this, since I can’t prove it right now, this is just how I sense it.
But currently is not the time of changes and CFTC data on current week again confirms the bearish sentiment as open interest has increased at price decreasing on passed week.
Monthly
June candle leads us to further confirmation of Volatility Breakout pattern here by showing even lower close than in May and April. This pattern usually provides solid reliability, since it based not on some price averaging as other indicators but on statistical measure of standard deviation, i.e. on volatility. This is in fact the core of the market’s breath and if we can call it in this way – some statistical law that could lead to significant consequences.
Now we have VOB setup here. Market never was as oversold as it stands now. 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. This gives us very significant conclusion that will be hard to overvalue. Usually when market forms VOB it leads to 2-leg downward move in some shape of AB-CD, but not necessary that AB should be equal to CD. The minimum target of VOB is 0.618 extension of AB-CD, where AB – initial swing down that has given VOB. Other words – now market is forming AB move. In fundamental part above we’ve discussed possibility of appearing of BC leg. Then some retracement up should follow and then downward continuation, i.e. extension. And major question now – is current level suitable for starting of upward bounce? Technically it is worthy of our attention and not only because this is significant Fib level. Take a look – this is also target of double harmonic swing and target of rectangle breakout. Usually price tends to pass down the distance that equals the height of broken rectangle. And yes, monthly oversold is also here. It is not necessary that bounce will start tomorrow. It could happen even not in July and after some fluctuations around 1200, but we should be careful and keep an eye on possible reversal patterns on weekly chart.
So two significant conclusions could be made here: whatever bounce market will show here – this probably will be just retracement but not a reversal – the same thought we’ve made based on fundamental picture analysis. The fact that market has passed slightly below Fib support level doesn’t mean yet that this level is broken. This is monthly chart and really big picture. We need to see stable possession below 1200 to accept this idea.
Weekly
Thus, on monthly chart we said, that “somewhere” around market could probably meet some support and turn to retracement. But where is this support precisely? Let’s see what facts do we have right now. Bullish signs include monthly Fib support, 1.618 target of initial AB=CD on weekly chart, weekly oversold and Butterfly “Buy”, although butterfly target was exceeded to the downside. But all these signs do not resolve major task – changing the tendency here. Precisely speaking, they could break the tendency, but it has not been done yet, since market just has reached this significant level. And we’re still just preparing to see whether major tendency will change or not and will these patterns become a trigger for upward significant bounce.
The major tendency itself could be easily seen here. Take a look that market forms lower highs and lower lows. Retracements very small and market has doubled it only once. Thus, we need to see higher high to start thinking about possible upward reversal. Now, we can say only that as market has hit solid support area – it could show a bounce and the nearest target is new July MPP at 1279.
Daily
On Friday market has started the bounce by intraday RRT pattern. As a result we’ve got bullish engulfing pattern at significant support level. So, some at least short-term retracement is possible until lows of this pattern will hold. Here we will get great assistance, since market will open near WPP of 1238. If market will move higher than it will be first confirmation that should give us a confidence with possible deeper move. Potential target will be significant resistance area that includes WPR1, MPP, daily K-resistance 1290-1308 area and daily overbought. Currently is very difficult to make analysis on longer perspective, since we need to see how market will approach to this area first. If market will erase this engulfing pattern, then we should be ready for another leg down. Hence our task is to take position as closer to it’s lows as possible
1-hour
Here trend has turned bullish as well as on 4-hour chart. Market has achieved minimum target of RRT pattern – the length of the bars and re-test previous consolidation. Very probable that market will open slightly higher on Monday and reach 1.618 AB-CD target and WPP. If some retracement will follow – that will be the chance for long entry. I do not call you do it blindly – make reasonable decision about long entry. If market will start fall like a stone with long black candles – this is not the way how we would like to see it. I call you to monitor this possibility. Personally I like 1206-1212 area. This is 5/8 Fib support and previous swing high that will be natural support. Thus, this is first stage of our plan for Monday – wait reaching of 1238-1240 area and then retracement to 1210 area.
Conclusion:
Technically and fundamentally gold market stands in long-term bearish motion, but there are more and more factors start to appear that make downward action as not as cloudless as it was recently. Also we’ve got VOB pattern that gives us forecast for long-term price behavior and promise compounded downward move in shape of some AB-CD. Now major question in big picture – is when and how BC up leg will start.
We do not know just yet – is current move up is just a minor bounce or something bigger. Until we will not get more clarification on longer time frames, let’s treat it as retracement. By now it has a possible target around WPR1 1300 area if market will show enough power to pass through WPP.
On Monday our attention will be stick with daily bullish engulfing pattern and potential retracement back inside of its body that could give us opportunity to enter long.
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 Friday we’ve traded gold market to upside due RRT pattern that has appeared right at daily 1.618 ultimate AB-CD target and extremely low price level that was not seen here for 3 years. But that was a technical issue. Fundamentally, since market is approaching to quarter end, we’ve seen the short covering and book-squaring. As a result gold has surged at 2 percents. Bullion's 2.3 percent rally was particularly impressive on a day that had little macroeconomic news and no dramatic movements in other commodities and financial markets. Silver jumped 6percent for its biggest one-day jump since January 2012. Still, by end of quarter market has shown 23% drop - its biggest decline since at least 1968, Reuters data shows. Some investors aggressively bought back their bearish bets on fears gold could rebound, while others squared their books on the last trading day of a dismal second quarter after Thursday's 2 percent drop as funds polished portfolios through the practice of window-dressing, as Reuters said.
Situation with physical demand stands poor as well. While there was significant demand after April’s drop on physical gold in Asia and India now situation is rather shy - U.S. Mint's American Eagle gold coins in June stand at only 47,000 ounces, a fifth of what was sold in all April, when sales hit a 3-1/2year high. Silver Eagles sales are down 20 percent.
Investors, not individuals, are likely to hold the key for prices in the second half. The world's eight largest gold ETFs lost 530 tonnes of gold in the first half of 2013, equivalent to about 10 percent of annual gold production.
So, when any market and especially gold enters at such mess, we should keep in mind two major moments. First is – drastical changes on the markets usually happen when everybody either bullish or bearish. Because in this time there are nobody on the other side, and market starts to reverse. When your grandma will ask you about selling of her old gold earrings since gold is dropping – the time of reversal is near. Second – gold is approaching to price level of 1000$ at which miner companies meet the breakeven point of gold production. As production of gold will be either contracted or even put on hold for sometime – price will go up, since supply will ease. Gold still has some room till that level, but keep in mind that gold will enter in seasonal bullish trend at the end of August. I see some non-occasional coincidence all of these multiple moments. And we should be extra careful now to any hints on reversal patterns and signs on gold market. "You've seen an over-run on the downside here. I am not positive that this is the low but we are very close to it," said John Hummel, AIS Group's chief investment officer, who manages $400 million in assets including a managed futures fund by Reuters report. And in general it is difficult to argue with this opinion. By our analysis gold probably will show two-leg move down in some kind of AB=CD, but BC upward retracement could start soon, may be even within nearest 2-3 months. Don’t forget either that gold now stands at all time 3/8 Fib support level at extreme oversold level. Despite huge moves that market shows now to the downside, it seems that some tiredness is starting to accumulate here. Now major event has happened – Fed has announced how it will deal with QE and what it will be watching for. Major reaction on gold market has followed, but now more and more investors sit on the hands and just wait first possible signs of inflation or other data that could be bullish for gold. When any of them will appear – that could be explosive move to the upside, since gold now is like wrapped spring and trigger that holds it – absence of bullish data. So, the bullish pressure is already here – market just needs the trigger to release it. I do not want to tell that gold is changing sentiment. I just want to tell that bearish activity peak of first downward move (first leg) fall behind. You may argue with this, since I can’t prove it right now, this is just how I sense it.
But currently is not the time of changes and CFTC data on current week again confirms the bearish sentiment as open interest has increased at price decreasing on passed week.
Monthly
June candle leads us to further confirmation of Volatility Breakout pattern here by showing even lower close than in May and April. This pattern usually provides solid reliability, since it based not on some price averaging as other indicators but on statistical measure of standard deviation, i.e. on volatility. This is in fact the core of the market’s breath and if we can call it in this way – some statistical law that could lead to significant consequences.
Now we have VOB setup here. Market never was as oversold as it stands now. 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. This gives us very significant conclusion that will be hard to overvalue. Usually when market forms VOB it leads to 2-leg downward move in some shape of AB-CD, but not necessary that AB should be equal to CD. The minimum target of VOB is 0.618 extension of AB-CD, where AB – initial swing down that has given VOB. Other words – now market is forming AB move. In fundamental part above we’ve discussed possibility of appearing of BC leg. Then some retracement up should follow and then downward continuation, i.e. extension. And major question now – is current level suitable for starting of upward bounce? Technically it is worthy of our attention and not only because this is significant Fib level. Take a look – this is also target of double harmonic swing and target of rectangle breakout. Usually price tends to pass down the distance that equals the height of broken rectangle. And yes, monthly oversold is also here. It is not necessary that bounce will start tomorrow. It could happen even not in July and after some fluctuations around 1200, but we should be careful and keep an eye on possible reversal patterns on weekly chart.
So two significant conclusions could be made here: whatever bounce market will show here – this probably will be just retracement but not a reversal – the same thought we’ve made based on fundamental picture analysis. The fact that market has passed slightly below Fib support level doesn’t mean yet that this level is broken. This is monthly chart and really big picture. We need to see stable possession below 1200 to accept this idea.
Weekly
Thus, on monthly chart we said, that “somewhere” around market could probably meet some support and turn to retracement. But where is this support precisely? Let’s see what facts do we have right now. Bullish signs include monthly Fib support, 1.618 target of initial AB=CD on weekly chart, weekly oversold and Butterfly “Buy”, although butterfly target was exceeded to the downside. But all these signs do not resolve major task – changing the tendency here. Precisely speaking, they could break the tendency, but it has not been done yet, since market just has reached this significant level. And we’re still just preparing to see whether major tendency will change or not and will these patterns become a trigger for upward significant bounce.
The major tendency itself could be easily seen here. Take a look that market forms lower highs and lower lows. Retracements very small and market has doubled it only once. Thus, we need to see higher high to start thinking about possible upward reversal. Now, we can say only that as market has hit solid support area – it could show a bounce and the nearest target is new July MPP at 1279.
Daily
On Friday market has started the bounce by intraday RRT pattern. As a result we’ve got bullish engulfing pattern at significant support level. So, some at least short-term retracement is possible until lows of this pattern will hold. Here we will get great assistance, since market will open near WPP of 1238. If market will move higher than it will be first confirmation that should give us a confidence with possible deeper move. Potential target will be significant resistance area that includes WPR1, MPP, daily K-resistance 1290-1308 area and daily overbought. Currently is very difficult to make analysis on longer perspective, since we need to see how market will approach to this area first. If market will erase this engulfing pattern, then we should be ready for another leg down. Hence our task is to take position as closer to it’s lows as possible
1-hour
Here trend has turned bullish as well as on 4-hour chart. Market has achieved minimum target of RRT pattern – the length of the bars and re-test previous consolidation. Very probable that market will open slightly higher on Monday and reach 1.618 AB-CD target and WPP. If some retracement will follow – that will be the chance for long entry. I do not call you do it blindly – make reasonable decision about long entry. If market will start fall like a stone with long black candles – this is not the way how we would like to see it. I call you to monitor this possibility. Personally I like 1206-1212 area. This is 5/8 Fib support and previous swing high that will be natural support. Thus, this is first stage of our plan for Monday – wait reaching of 1238-1240 area and then retracement to 1210 area.
Conclusion:
Technically and fundamentally gold market stands in long-term bearish motion, but there are more and more factors start to appear that make downward action as not as cloudless as it was recently. Also we’ve got VOB pattern that gives us forecast for long-term price behavior and promise compounded downward move in shape of some AB-CD. Now major question in big picture – is when and how BC up leg will start.
We do not know just yet – is current move up is just a minor bounce or something bigger. Until we will not get more clarification on longer time frames, let’s treat it as retracement. By now it has a possible target around WPR1 1300 area if market will show enough power to pass through WPP.
On Monday our attention will be stick with daily bullish engulfing pattern and potential retracement back inside of its body that could give us opportunity to enter long.
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.
