Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
So, guys, as one more week has passed, let see what facts do we have. Actually during previous past week downward action has slowed down a bit. May be this is not the end yet of the long-term tendency but still, that could become a first sign of medium-term retracement. Our major plan for the gold is a bit different from common thoughts that now are dominating on the markets. People was so scared by drammatic plunge on gold since the start of the year, that now even scared to say “bullish” in relation to gold market. Here is an example of that thoughts by Reuters news:
"I'm still a bear, maybe on the wrong side of the camp, but with the stock market possibly hitting another record and with any slight uptick in interest rates, we could be looking at gold going very quickly below $1,100," said Frank McGhee, chief precious metal at Integrated Broking Services in Chicago. This market is so unpredictably violent that it could roll off a couple of hundred dollars in just three sessions."
We already have made warning in our previous research – when your grandma is bearish on gold, all mass media calls for selling gold and so on – it’s time to search possibility for long entry. This does not mean that we need to hurry with this, but we have to be careful to any bullish signs that could appear.
Our trading plan on gold assumes appearing of three stages. First stage is under way right now – this is the first impulse leg that gives us direction. Second stage is retracement up after initial plunge, while third stage – continuation down, because bearish momentum on the market is solid. 3rd stage does not necessary will lead to new low, but it probably will at least re-test lows of first leg. Now market gives more and more signs of tiredness – move down has slowed, market extremely oversold. Time is approaching to seasonal bullish reverse point on gold market at the end of August. There are some other signs that may be not point on bullish reversal obviously, but it is definitely could be said that they are not bearish as well. In line with this week's rebound in gold, outflows from SPDR Gold Trust - the world's largest gold-backed exchange-traded fund - slowed to 3.9 tonnes this week from 22.9 tonnes last week. Gold holdings in SPDR are down 416 tonnes this year already, giving investors a fundamental reason to flee bullion. I have some suspicions that we are approaching or already stand somewhere around boiling point. Other information was not absolutely new and stands around recent Bernanke to Congress speech.
Gold rose on Friday to notch its second weekly gain after many investors were soothed by the Federal Reserve's assurance this week that it will be careful in tapering its economic stimulus, although some braced for another decline in bullion. On Wednesday, gold tumbled about 1 percent after Fed Chairman Ben Bernanke reiterated the U.S. central bank's intent to scale back later in the year its $85 billion in monthly bond purchases, a program that has fueled precious metal price gains. The Fed's ultra-loose monetary policy has retained pressure on long-term interest rates while its stimulus has added to fears of inflation, stoking gold prices. Bernanke, addressing Congress over two days, later said that the Fed's stimulus-tapering plans were not set in stone and depended on the strength of the economy. That helped the gold market recover on Thursday and Friday.
Russia's central bank posted data showing it did not add gold to its reserves for the first time in nine months in June, when bullion prices fell by more than 10 percent to their lowest in nearly three years. Russia has been the biggest gold buyer in the official sector in the past decade. A shift by central banks from major sellers of bullion to net buyers has been a major support to the gold market in recent years.
Now take a look at CFTC recent report. Pay attention to first sign of changing the tendency – Open Interest has increased with increasing of Net Speculative long position, while previously they move opposite. Usually when OI starts to move with net position becomes a first hint on possible trend shifting.
Thus, now can say the same what we’ve told on previous 2-3 weeks. Although overall long-term bearish sentiment still holds, but in nearest months we could get significant upward bounce on gold market and we have to be ready to use it.
Monthly
As a result of past week we have slightly bigger July candle than on previous one. But this makes all the difference. Here I also think – could we get some DiNapoli directional – for instance B&B, since we have minimum required number of bars in down thrust – eight. But I’m not sure with it yet and need to see for development of situation a bit more. Other moments of our previous analysis here are the same:
July is still rather small and just inside one for June by far. Thus, our previous analysis is still the same. 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. On previous week in fundamental part above we’ve discussed possibility of appearing of BC leg, since sentiment is extremely bearish. 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
Weekly chart gives us serious issues that have to be thought. As we’ve start to think about potential medium term bounce in fundamental part of our research, it should become visible somehow and discover itself by some reversal pattern or action. On previous week we’ve said – guys, this could be a morning star pattern here and market now behaves in a row with this pattern. Actually weekly chart makes us think about as long-term as short term perspective. It’s more or less clear about short term, since we have clear pattern:
We already know that price stands at 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 previously we didn’t have the major part of puzzle - the reversal pattern. I do not know whether current one is reliable or not, but this is the only that we have, and it looks like bullish morning star. So, in short term perspective we can stick with it. Until market will not break its low the chances that upward action will continue exist. Take a look that minimum target of this pattern coincides with MPR1.
But what could be in long-term perspective, what pattern can appear here? Usually butterfly (since we already have it) could lead to 3 different reversal patterns. Butterfly itself, reverse H&S and 3-Drive Buy. 3-Drive probably has less chance to appear, because market will need to create new lows to complete it, but this is very difficult at extreme oversold level. Hence, most probable are H&S and/or butterfly per se. For us it is not big difference, because they will have the equal upward targets. Ultimately, market could reach 1600-1650 area, while close target stands around 1570.
If some development will start we need to see breaking of bearish tendency of lower lows and lower highs. It will be nice if we will get higher high for our confidence as soon as possible. Currently we see some nice signs for the bulls – market has closed above MPP and exceeded harmonic swing retracement. But this is just the fist step still.
And finally – trend still holds bearish by far, but on the next week market has chances to change it.
Daily
Previously we have discussed already that daily chart mostly confirms our bullish suspicions. The foundation for this idea is simple – market does not show the price action that it has to show in similar situation. I ask you the one think – what you will do, if market will hit daily K-resistance at overbought and completed AB=CD pattern? Probably you will not to buy or at least on in the same day. Yes, we’ve expected retracement here, but it has not happened. This is even more surprisingly, if you will take a look at AB=CD pattern. See – its CD leg is slower and flatter compares to AB. Although this is a sign of weakness and in most cases leads to 5/8 retracement – here even minor bounce has not come. Curious, right? Market stands flat almost for 2 weeks under strong resistance and at AB=CD completion point. Recall “3-period rule”. I suspect that here we should see some bullish sign, that gives us confidence with our bullish thoughts on weekly time frame. The next target that stands around strong resistance cluster is 1.618 extension of our AB=CD around 1350 area. This will be also near 5/8 Fib resistance and MPR1 – the target of weekly pattern. Having all these issues on my back – I do not want to enter short here, at least if situation will not change. But lower time frames do not refute it, but even more – confirm it. Finally, market has closed right at daily 25x5 DMA (although I do not have it on this chart). If it will pass through it – this might become significant bullish factor.
4-hour
Let’s start for 4-hour chart, what hidden bullish signs it cares? Trend has turned bullish right now. Market has shown just minor 3/8 retracement after initial solid upward action 2 weeks earlier. Early in the week it was seemed that market has shown downward breakout and stands at the eve of deep retracement down, but instead of that market starts to creep higher and higher across broken line – thus to even closed above MPP and by this action almost totally erased breakout that looked nice initially. I will not be surprised if we will see some solid upward acceleration in nearest future. I do not call to take longs right now, actually more safe will be to wait for breakout and then enter at retracement – that will be our major trading plan. But for me overall situation looks more bullish rather than bearish.
1-hour
If you trade on daily time frame – you may skip this part, since it will be mostly interesting for those who trades intraday or still thinks about whether anticipate possible upward breakout or not. As we do not have any clear patterns or other valuable signs here, this gamble could be rather risky – so think twice before taking this. But here is what we have... Market is forming rather stable upward channel by far and our confirmation sign will be upward breakout as sidways horizontal consolidation as this upward channel. Thus, our short-term invalidation point will be breakout of this channel down and moving below WPP. This probably will lead market at least to previous lows 1270. Market now is coiling right under major resistance line. Since there was a W&R already on previous week, current breakout, if it will happen –should be real...
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. Fundamentally some supportive factors have appeared, and this could shift to greater retracement.
Most recent price action shows more bullish signs than bearish. Although they are not as bright and obvious as sometimes could be – they still significant.
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.
So, guys, as one more week has passed, let see what facts do we have. Actually during previous past week downward action has slowed down a bit. May be this is not the end yet of the long-term tendency but still, that could become a first sign of medium-term retracement. Our major plan for the gold is a bit different from common thoughts that now are dominating on the markets. People was so scared by drammatic plunge on gold since the start of the year, that now even scared to say “bullish” in relation to gold market. Here is an example of that thoughts by Reuters news:
"I'm still a bear, maybe on the wrong side of the camp, but with the stock market possibly hitting another record and with any slight uptick in interest rates, we could be looking at gold going very quickly below $1,100," said Frank McGhee, chief precious metal at Integrated Broking Services in Chicago. This market is so unpredictably violent that it could roll off a couple of hundred dollars in just three sessions."
We already have made warning in our previous research – when your grandma is bearish on gold, all mass media calls for selling gold and so on – it’s time to search possibility for long entry. This does not mean that we need to hurry with this, but we have to be careful to any bullish signs that could appear.
Our trading plan on gold assumes appearing of three stages. First stage is under way right now – this is the first impulse leg that gives us direction. Second stage is retracement up after initial plunge, while third stage – continuation down, because bearish momentum on the market is solid. 3rd stage does not necessary will lead to new low, but it probably will at least re-test lows of first leg. Now market gives more and more signs of tiredness – move down has slowed, market extremely oversold. Time is approaching to seasonal bullish reverse point on gold market at the end of August. There are some other signs that may be not point on bullish reversal obviously, but it is definitely could be said that they are not bearish as well. In line with this week's rebound in gold, outflows from SPDR Gold Trust - the world's largest gold-backed exchange-traded fund - slowed to 3.9 tonnes this week from 22.9 tonnes last week. Gold holdings in SPDR are down 416 tonnes this year already, giving investors a fundamental reason to flee bullion. I have some suspicions that we are approaching or already stand somewhere around boiling point. Other information was not absolutely new and stands around recent Bernanke to Congress speech.
Gold rose on Friday to notch its second weekly gain after many investors were soothed by the Federal Reserve's assurance this week that it will be careful in tapering its economic stimulus, although some braced for another decline in bullion. On Wednesday, gold tumbled about 1 percent after Fed Chairman Ben Bernanke reiterated the U.S. central bank's intent to scale back later in the year its $85 billion in monthly bond purchases, a program that has fueled precious metal price gains. The Fed's ultra-loose monetary policy has retained pressure on long-term interest rates while its stimulus has added to fears of inflation, stoking gold prices. Bernanke, addressing Congress over two days, later said that the Fed's stimulus-tapering plans were not set in stone and depended on the strength of the economy. That helped the gold market recover on Thursday and Friday.
Russia's central bank posted data showing it did not add gold to its reserves for the first time in nine months in June, when bullion prices fell by more than 10 percent to their lowest in nearly three years. Russia has been the biggest gold buyer in the official sector in the past decade. A shift by central banks from major sellers of bullion to net buyers has been a major support to the gold market in recent years.
Now take a look at CFTC recent report. Pay attention to first sign of changing the tendency – Open Interest has increased with increasing of Net Speculative long position, while previously they move opposite. Usually when OI starts to move with net position becomes a first hint on possible trend shifting.
Thus, now can say the same what we’ve told on previous 2-3 weeks. Although overall long-term bearish sentiment still holds, but in nearest months we could get significant upward bounce on gold market and we have to be ready to use it.
Monthly
As a result of past week we have slightly bigger July candle than on previous one. But this makes all the difference. Here I also think – could we get some DiNapoli directional – for instance B&B, since we have minimum required number of bars in down thrust – eight. But I’m not sure with it yet and need to see for development of situation a bit more. Other moments of our previous analysis here are the same:
July is still rather small and just inside one for June by far. Thus, our previous analysis is still the same. 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. On previous week in fundamental part above we’ve discussed possibility of appearing of BC leg, since sentiment is extremely bearish. 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
Weekly chart gives us serious issues that have to be thought. As we’ve start to think about potential medium term bounce in fundamental part of our research, it should become visible somehow and discover itself by some reversal pattern or action. On previous week we’ve said – guys, this could be a morning star pattern here and market now behaves in a row with this pattern. Actually weekly chart makes us think about as long-term as short term perspective. It’s more or less clear about short term, since we have clear pattern:
We already know that price stands at 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 previously we didn’t have the major part of puzzle - the reversal pattern. I do not know whether current one is reliable or not, but this is the only that we have, and it looks like bullish morning star. So, in short term perspective we can stick with it. Until market will not break its low the chances that upward action will continue exist. Take a look that minimum target of this pattern coincides with MPR1.
But what could be in long-term perspective, what pattern can appear here? Usually butterfly (since we already have it) could lead to 3 different reversal patterns. Butterfly itself, reverse H&S and 3-Drive Buy. 3-Drive probably has less chance to appear, because market will need to create new lows to complete it, but this is very difficult at extreme oversold level. Hence, most probable are H&S and/or butterfly per se. For us it is not big difference, because they will have the equal upward targets. Ultimately, market could reach 1600-1650 area, while close target stands around 1570.
If some development will start we need to see breaking of bearish tendency of lower lows and lower highs. It will be nice if we will get higher high for our confidence as soon as possible. Currently we see some nice signs for the bulls – market has closed above MPP and exceeded harmonic swing retracement. But this is just the fist step still.
And finally – trend still holds bearish by far, but on the next week market has chances to change it.
Daily
Previously we have discussed already that daily chart mostly confirms our bullish suspicions. The foundation for this idea is simple – market does not show the price action that it has to show in similar situation. I ask you the one think – what you will do, if market will hit daily K-resistance at overbought and completed AB=CD pattern? Probably you will not to buy or at least on in the same day. Yes, we’ve expected retracement here, but it has not happened. This is even more surprisingly, if you will take a look at AB=CD pattern. See – its CD leg is slower and flatter compares to AB. Although this is a sign of weakness and in most cases leads to 5/8 retracement – here even minor bounce has not come. Curious, right? Market stands flat almost for 2 weeks under strong resistance and at AB=CD completion point. Recall “3-period rule”. I suspect that here we should see some bullish sign, that gives us confidence with our bullish thoughts on weekly time frame. The next target that stands around strong resistance cluster is 1.618 extension of our AB=CD around 1350 area. This will be also near 5/8 Fib resistance and MPR1 – the target of weekly pattern. Having all these issues on my back – I do not want to enter short here, at least if situation will not change. But lower time frames do not refute it, but even more – confirm it. Finally, market has closed right at daily 25x5 DMA (although I do not have it on this chart). If it will pass through it – this might become significant bullish factor.
4-hour
Let’s start for 4-hour chart, what hidden bullish signs it cares? Trend has turned bullish right now. Market has shown just minor 3/8 retracement after initial solid upward action 2 weeks earlier. Early in the week it was seemed that market has shown downward breakout and stands at the eve of deep retracement down, but instead of that market starts to creep higher and higher across broken line – thus to even closed above MPP and by this action almost totally erased breakout that looked nice initially. I will not be surprised if we will see some solid upward acceleration in nearest future. I do not call to take longs right now, actually more safe will be to wait for breakout and then enter at retracement – that will be our major trading plan. But for me overall situation looks more bullish rather than bearish.
1-hour
If you trade on daily time frame – you may skip this part, since it will be mostly interesting for those who trades intraday or still thinks about whether anticipate possible upward breakout or not. As we do not have any clear patterns or other valuable signs here, this gamble could be rather risky – so think twice before taking this. But here is what we have... Market is forming rather stable upward channel by far and our confirmation sign will be upward breakout as sidways horizontal consolidation as this upward channel. Thus, our short-term invalidation point will be breakout of this channel down and moving below WPP. This probably will lead market at least to previous lows 1270. Market now is coiling right under major resistance line. Since there was a W&R already on previous week, current breakout, if it will happen –should be real...
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. Fundamentally some supportive factors have appeared, and this could shift to greater retracement.
Most recent price action shows more bullish signs than bearish. Although they are not as bright and obvious as sometimes could be – they still significant.
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.
but the bearish hidden divergence on D1 has me a little concerned
