Sive Morten
Special Consultant to the FPA
- Messages
- 18,760
Fundamentals
Generally the past week didn’t care any drastical fundamental changes for gold market. Actually it has just confirmed what we’ve said previously concerning major environment on gold market. Overall bearish long-term sentiment still holds, despite all attempts to show upward bounce. Gold price is continuing to be a function of inflation and US economy condition. While inflation is anemic and no signs of its increasing yet and US economy shows sign of improving – gold market will be under pressure. If we surplus bearish seasonal trend then the chances that we will some drastical changes here in nearest perspective almost equal to zero.
Thus, economy added 175,000 jobs in May after adding just 149,000 in April, reducing hopes of prolonged stimulus. This has become another puzzle in overall pressure picture on gold prices as inflation-hedged asset. “Gold fell around 2 percent on Friday, its biggest one-day drop in over three weeks, as funds dumped bullion after resilient U.S. jobs data suggested the Federal Reserve could begin to scale back its monetary stimulus later this year” - Reuters said. As a result gold within 1 trading session has erased appreciation of the whole week. Gold now stands under seasonal pressure that was even exacerbated by Indian government. Officials in the world's biggest bullion consumer, India, continued efforts to curb gold imports on Friday, with the Reserve Bank of India extending restrictions on loans against security of gold coins per customer to all co-operative banks.
CFTC report shows that on previous week as long positions as short positions have contracted, but net long one has increased a bit. Open interest has decreased as well. We see typical action for bear trend for the third consecutive week – while net long position slightly increasing, open interest comes opposite and shows decreasing.
On next week we should be careful with CFTC report. Particularly we need to see growing of open interest if net long position will decrease. That will give us confidence that technically bear trend still holds.
SPDR fund continues to loose physical holdings and total amount of gold has decreased here. This stands in a row with long-term bear trend.
Monthly
June candle is rather small, since too little time has passed since the beginning. May candle was inside one to April and as May candle has closed now can really take a look at possibility of Volatility Breakout (VOB) pattern. 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. Then some retracement up should follow and then downward continuation, i.e. extension.
So two significant conclusions could be made here: whatever bounce market will show here – this probably will be just retracement but not a reversal. Second – market probably will reach some deeper support level and closest one stands around 1200. Also here you can see what I mean when talk about extreme oversold on monthly and why it is unsafe to take as a target some too extended points. Particularly – why we should use as target previous lows. See, May was not able to exceed April lows, although it has shown nice downward action. The same probably could happen in June. As summer has started, the volatility can reduce and June could become inside month for May as well – some kind of nested doll. And all this stuff is due oversold…
Weekly
On weekly time frame you can see impact of oversold on monthly. Once we’ve said that if you even take short position on weekly – do not point the target below previous lows, since market extremely oversold. Thus, we can see here that price can’t move lower and stand in the range of April sell-off.
Very often such significant moves, as we’ve got on April forces market to stand in its range for some time. It looks like market accommodates for new range, trying to understand what is going on. Here we have particularly this case. Six weeks in a row market stands in the range of April sell-off. Two previous weeks action was not impressive and market mostly was indecision and has formed high wave candle. Still market gives us one very significant moment. Price has tested MPP and moved below it. So, it confirms long-term bearish sentiment. Following pivot points application, market probably should start move to MPS1 that stands precisely at current lows.
The most action should happen when market will pass through either upper border 1500 or lower one – 1320. But as we can see on monthly chart – gold can stand in consolidation rather long time. Besides, price hardly will easily pass through 1320 due oversold, as I said. There is only one way how it could happen. Fundamental factors that hunt gold in extreme oversold conditions – the same factors could continue to dominate over technical moments, but it is very difficult to predict. Currently it looks their impact gradually becomes lighter. So, most probable some kind of range behavior, at least within nearest 2-3 months due summer time and bearish seasonal trend. I can’t exclude that despite overall bearish context we might be interesting with searching possibility even for short-term long entry around 1320 with some short-term targets.
Daily
Price action on daily time frame is very exemplary. Within previous two weeks we’ve pointed that action is not typical for trend motion but mostly looks like contraction phase and retracement. During recent week market just goes nowhere and has built energy. Sooner or later this type of action leads to expansion, i.e. some fast acceleration in one or other direction. Due to the overall behavior we mostly bet on downward action and that has happened.
Currently we have couple of significant moments here. Pay attention how this move down has started – by wash & rinse of previous highs on day before. This was a butterfly “Sell” on intraday charts. As a result by single move down market has erased and engulfed two-week range. Market has created all conditions for our conservative tactics for short entry, and most important thing – it has passed through 1390 area of support. That is what we would like to see and that is what gives us necessary confidence with starting to search possibility for short entry. Potential target is 1340 area – minor AB-CD target, but in general the area of 1320 current year lows.
4-hour
Although it is a bit difficult to say right now whether market will show bounce up right on Monday or will hit WPS1 first, but anyway it makes sense to watch for 1395 as suitable level for short entry. This level combines three different types of resistance – Fib level, natural level that market could re-test after breakout and WPP. Market could show bounce to 1406, since gold likes to show 5/8 retracements, but we do not want to see return back to highs around 1425. If retracement will stop around 1395 – that will be perfect.
1-hour
Here we have a bit more information. Market has reached ultimate 1.27 butterfly “sell” target. Move down was rather fast so it has given us nice thrust that looks suitable for DiNapoli directionals. Either DRPO “Buy” or B&B “Sell” patterns will give us great assistance with short entry with small risk. I prefer to get B&B somewhere from 1392-1395 area. But if this will be DRPO “Buy” – first this will give oportunity for scalpers to make scalp long trade with target around 1395-1397 and second – positional traders will get better level for entry.
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. By May close 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.
On short-term charts market finally has shown the action that we’ve needed to start search a possibility for short entry. This possibility could be realized by either B&B “Sell” or DRPO “Buy” DiNapoli directional patterns on hourly chart.
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.
Generally the past week didn’t care any drastical fundamental changes for gold market. Actually it has just confirmed what we’ve said previously concerning major environment on gold market. Overall bearish long-term sentiment still holds, despite all attempts to show upward bounce. Gold price is continuing to be a function of inflation and US economy condition. While inflation is anemic and no signs of its increasing yet and US economy shows sign of improving – gold market will be under pressure. If we surplus bearish seasonal trend then the chances that we will some drastical changes here in nearest perspective almost equal to zero.
Thus, economy added 175,000 jobs in May after adding just 149,000 in April, reducing hopes of prolonged stimulus. This has become another puzzle in overall pressure picture on gold prices as inflation-hedged asset. “Gold fell around 2 percent on Friday, its biggest one-day drop in over three weeks, as funds dumped bullion after resilient U.S. jobs data suggested the Federal Reserve could begin to scale back its monetary stimulus later this year” - Reuters said. As a result gold within 1 trading session has erased appreciation of the whole week. Gold now stands under seasonal pressure that was even exacerbated by Indian government. Officials in the world's biggest bullion consumer, India, continued efforts to curb gold imports on Friday, with the Reserve Bank of India extending restrictions on loans against security of gold coins per customer to all co-operative banks.
CFTC report shows that on previous week as long positions as short positions have contracted, but net long one has increased a bit. Open interest has decreased as well. We see typical action for bear trend for the third consecutive week – while net long position slightly increasing, open interest comes opposite and shows decreasing.
On next week we should be careful with CFTC report. Particularly we need to see growing of open interest if net long position will decrease. That will give us confidence that technically bear trend still holds.
SPDR fund continues to loose physical holdings and total amount of gold has decreased here. This stands in a row with long-term bear trend.
Monthly
June candle is rather small, since too little time has passed since the beginning. May candle was inside one to April and as May candle has closed now can really take a look at possibility of Volatility Breakout (VOB) pattern. 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. Then some retracement up should follow and then downward continuation, i.e. extension.
So two significant conclusions could be made here: whatever bounce market will show here – this probably will be just retracement but not a reversal. Second – market probably will reach some deeper support level and closest one stands around 1200. Also here you can see what I mean when talk about extreme oversold on monthly and why it is unsafe to take as a target some too extended points. Particularly – why we should use as target previous lows. See, May was not able to exceed April lows, although it has shown nice downward action. The same probably could happen in June. As summer has started, the volatility can reduce and June could become inside month for May as well – some kind of nested doll. And all this stuff is due oversold…
Weekly
On weekly time frame you can see impact of oversold on monthly. Once we’ve said that if you even take short position on weekly – do not point the target below previous lows, since market extremely oversold. Thus, we can see here that price can’t move lower and stand in the range of April sell-off.
Very often such significant moves, as we’ve got on April forces market to stand in its range for some time. It looks like market accommodates for new range, trying to understand what is going on. Here we have particularly this case. Six weeks in a row market stands in the range of April sell-off. Two previous weeks action was not impressive and market mostly was indecision and has formed high wave candle. Still market gives us one very significant moment. Price has tested MPP and moved below it. So, it confirms long-term bearish sentiment. Following pivot points application, market probably should start move to MPS1 that stands precisely at current lows.
The most action should happen when market will pass through either upper border 1500 or lower one – 1320. But as we can see on monthly chart – gold can stand in consolidation rather long time. Besides, price hardly will easily pass through 1320 due oversold, as I said. There is only one way how it could happen. Fundamental factors that hunt gold in extreme oversold conditions – the same factors could continue to dominate over technical moments, but it is very difficult to predict. Currently it looks their impact gradually becomes lighter. So, most probable some kind of range behavior, at least within nearest 2-3 months due summer time and bearish seasonal trend. I can’t exclude that despite overall bearish context we might be interesting with searching possibility even for short-term long entry around 1320 with some short-term targets.
Daily
Price action on daily time frame is very exemplary. Within previous two weeks we’ve pointed that action is not typical for trend motion but mostly looks like contraction phase and retracement. During recent week market just goes nowhere and has built energy. Sooner or later this type of action leads to expansion, i.e. some fast acceleration in one or other direction. Due to the overall behavior we mostly bet on downward action and that has happened.
Currently we have couple of significant moments here. Pay attention how this move down has started – by wash & rinse of previous highs on day before. This was a butterfly “Sell” on intraday charts. As a result by single move down market has erased and engulfed two-week range. Market has created all conditions for our conservative tactics for short entry, and most important thing – it has passed through 1390 area of support. That is what we would like to see and that is what gives us necessary confidence with starting to search possibility for short entry. Potential target is 1340 area – minor AB-CD target, but in general the area of 1320 current year lows.
4-hour
Although it is a bit difficult to say right now whether market will show bounce up right on Monday or will hit WPS1 first, but anyway it makes sense to watch for 1395 as suitable level for short entry. This level combines three different types of resistance – Fib level, natural level that market could re-test after breakout and WPP. Market could show bounce to 1406, since gold likes to show 5/8 retracements, but we do not want to see return back to highs around 1425. If retracement will stop around 1395 – that will be perfect.
1-hour
Here we have a bit more information. Market has reached ultimate 1.27 butterfly “sell” target. Move down was rather fast so it has given us nice thrust that looks suitable for DiNapoli directionals. Either DRPO “Buy” or B&B “Sell” patterns will give us great assistance with short entry with small risk. I prefer to get B&B somewhere from 1392-1395 area. But if this will be DRPO “Buy” – first this will give oportunity for scalpers to make scalp long trade with target around 1395-1397 and second – positional traders will get better level for entry.
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. By May close 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.
On short-term charts market finally has shown the action that we’ve needed to start search a possibility for short entry. This possibility could be realized by either B&B “Sell” or DRPO “Buy” DiNapoli directional patterns on hourly chart.
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.
