Sive Morten
Special Consultant to the FPA
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Fundamentals
Gold tumbled nearly 1 percent on Friday after data showed U.S. job growth accelerated sharply, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus. Bullion pared some early losses after benchmark 10-year Treasury yields gave back some gains after initially rising to a six-week high. Weaker U.S. equities after early advances also helped lift gold from its lows. Employers added 175,000 jobs to their payrolls last month up from January's 129,000 new positions, the Labor Department said. The unemployment rate, however, rose to 6.7 percent from a five-year low of 6.6 percent, as Americans flooded into the labor market to search for work. "It's a decent data point but who knows how valid it is because of the weather and so forth," said Axel Merk, portfolio manager of California-based Merk Funds, which has more than $400 million in currency mutual fund assets. "Ultimately, the Fed is not interested in tightening any time soon because Yellen says she doesn't think inflation is a problem," which boosts gold's appeal as a hedge, he said. The metal, seen as a safe haven, was up 1 percent for the week to extend its winning streak to five, capitalizing on gains made earlier in the week when tensions in Ukraine escalated.
"In the short term, given the better-than-expected data, and provided nothing happens in Ukraine over the weekend, gold could fall below $1,330," VTB Capital analyst Andrey Kryuchenkov said. On Friday, President Vladimir Putin rebuffed a warning from U.S. President Barack Obama over Moscow's military intervention in Crimea, saying that Russia could not ignore calls for help from Russian speakers in Ukraine.
Monthly
Here I keep the same analysis intact, since nothing drastical has happened on previous week. Fundamental data, except maybe Ukraine turmoil, also has not changed significantly. Market has continued move up but this move was a bit choppy on passed week. When market stands on its own it has behaved absolutely logical from technical point of view, while when new geopolitical shocks appear – the start overrule technicals. On recent NFP data market has turned to retracement.
Our invalidation point on monthly still is previous lows. February action was promising and we haven’t seen such action since mid 2013. Chances on upward action still exist here, especially now, since February action as twice as greater than January. From fundamental part of view there two opposite opinions. Some analysts tell about 1050-1100 level and point that current action comes from negative US data, but this data is a result of heavy winter. As spring will come – data will improve and rally will be over. Others have opposite opinion. In general, here is excellent article on bloomberg, dedicated to gold, I’ll keep it here for another week:
Top Two Gold Forecasters Remain Bearish After 2014 Rally - Bloomberg
Second opinion comes from UBS – it opositely has increased forecast on gold:
Gold Losing Stigma for UBS as Tully Increases Forecasts for 2014 - Bloomberg
(But guys, to be honest, I suspect that both forecasts could be reached. Recall our long-term expectation – two leg retracement down. Now we expect deep retracement and later return to previous lows. Hence, first forecast of higher prices has relation to current retracement, while second one – to second leg, when gold due bearish momentum should return right back down to current lows.)
Anyway, trend holds bearish still. Appearing of 1361 Yearly PP could get special meaning from possible retracement point of view. It could become possible nearest upside target. Now price stands very close to it. 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 has entered seasonal bearish trend in February and it will be even more difficult to continue move higher. Situation is better than some months ago and something really is changing here, but this optimism is still very unstable. Very probably that market will become a shadow of US macro data in nearest months. Investors right now still are over-reliant on US data and this is understandably. This relation probably will hold for some time still.
Weekly
Trend is bullish here, market is not at overbought. During recent two weeks market shows heavy action and it seems like it struggles with resistance. Market finally has reached first target – 1340 AB=CD 0.618 extension right at Fib resistance and, in fact, has entered in strong resistance area. The upper border of this area consists of MPR1 and Yearly Pivot point around 1361. Now we depend on reaction in this area. First is, what reaction on resistance will follow? This is important, because we need retracement to take position in right place. And second moment – whether it will be just retracement, or market will turn down again? If this will be just retracement then our next target will be 1435 and potentially we expect move to 1540 area – yearly pivot resistance 1.
Thus, although we have geopolitical issues that are bullish for gold and can change situation hard and fast, still, technically the first stage of our trading plan is to wait reasonable retracement down and search bearish reversal patterns on lower time frames.
Daily
On daily time frame situation is blur. Unfortunately we can’t add much here, since we’ve discussed this every day on previous week. At first glance market has passed above as AB=CD target as 0.618 Fib resistance, but at the same time it has passed not too far and not too fast. Beside some bearish signs have been formed but market has not followed them yet. I’m speaking about bearish engulfing pattern and stop grabbers. Despite recent move up these patterns still valid, because price has not moved above the highs. Thus we could call this situation as “technically nervous”, because it is a bit late and unreasonable take long position at resistance but it is a bit early to take short as well mostly because we do not see clear signs of market’s wish to go lower. But as we’ve said that trading plan assumes getting dip to buy – we will wait and focus on downside chances.
4-hour
Here guys I do not see anything special yet. In general, this action reminds previous one that was in January. Although we didn’t get new top here, on NFP release, but we didn’t get downward breakout either. Thus it is too early to talk about downward reversal. And we do not have any patterns here as well. Based on this chart we can get only two useful things. WPR1 stands right around recent top. This area simultaneously is a beacon of bullish sentiment and invalidation point for daily patterns. If market move above these highs this will mean as upward continuation in medium term perspecive as destruction of bearish patterns.
1-hour
Here again – no clear leads for trading, no patterns. All that we have now is trend. Right now on gold market we have only one possibility for trading that has at least some foundation. Since trend is bearish and we have at least some kind of bearish pattern on daily and they still valid – we can trade reasonably only short. I will not call you to do this and may be in current situation to wait for more clarification and brigher setups is reasonable decision. Current setup is not very impressive and mostly based on common sense rather than on clear patterns. So, if you still will decide to try short entry – keep an eye on 1345 area. Market will open right around WPP and if it will test Fib level it could create short-term bearish engulfing pattern. That could give us some protection and confidence with short entry and may be even will guarantee possibility to move stops on breakeven.
Conclusion:
So, there is definitely something is changing on gold market, but these changes are not stable yet and investors will be over-reliant on US macro data in nearest future. Technically context looks bullish with nearest target at 1360 area.
In short-term perspective market is stingy for trading setups. As market has not formed any clear setup or pattern and does not show significant action on previous week – currently we do not have any valuable scenario for trading. From one side market does not show any bounce out from AB=CD target and resistance, but at the same time price does not go up further. The one setup that we were able to find is based on trend only and stands on hourly chart. For solid we need correct entry point and it will be great if we will get it as result of retracement down.
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 tumbled nearly 1 percent on Friday after data showed U.S. job growth accelerated sharply, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus. Bullion pared some early losses after benchmark 10-year Treasury yields gave back some gains after initially rising to a six-week high. Weaker U.S. equities after early advances also helped lift gold from its lows. Employers added 175,000 jobs to their payrolls last month up from January's 129,000 new positions, the Labor Department said. The unemployment rate, however, rose to 6.7 percent from a five-year low of 6.6 percent, as Americans flooded into the labor market to search for work. "It's a decent data point but who knows how valid it is because of the weather and so forth," said Axel Merk, portfolio manager of California-based Merk Funds, which has more than $400 million in currency mutual fund assets. "Ultimately, the Fed is not interested in tightening any time soon because Yellen says she doesn't think inflation is a problem," which boosts gold's appeal as a hedge, he said. The metal, seen as a safe haven, was up 1 percent for the week to extend its winning streak to five, capitalizing on gains made earlier in the week when tensions in Ukraine escalated.
"In the short term, given the better-than-expected data, and provided nothing happens in Ukraine over the weekend, gold could fall below $1,330," VTB Capital analyst Andrey Kryuchenkov said. On Friday, President Vladimir Putin rebuffed a warning from U.S. President Barack Obama over Moscow's military intervention in Crimea, saying that Russia could not ignore calls for help from Russian speakers in Ukraine.
Monthly
Here I keep the same analysis intact, since nothing drastical has happened on previous week. Fundamental data, except maybe Ukraine turmoil, also has not changed significantly. Market has continued move up but this move was a bit choppy on passed week. When market stands on its own it has behaved absolutely logical from technical point of view, while when new geopolitical shocks appear – the start overrule technicals. On recent NFP data market has turned to retracement.
Our invalidation point on monthly still is previous lows. February action was promising and we haven’t seen such action since mid 2013. Chances on upward action still exist here, especially now, since February action as twice as greater than January. From fundamental part of view there two opposite opinions. Some analysts tell about 1050-1100 level and point that current action comes from negative US data, but this data is a result of heavy winter. As spring will come – data will improve and rally will be over. Others have opposite opinion. In general, here is excellent article on bloomberg, dedicated to gold, I’ll keep it here for another week:
Top Two Gold Forecasters Remain Bearish After 2014 Rally - Bloomberg
Second opinion comes from UBS – it opositely has increased forecast on gold:
Gold Losing Stigma for UBS as Tully Increases Forecasts for 2014 - Bloomberg
(But guys, to be honest, I suspect that both forecasts could be reached. Recall our long-term expectation – two leg retracement down. Now we expect deep retracement and later return to previous lows. Hence, first forecast of higher prices has relation to current retracement, while second one – to second leg, when gold due bearish momentum should return right back down to current lows.)
Anyway, trend holds bearish still. Appearing of 1361 Yearly PP could get special meaning from possible retracement point of view. It could become possible nearest upside target. Now price stands very close to it. 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 has entered seasonal bearish trend in February and it will be even more difficult to continue move higher. Situation is better than some months ago and something really is changing here, but this optimism is still very unstable. Very probably that market will become a shadow of US macro data in nearest months. Investors right now still are over-reliant on US data and this is understandably. This relation probably will hold for some time still.
Weekly
Trend is bullish here, market is not at overbought. During recent two weeks market shows heavy action and it seems like it struggles with resistance. Market finally has reached first target – 1340 AB=CD 0.618 extension right at Fib resistance and, in fact, has entered in strong resistance area. The upper border of this area consists of MPR1 and Yearly Pivot point around 1361. Now we depend on reaction in this area. First is, what reaction on resistance will follow? This is important, because we need retracement to take position in right place. And second moment – whether it will be just retracement, or market will turn down again? If this will be just retracement then our next target will be 1435 and potentially we expect move to 1540 area – yearly pivot resistance 1.
Thus, although we have geopolitical issues that are bullish for gold and can change situation hard and fast, still, technically the first stage of our trading plan is to wait reasonable retracement down and search bearish reversal patterns on lower time frames.
Daily
On daily time frame situation is blur. Unfortunately we can’t add much here, since we’ve discussed this every day on previous week. At first glance market has passed above as AB=CD target as 0.618 Fib resistance, but at the same time it has passed not too far and not too fast. Beside some bearish signs have been formed but market has not followed them yet. I’m speaking about bearish engulfing pattern and stop grabbers. Despite recent move up these patterns still valid, because price has not moved above the highs. Thus we could call this situation as “technically nervous”, because it is a bit late and unreasonable take long position at resistance but it is a bit early to take short as well mostly because we do not see clear signs of market’s wish to go lower. But as we’ve said that trading plan assumes getting dip to buy – we will wait and focus on downside chances.
4-hour
Here guys I do not see anything special yet. In general, this action reminds previous one that was in January. Although we didn’t get new top here, on NFP release, but we didn’t get downward breakout either. Thus it is too early to talk about downward reversal. And we do not have any patterns here as well. Based on this chart we can get only two useful things. WPR1 stands right around recent top. This area simultaneously is a beacon of bullish sentiment and invalidation point for daily patterns. If market move above these highs this will mean as upward continuation in medium term perspecive as destruction of bearish patterns.
1-hour
Here again – no clear leads for trading, no patterns. All that we have now is trend. Right now on gold market we have only one possibility for trading that has at least some foundation. Since trend is bearish and we have at least some kind of bearish pattern on daily and they still valid – we can trade reasonably only short. I will not call you to do this and may be in current situation to wait for more clarification and brigher setups is reasonable decision. Current setup is not very impressive and mostly based on common sense rather than on clear patterns. So, if you still will decide to try short entry – keep an eye on 1345 area. Market will open right around WPP and if it will test Fib level it could create short-term bearish engulfing pattern. That could give us some protection and confidence with short entry and may be even will guarantee possibility to move stops on breakeven.
Conclusion:
So, there is definitely something is changing on gold market, but these changes are not stable yet and investors will be over-reliant on US macro data in nearest future. Technically context looks bullish with nearest target at 1360 area.
In short-term perspective market is stingy for trading setups. As market has not formed any clear setup or pattern and does not show significant action on previous week – currently we do not have any valuable scenario for trading. From one side market does not show any bounce out from AB=CD target and resistance, but at the same time price does not go up further. The one setup that we were able to find is based on trend only and stands on hourly chart. For solid we need correct entry point and it will be great if we will get it as result of retracement down.
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.
