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Gold GOLD PRO WEEKLY, May 06 - 10, 2019

Discussion in 'Sive Morten- Currencies and Gold Video Analysis' started by Sive Morten, May 5, 2019.

  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Fundamentals

    A couple of weeks ago we've provided our long-term view on gold market, and mostly it stands the same. Today we're interested in NFP report impact on the market and what action we could get next week.

    Before NFP report, Gold prices slumped to an over four-month low after the U.S. Federal Open Market Committee (FOMC) axed any hopes for a rate cut in the near term, subduing demand for the non-interest bearing bullion, as Reuters reports.

    “A lot of people were positioned for the FOMC statement to be little bit more dovish than it actually was,” said Fawad Razaqzada, market analyst with Forex.com.

    “We have seen an implied odds of a 2019 rate cut fall from 75 percent to 50 percent so people are revising their rate cut expectations as the Fed was not as dovish as people expected.”


    The Federal Reserve kept the benchmark interest rate unchanged on Wednesday, in line with the market’s expectations.

    However, market participants were taken by surprise when the central bank emphasised it saw no compelling reason to consider a rate cut any time soon, citing rising employment and economic growth.

    On Friday, in turn, Gold was headed for its biggest daily rise in two months, clawing away from a four-month low hit in the previous session, helped by a pullback in the dollar and as some investors covered their short positions.

    “We are seeing a short-covering rally after a sell-off during the week. We also saw some good physical demand at price levels below $1,270,” said David Meger, director of metals trading at High Ridge Futures.

    “The dollar is weak, which is also helping gold,” he added.


    Despite a strong U.S. jobs report, the dollar was down 0.3%, as traders focused on the weaker aspects in the report.

    The U.S. wage gains did not accelerate as expected last month, holding at a reading that is consistent with moderate inflation.

    A moderate pace of wage growth indicated that there would not be a rate hike anytime soon, in turn boosting appeal for the non-interest bearing metal, said an analyst based in New York.

    Lower interest rates reduce the opportunity cost of holding the bullion.

    However, two Fed officials said on Friday they were increasingly worried about weak inflation, an indication that some U.S. central bankers see a growing case for a future interest rate cut even as others push for continued patience.

    Market participants were also keeping a close watch on U.S.-China trade talks, anticipating a resolution to the year long tariff war between the world’s two largest economies.

    U.S. President Donald Trump said on Friday the U.S.-China trade negotiations are going pretty well.

    Reflecting investor sentiment toward bullion, holdings in the world’s largest gold-backed exchange-traded fund (ETF), SPDR Gold Trust, fell about 0.2% to 745.52 tonnes on Thursday, its lowest since Oct. 12.

    In general, if we take a careful look at SPDR funds holdings, we see very strong negative dynamic. While gold price barely shows 30% pullback - holdings dropped almost back to the lows of 2018, totally erasing recent rally.
    This divergence tells, that something holds gold price and it could be USD weakness, as holding stand not in USD but in tonnes. Second - this divergence somehow should be resolved - either by big drop of Gold price or, upside rally and big demand for physical gold, and this should happen relatively soon. It is interesting that on red line (holdings) we have something that looks like "222" Buy pattern...
    upload_2019-5-5_14-37-7.
    CFTC data, in turn shows light increasing of net long position, but it doesn't look as too significant. It stands for ~ 30K contracts.

    upload_2019-5-5_14-47-56.
    Source: cftc.gov
    Charting by Investing.com


    Finally, Fathom consulting reports on slowdown on China economy, which shows signs of the tendency, but not occasional drawdown in statistics. It means that gold could get more support soon, but this is more perspective of longer-term period.

    China’s economy resumed in March, with growth nudging down to 5.1% after several months of more stable readings. Its weakest rate since late 2016, the measure is now some way below the 6.4% official estimate of annual GDP growth, which defied market expectations of a further slowdown in the first quarter. The CMI not only points to weaker economic growth but also to changes in the composition of that growth, a consequence of China’s stop-start approach to reform. For now, it continues to suggest that China is prioritising growth over reform.
    Beijing is caught between a rock and a hard place as both the old and new growth strategies are fraught with difficulties: the former is producing less bang for its buck, while the latter is associated with a painful economic adjustment.

    [​IMG]

    In general, fundamental factors that we see support our long term bullish view on gold market. Now the major concern stands around daily retracement - is it done already or not. As we saw contradictive action last week, this question is still on the table. We get the answer by market's reaction on major resistance levels. Normally, if bearish trend is still valid, price should stay below major resistance.

    Technical
    Monthly


    As gold market hit major target on weekly chart, it fluctuates inside major swings and mostly is driven by shorter-term factors. It makes minor impact on monthly picture and our long-term view. Recent fundamental and sentiment analysis shows that no big changes have happened and gold still stands positive. Despite technical retracement, we do not have reasons yet to cancel our long-term positive view on gold.

    As we've said earlier, we're watching for our so called "symmetrical" model. It could be clear symmetry in market action, and we have suggested that future action could be a reflection of previous downside action shape.Now market has moved more above the trend line, which was a crucial level for long-term technical picture.

    Gold shows good performance in December- February, which could put the foundation of new long-term upside trend. We still keep our harmonic technical model on monthly chart as primary tool of analysis. Current retracement down looks strong on daily chart, but it is just 30% of major swing up which is minimal level.

    Fundamental reasons for gold rising mostly relate to changing of global political and economical situation. Strong global shifts never could happen without big political events. This should provide big support to gold market. Now it is widely suggested that these processes should accelerate closer to 2020 year, or even in second half of 2019. For example, here is report by Fathom Consulting and their expectations to see world crisis around 2020.

    Here is explanation of our "symmetrical" model and scenario. Recent action on gold market reminds reverse H&S shape but very choppy and extended in time. Important COP target has been hit and upside action has started. In fact we have mirror action to the right and to the left from COP point. Market forms approximately equal lows on both sides. The speed is also similar. Is it possible that reversal is forming? Why not.

    The one important thing that we've got on April is testing of YPP and now it is very important how market will response. To keep upside trend valid, market has to hold above it, although it could flirt with it for some time. Now we see that on first test price holds above this level.

    Among bullish signs we could mention MACD hidden divergence which suggests action above 1380 top in long-term perspective.
    gold_m_06_05_19.

    Weekly

    Finally, minimum target of our "222" Sell pattern is completed, once price has hit major 3/8 Fib retracement level at 1275 level. Now price stands inside wide K-support area, where, as we think, downside action should finish.

    The most tricky moment though, is uncompleted OP target of major AB=CD pattern, which stands around 1260 and under recent lows. If we would get OP been hit, everything would be in a good order - retracement target is hit and we have clear bullish continuation pattern right at K-support area - "222" Buy.

    But with untouched OP on the back, it is too risky go long and more confirmation is needed. For example, taking out of "C" point and erasing of AB-CD pattern could be good confirmation of bullish ambitions.

    Strict rules of bullish position taking here, suggest placing stop below OP, which is rather costly and not suitable to everyone.
    gold_w_06_05_19.

    Daily

    With keeping in mind major weekly OP @ 1260, daily picture makes it clear what levels to watch for. As short-term setup stands bullish, it is obvious that our signal line is 1266 lows as all patterns are concreted with this level.

    First - we have two similar lows, which formed Tweezers bottom on weekly chart and works as background for short-term bullish sentiment. Next one is two side by side bullish grabbers. Finally, if you plot MACD here, you'll see that we also have classic bullish divergence with this lows.

    All this stuff stands at minor OP target which we've traded last week and minor Fib support. Thus, daily chart tells two things. 1266 is invalidation point for bullish context. If will be broken - don't be long as weekly retracement continues.
    Second - this is also our signal line in a context of weekly analysis that we've discussed above.
    gold_d_06_05_19.

    Intraday

    As short-term context is bullish, on intraday chart we discuss upside action. Besides, everything is clear if market drops below 1266 lows. So, here we can't exclude appearing of Double Bottom pattern. The butterfly that we've discussed last week has been erased, as market has formed slightly new lows, forming W&R but has not hit butterfly's extension and jumped up.

    Appearing of W&R is very typical for second bottom of the pattern. Upside rally also looks good. Theoretically, target of DB pattern stands around 1308 area and MPR1. But on a way up market has to pass multiple tests. First challenge is 1288 resistance. This is potential neckline of the pattern, but also two pivots and Fib level. Second challenge is 1300 area, which is a K-resistance of major 3/8 Fib level, so market could stuck there.

    gold_4h_06_05_19.

    A lot of resistance above suggests that it would be better to take position in advance by two reasons. First is to place tighter stop, second - to have riskless trade with b/e stop when we come to first resistance outpost.

    One of these levels could be used for long entry. As market is still coming to 1288 neckline and stands in relatively free space, retracement should not be too strong. Anyway, could split your position and try to enter on both levels as 3/8 as 5/8. Scenario will be erased, if gold will drop below 1266 lows.
    gold_1h_06_05_19.

    If everything goes with our trading plan - move stops to breakeven when market comes to 1288 area.

    Conclusion


    Long term background mostly stands the same and it is positive for gold market. In a shorter-term we need to investigate the scenario that market might finish downside retracement on weekly and turning back to long-term bullish trend again. Now we do not have total confidence with this. Although we have bullish setup and could trade it, 1266 is an area that is crucial for new bullish setup and gold has to hold above it to keep bullish sentiment. Otherwise we probably should get drop to our major 1255-1260 area.

    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.
     
  2. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    Yesterday it was anemic action on Gold market and indecision candle has been formed on daily chart. Although in weekend we agree that we have bullish context by far, at least until market stands above 1266 lows, but situation could start to change if we will not see real upside action anytime soon.

    It is crucial for gold to show upside action. Flat action starts to form bearish dynamic pressure and this will be the reason to change our context into bearish:

    gold_d_07_05_19.

    Now we're mostly focused on two scenarios. First one stands at 4H chart and it could be butterfly "Sell" that leads gold to 1290 strong resistance area:
    gold_4h_07_05_19.

    Second scenario, if retracement will be deeper, it could be "222" Buy" pattern. But it is a bit irrational for the idea of Double Bottom pattern on 4H chart. So, this is two patterns that bulls could keep an eye on. If you have a bearish view - sit on the hands and watch for the weakness. As we said, inability to show upside action, appearing signs of bearish dynamic pressure could mean that market is preparing for downside breakout...
    gold_1h_07_05_19.
     
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  3. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    Our intraday setup is completed and market mostly hits first strong resistance area around 1288. On daily chart we keep bullish context for awhile, although upside action doesn't look impressive, but it goes. We have two grabbers that suggest a bit more upside action.

    Still, as we've agreed, we also should keep an eye on flat action on daily, as it could become clear sign of bearish dynamic pressure and turn context opposite:
    gold_d_08_05_19.

    Here is you can see - our yesterday butterfly is completed and market hits major resistance of two pivots, natural support/resistance zone and Fib level. Here I put "R" letter as candle could become "reversal" one and starts downside retracement:
    gold_4h_08_05_19.

    At the same time, pullback should not be too strong. 1280 area should hold any retracement, if market indeed is bullish. Too deep action doesn't correspond to idea of Double Bottom pattern. Drop below 1275 area should warn us that something is wrong here.
    That's being said - today we're watching for pullback:
    gold_1h_08_05_19.
     
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  4. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings, everybody,

    Price action on gold market stands tricky. The grabbers that actually are the core of bullish context on daily chart formally have been completed yesterday, when price has washed out previous top. But, this spike now looks like W&R and potentially could be bearish signal:
    gold_d_09_05_19.

    On 4H chart our trading plan has been completed perfectly - indeed we've got butterfly "sell" and anticipated retracement down from strong resistance area right to 1280 K-support, that we've discussed yesterday
    gold_4h_09_05_19.

    The major question now is what to do next. Here we need to keep an eye on two levels. 1285-1286 is a culmination point for bears and provides best risk/reward ratio for short position, although it doesn't guarantee the success. Here we could recognize H&S pattern and if it works - sentiment turns bearish, with possible downside continuation on daily as well.

    Conversely, breaking up of 1286 area confirms idea of upside continuation and keeps bullish sentiment valid.

    Second area is 1280 lows. Its breakout also will be bearish sign, but it corresponds to idea of H&S pattern.
    gold_1h_09_05_19.
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Greetings everybody,

    Gold market now shows the struggle of two different factors - economical and political. Economy background, suggests downside continuation as statistics and technical moments suggest deeper action to our 1255-1260 target. But sudden political impact on US-China negotiations failure brings support and barrier to further decline.

    On general, price behavior on daily chart doesn't look like major upside reversal and continuation on weekly bull trend. Price action is too weak and slow. At the same time external political factor doesn't let market to drop.

    Now it is a question of strength and durability of this factor. We have tariffs on $200 Bln. China's goods. This is 40% of total export, but other 60 stands on the table as well. And it is a question though what China will answer...
    gold_d_10_05_19.

    It means that right now situation suggests either no trading at all, or, despite how curious it is sound - trading in any direction. Both setups are valid. Thus, here on 4H chart, market stands tight to major resistance and keeps valid possible upside breakout scenario. Conversely, we have bearish grabber, which suggests downside drop below major 1275 support
    gold_4h_10_05_19.

    On 1H chart it is dual situation as well. We have our H&S pattern, and market is still coiling around the top of right arm. This is perfect risk/reward point for taking short position. At the same time, market stands here too long, coiling around the top of right arm, which looks like bullish action and possible upside breakout. As bulls as bears have context and could find reasons for position taking. This is ordinary situation when market stands under impact of external factor. Conservative traders usually wait...
    gold_1h_10_05_19.

    Our conclusion is - technically, gold market is bearish in short term and if we would have this political issue - it should go lower. What actually has happened yesterday, before news on negotiations were released.
    That's why, your position depends mostly on your view on durability and strength of this political factor.
     
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