Gold & Silver in a LT rally

[dmedin]

@Mercury  Do you think gold will fall as far as 1350?  I thought I would be lucky to buy in at 1380, but then again I am a stupid idiot.

[Mercury]

Well I for one would not describe you, or anyone, as an idiot for not knowing where a market will turn @dmedin.  The best I can do is set out my road maps and follow the price action for clues and trading triggers as it progresses.  I guess this is why they call it price discovery.  The reason why I use a road map, based on technical analysis rather than fundamentals (which I do use for the big picture assessment), is to give me a frame of reference against which to assess that price action.  I found in the past that if I do not have this then I get sucked into individual candle moves out of any context (emotional trading) or get sucked into short termism (day trading, which doesn't work for me).

So to the question in hand, assuming we do have a confirmed bearish turn, which is looking likely now, the chief reasons for me selecting 1350 as my target are as follows:

1. It is on the Fib 50%, a very common retrace level generally, and especially on Gold in my experience.
2. It would result in a retest of the neckline of a long term Head & Shoulders formation.  It is quite common for a breakout of such a neckline to receive at least 1 retest that on a failure would spark a massive rally (note it doesn't HAVE to get a retest and certainly the strength of the rally might suggest it will not get retested but a 50% retrace is common so...).
3. It is also coincidental with a zone of long term horizontal support.  This zone runs from about 1380 (so 1380 is a credible turning point too)to about 1340.  Anything lower and we are I would flip to the Fib 62% zone and soon thereafter might be looking at longer term bearish scenarios.

You also have to watch Silver for correlations. Typically I would be looking for solid turning zones on both.  If we hit 1380 on Gold and Silver is not also at a solid turning point then I would have low confidence in 1380, although it will very likely throw up short term support, which could draw some traders into early Longs.  Silver has a price gap that must be closed, unless it is a breakaway gap and I don't think so.  This gap lies at the Fib 38% level.  So we could actually see a turn here that would also result in an earlier turn on Gold.  However the equivalent Silver LT support zone lies around the Fib 62% level and this makes sense as Silver typically amplifies Golds moves.

In addition to all this, to have a credible retrace, we need to see an A-B-C wave form.  If we hit the Fib 38s without this form I would be seeing it as a wave A.  This means the Wave C would be lower and therefore the Fib 50% would be in play.

So there are several potential road maps and A-B-Cs come in many forms so it is impossible to say where this will turn.  As said my approach is to map out the various possibilities and follow price action for clues.  Time and patience are the key here but it is noteworthy that you don't have to catch the turn itself, just identify when the trend changes back to bullish.  If/when it does the next wave 3 will be massive.  Note also that there are long term bearish scenarios being touted out there so nothing is certain in trading, as in life I guess.  It is all about probability and money management.  For me, respectful discussion help to assess these probabilities, especially with people who use different methods.  Alas we don't seem to get enough of that on this and other forums where people seem to want to win an argument...  So feel free to chip in, frankly your guess is as good as mine, or anyone else's.

 

[tehka]

Hi all,

Nice to see something other than "Chart is frozen" and "Help, how can I get my money back!"

This is what I think about Spot Gold, I could be wrong though, just offering an alternative view.

[tehka]

I think another possibility is it could start to go range bound around the inverted hammer top and bottom

[Mercury]

5 hours ago, tehka said:

Nice to see something other than "Chart is frozen" and "Help, how can I get my money back!"

"If you can head, while all around are losing there..."  Not to minimise the frustration at all, it was a difficult moment but it happens, accept it and move on is my philosophy.  If you had stops in place that were satisfactory then no problem, IG will always honour that.  With the system down there was nothing to do but take a break and clear the head.

Regarding you suggestion on Gold I agree @tehka, a consolidation phase is a credible scenario for me also.  Swing traders, like me, will tend to assume a retrace at this point for the following reasons:

1. Typically such strong rallies get a strong retrace, unless this is the meat of a wave 3, which is possible but not, in my opinion, likely yet.
2. The Top for Gold occurred at strong NMD, which is a signal of a retrace rather than a consolidation, less so for Silver but Silver acts in a different way to Gold in this regard, owing to the fact it is a smaller market overall I think
3. The move down was sudden and sharp, again more synonymous with a retrace than a consolidation
4. It is typical for a H&S neckline breakout to be retested, this would clearly only happen on a retrace
5. From a Fundamentals perspective I only see Gold/Silver going on a major tear when the proverbial really hits the fan, which hasn't yet happened.  My assessment is that the concern about the macro economic and political events has given fuel to precious metals, the fear factor if you will, but there will have to be actual triggering events rather than supposition for this to go on that tear, so now we have the opposite fear of not cashing good positions or worse getting caught with a good profit turning into a loss (who hasn't experienced that one..?) 
6. Professionals need to cash to make money for their clients so profit taking is a factor

I cannot rule out a consolidation, yet, but have set out my stall to trade the swing here.  If it doesn't work out then I get stopped out for no loss and I can trade any consolidation breakout.  If the market continues to drop in line with my road map then some additional positions are possible but chiefly I will be looking for the end of the retrace to get Long when the big one comes.  As I write stocks are rallying again and USD is in bullish retrace, not typically good for Gold, however I think you have to take these markets on their own merit rather than assume they are driven by other markets.  Gold and Silver have had a good run but the market moves in waves and we are due a bearish retrace in my opinion.  Let's see...

[Mercury]

Ok well today's move on Silver seals it as a retrace (or worse maybe if the Bear scenario is in play but I am ignoring that for now).  The daily chart shows a follow on bearish candle as price rushes down to the lower channel line.  What happens at this juncture will be telling.  Gold is lagging, which is not atypical, but all things being equal, if both markets are in the same type of retrace move, Silver may have much further to go in this first phase to hit a wave A and allow Gold the time to catch up.  If this hold and Silver breaks the lower channel with force then I think we are well into a very strong wave A that could carry to the Fib 50%.  After than a strong B is likely before the eventual wave C conclusion beyond the 50%.  This is conjecture right now but the strength of the bearish move must be building covering pressure on those who have loaded up on the big rally, hence the fast reversal on Silver and probably we will see something similar on Gold in due course.

[Mercury]

When bad news is good news and good news is also good news you know there is "something rotten in the state of Denmark"  Add to that the only significant mover on the US NFP data release being Gold and Silver and it is a head scratcher, if you follow news that is.  I myself prefer to follow technicals and as such the rally is likely to be a retrace one after a 1-5 down.  The turn occurred on PMD at a point of horizontal support.  I now anticipate an A-B-C type retrace that will likely retest the channel breakout zone or the channel line itself.  Probably this retrace will carry further back on Silver.  After than the wave A bearish move would return with a wave 3.  Rather than think of it as a missed opportunity, where any of my positions were stopped out, I look on it as an opportunity to get short with more certainty that the next move will be long and strong down.  Might start end of play to day might start next week sometime, let's see.

 

[Mercury]

Only 2 charts of interest at the end of last week, which in my view show a clear (as much as anything can be clear on a price chart) turn into a retrace move.  the strength of the reversals gives some credibility to the large scale A-B-C scenario that some few contrarians have been touting.  This would totally fly in the face of the current zeitgeist for a major long term rally.  But that is for the future.  For now it seems that we can expect the retrace scenario rather than the consolidation scenario.  That doesn't mean that is is down, down, down.  Retrace moves can be difficult affairs to navigate so for me the choice is swing trade with care or wait for this to play out, assuming the long term Bull scenario is the right one.  If a longer term Bear move plays out then getting Short in this early phase is crucial.  One things does appear to be the case, we are seeing a profit taking sell off, which at a minimum should last a month or so until something new stimulates the market to decide its long term direction.

 

[Mercury]

There is some chatter about buying the dips on Gold/Silver right now.  It may turn out right, Silver has not yet broken through its daily chart supporting channel, although Gold may have.  Even if it is not a buy the dip to higher highs it is likely to be a short term rally prior to further drops.

The technicals on Gold (1H chart) look like this to me:

1. The bearish move drop was in a 1-5 pattern (suggesting a change in bigger picture trend if we subsequently see an A-B-C retrace)
2. There is PMD at the potential turning point last night
3. There is a resistance trend line as part of a bearish channel that has been broken and has 1 failed retest so far

Based on EWT I would be anticipating either an A-B or 1-2 retrace after a strong bearish move, especially on Silver, but after that a continuation of the larger time frame bearish retrace.  So this is my lead and I am preparing to get Short again on a retrace turn bearish.  I am also watching for a period of consolidation the breakout of which would be the tradeable event.

 

 

[dmedin]

Silver broke through 1780 and is heading south!

[Mercury]

The retrace on Silver was remarkable shallow (only to the Fib 38%) while Gold made the Fib 50% (with a spike through and return back - very bearish).  Now we see Silver has indeed broken both horizontal levels to lower lows and crucially the recent bullish channel.  The form is very bearish with little retrace price action so it could either hammer down now or slow up as Gold plays catch up this time.  It is typical that Silver amplified Gold so if Gold does reach back down to the neckline and Fib 50% then Silver may go beyond to more like the Fib 76/78%.

On Gold we may have seen an A-B already and could get a fast run to the Fib 50% in a wave C OR, as depicted on the Silver chart, we could see a later wave A and rally back up to a wave B before a completion wave C.  Impossible to tell which just yet, time and price action will reveal all.  For now I will be adding to Shorts on relief rallies and watching for a possible wave A reversal to cover and possibly swing.  At this point, and given the strength of the moves so far, I am setting the Fib 50% on Gold as my most likely retrace end scenario.  If we see a period of USD bullishness next week and if stocks hold up ok ahead of the Fed then this would lend support to further bearish moves on Gold and Silver and possible quite dramatic as the fear of missing out on all those profits kicks in and as stops are taken out against the pure play trend followers.

 

[Mercury]

Gold and Silver also seemed to react a bit to the drone strike in Saudi Arabia but not significantly.  However it does pose a technical issue in that the small retrace I had previous labeled a 1-2 (brown on the 4H chart above), that set up a stronger bearish move, is no longer valid so that brings into play an alternative scenario that the wave B (green) is not yet in.  The move off the 10 Sept low is in a series of A-B-Cs which projects a final rally to complete a larger A-B-C.  My first target for this would be the Fib 62%, which is around about the previous rally channel breakout point; some horizontal resistance; and also where the wave C might roughly equal the wave A in length.

In the short term we could see a bearish phase to close the gap before a final rally to conclude the overall retrace move.  If this turns out to be an A-B (green) then the next phase will be bearish and probably a straight 1-5 pattern move (with a consolidation phase at some point) to the end of the retrace down; I am still targeting circa 1360 for this and Fib 76/78% for the equivalent move on Silver.

A break of the 10 Sept low will negate the above scenario so my approach will be to wait for the pull back to the Fib 62% zone (circa 1530) and get Short on reversal signals OR go short on a break of the 10 Sept low.  I see no case for a long trade at this point, unless you believe that 10 Sept was the end of the dip, which I don't.  The alternative of a protracted consolidation phase is still on the cards although the price action of Silver doesn't seem to match a consolidation.  If this is a consolidation phase then whip saw price action will be dangerous.

[dmedin]

6 hours ago, Mercury said:

price action of Silver doesn't seem to match a consolidation.

 

It certainly doesn't look like an attractive short at this point.

[Mercury]

Looks like we are getting that relief rallyvon Gold and Silver, which is in line with my A-B-C retrace bearish move road map.  If this continues according to the road map then the current rally is a wave B.  When it concludes there will be a strong wave C down and this is the point to Short if the mood take you.  This is coinciding with both a short term rally on USD (DX) and a late bearish move on stock indices on Friday.  I expect the bearish stocks move to continue for a bit, especially on non US large caps to complete their wave Bs.  We may see a correlation conclusion of these wave Bs between stocks and precious metals.  I also think USD DX will rally a bit further, with GBPUSD in particular putting in a strongish bear move in a 1-2 retrace.  All the main USD pairs except with the Yen are likely to be bearish vs USD.

 

[dmedin]

Gold bounced off 1485 Fib and looks like it might make an attempt to 1585.

Edited September 22, 2019 by dmedin

[trade247]

If the mining ratio of silver to gold is between 9:1 and 16:1... then either: silver should be around $100+, or gold should be around $250. The current gold/silver ratio is way out of wack.

Silver ratio to gold  is 9 to 1 in Earths crust.

[Mercury]

One thing that bothered me about my stocks down, USD down prognosis was how Gold/Silver could also go down.  Well stocks (US large caps) seem to be turning up today and for now so does the USD and Gold/Silver look to have turned exactly where I had projected.  Given this I have cashed all my stock shorts and gone Short Gold/Silver instead and am waiting on the sidelines on USD, which could also turn back down now.

One thing to note is that I always trust my system and do not second guess it as that is emotional (thinking fast) territory.  If it is wrong so be it, safety and profit taking first!

[dmedin]

Is the moment of truth nigh? - are we about to witness a big dump?

[dmedin]

No luck   Silver back on the rise.

Tough business, this!

[dmedin]

Buggered again.  What a dumbarse I am

[Mercury]

Gold and Silver have been following my road map almost perfectly since I caught the turn back down.  IT is always useful to trading with confidence when you catch and hold the turns, although it is not easy and getting stopped out is always a risk but this time it has worked out well.  Last time I considered we might see a retrace/relief rally that might post an A-B of a larger retrace bear move with the wave C then to come.  So far that seems to be exactly what has occurred as we saw a turn and fast drop this week that is typical of a wave C.

The fundamentals are stacked up for a long term rally in Gold/Silver and key resistance has been broken adding to that sentiment.  However for Gold to really go on the kind of rip people are talking up some major macro circumstances need to be in play: more economic uncertainty, whether via political risk or recessionary risk (and typically high levels of inflation, which we do not yet have); uncertain interest rate environment (typically low rates is good for Gold bulls); Gold out performing stocks (the S&P500), which really means stocks falling.  Of late Gold has seemed to be fairly consistently, inversely, tracking stock moves...  And medium term a lot of money managers will have been under pressure (call it twitchy if you like) to bank good profits from the recent rally, which seems to be happening.  This feeds on itself as fear of loss of all those juicy profits kicks in, markets are chiefly moved by sentiment and that sentiment can be somewhat irrational, when considered in the light of the bigger picture.

At this point I tend to go over all my analysis to see if I am missing something that might smell of a Bear trap.  I would not want to consider adding to my Shorts unless I was confident the risk of a major reversal (AKA Bear trap) was low.

Going back to the Weekly set up I have the following on the charts:

• An A-B-C down to the Winter 2015 low and a turn on strong Positive Momentum Divergence and at a long term supporting trend line.  A-B-Cs are generally followed by strong 1-5 motive waves in the opposite direction that extend beyond the start of the A-B-C (i.e. a fresh all time high).
• A clear 1-2 retrace (purple), followed by a smaller 1-2 (pink) than retested the long term trend line again.
• A Head & Shoulders reversal pattern and a breakout of the associated neckline.
• The rally wave (1 blue) made it all the way to an important resistance zone (red line) and then turned with a pair of bearish candles (see zoom in chart for more details).
• Zooming in on the Weekly (2nd chart): I can see that the Purple and Pink wave 2s retraced to the Fib 76/78% zones, common to get deep retraces in a Triangle pattern, which is made from the LT supporting trend line and the neckline. 
• You can see that pair of bearish pin bar candles more clearly at the wave 1 (blue) turn, which was followed up with a third this week as the wave B kicked in.
• Given all that it would not be unreasonable or unusual to see this first significant rally retrace to the Fib 50%, deeper is unlikely, that would start to negate the long term rally scenario.  The Fib 50% is coincident with the H&S neckline.  It is a classic of charting techniques to see a neckline retested before the next major phase of the long term move back in the direction of the original breakout (rally in this case).

On the Daily and 4H charts:

• The rally up from the prior triangle breakout contains a pennant that exactly marked the halfway point.  This was one indicator that helped me pinpoint the turn.  Another was the Negative Momentum Divergence and also overbought oscillators.
• There was a narrowing channel encompassing the rally from the Pennant, which was broken and then that break resistance zone was retested but failed this week in what I believe to be an A-B move.
• Stochastic hit over bought on the wave B and now both Stochastic and RSI are trending down.
• On the 4H chart you can see that the wave A (green) looks like it was in a A-B-C form, then followed by a 1-5 wave B (sort of the reverse of normal but not a problem).  The wave B was contained in a nice parallel line channel, the break of which I signaled as a Short opportunity a few days ago.
• There was also NMD at the Wave B (Green)

Next up would be a break of the key medium term support at 1480 and I might expect a pennant at some point if this is a fast wave C.  The break of the support is a Shorting opportunity but the draw down potential (where you have to place your stops to avoid a temporary reversal) could be large.  Perhaps a safer approach is to wait for a pennant and trade the breakout of that (or sell the rallies on the short term charts and move stops quickly maybe).  My target remains the 1360 area around the neckline and Fib 50%.

One watch out occurs on the 1H chart in that it is possible that the market bottomed yesterday in a short term wave 1 and has already commenced an A-B-C retrace, which could reach as far as the Fib 50%, although the 38% is also a good candidate.  Might depend on what happens with US large caps over the course of next week.  In fact if we do see such a retrace the turn back down would offer a good Short opportunity and in such a scenario the draw down risk on the key support break would be minimised as the retrace would have already happened.

Net: I expect a continued bearish phase that could be a sharp drop in a fast 1-5 with pennant OR could post a wilder A-B-C to match the wave A.  Once the neckline is achieved I will be ready to think Long again and this one could be a massive up trend.  However this would suggest that stocks are keeling over and beginning a very long drop.  I do not see a scenario where Stocks keep rampaging higher and Gold does the same.  I think the 2011 rally was the end of that.

[phillo]

On ‎26‎/‎08‎/‎2019 at 07:05, elle said:

 

TREND CHANGE  

[dmedin]

36 minutes ago, elle said:

TREND CHANGE  

 

Uh, there is a noticeable portion in the yellow circle where it clearly does not hold above that point.

Edited September 30, 2019 by dmedin

[dmedin]

On 28/09/2019 at 10:52, Mercury said:

Gold and Silver have been following my road map almost perfectly

EWT seems to be very flexible in that regard.  'It may go up ... and it may go down.  In either case, it makes sense.'

[Mercury]

While Stocks and USD seem to be moving bearishly PMs are, intuitively, going bullish.  However unless we have just seem the definitive bull ending move on stocks (or perhaps despite this if it eventually becomes clear that this is the case) I see this bullish move on Gold and Silver as being temporary.  It is probably either an A-B or 1-2 retrace to set up a large bearish drop.  More likely the former in the case of Silver and the Latter in the case of Gold but could be an A-B for both.  I posted on Silver in the context of stocks earlier as Silver has reached an important zone of resistance whereas Gold still had some way to go (clearly lagging Silver at present on the Bear move, or more bullish if you prefer...).  Both did exhibit some potential turn and rally signals though as the charts below show.

Technicals:

•  1-5 down
• PMD at the turn
• Silver at key support zone; Gold at the Fib 23%

[dmedin]

I hope you got in long this time.

[Mercury]

Looks like PMs are turning back as predicted, just as stocks turn back bullish...

[Mercury]

Yeah bad news remains good news for stocks with the headline (and main movers) data of NFP and Av hourly earnings in the red vs last month and consensus but hey it's ok this just means the Fed will ride to the rescue, again...

In the meantime my lead scenario of 1 more leg up in a final wave 5 on stocks remains in play and this mirrors my medium term projection for gold/silver.  With a probably retrace turn achieved yesterday, on the back of more bad news is good syndrome, it looks like a small 1-2 and if we see a drop through short term resistance then my target of 1500 looks on.  TO me this is a much better trade than Long stocks so I have switched.  Apart from the Nikkei, I am still long the Nikkei.

[Mercury]

PS:  I have a bad feeling about USD, like maybe it will take another leg up on all this.  Can't think why if the Fed is expected to act but nothing about capital markets is logical these days...

 

[Mercury]

It is possible we may get a leg up to test the Fib 88% zone but I favour a turn already posted at 2(brown), which occurred on NMD, at theFib 76/78% zone and with an A-B-C form.  A break of the near term support at circa 1495 is important to support this scenario and a break of the 1460 would clinch it for me.  Silver is also responding likewise but only made the Fib 50%.  I suspect that Gold offers the better potential for profit on a retrace scenario.