Gold & Silver retrace complete? Heading down

[Mercury]

For the Wave B top on 2 Aug to hold the market needed to rally in retrace strongly and turn at a deep Fib, I had thought Fib 62% but it has just turned at the 76.4% and quite strongly.  If this holds then the next move should be down in a strong and long Wave 3 of 5 to Wave C retrace completion (Daily chart time frame).  After that a long and strong rally should be in the cards but first we need to see this move done confirmed with a close on the hourly below the Fib 76.4%.

 

Same set up exists on Silver.

 



[Guest Ken]

Hi again Mercury,

 

I was on holiday for couple weeks, so I could not follow and reply your valuable analysis...

 

I see different counts when I look at the weekly gold chart :

 

W1: 1060-1285

W2: 1285-1198 (61% fibo retrace)

W3: 1375 (should not be shorter than W1)  OR 1425 (161% fibo of W1)

 

I think 1425 looks more sensible until next month NFP data.

 

What you think ?

 

PS: on daily charts w3 looks way too much longer than w1 in terms of fibo...

 

 

[Mercury]

Ok , had a chance to look at this, harder without a chart so perhaps you could post one?

 

Your W1-2 doesn't work because in between there was a fresh high on 2 May at 1303 and a lower low than 28 Mar (so that has to be a 3-4).  Thus the W1 top would have to be 2 May (and I had that as a scenario previously but not happy with a W2 retrace to just the 38% so that is a secondary scenario for me but still possible I guess).  BTW, I can't see the 62% Fib you mentioned...

 

I agree that IF 2 May is a W1 then the 10 July to 21 July retrace should push higher still but would much, much higher than 1400-1500 if this is truly a wave 3 big picture (look at the weekly chart for perspective) and I just don't think we are there yet as highlighted previously because we don't have the "Black Swan" fundamentals.

 

Therefore my leading scenarios are that a Wave 1 (weekly time frame - purple labels) has either concluded on 10 July OR will conclude after another final leg up in or around the 1400 level (i.e. the same levels that you have but as a W1 not a W3).  In the meantime I have a possible A-B-C retrace in play off the earlier W1 conclusion so will play that (with B/E stops in place) until the alternative scenario presents itself.

 

I don't understand the point about Daily W1 vs W3 and fibs.  The only EWT "rule" is that W3 is never the shortest wave, there is no specific relationship between W1 and W3 length and in fact there is usually 1 wave that is what is known as an extension (i.e. a 1-5 sub wave count) and that is usually the W3 (although not always).

 

Look forward to your thoughts and maybe a chart with your scenarios?

[Mercury]

After that strong retrace and retest of resistance zone my Gold and Silver shorts are working well.  A break below the lows of 8 Aug would confirm for me that the market is in a wave 3 of wave C down to a large time frame retrace of the strong rally up from Jan 2016.  After that I expect a strong Bull phase to begin but obviously will test my theory along the way.  For now I am biased towards adding to my Shorts on any relief rallies.

 

If you are long term Bearish on Stocks and commodities in general and worried about the impact of central bank policy on your cash (ultra low interest rates are good for Gold) then it makes sense to be bullish on Gold and Silver but timing is everything in life...  I am long term Bullish but short term Bearish and really seeking Longs when the market does turn back up.

 



[donaldprice]

With gold, it has been hard to miss the almost daily media headlines of the current 1849 style Californian gold rush and how it is going to be the best commodity performer this year. However as you point our Mercury, going long for gold, may not be the best time a present therefore wait for that decent pull back before reaching W3.

[Mercury]

Interesting point you raise , that of MSM reporting a gold rush.  This is a Bearish sentiment signal for a contrarian on the principle that the MSM only report on what has already happened.

 

There is a scenario which calls for a final leg up on both Gold and Silver (stronger on Silver) after which a strong retrace would be indicated before that strong rally we are all looking for.  On the basis that markets rarely fire up like a rocket, or if and when  they do there is usually a strong pull back just prior to this, my approach here is to wait for such a pullback.  I believe the best of the current rally is over so any longs from here on are a high risk.  Shorts are ok but tactical, need close stops, I'd be happier shorting after another leg up but you have to trade what is in front of you so I am already short Gold and Silver and stop protected at B/E.  I would not be seeking to add to my shorts until I saw a break below strong support areas but my big trade opportunity is after the big time frame pull back for a serious Long campaign.

 

In addition, the COT data has hit all time Bullish highs over the past 6 or 7 weeks, which is a contrarian reversal signals.  In the last 5 weeks on Gold there has been 4 weeks out of 5 where the Hedge funds shifted towards shorts and in similar in Silver in the last 2 weeks.

 

In the round this all signals a Bearish phase to come but this may only happen after a final leg up.  A drop through support from here confirms to me that it has already happened.

[Guest Ken]

Hi  and  ,

 

First weekly chart of the  is showing what I am afraid of (being at the beginning of w3 ???)

 

For now, I am on the short camp as well  

However, gold keeps hitting (3rd time) long term resistance trend line.

Even though its coming back quickly from the resistance line (1375-1364-1358) looks like it wants to go up...

 

Weakness of USD and demand for every retrace other things make me confused.

 

Also, there could be a flat ABC pattern for retrace (1310-1365-1310) right. Maybe better to wait for a break of 1365 or 1310 ?

 

[Mercury]

 we are exactly on the same page.  I actually have a Triangle pattern off the recent double top high.  I am stalking a breakout from this pattern (either way I guess but my bias is bearish in the ST).  I am reluctant to trade long as I believe any upside will be short lived because the majority of the rally is done in my view (could even get a fake break out on FOMC).  The double top with small gap reversal (note this gap was not closed so far) provided resistance for my wave B (pink).  As suggested by Ken, the move from wave B top is in a flat pattern with a series of A-B-Cs and we have seen 3 retests of resistance in the 1356-60 region (see hourly chart).  I would not be surprised to see another hit on this slightly higher taking the market up to the upper Triangle line.  If this happens I am guessing it will be in or around FOMC time and then we will either see that break through OR another failure and swift rebound down.

 

Could be a hard one to trade around FOMC but a strong rebound back down would be a Shorting opportunity.  A break of the lower Triangle line and resistance below that also, however we might be getting close to possible turning points after that.

 

As always the alternative scenario, that a large scale Wave 1&1 is already in and this is the start of a wave 3 is possible.  A strong rally break out from the Triangle would indicate this, which would also indicate that stocks have topped out!  On FTSE there is a chance this is true but not so sure on US stocks (the biggest drivers of Gold as a safe haven).  So overall it seems to me that Stocks have another leg up (or indecision phase) and until the panic is on there isn't much to move Gold up strongly (a Fed rate cut might do it...)

 



[Mercury]

PS:  I'm not advocating a Long on Gold now, it could just as easily return to the lower Triangle line before FOMC.  I'm seeking to trade the break out.

[Guest Ken]

Hi 

 

That triangle started to take profit on my shorts.

It looks like its gonna break up as the pattern suggested since we are in the bull market.

Also, I cannot see any fundamental reason to push the gold down to 1280.

I am really confused...

 



[Mercury]

LOL   Confused is a good word to define the standard feeling when trading (certainly in these crazy days of central bank theoretical experimentation).  While I understand the Triangle argument of the EWT proponents I am not so convinced.  One thing that seems to be a commonality among all serious traders is the high proportion of times that the markets confounds their analysis, at least temporarily and sufficiently to stop them out of good positions.  My take on patterns such as Triangles is that they are consolidation period that will result in a sharp break out either up or down but I'm never sure so position for both with stop in orders (especially on continuation patterns, which could also be reversals of course).  The only exception is at likely ending Triangles (Or Diagonals) where the sensible bet is one way only.

 

On Gold I am long term Bullish but short term Bearish.  My feeling is that Gold needs a reasonable retrace lower to set up a long Bull run.  I am less sure on correlation with other markets just now, the Fundamentals are all over the place thanks to the central banks policy fiasco.  Even if Gold does take another leg up from here that move is likely to be capped and then followed by that sharp retrace I am looking for.  Therefore on this particular Triangle I am only exposed on the Short side.

 

That said...  Yeah it is not at all clear.

[Guest Ken]

Hi  

 

Took +4K profit on gold and silver shorts on friday, wish would wait little bit more (

Opened new shorts today...

 

Whats your current analysis and position ?

 

Cheers!

[Mercury]

Nice to get a profit of any amount.  There is a saying that you never go broke taking profits but that is allegedly attributed to brokers and illustrates why so many traders are net losers (i.e. they hold their losing positions too long and cash their winners too quickly as opposed to the reverse).  Having said that there is always a little left on the table with safe trading and the set up on Gold/Silver is not a classic long trend so I am not surprised you cashed.  I did too, but back on Aug 9/10 when I realised a Triangle was forming.  My standard approach to a Triangle or any similar consolidation formation is not to trade the swings but wait for the breakout (either way).  My chief concern with Gold/Silver is that I cannot predict which way it will break, even though I think it will be down.  As mentioned before I don't see much upside to an upwards break so I am Short only.  I am still waiting for a confirmed breakout although it is looking good after last nights price action so a confirmed break lower will trigger my stop in Shorts.

[Mercury]

I forgot to mention  that there was a price gap over night on both Gold and Silver at Triangle breaks.  I am wondering whether these gaps will be closed and if they are that could bring up a retest of the Triangle break.  If that happens and price rebounds back down then that is a good set up for a Short in my view.

[Sevenseas1982]

Good day 

        If I go Short for Gold today at 1340 and put G Stop-loss at 1347 and limit at 1321, will it work? 

        

[Mercury]

Will it work?   I have no idea!  I cannot predict the future anymore than anyone else.  I also do not know how you trade so cannot comment specifically.

 

As for me I might take a short if the market comes back up to my lower Triangle line AND IF all my other criteria are met.  If it happens and I miss it no problem because there is a another trade on a breach of lower support levels in the 1330 area.  However my stop rules are clearly different to yours, normally I am looking at previous days highs so that would mean 1350 or possibly even 1354 on a Short at 1340ish.  Having said that many traders will say that such a trade should have a close stop, like you are suggesting, as a breach would negate the whole set up.  If only life were that simple and followed such east rules, alas it is not...

 

Ya pays yer money ya makes yer choice and live and learn...  The key thing is to accept losses as a part of trading, learn and move on to the next one.  If you are seeking a sure thing forget it they don't exist!

 

I will say this, one adage I live by when it comes to trading is, "If in doubt, stay out".  I analyse the markets until I am as sure as I can be that I understand the scenarios in play and as confident as I can be on the likelihood of each happening.  That said I expect to be wrong more than I am right, perhaps wrong as much as 70% of the time.  The trick for me is to get out of losers fast with a small loss and to stay in winners for the duration of the ride to get a very large gain but if you have a different strategy and method then my approach will not work for you.

[Sevenseas1982]

Thank you Mercury,

         I am a novice and so I am crosschecking my actions.

I find it easy  to trade in Gold because we only have to look for news related to US economy.

 

Thanks again.

[Mercury]

No problem , cross checking is good but seeking to follow someone into trades without doing your own analysis is not in my opinion.  It is easier for me to comment if you post a chart with your analysis or a written logic flow for your trade.

 

Regarding your comment on Gold being easy to trade, I find it more difficult than some FX crosses.  I wonder what you mean by news related to US economy?

[Sevenseas1982]

Good day 

       I meant US Economic indicators help me to trade at that moment. Basically, we start seeing the momentum within half hour before the release of Economic indicator. Its a good time quick entry and exit.

[Mercury]

I see  so you are scalping on Gold rather than holding for a longer time frame?

[Guest Ken]

Hi  Looks like its breaking down the triangles one by one. There is last one has support at 1320 then final flat line at 1310. There could be another leg up to 1340 area. Then your wave C confirmed  Where is your entry point and target if its confirmed ?

Cheers!

[Guest Ken]

Hi 

 

Please be careful, as  sad that Gold is very unpredictable and can make sharp moves specially when USA data comes out.

General  advise, close the positions before data come out. I think thats why you see those moves.

In 1 min it can go up and down $20+ to kill 2 ways all stops. You cannot compete with machines in that moment...

 

My humble advise; until you confident your technical and fundamental analysis, risk and position management, do not trade!

Maybe better to test your skills on demo account first at least for 3 months.

 

I really wish someone would give me this advise when I start trading.

[Mercury]

Almost every day (certainly every week) I find new chart formations or price action that causes me to reassess (or worry) about my bias.  Today on Gold I have seen a large Triangle formation on the Daily Gold chart that could supersede the Triangles I had been working with.  I always defer to the larger time frame set up as more reliable and indicators are suggesting a rally phase (except the Weekly, unreliable for indicators in the short term).

 

Thinking about Jackson Hole and the likelihood of a US rate rise Dove or Hawkish tone and what the markets will read into it is impossible to predict.  On balance I am minded to suspect we will see the usual flim-flam from the Fed but this would mean no rate rise imminent and this is what I believe they will do.  Such a conclusion would be bullish for Gold and stocks alike.

 

So my approach is back to my usual approach at Triangles and look to trade only a confirmed breakout.

 

Silver is a bit different in that there is also a Daily chart Triangle but this time a breakout has occurred and via a large price gap.  This is a desirable Bearish signal but perhaps a retest of the Triangle and essentially a gap close are on the cards.  I would hold my Shorts above the Triangle line against a retest and rejection of that line and otherwise wait for another bearish signal to add or reverse if a bullish signal presents.

 

In short at present the direction is not clear and the Jackson Hole thing casts a shadow over short term moves.

 

Anyone in either of these markets and can you share your views?

 



[Djruk]

Hi

 

Do you think BREXIT was the catalyst for the strong rally? I'm of the opinion that the U.S elections have hampered the gold rally with a propped up stock market. But could this change come Oct 1st with the Yuan SDR listing? All eyes on NFP today.

[Guest DemiGod]

Gold has broken support at 1320, technical it seems to have broken 1313 too so next test down is 1278. A fair or good Non Farms will probably test this.

[Djruk]

 

Depends which chart you are looking at. Gold broke through support level of 1310 but has not fallen to 1300 as of yet.

 

I agree about the Non Farm Payroll but it's forecast to be down on last month and is historically low in August. With the poor U.S. PMI yesterday I'm wondering if gold is going to bounce at 1:30 if the NFP is the same as forecast. The USD index (DXY) is due for dip too which should encourage a bounce... But it all depends on the artificial NFP

[Mercury]

I agree  but as this is, I believe, a retrace move rather than a firm long term change in trend then a retest of the Triangle support line (in the 1320 region) is quite possible and indeed that seems to be what is occurring just now.  Alas this is all happening on NFP day, which poses difficult trading challenges.  In theory we would need a strong NFP that would support a USD rate rise and pus Gold down BUT indicators on FX crosses with the USD appear to be suggesting USD weakening (at least temporarily).

 

This is the problem with technical analysis, it often contradicts across markets but Fundamentals doesn't help much either in a World where it is all about the Fed...

 

On balance I think Gold may well go down but I am not confident enough on that to trade it on NFP day and any downside will be limited to the start of the next big rally phase, which is the one that I do want to trade.

 

As to Brexit  I believe this is being used as an excuse for just about everything and in fact has caused virtually nothing, why would it?  The GBP did drop on Brexit day but several savvy FX watchers had predicted a GBP drop due to poor trade balance and high debt levels, Brexit was just the trigger for something the market was primed to do anyway.  I think the same thing about the US markets, any election impacts or jitters are just manifestations of already existing crisis.  They say The Donald will be bad for business and Clinton good but the Donald is actually a successful business man and Clinton is so not so how is that possible?  When people say bad for business these days they mean an end to the gravy train loose monetary policy and the ensuing carnage that will bring but again I think that will happen anyway, it is just a question of when everyone realises they have no clothes on...

[Guest DemiGod]

It seems the 'trend' for gold on a monthly and quarterly level is bullish. However, it is under pressure at the moment, so maybe for the next move up to break 1364 on a month closing we need a bigger move down to propel it there and get the long players offside? I don't have open positions in gold live but if it hits higher at 1330 today, I would be tempted to take it back down to 1310 level, but it seems is a play against the trend as long term it is bullish.

[Mercury]

That is exactly my thinking  as you can see from my past posts.  Any Short would be a counter trend move and therefore short term in duration so you have to balance the risk/reward on that.  The better trade is Long after the retrace that would, as you suggest, prime the market for a large bullish move.  Of course such a move really needs one or both of the following to occur:

1. USD rates never rise (or rise - causing the retrace - and then fall again).  The notion that they might rise could be enough to cause the retrace drop
2. The stock market bull run comes to an end and a massive Bear market takes hold.  Also likely that the bond bubble collapses.

[Guest DemiGod]

I am waiting for a collapse in government bond prices, but when that occurs (i.e. the central banks are the only buyers) perhaps both stocks and gold will rise together as people flee failing government debt? I was at a pension seminar about 4 months ago and the US firm said they had 90% invested in equities and about 10% in government bonds and where pursuing growth - good I thought. But they said something that slightly shocked me in reference to the next crisis: "We define a bear market in equities as a period of 3 months of negative growth with 20% decline from the top; if that where to continue, we could shift ($65B fund size) to safe government bonds within 3-4 weeks."

 

Is this what we are waiting for? Is this a normal position for most pension funds? I believe this might be this is the type of impetus to get everyone the wrong side. Government bonds return next to nothing, but apparently return the face value but almost never with inflation taken into account. Could this be the set up for catching us offside twice: 1. going long government bonds as a hedge then and getting caught with them at the bottom and 2. selling stocks / gold at bottom? I think it will be. But the timing is absolutely critical to mitigate risk, short the bonds too early or go long stock / gold  too early and the depth out could be very painful. The correction is coming and perhaps the pensions position gives us insight into the timing? After which gold and most assets look to increase exponentially. Perhaps even double current price levels?