Before diving into Gold’s technicals and recent trading patterns, I’d like to reiterate that I believe Gold is in the process of completing a wide, bear market bottoming process. I’ve mentioned before my belief that Gold double bottomed in December 2014, and it’s critical context to keep in mind as we examine Gold’s current action.
When measured against all currencies except the US Dollar, Gold has performed exceptionally well for almost a year. And even against the Dollar – with the backdrop being a parabolic rally in the world’s reserve currency – Gold has performed far better than would have been expected. In Dollar terms, Gold has managed to hold above the bear market low set during the last ICL, and this speaks volumes about Gold’s hidden (and under-appreciated) relative strength.
But, just as bull markets can move higher for what seems an eternity, bear markets can meander along a wide bottoming channel for years. As traders, we work hard to determine trends, and can too easily assume that the end of a trend will be quickly followed by a huge move in the other direction. Demanding that a market be in either a bull or a bear market is a fool’s errand, and a market can be range-bound for an extended period and will not necessarily flip between significant uptrends and downtrends. So once Gold shakes off its apathy and begins to break out of its current wide range, there is no guarantee that it will launch into a huge upside move. The evidence that the bear market has ended is very encouraging, but caution is needed when assessing Gold’s upside potential and timing.
In terms of Gold’s recent action, I am surprised that we haven’t yet gotten clear resolution to Gold’s Investor Cycle. Normally by day 18, we should know the expected DC Translation and be in a position to project how the IC is likely to unfold. But that’s not where we are with the current DC, which is still too unsettled for clear definition. That said, Friday’s rally provides evidence that Gold may well be in the 1st Daily Cycle of a new IC.
The evidence from daily and weekly charts supports the idea that Gold is in a 1st Daily Cycle in a new Investor Cycle. This idea is also supported by COT and Sentiment reports. But for a market that is still technically in a bear market, the evidence of a new IC is inconclusive and premature. We need to remember that Gold is locked in a long term downtrend, with the last DCL occurring on just week 19, a little earlier than would have been expected.
The onus is on Gold to prove it’s in a new IC. Absent that, I expect Gold to make one more move lower. If Gold, instead, rallies and can move above the green line on the chart below, we’ll have confirmation of a new Investor Cycle. At that point, the Daily Cycle would be so Right Translated that it could only be a 1st DC. And even under this bullish scenario, Gold could follow the 1st DC top with a deep 68% to 75% retracement into its DCL. Such a deep retracement would shake out many newcomers before Gold would rally in a 2nd Daily Cycle.
4-11 Gold DailyThis week’s Gold COT report is interesting. For the first time in months, speculators have begun covering the large Short positions they amassed with Gold near its ICL. Whenever Gold falls significantly, speculators typically jump on the wagon and help to drive price lower.
The below chart shows speculators’ NET position (Long – Short). Each of the troughs correlates extremely well with a Gold’s ICL. During all Cycle bottoms, we see that speculators first begin to reduce their Shorts, meaning they buy to cover their Short positions. During the past 2 weeks, we’ve seen price strength from buying to close Shorts, but not (yet) from new Long positions. This suggests that speculators are about to “throw in the towel” and cover their Short positions en masse, but just haven’t done it yet. I believe the $1,224 area is important here. At that level, I expect that speculators will give up on being Short Gold, and will start covering. Ultimately this will drive Gold’s price up.
4-11 Gold COT SpecI believe that the odds of a new Gold Investor Cycle have moved to the 50% mark. On the weekly chart, it’s a bullish sign that Gold closed above the 10 week moving average. And considering that some technical indicators are turning higher as well, we’re starting to see a pattern that is consistent with the early stages of an Investor Cycle.
Typically, a close above the 10wma in an IC that’s this advanced marks a new Investor Cycle. So the bulls are in a position to credibly make the case that Gold has put in a 19 week, double bottom ICL. If that ends up being the case, we could see a substantial rally over the next few months. And if that’s not the case, if the ICL is still ahead, I have a strong belief that downside risk is limited here. Under the bearish scenario, based on the strong performance of the current Daily Cycle, the decline into the ICL should hold above (or only marginally break) the recent $1,136 low.
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source : http://goldsilverworlds.com/category-technicals/is-gold-forming-a-major-bottom/