Let me remind everyone that intermediate cycle lows (ICL), and especially yearly cycle lows in the metals are always hard to hold onto. Even if you catch the exact bottom, they usually resist for a week or more and try to shake everyone off. The metals bottom differently than the stock market. When stocks form an ICL they rocket launch straight up. Traders get instant gratification and a market that quickly moves away from their stop. Gold on the other hand forms much more difficult bottoms. It will usually churn back and forth for a week or longer as traders try to decide whether or not a bottom is forming. It’s during this churn, and especially after a destructive bloodbath phase, that traders can rationalize any number of reasons to get knocked off the bull no matter how good the setup is. Understandably after witnessing a devastating bloodbath phase traders are nervous and skittish that the drop is going to continue.
For gold to continue down next week we would have to count a daily cycle that has moved into the 40+ day range (average is 25-35 days). That seems unlikely to me, so I think the odds are better that we put in a daily cycle low a week ago last Friday, and Monday will be day 6 of a new cycle. That being said here is what bothers me.
I’m going to be uncomfortable calling a final intermediate cycle that bottoms this close to that major support zone at 1033 without completing the move. I would just rather not have that gap hanging over the market. It’s going to act like a magnet trying to draw gold backed down. Obviously the cleanest scenario would be for gold to just give us a quick spike down early next week and tag 1033 to be done with it. I daresay everyone will freak out if that happens, but like I said I just don’t like the odds of the current daily cycle continuing to stretch past 40 days. So here is a possible scenario: Gold gives us a 4 or 5 day spurt up to the 1130 range and a daily cycle top around next week’s employment report, to be followed by a short cycle down that fills the gap and tags that 1033 support zone for a final intermediate, and possibly yearly cycle low.
Once we tag 1033 then I think the market will be set up for the rocket launch type event that every gold bug has been hoping and praying for over the last four years. I’ll say this though, with as much damage as has been done to this sector I seriously doubt the bear is going to end with a rocket launch type event. Sentiment in the sector is too bleak and no one trusts the metals anymore. More likely in my opinion this intermediate rally will get everyone’s hopes up, especially if it makes a higher intermediate high, only to completely destroy sentiment when gold rolls over and makes a lower low at the 8 YCL. Assuming I’m correct and gold retests the 1980 breakout at 850 I’m pretty sure the bottoming pattern will be a multi-month dull sideways churn as gold tries to regain the $1000 level rather than a rocket launch that immediately heads towards $2000 like all of the gold gurus have been predicting for the last three years. This could be the period where stocks start their parabolic bubble phase.
So I’m expecting the impending rally out of the ICL to be the last really good shot at making big percentage gains in a short period of time for quite a while in this sector.
Here are the factors signaling that an intermediate degree bottom is close. The setup rarely gets much better than this.
The COT is at bullish levels last seen at the 2001 low. The commercials are on the verge of turning net positive. That is something that has only happened a handful of times in history. Notice the Blees rating has been at a maximum bullish level of 100 for two weeks now.
Sentiment levels are at extremes only seen one other time in the last 15 years.
Source: sentimentrader.com
A clear bloodbath phase has been generated. Remember a bloodbath phase generally occurs during the last 5-7 days of an intermediate decline. It is an acceleration of selling as longs begin to panic when a major technical support level gives way.
Bollinger band crash trades have signaled on not only the daily charts, but also the weekly charts.
Oversold levels as extreme or worse than any other point in this bear market, especially in mining stocks.
Huge volume up days in the triple leveraged mining ETF indicative of institutional traders entering large positions at an intermediate cycle low.
Stretched daily cycle.
When you add it all up, it’s exceedingly rare that you ever get a set up this strong for a contrarian trade.
As a matter of fact the only negative I can see in this entire set up is that gap down to 1033 still acting like a magnet trying to finish off the decline. At this point, this late in the cycle, if it’s going to get there, then it’s going to do it as a flash crash and premarket attack over one or two days. Otherwise we’re going to need to see another daily cycle that bounces up to the 1130 level and then rolls over for two or three weeks to tag that final support zone at 1033.
Of course there is always the possiblity that gold formed an intermediate bottom a week ago and any shorts that are still waiting for a tag of 1033 before they cover are about to get caught in a powerful short squeeze. A tag of 1033 would have to wait until the next ICL later this winter if this scenario plays out.
No matter how the next week plays out, whether gold formed a final intermediate bottom a week ago, or whether it still has to finish the move to 1033 first, gold and especially mining stocks are at a level that should deliver some nice gains during the impending bear market rally. Most traders are obsessing over whether gold still has further to drop, when they should be focusing on the bigger picture and at least starting to accumulate shares for the impending rally out of an intermediate cycle low and move back above the 50 day moving average. As a matter of fact I expect the rally to be powerful enough to push the weekly stochastics back to overbought levels…
…and mean revert the gold:XAU ratio at least back to 16-17.
What’s your opinion on CRB index? Would it also rally along with the mining stocks?
BTW, I am a firm believer in “all gaps need to fill” ……..so your predicament is understandable.
I’m expecting the CRB to rally on a test of the 09 bottom. It was about 2 points away on Friday.
A major pivot for stockmarkets beginning next week could boost Gold. A couple of analysts has the 6th August as a low date. We are missing a confirmed 4 and a final 5 wave in this correction, is there enough time to finish of a 4 and 5 in a C wave correction, maybe, hopefully!?
Lets see how the week unfolds 🙂 very interesting times, some analyst says that they’ve been waiting for the next couple of weeks for more than 2years. I’ve already bought a position in JNUG/NUGT and a couple of bombed out miners, but still 60% in cash ready to be deployed soon!
Sorry almost forgotten to mention, Very nice work and charts Gary ! A big thumbs up 🙂
I’m not a big believer in the whole EW thing. As you can see all but one of the recent intermediate moves failed to follow classic EW counts and only had 3 waves.
Have you heard of a triangle and that all internal waves should be 3 ? expanded flat?
Would you believe in EW when we see gold above 1310:))))
I am wondering whether Chinese PMI figures this week might be the event that knocks us down to the $1033 level. Poor figures out of China results in a stronger buck and commodities get hit?
Just thinking out loud.
From Dan Norcini
http://www.safehaven.com/article/38474/commodity-slump-signals-slow-growth-outlook
“Keep this in mind whenever you read some scribble from one of the gold bug gurus or hear an interview in which they are doing their usual “analysis” about soaring gold and silver prices (as soon as the price manipulators get buried by the “free, physical market”). If anything, the charts are telling us the exact opposite, that the metals have further to fall.”
As previously mentioned in another post.. My concern is the ‘bearish pennant’ that has formed in Gold as well as the ‘bullish flag’ in the dollar. For those of you just joining us.. these normally indicate a continuation with the current trend, meaning another low for gold and possibly another high for the almighty dollar. That being said, I agree with Gary in that the opportunity that has presented itself over the past several days is hard to pass up…
My short term recommendation is to build a position at current levels (NUGT/JNUGT) and buy some more if Gold drops one more time. The risk to reward ratio is un-parallel and very pleasing to the senses 🙂 Either way, there’s definitely a bounce coming before the final bear crash in Commodities.
No one “builds a position” in a 3X ETF that can drop >20% in one day.
Bud doesn’t get it.
Bud = fail
Muffin
You must be new here.
Gary has been using that NUGT volume line for years.
http://blog.smartmoneytrackerpremium.com/wp-content/uploads/NUGT1.png
http://blog.smartmoneytrackerpremium.com/wp-content/uploads/NUGT.png
An abnormally large surge in volume in NUGT has been a pretty good sign of an intermediate bottom.
It’s hard to distinguish it on the chart but the volume spike in June 2013 was three times normal daily volume.
Nice interesting read and charts. If you added in what your own positions taken are– that would be good too. It seems to me that that drop to 1033 can happen on Monday– That’s $60 down from current 1095– and that won’t happen in one flash crash I don’t think. That last flash crash moved $50 in one swoop but I sense a step down over several days next week. I see DUST going from 34 to 50 and rapidly dropping again as the $1033 shouldn’t be sustainable with the physical demand. I’ll likely get 20s of DUST and capture a $10 move for $200. I agree that that last drop from 1090, 1080… down to 1030 is really in the cards here. I was really shocked it didn’t get there last week.
Mostly in agreement, except for the NUGT position accumulation. Nobody in their right mind buys a 3X ETF for a longer term move due to decay.
It’s not a recomendation to buy NUGT. That thing is a widowmaker. It’s just a sign that an intermediate bottom is usually signalled by a surge in volume in NUGT. Buy GDX, GDXJ & SIL.
You need to look at non-split adjusted volume on _NUGT.
You can see the volume is much higher on a $3 stock vs a $100 stock.
http://schrts.co/6oVCam
It’s about the change in volume. Not volume compared to a year ago. When you get a sudden big spike up in volume it more often than not is signalling an ICL is forming.
Gentlemen, there seems to be some confusion in the air, so let me clarify..
First off, Gary never recommended buying NUGT/JNUG. That’s just me and what some might consider unconventional. I’m playing a ‘swing’ based on a short term set up that looks very promising and 3X ETFs are my favourite way to play it. But no matter what you do.. there’s an incredible opportunity waiting for us in the Miners. Gary’s article confirms it.
Bud Fox: My dad (also a swing trader) and I have been following Gary, among others, for quite a while now.. I just don’t feel the need to pipe in every time Gary drops an article on us. You should do the same? Haha, just kidding budski, keep ’em comin’..!
Huckleberry Finn: I love the name but who said anything about building a ‘long term’ position in NUGT?! I bought some shares at $3.25 and will buy more if it drops below $3 for a bounce back up to Resistance (around $8). That’s it. And if the shit hits the fan, I’m out! Long term: I’m buying silver coins and hiding them in my Grandmother’s fridge. Grab a cookie and help yourself to some milk!
All good? Great. Carry on gents..!
You will be broke. NUGT could be $1.50 by Friday
I use a ‘stop-loss’.. just in case. But I am willing to take a risk when the risk/reward ratio is smiling in my favour. Let’s see what happens.
Makes perfect sense.
But, what about GODZILLA?
He smashed up the town 2 weeks ago. Do you think he’s done yet? I don’t.
He may still try to drive gold to 1033. He may not succeed and it could cost him millions if not billions if it fails.
Goldman Sachs says metals and miners are in for a hard landing. This could be the middle of the final capitulation phase. Who could really be sure that 1033 Gold will hold? nobody. Margin calls in China….we could wake up to Gold being down $200 or $300 overnight.
DUST might be $50 or $60 by Friday.
With Gold not hitting 1033, the Dollar still has some room to go up and hit the symmetrical triangle($98.50). Might not be a bad thing to wait and see it hit that before going in????
GDX has gone lower today than 2 days ago (Thurs). Meaning the pennant has broken to the downside. Not by much – not decisively – but if I were long I’d get out and wait for confirmation of a bottom.
Having tight stops works *unless* price *gaps* down – then one is trapped. And we *had* a gap down 2 weeks back, so that’s why I’d get out if I were long.
The bottom of GDX’s pennant is 13.17 (July 24th).
Intraday price today has already hit a low of 13.18, just 1 cent away from an official break down.
And remember, GDX is a basket of several equities, so price is a weighted avg of a mix of stuff.
I just think that, after 2 weeks, we had plenty of chances to go up, so this still feels like a shelf, and the next step is down, despite all the strong evidence to the contrary.
Tomorrow is key….and it sure isn’t acting like it’s going higher tomorrow.
nice work! nice analysis
GDX almost at new lows. Tis but a scratch! https://youtu.be/zZbGbrP3Jh0?t=24s
A swift move down followed by incredible buying seems near.
I would be more scared to add to shorts here than initiating long positions.
Nice analysis! It is looking like a really good set up to me. I would like to add something else.
I have noticed that the 50% (from POG 251.70 to 1920.74) retracement level which is at 1086.22), seems to be strong support. Of course it is just an imaginary line on a chart. However it does seem to work up to a point. Gary, I am just stating this as an additional factor to your very informative analysis about the gold market. It definitely looks to me to be a tradable set up looked at as a whole. Bear in mind jobs report on 7th August where the lid is usually kept on the price, so I can’t see much chance of the market going up before then.
There is something else that people should be aware of. Back when Gold bottomed out in 2000, the British Govt. sold about 250 tons of gold. That was when a “deal” was struck between Gordon Brown the British Chancellor of the Exchequer, Tony Blair the British Prime Minister and J.P. Morgan the Bank. The deal was that Britain would sell the gold, Blair would have to resign as Prime Minister at some point in time in the future and hand over to Brown. Brown was not interested in money but was interested in Power. Blair was interested in money. So Blair was offered a job with JP Morgan at £50,000/week. The media reported that Blair’s job with J.P. Morgan was offered because he “could open doors”. However if you think about it why should J.P. Morgan need Blair to open doors which they can easily open themselves?! It was a bribe. Also you or I could not buy that gold. It was only offered to the Bullion Banks. Why did the Bullion Banks want that gold so badly? Because they were massively under water with a naked short position and were not able to deliver. Unlike you and I, they do not get any margin calls!
I went to a wedding a few years back and there were a number of young traders there who worked for Goldman Sachs and J.P. Morgan etc. I asked the ones who worked for J.P.M. if they knew Blair. Yes, he had an office in J.P. Morgan in London and he went to it once a month and the traders sat around in it and they chatted over coffee. Then he left around 11am. Obviously by then he had collected his monthly pay check. That was a few years ago so I do not know if that is still the pattern, and maybe Blair is now so rich he does not need to turn up any more and has another arrangement.
The Bullion Banks can do as they like. They can disguise their presence by painting patterns. Head and Shoulders is a favourite. Inverse or otherwise. They know all about Elliot Wave. If they want to turn the market round they will do it at the worst moment for Elliot Wavers. Do they want to do it now? Who knows! What is obvious is that they can always call upon any government that holds gold to get them out of the shit if they are under water and are not able to deliver. But right now the Blees indicator is the kicker. Maybe, one more shake to get rid of the weak hands!
Me thinks you are right on the money here Gary, but I am not waiting for the market to get to 1033. If it gets there, especially if you intend buying NUGT, you will not get in because the visit to 1033 (if it happens ) will not be during tradable hours! If short (particularly something like NUGT), you will get fried or unable to collect due to the thinness of the market at that time.