Feb 17, 2016

Precious metals/Gold miners

I was expecting the end of the bear market... it came a few weeks earlier, but we have now important low and strong move higher. Is the bear market over?

Some thoughts:
- from technical perspective we have finished patterns, strong rally and impulse higher.
- it is a fear trade - traders fleeing into bonds and gold. It is obviously important what stocks are doing.
- sentiment - do not like it at all for a major bottom. We did not saw fear and panic selling, everybody is bullish. If you look at pages like safehaven.com or marketoracle.co.uk 2/3 of the articles are about gold and the great bull market which begun. On the opposite side are stocks everybody are bearish talking about the great bear market which is running. How many times has the herd nailed bull market top and bear market low?
- the cycle guys posted interesting ideas - to sum up they think it will last one more 18 month cycle before a bull market gain traction. The Hurst guys think there is one more 18 year cycle lower before we see the final bottom. This idea is very interesting gold crawling lower for 1-2 years, the traders loosing interest and than the bull market really starts

To summarize what I see - finished patterns and impulse higher, vertical move driven by fear(not sustainable), no fear and very bullish sentiment at major bear market low?(very suspicious)

Based on this observations I think it is more likely that we saw the bottom for the bear market, but the precious metals will move slowly lower for a 12-18 months and when we see a top in stocks the gold bull will really blast off higher.

A lot of bla bla how to trade it - stocks should move higher into March-April and I expect precious metals/gold miners to correct lower in this period 50%-61,8% to "digest" the vertical move higher. We are watching closely if stocks make only three waves higher and gold moves lower with corrective three waves. If this is the case buy the low and we see what happens. If the bull has begun we will have an entry close to bottom, if not we will see some small gains. Not a bad risk reward.

We saw that it is about fear and money flows. Money moving from stocks to precious metals and bonds because of fear.
So here is what I see for stocks from cycle perspective - it is called mid-channel pause and when you sum up the cycles of different degrees you have a mirror image and the top has M shape(something like double top).
The low for the first 4 year cycle(the circle on the left) caused only a pause in the uptrend which means the cycles of bigger degree are dominant and we saw the indexes continue higher. Now we are waiting for the bottom of the second 4 year cycle and the 9 year nominal cycle. Than the second 9 year cycle should make another top for this M shape and we should see mirror image for the 18 year cycle.
Looking it from EW perspective the pattern so far hints that this top should be higher than the previous one or we are in wave 4 and wave 5 is expected.

And here is how gold should look like if the idea for this inter market analysis is right - this second top from the M pattern in stocks should cause a test of the bottom for gold before the bull market really takes off. The option I see for a lower low is if stocks finish the bull market with a bubble move higher and sentiment swings to extremes - stocks will never fall and gold is junk.

GDXJ intermediate term - we have impulse higher. If you see only corrective three waves lower to the support zone and Fibo levels than it is a buy.

P.S. We should see another leg higher for NATGAS - impulse higher and corrective a-b-c lower at 40 day cycle low. Great pattern for an intermediate term trade.

1 comment:

  1. Awesome analysis on money flow between stocks and gold.
    Thanks for sharing Krasi.