Scratching Gold Bear.

Well, the elections are over and the landscape has cleared immensely with that, but I have been scratching my head a lot lately, not from some kind of an itch (I have been using Head and Shoulders shampoo diligently and my scalp is a TV commercial example of health), but from bewilderment: what are the Gold Bulls thinking?
If you turn to the media, including internet, there is a broad chorus of voices quite convinced that the only way for gold is up, to $2500 in 2013 or higher, citing the relentless money printing of our FED, Central Banks gold buying, bearish perspectives of the US dollar and slow but sure recovery of the housing market. Investors seem to be following dutifully putting their money in gold, with the most broadly held gold ETF GLD relentlessly hitting new records of the amount of gold it is holding: at 1340 tons in November 2012. That compares to the holdings of 1232 tons in September of 2011 when the actual top was made and 1282 tons in May of 2012 when the last rally off $1530 started. So let's do the math: 200 dollars down from the top and 100 ton-plus more in GLD holdings. Is this the smart money accumulating? Yes, right.
Now, excuse me for this following diatribe on fundamentals, a sin that I have been trying to avoid in this sanctum of Technical Analysis and Charts, but it is entirely self-serving exercise trying to relief some of the discomfort that I have been always experiencing while visiting psychiatric wards to consult for medical problems.
Let's do a forensic exam what brought the "golden bull" to life and fueled it in first place. Some would say that after 20 years of bear market it was simply time for the bull to be born, and it was my main view over 10 years ago, when I became bullish on gold. However, with the perspective of time and events, a nice chain of events can be coined together. The chain is made of financial/economic troubles that were remedied with government and central bank response to undo those undesirable conditions. The first identifiable link was the Asian financial crisis of 1997-1998 that was "solved" during the 1998 market meltdown by central banks intervention. That stimulus in turn put a fan onto the already bubble-ready NASDAQ that ended up in the burst in early 2000 and a bear market that followed, which was again met with more easing and interest rates cuts. Along the way a tragedy of 9-11 was inflicted on our country and two wars were staged in response to that, resulting in countless billions of dollars being spend inside and outside of the country and dollar depreciation. Well, with low interest rates and forceful government spending, a bubble in the housing blossomed, bursting of which caused banking collapse and another forceful central bank and government interventions acronamed as TARP and QE (1,2,3...). With all of that, 2000-dollar gold seems to be natural and granted. So, why did it top out in 2011 and why should it not be going up?
For the careful reader of this text, it should be quite obvious. Simply, most of the conditions that had driven this bull market in gold, have (let's put it this way) expired. The wars are either over or drawing to their conclusions. There is no housing bubble with its credit and liquidity excess. Bailouts and hand-outs have been already done and the government is rather looking to recover the money spend on those. QEs were front-loaded and the latest one is just a muddle-through QE. Interest rates are and have been at a rock-bottom for a while. Elections are done and all parties are seemingly bent on rising taxes or cutting spending or both.
So going back to the question what those folks who think that gold will keep going up are thinking? I guess they follow same logic as at the top of the NASDAQ and housing bubbles- extrapolating current trend to infinity (never mind that the trend has already had changed over a year ago).

For those who never noticed, gold made a top in early September 2011 (yes, over a year ago) at $1923 per ounce and suffered a precipitous drop to its 200 days moving average at 1530 within the same month. Since then it has been oscillating in a broad range finding support at around 1530 and resistance at 1800.

 

 

 

The latest upswing that started in the Summer of this year failed to break out through the 1800 level for the third time- a bearish development. After recent drop from the unlucky 1800 level, gold found expected support at 200 days moving average printing a nice bullish weekly engulfing candle, but not penetrating above 50 days moving average at around 1750. Last week gold backed off from its recent high again and got support at the round-number of 1700.

 

So what are those charts telling and where gold is heading next?

Let's look at the life-time chart of this bull to see what may be coming, on the bearish side.

 

There is a channel with lower trendline support that is currently at around 1450 and will get to just under 1500 by the end of the year that may be the initial stop for the drop. After an initial bounce from that level, if fundamentals wouldn't change (read lots of pork thrown around by government), the target is the support trendline rising from the initial trajectory of this bull that is currently at $1000, give or take and that is were gold could be heading.  If that seems excessive, there is a precedence in the last gold bull market of 1970's, where after reaching a high of $197 in December 1974, gold collapsed to $103.5 in August 1976, before resuming its uptrend (just divide by 10, it would be quite eerie if this prediction were fulfilled).

It may be surprising to some, but the secular bull market would still be intact if gold pulls back to this trendline (without breaking it), and all of the decline still would be a secular bull market correction.

Now, if that's not enough and stupidity at the government level prevails and we enter a full-blown depression, 700 level would be in the sight.

 

Interestingly enough, the unhedged miners index HUI has been nicely on track predicting such an outcome, as you can see on the charts I posted in my charts list on stockcharts.

 

And my favorite shampoo brand.

This H&S nicely corresponds to the same pattern on copper's charts that I have discussed in my prior posts.

 

What's the Real news?

It's one of the best clues for investors when the market rallies in the face of bad news, or sells off when flooded with good ones. On Friday clearly the latter happened. So a tempting question is what is the Real news?
Is the market fearing and predicting Obama's re-election?- could be.
Is the marked sensing that the latest everlasting QE doesn't have enough oomph! to push the markets even higher?
Is the EU unraveling even further in spite of relative calm on the surface?
Is China entering their "1930s like" depression?
The answer is that's likely all of the above and that it doesn't really matter, at least from the technical analysis perspective.
Let's just look at some of the charts from my stockcharts.com collection.

US Dollar has been signalling  lately that it wants to make a double bottom, rather than sell further to the last year's lows, by breaking the red resistance line. It consolidated at 50 DMA resistance and broke out decisively above it on Friday. Granted, there is still a downsloping 200 DMA that may act as resistance, but the outlook seems to be bullish for the USD now. Please also note that same season last year has seen a major dollar rally, that extended to early January despite a dip caused by ECB easing.
On the other side of the coin are commodities, and if you look at the gold's chart, there is a triple top at 1800 with logic calling now for revisitation of the triple bottom at 1525. Which brings a question: is there a such thing as quadruple bottom?

Copper just hit a major support line .

And if you check the monthly chart, if the next support at 3.25 is broken, 1.50 becomes a target.

On the equity side, check this long-term SPX chart to see how transitions from cyclical bull to cyclical bear look like.

Index breaking 40 weeks MA, MA turning down and failure of the index to break out from below. Admittedly, there was one false bear signal last year, but do not expect false signals to become a norm, so watch it very carefuly for the signal.
Lastly, another of my old charts, showing that NASDAQ has reached a level that is a perfect setup for a top: 50% retracement of the early 2000s decline and the bottom of the first wave of the decline from that era.

Now back to my cycles charts, showing that a major top is due.

 

 

Well, having said all that bearish stuff, please keep in mind that others' opinions are important for their contrarian value mainly. 



 

Copper blues.

Not that copper brings anything new to the story told by silver and gold; rather complements it.
Few charts of that industrial metal.
On both daily and weekly charts copper is sitting on a crucial support at 3.3 after breaking trendline supports.

However, monthly chart is the most bipolar.

It's either H&S with obvious consequences or if you had not enough lithium it's a triangle. Good thing is that we should know very soon the real story here.

July's Gold- what the precious metals are trying to tell us.

It's been a while since I commented on silver and gold here. I have kept some of the PM charts in my public chart for your peruse though. Now it seems to be perfect time to put up some fresh comments here too. You can clearly see that July has given a kickoff to a gold rally three Summers in the row.

If you look closely, all those rallies came out of very similar technical background and were clearly a part of a one, powerful wave up. If you expect the same outcome now, I am afraid you may get disappointed. Just see the setup and the outcome of the same season in 2008. Well, July is when the collapse started. It does not take much of the pattern recognition skills to recognize that current setup is much more like 2008 than the subsequent hat-trick.
Very telling is silver chart, on which I have been pointing that a new wave of collapse appears to be coming, and we got the confirmation yesterday and today with silver breaking down under 28 and failing to regain that level.

So what silver and gold charts are trying to tell us?
I presume they are anticipating a deflationary event similar to the Lehman's failure in September of 2008. Why July downside acceleration? Likely another upcoming European meeting ending with a whimper.
OK, just to make it clear, I am not predicting the future, just reading what the charts are trying to tell.
At the end, another show of my long term gold chart as a reminder.

The 4 year gold half-cycle is scheduled to bottom in December of this year, but the full cycle is in the down phase until December 2016, and I suspect that it will not be until then that precious metals will get really interesting again.

On eclipses and general weirdness

I can't really help, I have been getting this feeling of weirdness so frequently lately. Maybe it's just because of the bad habit of tuning to the Bloomberg's on my XM radio on the way to work, or it's the planetary alignments. Actually, first thing this morning I got grossly surprised hearing on the radio there that we will have a Venus eclipse of the sun today. Well, before you get really scared and start imagining total darkness and the end of the world scenarios, be aware that it was just a usual media superficiality. The technical term for this rare event is not eclipse but a passage. Apparently a small disk of the planet Venus will be crossing in front of the solar disc today, and definitively no darkness is expected. Than again, on the way back home, radio folks were having this elated, giddy talk about the impending rescue for the financial and the rest of the world, coming from the G7, FED and the God himself (the last one is my addition) as the reason for the market's rebound.
This bring a bigger question forth: why should I or anyone in fact bother to strain my (his/her) eyes and keep looking at those charts where I see only doom if they on the radio know better and there is in fact a Guardian Angel? Or is that just a matter of someones faith? Whether someone is faithful or just gullible, time will tell.
I think it's time to put on the sunglasses and take a look at that Venus passage.
In the meantime, you can listen to this weird  German guy's song about eclipse.
Enjoy!

(he was certainly talented and believed in the Guardian Angel, I presume)

Surging Euro update

Just a brief update on Euro. We do have potential divergence on the hourly chart and no collapse after breaking 125. Just an alert for a potential bounce.

It should be clear early tomorrow if the bounce or further collapse is in the cards.

Surging Euro, flying pigs.

Do you believe in flying pigs? I don't.
No, I am not a hard-headed atheist. If I see it, I will believe (I will not have to touch it).
What left me quite perplexed today is my reading of the safehaven.com . There are three fresh articles, written by thoughtful and certainly bright gentlemen, plainly calling a rally in the Euro, and one even predicting  a glorious event of "soaring" of this much beleaguered currency. That site is a place where independent thinkers and folks with contrarian traits tend to congregate and publish, and that's what makes me go there for others' opinions and thoughts, so I certainly do not take their opinions lightly.
Clearly, I need to take another look at my charts, and bear with me when I am doing it.
The very first is the weekly Euro chart, clearly showing breakdown of the support at 126.

Admittedly, there is some potential support at 125, which was a secondary low in March of 2009, that is likely in play now since Euro has had a minor consolidation above that number today, but support from 3 years ago is purely psychological. No trader has kept any position for that long. However, when I go to my long-term Euro chart, I can see 125 support that I have drawn really long time ago, based on several points of it being a resistance or support going back to 2004.

So, maybe be there is some importance of this number (yeah, just since it is a round/quarter-like number).
Drilling down a little further, there is the chart with a head and shoulders pattern that broke down and reached it's target.

So maybe that's it. Target reached, time for a bounce. I still do not see the "soaring" though.
Well, let's take another look at the same chart.

This time I marked a large H&S pattern with red letters. Granted, the head is very ugly (ragged, indented top like would be in a victim of the attack with a sledge hammer), but the rest is a classical pattern with a breakdown and retest and target of 113 if the red neckline is counted, or in a multi-head version if we count the blue neckline at 126, the target would be 103. I also see a clean wave starting from 133 at the beginning of May, that had only one weakly blip mid-month bouncing from 127 to 128, that appears to be targeting support at 119-120 and certainly does not appear to be completed yet.
Thank you for bearing with me, if anyone did.
Have a nice long weekend and let's see if pigs can fly

Weekend wrap- giddy feeling- turning the clock back

What a week!
It truly deserves the exclamation sign and more.
There are unrelenting waterfall declines across the board, carnage everywhere, with markets giving up practically all the gains for the year.
And yet,  yesterday, the Bloombergs and CNBC on my XM radio just having that also unrelenting, but giddy talk about the FB IPO. The closest feeling to that I had during March of 2000. Well, maybe I am oversensitive but that felt very, very strange.
Lets go back to the charts.
The very first one to illustrate the point that  the gain for the year has been given up.

Interestingly, the 200 days MA is at the level of the market at the beginning of the year, thanks to it being flat of course. I believe that puts additional pressure on institutional investors to defend it, but also makes the potential breakdown even more damaging (being under water is not a pleasant feeling and may evoke seizures-like activity,  as some clients of certain agencies of our government could attest).
SPX itself stopped exactly on support that I have drawn a while back.

R2K wasn't so lucky and closed under its 200 days MA. On that note, if you look further abroad, FTSE seems to be leading the pack (for "developed economies") and is very un-comfortably sitting under the water already, and actually already crashing if you ask me.

Ditto for Brazil, that has been falling like a BRICK since the beginning of March.

There is obviously a multitude of charts around that I could add to illustrate the same point- please feel free to browse my chartlist. There is practically no bullish charts around, well, with a little exception of bonds, VIX and the US buck.
The dollar long-term chart would be the most depressing though to the crowds of the gold bugs that I was swearing my allegiance for quite while, if get it correctly.

In brief, it looks to me that the dollar is in a very early bull run, that may last till 2016-7. That would fit nicely with the next major through for the gold that's due in December 2016.
Now, once you know all about the future, have a very nice weekend folks.

Silverado 2- silver bottom.

Do not get me wrong folks. I am a silver bug and has been ever since 2000. Just taking a hiatus ever since silver hit $40 last year- my long expected target. I did share my thoughts at that time, see my earlier post Silverado. My current suspicion is that we may need still to wait a bit for the final low in silver. I just updated two silver charts with potential targets for the silver bottom around 20 bucks.

From the technical perspective, silver did make a double bottom at 26, but failed to do anything suggesting that that number will hold, finding resistance at 30. The only pattern that would make turn me bullish near term, would be crossing 30 and then finding support at 30 again. Unless that happens, I will be expecting further downside with an excellent support at 20, which I suppose would be a buying oportunity of a lifetime.

Just to sidetrack to the rest of the market, it has the feeling like it wants to move in another downside leg unless something dramatically positive happens next week. Anyway, my guess is that next week will tell.