June 7th – New Signs

I saw signs of a change taking place on Tuesday, so I sent out an intra-day report to quickly discuss some basic trade ideas until I could spend some additional time going over the charts and trying to piece some things together.  This report is going to focus mainly on the changes that I have already witnessed taking place.

GOLD – Let’s talk about The Elephant In The Room

GOLD closed at another new high and on day 19, this is likely to be ANOTHER right translated daily cycle. 1300 is a nice round number, and often they mark a temporary top, so we’ll see about that.  Gold will be due for a drop into a DCL  (or ICL) soon.   This Move in Gold needs to be discussed, because The Miners, which were NOT following Gold higher, suddenly broke out and kicked it into gear Tuesday.  They now show more bullish signs, breaking out of bullish looking patterns. Let’s discuss the implications…

We already know that GOLD, SILVER, and MINERS have not exactly been in sync these days, so I thought that a review of Cycles and these 3 areas is important.

For starters, there are MANY things that go into analyzing market sectors using technical analyses, Cycles, and so on.   CYCLES:  As an Intermediate Cycle begins to age, we expect it to weaken over time and then it begins to fall into a deeper sell off than expected.   It often goes from one ICL ( Deep low) to the next Deep Low over roughly 6 months.  This drop is called dropping down into an Intermediate Cycle low (ICL).  Though they can vary in severity, there are the usual ‘hallmarks’ or ‘signs‘ that I look for to identify that drop into an ICL.  ‘Timing’ is important.  I also ask, ” Are the daily cycles still making higher lows, or has one broken below the prior dcl  (failing daily cycles) showing evidence of weakness?  Have they been Left translated,  with a peak higher on the left side of the daily cycles span  ( weakness if so)?  I look at the Internals, severity of the decline, certain indicators, and more.

THAT SAID, I have mentioned that the Miners and Silver did look as though they could have sold off into  an ICL type of a sell off into the May lows, but I doubted it because Gold did NOT show proper signs of an ICL.  I was still waiting for Gold to break down into an ICL.  It made sense that because the Miners were not following GOLD higher,  the expectation was that Gold should weaken and eventually drop into an ICL type sell off is the strongest likelihood .

We should talk about these above mentioned ‘signs’ in all 3 areas and also discuss recent implications.

#1 GDX – GDX peaked in early Feb, so that indicates weakness.  It could not  make new highs, and began breaking prior lows  (Dcls).  It couldn’t even tag the 200sma with Gold busting out to new highs in May, so I expected it to roll over when Gold eventually drops.   YESTERDAY : SUDDENLY GDX BREAKS OUT OF THE BULL FLAG AND ABOVE THE 200SMA,  MAKING A NEW HIGH FOR THIS DAILY CYCLE WITH HUGE VOLUME.  That makes the sell off into Mays lows look even more like an ICL, because this is now threatening to to form a Right Translated Daily cycle, depending on how long this daily cycle goes on for.  The next bullish factor would be making a new higher high above the last daily cycle peak.   THAT BECOMES A BULLISH SET UP & A POSSIBLE ICL IN MAY for Miners.    Now  let’s go to Silver…

#2 SILVER – I have mentioned that Silver did have the hallmark signs of a steep Sell Off into an ICL, With a day 4 peak in April and an extreme sell off for weeks.  However, if Gold was still going to sell into an ICL, I would want to expect Silver to sell off sharply again too. Notice with Silver that Prior March DCL (lows) were broken and so Silver also had a failed daily cycle, this is usually necessary to get an ICL.  The Hallmark ‘signs’ were showing up in Silver that it was dropping down now.  It had a new lower low.  TUESDAY, SILVER BROKE THE 200SMA AND CLOSED ABOVE IT. THIS ALSO NOW LOOKS LIKE IT COULD BECOME RIGHT TRANSLATED. That is another sign that an ICL has been left behind.   Now Silver really looks like it dropped into an ICL.  Now we need to look at GOLD…

GOLD – GOLD does NOT have those hallmark signs of what we usually see in a sell off into an ICL.  1. It has not made a lower low.  2. It has not had a weak left translated daily cycle.  3. Internals remained bullish, etc, etc , etc .   SO was that a stealth ICL in May that was simply exceptionally bullish?  We would be open to that idea, because now the Miners and Silver are kicking into a more bullish stance.  They MIGHT NOW BE showing us ‘signs’ that indicate that both had all the hallmarks of an ICL and are no longer waiting for Gold to drop down.  That said,  GOLD could sell off into a lower low or ICL and SILVER & GDX could make higher lows, showing that Their lowest lows are in place as of May. We’ll see.

THE TRICKY PART is that GOLD could put in 2 more daily cycles that begin to break to lower lows, peak left translated, and drop into more visible ICL with all of the hallmarks of an ICL drop.

GOLD ICLs–  Do you see Golds last sell off at the purple arrow? That doesn’t visibly compare to past ICL drops, it actually looks like a normal daily cycle low type dip.

GOLD ICL–  So before Tuesday,  I was entertaining an idea that we might even get 5 daily cycles to get Gold to drop & make lower lows and put in Left translated daily cycles, etc . See the chart below. THAT CAN STILL HAPPEN, BUT THE MINERS ARE NOW THREATENING TO MOVE TO RIGHT TRANSLATED AND POSSIBLY NEW HIGHS.   SO now we need to view things that way too.

LAST WEEKEND REPORT-  I drew up this chart to show what I expected.  Again, this can still happen, but if GOLD breaks out and does not break back down at the Fed Mtg, this is the most Bullish Break out and must be respected as extremely bullish.

I put this chart in the weekend report too, but I have drawn a bit more on it now.  I am pointing out that LAST MAY 2016  (black Box) Gold broke out to a slightly new high and then quickly dropped and people bought the break out.  We see that it quickly rolled over into that May  2016  ICL.  THAT could still happen now, so we are on watch and need to be aware of the Bullish side and the short term Bear possibility.  I actually still expected that to happen as of  this weekend,  because the Miners were not joining Gold in the bullish move higher. Now that they are, it makes me take note of that and respect the Miners participation in the move higher.  I am NEVER biased for what I believe, I just have to listen to what I am seeing and hearing as the markets relay information to me.  See the chart last May and now.

THE CHART THAT ALSO CAUSED ME TO WRITE YOUR MIDDAY REPORT

GDX VS  GOLD  –  GDX just signaled that it is now back to participating in the race higher with Gold. This break out goes from that FEBRUARY PEAK that I discussed in the Miners.  I cannot remain short with Miners breaking out from this 4 month downtrend in GDX:GOLD.  It speaks to me and says,  “Look at Miners charts and see if they look Bullish”.   Then I wrote my report yesterday  ( You may want to review it). Now we see if Miners stay stronger than Gold or not.

 So yes, I bought just a few bullish looking Miners ‘long’ yesterday, at least for a short term scalp.   Miners flipped to possible bullish upside, so I saw that GDX:GOLD & sent out the midday report.  You do NOT need to jump right in and buy miners, because another opportunity is going to present itself soon, so I will discuss that too.

  Miners were not participating and Gold was moving higher. Things still looked as though Gold needed to drop, because Miners usually lead gold during Bullish times  ( GDX:GLD).  Well the GDX:GOLD chart is saying that Miners may be joining in now, ready to continue higher.  I wanted to just start a couple of positions there and see what else happens along the way. I am not heavily invested into Miners.

GOLD –  I’M NOT ‘ALL IN’, I JUST TOOK A COUPLE OF POSITIONS  IN SOME BULLISH LOOKING SET UPS.    A BUYING OPPORTUNITY IS COMING AGAIN SHORTLY, WHETHER THE BULLISH SCENARIO MENTIONED WITH THE MINERS PLAYS OUT HIGHER OR ‘THE ICL DROP IN GOLD IS STILL AHEAD’  PLAYS OUT.  Why? Because Gold is on Day 20 today, it will have a pull back into the next DCL or ICL and that will be a buying opportunity around day 28 – 34 on average. It seems that that would still arrive Post Fed.

This has been one of the most uncorrelated, deceptively tricky times in the precious metals that I can remember.  Gold, Silver, The Miners, and even the USD have not been aligned throughout the past couple of months.  All we can do is continue the analysis as we look at the big picture and its probabilities, and also remain flexible and look for clues in the shorter term time frame too. A pullback will be due soon, and it should bring about a great buying opportunity. The Miners have not been running away here, many are still at their lows, as pointed out in the Midday report.

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I am also watching reversals in Energy that did keep the bullish leaders like RES, ERF, and AREX above their 50sma and in a bullish stance too.  I pointed them out here, but wanted to watch and see if they could still hold up above the 50sma.

JUNE 3rd – AREX, RES, and ERF were starting to look bullish with higher lows at the 50sma, but would they hold up as the XLE continued to sell off?

JUNE 6th –  As the XLE broke to new lows  AREX , RES, and ERF  did hold at the 50sma and put in strong reversals.  That is a bullish ‘Sign’ too.

JUNE 6 –  ERF IS A BUY with a stop under the 50sma

Conclusion: So these are the ‘signs’ that I am seeing in the Precious Metals markets and the Energy markets.  Signs that bullish set ups are finally presenting themselves in individual stocks and other stocks will likely be setting up over time too.  I will , of course, continue to monitor and cover these areas in the future reports. In the set ups that we are seeing now with Miners and Energy stocks near their lows,  we have the potential for huge upside gains going forward.  The Midday report was simply to help us to take a position or two in some of the current Miners that are just getting going if we want to scalp gains that way.  On day 20 for Gold, a DCL or ICL drop is still just ahead and THAT will present some other Bullish set ups for us to load up on.  The fed Mtg is next week and that could present some nice opportunities. Enjoy your Wednesday trading, and I’ll continue to watch for ‘signs’ of progress in these areas.

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~ALEX

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GLD – I wanted to add that this looked like a top, so I put this chart in the MIDDAY report.  Stops would be below yesterdays lows in any miners that I own. If positions are very small, I may just hold on to a miner or two and hedge.  Readers may want to review yesterdays Midday report.

This is the Big Picture GDX showing that a break out later of this set up is the REAL future buying opportunity. It would show that Miners are definitively Bullishly breaking out and on there way to multi month gains. That could happen after Gold puts in an ICL, or it could be starting now-  but it has not happened yet.