Crowded Gold
Even though Gold did not continue higher this week, sentiment still seems to be dangerously elevated. Talk of $2,000 Gold and a new bull market has become common, and Gold seems ripe for a fall, at least in the short term. Don’t misinterpret my point – I see the evidence that a new bull market trend is developing, but that’s in the intermediate term. Shorter term, the current rally is approaching its limits and has resulted in a Crowded Gold situation.
The average daily trading volume of call options for GLD, the SPDR Gold ETF, hit its highest level since 2011. But unlike today, 2011 Gold prices were at a record high. Turning to the Comex, Gold volume for February is about to surpass the levels of all past Februarys. And lastly, the volume in many precious metals Miners is through the roof, and the broader Gold mining indices have added more than 50% off their January lows.
The Gold bull market topped in 2011, and since then, the precious metals complex has been locked in a long, punishing decline as funds have flowed to greater opportunities. Long bear market declines are essentially an extended flow of capital out of an asset, which eventually bottoms when there are literally no more sellers at a greatly reduced price.
Of course there is no way to know with certainty whether Gold has bottomed yet. After 4 consecutive years without a significant counter-trend rally, we have to consider that the recent spike higher could be just a large bull trap. But regardless of whether Gold has seen a final bottom or not, I am encouraged by the large flow of capital back into the precious metals. Since all bear markets eventually end with a rushed inflow of new capital, the chart below is a good step toward confirming that the bear market is over.
In the short-term, however, Gold is offering conflicting and difficult-to-read data. The Daily Cycle can be interpreted in multiple ways, and is likely to lead traders to construe the evidence to support whatever bias they hold.
I do not hold a position in Gold at present, and this allows me to be neutral in my analysis. As such, I see reasons that support being Long, and others that support the Short side. The bulls hope that the pennant – a continuation pattern – presages an imminent 3rd Daily Cycle surge that will take price to a new IC high. The bears, however, point to Wednesday’s reversal lower after a $30 surge higher from the pennant. Gold has again suckered the bulls, they believe, and is on the verge of breaking rapidly lower.
We know only one thing for certain – that Gold has rallied $150 in just a few short weeks. Any traders who rode all or most of the rise should be protecting profits now that the primary move higher is over. On the other hand, traders who only recently added Long positions in the hope of not missing another $100 rally are probably sitting in weak-handed positions. And these traders will likely bail at the first sign of downside. Netting it out, although another rally can always be coming, the potential reward is not high enough today to justify a Long position. The risk of a breakdown is simply too great. If you’re bullish, you need to be aware that Gold just formed its first bearish MACD crossed since October.
The Financial Tap – Daily Gold chart
The primary reason for my concern about Gold, however, are the readings from various indicators that I use to spot tops. None of them are perfect, and none are exact timing tools, but all have proven their worth over time.
We’ve talked about these indicators before. The Silver COT has reached an 8-year high, an extreme level that underscores how Long speculators are in their positions. The Gold COT, however, is nowhere near as extreme as Silver, but is still at a level that is normally associated with an IC top. Turning to history, when compared with Gold’s nine previous Investor Cycles, the current IC is overdue for a top. Daily Cycle timing, too, is now in the latter part of the timing band for a DCL. So even though I am neutral, there is reason to believe that Gold could fall from here.
The Financial Tap – Gold COT Report
On the weekly chart, not much has changed since last week. And I suspect that it will continue to change little between now and next weekend, primarily because I see Gold’s IC topping in the very near future. In the short-term, however, speculative interest could push Gold as high as $1,350 in a final 2-week surge. Even though I’m not currently Long Gold, I would love to see such a move higher for several reasons.
The most obvious is that it would provide a very clear, valid reason to go Short. At that point – a week 15 high after a 25% gain – a selloff would be very likely. For decades, that sort of performance has preceded a sell-off.
In the longer term, and beyond the opportunity for a Short trade, such a move higher would have “bull market” written all over it. The precious metals Miners would likely be up 75% or more from their lows, just the sort of lockout move we’d expect from the first IC out of a bear market low.
Talk of a bull market is cheap, however, so we need to see Cycle evidence develop before we buy the bullish case completely. For now, traders should focus on the highest probability event, an Investor Cycle Low in May. This should provide Short opportunities in the near term, and Long opportunities after the bottom. In fact, the buying of the ICL should be enormous!
The Financial Tap – Gold Weekly Chart
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
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Do Not be Fooled by Crude
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Midweek Cycles Update – March 9th
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Finishing Touches (Market Top)
/in Public /by Bob LoukasFinishing Touches (Market Top)
In a classic example of the power of Short-covering, the S&P 500 has risen 190 points in just 16 sessions. Market valuations remain at historically extreme levels, so it’s not like the markets are cheap and investors are rushing in to buy value. The economic news remains uninspiring, and announcements continue to re-enforce a recessionary or low growth environment. So once the Short covering has run its course, the only catalyst for a continued rise in equities (back to 2,000 and above) would be the idea that the central bank will become more accommodative again. To some this is bullish behavior, for me, the market is putting in some Finishing Touches (Market Top).
In a case of bad-news-is-good-news for the markets, it’s clear that equity over-valuation exists because of FED policies. For several years, the FED has responded to bad economic news by increasing liquidity, and this has pushed asset prices higher. But the FED’s ability to safely provide liquidity is not unlimited, and it appears that the FED’s powerful accommodative policies have been exhausted for now, leaving asset prices vulnerable at current levels. Unless economic announcements become much more negative, forcing the FED steps back in with some sort of stimulus, the bear market in equities will almost certainly continue.
Since 2015’s broad topping pattern, equities have frequently moved sharply in both directions. The extreme nature of the moves makes predicting the day-to-day markets extremely difficult, which is why traders find it so difficult to profit in an environment like that we have today. In the short term, however, Daily Cycle timing and the market’s overbought status greatly favor a reversal and decline toward the next DCL.
The Financial Tap – S&P Daily Chart
There is clarity again in the S&P’s Investor Cycles, especially with a Three White Soldiers pattern in place. Three straight weeks of solid gains have lifted the S&P sharply to close back above the 26-week moving average. The current rally will draw the bulls back in and swing sentiment back to the bullish side, setting up another decline.
Since I believe that equities are well into a bear market, the recent strength should be seen as only counter-trend. We’ve had 2 significant Investor Cycle declines since August, and it appears that we still have some upside “filling” to do before the longer term bear market decline continues. The next step is a Daily Cycle Low decline, which should get bears excited before price launches in a new DC. I expect the new DC rally will push the S&P back above 2,000 and form the top for the current Investor Cycle.
If this scenario unfolds, I’d expect sentiment to once again become too bullish, at a time when the equities Cycle has the time and room to sell-off in a confined fashion. But this scenario is not a given – if the bear market is underway, greater-than-expected downside risk is always present and the bottom could fall out of the market at any time.
The Financial Tap – Weekly Chart
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
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Twists and Turns
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Midweek Cycles Update – March 2nd
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Crowded Gold
/in Public /by Bob LoukasCrowded Gold
Even though Gold did not continue higher this week, sentiment still seems to be dangerously elevated. Talk of $2,000 Gold and a new bull market has become common, and Gold seems ripe for a fall, at least in the short term. Don’t misinterpret my point – I see the evidence that a new bull market trend is developing, but that’s in the intermediate term. Shorter term, the current rally is approaching its limits and has resulted in a Crowded Gold situation.
The average daily trading volume of call options for GLD, the SPDR Gold ETF, hit its highest level since 2011. But unlike today, 2011 Gold prices were at a record high. Turning to the Comex, Gold volume for February is about to surpass the levels of all past Februarys. And lastly, the volume in many precious metals Miners is through the roof, and the broader Gold mining indices have added more than 50% off their January lows.
The Gold bull market topped in 2011, and since then, the precious metals complex has been locked in a long, punishing decline as funds have flowed to greater opportunities. Long bear market declines are essentially an extended flow of capital out of an asset, which eventually bottoms when there are literally no more sellers at a greatly reduced price.
Of course there is no way to know with certainty whether Gold has bottomed yet. After 4 consecutive years without a significant counter-trend rally, we have to consider that the recent spike higher could be just a large bull trap. But regardless of whether Gold has seen a final bottom or not, I am encouraged by the large flow of capital back into the precious metals. Since all bear markets eventually end with a rushed inflow of new capital, the chart below is a good step toward confirming that the bear market is over.
In the short-term, however, Gold is offering conflicting and difficult-to-read data. The Daily Cycle can be interpreted in multiple ways, and is likely to lead traders to construe the evidence to support whatever bias they hold.
I do not hold a position in Gold at present, and this allows me to be neutral in my analysis. As such, I see reasons that support being Long, and others that support the Short side. The bulls hope that the pennant – a continuation pattern – presages an imminent 3rd Daily Cycle surge that will take price to a new IC high. The bears, however, point to Wednesday’s reversal lower after a $30 surge higher from the pennant. Gold has again suckered the bulls, they believe, and is on the verge of breaking rapidly lower.
We know only one thing for certain – that Gold has rallied $150 in just a few short weeks. Any traders who rode all or most of the rise should be protecting profits now that the primary move higher is over. On the other hand, traders who only recently added Long positions in the hope of not missing another $100 rally are probably sitting in weak-handed positions. And these traders will likely bail at the first sign of downside. Netting it out, although another rally can always be coming, the potential reward is not high enough today to justify a Long position. The risk of a breakdown is simply too great. If you’re bullish, you need to be aware that Gold just formed its first bearish MACD crossed since October.
The Financial Tap – Daily Gold chart
The primary reason for my concern about Gold, however, are the readings from various indicators that I use to spot tops. None of them are perfect, and none are exact timing tools, but all have proven their worth over time.
We’ve talked about these indicators before. The Silver COT has reached an 8-year high, an extreme level that underscores how Long speculators are in their positions. The Gold COT, however, is nowhere near as extreme as Silver, but is still at a level that is normally associated with an IC top. Turning to history, when compared with Gold’s nine previous Investor Cycles, the current IC is overdue for a top. Daily Cycle timing, too, is now in the latter part of the timing band for a DCL. So even though I am neutral, there is reason to believe that Gold could fall from here.
The Financial Tap – Gold COT Report
On the weekly chart, not much has changed since last week. And I suspect that it will continue to change little between now and next weekend, primarily because I see Gold’s IC topping in the very near future. In the short-term, however, speculative interest could push Gold as high as $1,350 in a final 2-week surge. Even though I’m not currently Long Gold, I would love to see such a move higher for several reasons.
The most obvious is that it would provide a very clear, valid reason to go Short. At that point – a week 15 high after a 25% gain – a selloff would be very likely. For decades, that sort of performance has preceded a sell-off.
In the longer term, and beyond the opportunity for a Short trade, such a move higher would have “bull market” written all over it. The precious metals Miners would likely be up 75% or more from their lows, just the sort of lockout move we’d expect from the first IC out of a bear market low.
Talk of a bull market is cheap, however, so we need to see Cycle evidence develop before we buy the bullish case completely. For now, traders should focus on the highest probability event, an Investor Cycle Low in May. This should provide Short opportunities in the near term, and Long opportunities after the bottom. In fact, the buying of the ICL should be enormous!
The Financial Tap – Gold Weekly Chart
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.
You’re just 1 minute away from profitable trades! please visit: https://thefinancialtap.com
Crowded Markets
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Cycles Midweek Update – Feb 25th
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On a String
/in Public /by Bob LoukasOn a String
An excerpt from this past weekend report within the Equities section. Consider membership here: Financial Tap
In equities this week, it makes sense to focus purely on technical analysis. During the past few months, I’ve outlined the likelihood that equities are well into a bear market decline that should last for 3-5 Investor Cycles (12-18 months). At this point, I don’t believe it makes sense to rehash it again.
Last week’s report was titled “All On the Same Side” to illustrate just how one-sided the markets had become. Not surprising then, equities bounced after forming a failed Daily Cycle and becoming very oversold. Since the January 20th Daily Cycle Low (DCL) had already confirmed a failed Investor Cycle, the failure of a following Cycle (on Feb 11th) was not a surprise. The Cycle failure was simply an extension of an already-apparent larger degree correction. However, as with every asset class, equities are subject to ebbs and flows on shorter time-frames, so a Daily Half Cycle Low rally was expected (past 8 sessions).
I noted previously that a 2nd half rally might be sharp, but would fall just short of the high from day 8. It is too early to know if the half cycle rally is finished, but a final Daily Cycle should always form a lower high before it begins a final decent into a deep Cycle Low. Since the current DC has failed and is only on day 22, without a new high, we can only assume that the coming weeks will bring a sizable sell-off into DC and IC Lows.
We expected a sizable rally, but need to avoid allowing it to flip our thinking to the bullish side – the bear is still very much alive. More than anything, the current rally has allowed oversold technicals and bearish sentiment to reset themselves from extreme levels. In a downtrend, counter-trend moves like we’re seeing at present act as profit taking events before the decline continues.
In this case, the rally has allowed the market to reset to a position where a sell-off into a deeper, final ICL can begin. There is always the chance that a market will go against a well-defined Cycle picture by rallying prematurely without a clean final Daily Cycle low, but that’s the exception and not the rule. At present, it does not look good for the bulls, and the Cycle count does not support any type of bullish outcome. I expect that equities will decline into a mid-March ICL before being treated to a large, counter-trend rally.
One More Run
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