Commercial Shorts Take Over - Downward Phase Back In Play

Sunday, November 10, 2019

fine gold

The action with the Gold market last week saw the metal forming its high in Monday's session, here doing so with the tag of the 1517.10 figure. From there, a sharp decline was seen into late-week, here dropping all the way down to a Friday low of 1457.00 - before bouncing slightly off the same to end the week.

Larger Downward Phase Likely In Force

As mentioned in past articles, the last low of significance was expected to come from the 72-day cycle - which was originally projected to trough into the late-September to very early-October timeframe. Here again is that 72-day wave:

With the above said and noted, the metal did see a bottom on October 1st - right into our late-September/early-October time window. However, gold needed to see a reversal above the 1521.80 figure to actually confirm the next mid-term upward phase to be back in force, something which never materialized.

With that, the 72-day wave is now at or into extended territory for a bottom, and where it will trough is now anyone's guess - though we do have a key 'reversal' date coming up soon. Stepping back, however, the probabilities now favor the next upward phase of this wave to end up as a countertrend affair, instead of the prior anticipation of higher highs into December/January.

The fact that the early-October trough has been taken out to the downside means that the correction phase of our 72-day wave is still in progress. Short-term, the near-term path should favor lower lows now into November 12th (plus or minus), followed by a short bounce, then lower again into our aforementioned key reversal date. That date may have some potential to bottom the extended 72-day wave.

Gold's 310-Day (Mid-Term) Cycle

For the bigger picture, with the action seen into last week, I am going to suggest that our larger 310-day cycle (chart, above) is already headed down into what is looking to be the Spring of 2020. This is due primarily to the fact that gold is now pushing out of the bottom (and recently rising) 310-day cycle channel.

If the above assessment with the 310-day component is correct, then what we would expect to see in the coming weeks/months is for an extended 72-day trough to soon form, followed by a countertrend rally into around January of next year - one that remains below the 1565.00 swing high from August. From there, the next downward phase of the 72-day cycle should take the metal back to or below it's rising 310-day moving average, before attempting to bottom this 310-day component.

For the bigger picture, the good news for the gold bulls is that the downward phase of the 310-day cycle is anticipated to end up as a countertrend affair, holding above the prior 310-day trough - made back in August of 2018. If that is correct, then the probabilities are above-average that the next upward phase of this cycle will take gold back above the 1565 swing high into later next year, with more precise details on when we expect this to occur noted in our Gold Wave Trader market report.

Commercial Hedgers

In looking again at the latest numbers from the CFTC, the commercial hedgers actually added in another 17,000 contracts to the short side, which puts their current net short total at some -317,138 contracts - with the data current to the 11/5/19 close.

As mentioned many times in past months, the current net short position held by the commercials was seen as a bearish overhead for the Gold market. However, the position of the time cycles - primarily our 72-day wave - suggested that bearishness would resolve only after the completion of the next rally phase of that particular component. However, due to momentum considerations, the probabilities favor the next larger downward phase is already in play.

U.S. Stock Market

As mentioned in past weeks, the last low of significance for U.S. stocks was expected to come from the 45-day cycle. That bottom was registered on October 3rd, doing so with the tag of the 2855.94 SPX CASH figure. In terms of patterns, that move was favored to end up as a countertrend affair, and, once complete, was expected to give way to new all-time highs into the late-October/early-November timeframe. Here is our 45-day wave:

With the action seen in recent week, the SPX has easily made it back to new all-time highs, thus satisfying the pattern assumptions in regards to this 45-day component. In terms of time, this wave was projected higher into the late-October to early-November timeframe. With that, this cycle is now 26 trading days along - and thus is moving back into topping range. Once it does peak, a drop back to the 35-day moving average is expected to play out, a move which is favored to end up as yet another countertrend affair - to be followed by higher highs well into the Spring of next year. More on this - and the bigger picture outlook - as we continue to move forward in time.

Jim Curry

The Gold Wave Trader


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Jim Curry is the editor and publisher of The Gold Wave Trader and Market Turns advisories - each of which specializes in the use of cyclic and statistical analysis to time the Gold and U.S. stock markets. He is also the author of several trading-related e-books, and can be reached at the URL above.