Forecast: Gold Cycle And Stock Market Updates

Sunday, February 17, 2019

gold analysis

Last week's trading saw gold holding in a downside consolidation for the better part of the week, with the metal dropping all the way down to a low of 1304.70 - made in Thursday's session. From there, however, a sharp reversal higher was seen into Friday, here running all the way up to a peak of 1325.80 - before backing slightly off the same to end the week.

Gold's Near-Term Outlook

For the near-term action, gold has been seen to be in consolidation mode, with our Gold Wave Trader report calling the decline. The recent correction came as the result of the smallest cycle that we track, the 10-day component, which is shown again on the chart below:

gold daily continuous contract chart

In terms of price, the recent downward phase was expected to see a minimum decline back to test the 10-day moving average or lower, which was easily met with the action that followed. From there, a turn in our 10-day momentum indicator was an early 'hint' that this wave was ready to turn higher, and which was confirmed with the reversal above the 1322.00 figure (April, 2019 contract), seen on Friday.

With the above said and noted, the ideal path is for a push back to higher highs for the larger swing in the days/weeks ahead, a move which should set up our next mid-term peak for the gold market.

Gold Mid-Term Picture

As noted in recent articles for Gold-Eagle, the last correction of significance came from the 34-day cycle, which bottomed out at the 1281.50 figure, seen back on 1/24/19. That decline was deemed to be an Elliott wave '4' - with a wave '5' seen as in force - one which should end up topping the mid-term cycles. Take a look at our next chart:

As noted earlier, the ideal path favors a push to higher highs for the larger swing in the coming days/weeks, then to be on the lookout for indications of a mid-term peak forming. That high is expected to come from the larger 154-day component, which is shown above. We can see that this wave is readying to roll-over to the downside, though - with a larger (but not shown) 310-day cycle seen as pointing up, the smaller wave was favored to be bullishly-translated.

Right now, it is too early to say what price level will end up topping the 154-day cycle. Having said that, next key resistance comes in around the 1355 figure, which is the 78% retracement of the prior downward phase of this wave - and likely will be tough to get past. On the back-end, any reversal back below the 1281.00 figure (April, 2019 contract) - if seen at any point going forward - would be our indication/confirmation that the 154-day cycle has topped.

Stepping back, if and when the next peak is set in place for the 154-day component, then the probabilities will favor a sharp decline into mid-to-late Spring, where its next trough is projected to form. In terms of price, the minimum expectation for that decline is for a drop back to the 154-day moving average to materialize, though there is the decent potential for additional follow-through below the same.

Gold Timing Index

The chart below updates our Gold Timing Index, which, as noted in prior articles, is our best indicator of mid-term trend direction for gold:

As mentioned in past articles, our Gold Timing Index has a strong tendency to diverge from a new price high or low at mid-term peaks or troughs. Thus, when the indicator is making a higher high along with price, it is seen as a bullish indication for the gold market - and favors any short-term correction(s) to end up as countertrend. That has been the case with the recent action, with the indicator making a higher high with price at the 1331.10 swing top.

Going further with the above, it will be interesting to see whether our Gold Timing Index will be able to make a higher high along with price, should the latter be seen in the coming days, as per the expectation. Should such a divergence develop, it would only be a warning sign - and not an actual sell signal. For a mid-term sell signal to actually be seen, a close below the indicator's lower standard-deviation band would have to develop, following this divergence. As always, we analyze and update this indicator in each issue of our Gold Wave Trader market report.

Commercial Hedgers

In looking at other indications from sentiment, the latest COT numbers show the commercial hedgers (chart, above) to be holding 92,077 contracts to the short side, which we can see is around the middle range of their positioning in recent years. Adding to this, due to the government shutdown, this data is current only to the 1/22/19 close - which puts it well over a month old. Going further, with the current CFTC reporting schedule, we won't be back to real-time until early-March. Either way, I view the position of the hedgers as being a mild bearish indication for the mid-term picture, and it will be interesting to see if they should increase their bets in the coming weeks - which would be more supportive of the next mid-term downward phase.

U.S. Stock Market (update)

For the near-term action, we see the SPX as being in the process of forming a short-term peak, with a potential five-waves up very close to completion, which we can see on our 45-day cycle chart below:

The next decent swing top for stocks is expected to come from this 45-day time cycle, which is at or into the extended range for a peak. Key resistance is the 2779 SPX CASH figure, which is the 1.618 extension of the last swing, with next key resistance at the 2812 figure - which is the 78% retracement of the entire swing down from the 2940 swing top to the 2346 swing low. These key levels should be watched closely in the coming days, for the next 45-day top to try and form.

Stepping back, the overall assumption is that a decent decline phase is going to materialize in the coming weeks, with that same 45-day cycle. A retracement of 38-61% of the entire rally off the December, 20187 bottom would be ideal. Having said that, the strong technical indications from our Mid-Term Breadth index (chart below) favor that decline to end up as a countertrend affair:

Going further with the above, when our Mid-Term Breadth index is able to move above the +500 figure - as it has with the recent rally - it tells us that any short-term decline phase should be expected to end up as countertrend, as noted. If correct, then we should see any decline with the 45-day cycle to end up as a countertrend affair, to be followed by higher highs on the next swing up into the month of March (or later). From there, we will have to be on the lookout for a larger peak forming, due to the configuration of some of the bigger cycles that we track.

Jim Curry

The Gold Wave Trader


Gold-Eagle provides regular commentary and analysis of gold, precious metals and the economy. Be the first to be informed by signing up for our free email newsletter.

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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.