Forecast: Gold Price And Stock Market Cycle Updates

Sunday, March 10, 2019

gold analysis

Last week's trading saw gold holding weaker into Thursday's session, where its low was formed with the eventual tag of the 1280.10 figure. From there, a decent rally was seen into Friday, in the process turning the short-term cycles back to the upside - even though the mid-term picture leans bearish into the April-May timeframe.

Gold Cycles, Short-Term

As noted in past articles, the mid-term cycles for gold were at or into normal topping range - with the same looking for a decent correction into mid-to-late Spring. That correction is favored to be in force, though it was not expected to be a straight shot down - but rather a decline with the normal countertrend rallies along the way. The first of these we look to be in at the present time, with that rally coming as a result of the 10-day cycle:

In our market report, we noted that the short-term cycles for gold were at or into normal bottoming range, with a reversal back above the 1292.00 figure (April, 2019 contract) being the best indication that the smaller-degree waves had bottomed - and with that were due for a rally in the days to follow. With that, the overall assumption is that gold is headed back to its 20-day moving average or higher in the very near-term, with resistance to that rally at or into the 50-78% retracement zone of 1314-1334.

Mid-Term Gold

For the mid-term picture, we view the larger 34, 72 and 154-day cycles to have topped out with the tag of the 1349.80 figure (April, 2019 contract) - a peak which came within earshot of our key resistance figure of 1355. From there, the subsequent reversal to the downside was seen as the best indication that the aforementioned cycles had seen their highs, and with that are now heading south overall into the April or May timeframe of this year.

In terms of price, regarding my rule with cycles and moving averages, the probabilities are good that a decline back to the 154-day moving average or lower is in progress (chart, above), though this won't likely materialize until after the current short-term upward phase is complete, with the smaller-degree 10 and 20-day cycles.

In terms of time, the April or May timeframe seems to be an ideal bottoming range for the 154-day time cycle, with the patterns favoring this decline to end up as an eventual countertrend retracement - against the August, 2018 low of 1179. If correct, another mid-term upward phase is expected to play out into the Summer months, before turning south again into late-Summer, for what is anticipated to be another (albeit secondary) bottom.

U.S. Stock Market Update

As per an article I posted back in mid-to-late February, stocks were in the process of forming a short-term peak, with that peak coming from the 45-day time cycle - and which is shown again on the chart below:

At my original posting of this 45-day chart, I noted a key resistance figure of 2812 for the SPX - which was the 78% retracement of the entire swing down from the 2940.91 swing top to the 2346.58 bottom. In addition to this, we were in the process of completing a five-wave up sequence off the late-December bottom. With the action seen into Monday of last week, this cycle confirmed its top to be set in place - which called for a minimum correction back to the 35-day moving average or lower, which was obviously seen with the action into Friday.

With the above said and noted, the overall assumption is that we have more to go on the downside before completing the current correction phase of the 45-day cycle, with the decent potential for a drop back to or below the prior wave 4 (2681 SPX CASH) to be seen in the days/weeks ahead. Having said that, due to the mid-term cycles - which are seen as pointing higher into mid-Summer - the probabilities will favor the downward phase of the 45-day component to end up as an eventual countertrend affair. Take a look at our next chart:

The chart above shows the most dominant mid-term cycle for stocks, which is the 180-day wave. In our Market Turns report, in past weeks we noted a newly-confirmed target for this cycle to the 2881.56 - 2928.73 SPX CASH region, and with that the overall expectation is that the index will see an eventual move into the same at some point in the coming months. Having said that, in-between, we have the correction phase of the smaller 45-day cycle in progress.

Stock Market Sentiment

For the stock market, we have a sentiment index that we use, to help gauge market risk (and potential bullishness or bearishness). With that, this sentiment index is shown on our next chart:

With the action seen in recent days, our stock market sentiment index has actually continued to rise - with a current reading of 3.24. A rise in sentiment - along with a price decline - is seen as more bearish than bullish for the near-term, and with that supports the idea of additional weakness with the 45-day cycle in the days/weeks ahead.

Adding to the notes above, in looking at the most recent COT numbers, the commercial hedgers for the S&P (lowest pane) have reversed direction, exiting all of their recent longs - and are now net short some 3,450 contracts, data current to the 3/5/19 close. We are now finally up to normal reporting from the CFTC - and the fact that the hedgers are now short is also seen as a bearish indication going forward, once again considering the position of the 45-day cycle.

The Bottom Line

The overall bottom line is that the gold market is seen as being in a short-term countertrend rally, within a mid-term downward phase into April or May, with the 154-day moving average acting as an eventual magnet. From what is favored to be a countertrend bottom, the next semi-important low should form for the metal, giving way to a sharp rally into mid-Summer, before turning down into another low into late-Summer or early-Autumn.

As for stocks, the S&P 500 is seen as being in a short-term countertrend decline with the 45-day time cycle - within a mid-term upward phase into what looks to be the Summer of this year. In terms of patterns, the current decline is anticipated to end up as an eventual countertrend affair, and - if correct - should give way to higher highs on the next upward phase into this Summer. From there, we will have to be on the lookout for the next mid-term peak to form, one which is expected to give way to a sharp decline into the Autumn of this year or later. Stay tuned.

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.