Gold Cycle And Stock Market Update

Sunday, April 28, 2019

gold analysis

Gold saw its low for last week made early, here doing so with the tag of the 1267.90 figure - made in Tuesday's session. From there, a decent rally was seen into late-week, with the metal pushing up to a Friday high of 1290.90 - also managing to end the week at or within earshot of the same.

Gold's Short-Term Picture

For the very short-term, noted in our market report, the next smaller-degree low was expected to come from the 10-day cycle, which is the smallest cycle that we track for the gold market, and is shown again on the chart below:

The short-term bottoms and tops are easy to recognize with the 10-day wave, using the detrend and momentum indicators. In terms of price, a minimum rally back to the 10 and 20-day moving averages was expected to materialize, which has obviously been seen with the recent action.

In terms of patterns, due to the mid-term cycles, the probabilities are favoring the current rally to end up as an eventual countertrend affair. Having said that, due to other technical factors, if gold is able to take out last week's high of 1290.90 (June, 2019 contract), then we could see some additional follow-through higher in the short-term.

Mid-Term Outlook

For the mid-term picture, as mentioned in my articles from earlier this year, gold was at a high risk to the long side trading in the mid-1300's, and was due for a trip back to its 154-day moving average or lower. This was due to the configuration of the 154-day cycle, which was topping back in February, with this wave shown again on the chart below:

In eyeballing our 154-day chart, we can see that our minimum tag of the 154-day moving average has been hit with the most recent action, and with that any downside expectation has already been met for this cycle. In other words, nothing else is required, and there at least the potential that the low for this component could be set in place.

Having said the above, in terms of time, this wave is projected lower into the late-May region, and with that the assumption is that any short-term rally will end up as countertrend, at least until proven otherwise. The key number going forward is the 1331 figure for the June, 2019 contract. In other words, if taken out to the upside at any point going forward, then the probabilities will favor our trough for the 154-day wave to be set in place.

Stepping back, as mentioned in past articles, the current decline phase of the 154-day cycle is anticipated to end up as countertrend affair - against the prior 154-day trough from August of 2018. If correct, then the probabilities will favor a minimum push back above the February peak of 1356, though the ideal path would favor a move up to the low-end 1400's in the coming months.

Gold Commercial Hedgers

In looking at the CFTC data from last week, the commercial hedgers have continued on their recent short-covering spree. Take a look again at the chart below:

With the action seen last week, the commercial hedgers have covered another 29,000 of their recent short bets, which drops their current net bearish total down to 57,396 contracts, with the data current to the 4/23/19 close.

As mentioned many times in recent months, the larger net short position from the commercial hedgers was seen as supportive of a mid-term decline phase playing out with gold, something we have obviously seen with the price action since. Having said that, the fact that they have covered the biggest portion of these bearish bets in the last few weeks is now viewed as bullish - and is seen as supportive of the next mid-term upward phase, once confirmed to be in force.

Gold's Bottom Line

The bottom line for gold is that, while there is the potential that our mid-term bottom has been registered, this is not yet confirmed - and with that the current short-term upward phase could fail once again, leading to a lower low into late-May, before actually bottoming our 154-day component. We are watching key numbers going forward for confirmation.

U.S. Stock Market

In taking a look at the U.S. stock market this weekend, the mid-term cycles are still pointing higher at the present time, with our 180-day cycle ideally pointing higher into the mid-Summer timeframe. Take a look at our chart below:

Since my prior update on U.S. stocks (back in early-April), this 180-day cycle confirmed an even higher upside target to the 3120.27 - 3208.42 SPX CASH region, with our initial target to the 2881.56 - 2928.73 area having been met in that same early-April timeframe. In terms of time, as noted above, our assumption is that this wave is headed higher well into the Summer months, where the next mid-term peak for stocks should try and form.

In-between now and when this 180-day cycle attempts to peak, there should be another decline with the smaller 45-day wave, which is shown on our next chart:

In looking at the above chart, the detrend (which is always our best guesstimate) projects the next 45-day trough to materialize around the mid-May timeframe. With that, should this correction be seen, then we would expect it to end up as a countertrend affair - once again based upon the position of the larger 180-day cycle. If correct, a countertrend decline should be followed by higher highs into mid-Summer, then to be on the lookout for technical indications of the next mid-term peak.

Commercial Hedgers in Stocks

With the recent action in the U.S. stock market, the commercial hedgers have been scaling in bearish positions in recent weeks, adding approximately 2,700 shorts into the recent strength - which puts their current net short total at 15,783 contracts, data also current to the 4/23/19 close. With that, the position of the hedgers is the strongest technical argument for a correction playing out with the 45-day cycle in the coming weeks, though only if that the SPX is able to take out key numbers, as outlined in our Market Turns report (which focus on the S&P 500).

The Bottom Line for Stocks

The bottom line then for U.S. stocks is that the larger upward phase is well intact, ideally holding up into at least mid-Summer of this year, before any larger-percentage correction takes hold with the 180-day cycle. In-between, there should be a short-term decline playing out, with that decline coming from the smaller 45-day wave, a move which, if seen, would be anticipated to end up as countertrend, to be followed by higher highs, upon completion.

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.