Gold Forecast: Gold And US Stock Market Update

Sunday, September 1, 2019

gold analysis

Last week's trading saw gold forming the more bearish pattern of an early-week high into resistance, with the index hitting a peak of 1565.00, made on a Monday time top. From there, lower prices were seen into late-week, here dropping down to a bottom of 1525.60 - before bouncing slightly to end the week.

Gold Cycles Topping to Down

I have mentioned in past weeks that the next significant move for the gold market would be a correction into the early-Autumn timeframe, due to the position of the mid-term cycles that we track. The main cycle that will be responsible for this decline is the 72-day wave, shown below:

In terms of time, in our Gold Wave Trader market report, the overall focus for this peak was the mid-August timeframe - where an initial high did form. That initial high may well have been the 'momentum' peak for the move, with a higher high made into early last week.

Going further with the above, we know from experience that cycles can top late - or early - and thus only a partial focus can be made in regards to the time component.

With the above said and noted, our ‘reversal point’ methodology is always more key in confirming cycle tops (and bottoms) in place. This is a proprietary method developed over a period of many years, and has never been written about in any market book or course.

In terms of time, as noted above we are at or into the range where we should be looking for a correction of significance to play out with the gold market. In terms of price, the metal would currently need to see a reversal below the 1490's to confirm our 3-6 week correction phase to be in force, a number which should continue to rise going forward, depending on the action, with the latest numbers always updated in our thrice-weekly Gold Wave Trader report.

Five Waves Up

In terms of Elliott wave, from the early-May bottom gold has been in the process of forming five waves up, which may well have been complete at the most recent swing high. However, that is speculation for now, and can't yet be confirmed. We can get a more clear picture of the Elliott wave pattern by looking at our 34-day cycle chart below:

Going further with the above, following the completion of five waves up in Elliott wave we would expect to see a three wave (ABC) correction phase, one that normally retraces from 50-61% of the entire swing up. If seen, that would also meet our expectation of a drop back to or below the 72-day moving average. In terms of patterns, that move would be favored to end up as a countertrend affair, holding above the early-May price bottom.

Gold Commercial Hedgers

Having said the above, there is at least the potential for a larger-degree correction than we are anticipating. That is due again to the positioning of the commercial hedgers, which is updated and shown on the following chart:

With the action seen last week, the hedgers have covered a small amount of shorts - but are still holding their largest net bearish position seen since just prior to the July, 2016 price peak, which proved to be an important high for the gold market. That high was also a peak for our 310-day time cycle, which is the largest wave that we track.

The overall bottom line for gold is that it is due for a decent 3-6 week correction phase, with at least the potential for something of greater-significance to materialize, due to the configuration of sentiment.

US Stock Market Update

It has been a few weeks since we have looked at the U.S. stock market (as measured by the S&P500, or SPX), and - with the weakness seen in recent weeks - it is a good time to reassess here.

From my 8/18/19 article: "the next low of significance for stocks is expected to come from the combination of the 45 and 90-day time cycles, with a key level being the 200-day moving average. This moving average is currently sitting at or near the lower 180-day channel line - thus making it a very important level going forward. In terms of patterns, our assumption has been that the correction phase of the 45 and 90-day waves will end up as a countertrend affair, against the early-June trough of 2728.81 on the SPX. If correct, then the probabilities are 80%-or-better that the next upward phasing of these cycles will take the index back to new all-time highs, before setting up a more important price peak."

As mentioned back in mid-August, the downward phasing of the 45 and 90-day cycles was seen as in force for the SPX, and with that the next low of significance was due to materialize with the combination of these waves, with the larger 90-day component shown below:

In looking at our 90-day cycle chart above, we can see that the 200-day moving average (low 2800's) - at least thus far - has managed to hold the recent decline. This is a net positive, as this is something that we would ideally expect to see within a bull market correction phase.

Unlike many, we don't think the bull market in stocks is complete - and with that should have further to run in the coming months. Corrections within a bull market are normal affairs, and declines of 5-10% off the top are also fairly normal, and to be expected. Most of the technical conditions (i.e., breadth, volume, etc.) that we track - and that we would expect to see at a bull market top - have yet to be seen.

Having said the above, the fundamental indications for stocks - such as the recent inversion in the yield curve - tell us that the bull market is certainly moving towards its latter stage. Even with that yield-curve inversion, stocks tend to rise another 12-18 months before topping, with those rallies being in the 15% range (average) before the next major price peak forms.

With the above, we favor the recent decline in stocks to end up as a countertrend affair, to be followed by higher highs in the weeks/months ahead, before any major price high attempts to take hold. If that top should be accompanied by certain technical indications that we track, we will be looking for signs of an exit - as we do expect the next larger-degree peak to be followed by an even larger percentage correction into the 2020 or 2021 timeframe. 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.