Gold Forecast: Key Message For Gold And Stocks

Sunday, September 22, 2019

gold analysis

With the action seen last week, gold dropped to lower lows for the move into Wednesday's session, with the metal bottoming at the 1490.70 figure (December, 2019 contract). From there, a sharp rally was seen to end the week, here running up to a Friday high of 1524.80. Even said, until proven otherwise, the overall trend is still seen as heading south in the days/weeks ahead, but with a key turn date coming up soon.

Gold's Mid-Term Outlook

From the comments made back in July and August, gold was seen as topping - with that top expected to come from the 72-day time cycle that we track. The downward phase of this component was later confirmed to be in force, but with the overall expectation favoring the move down to end up as an eventual countertrend affair.

From last weekend: "an Elliott Wave ABC correction phase is currently deemed to be in force, though there is at least the potential that a peak of a larger significance has been seen. For now, however, until proven otherwise, we are favoring the current decline to end up as a countertrend affair - against a larger upward phase into the late-2019 or early-2020 timeframe. The most recent decline is either all - or part of - the first wave down, or wave 'A'. In terms of time, we have an exact timeframe for the next turning point bottom to play out, with the precise details noted in our thrice-weekly Gold Wave Trader market report."

As noted last weekend, a countertrend decline meant that gold was in the midst of a three-wave - or ABC decline phase - within a larger Elliott wave pattern. If correct, then the 'B' wave either topped out at the 1532.20 swing high (seen on 9/12/19), or else is currently in force off the 1490.70 swing low from last week. Here again is our 72-day cycle chart:

If the mid-term assessment of a downtrend is still in place - as is favored - then the recent rally off the lows should end up as countertrend, against the 1566 swing top. From there, lower lows would be ideal in the days/weeks ahead, with our key turn date now fast approaching. These key turns called both the February peak - as well as the May bottom for gold.

Stepping back then, following my rule that a cycle will revert back to a moving average of the same length approximately 85% of the time, the ideal path favors a drop on back to the 72-day moving average or lower going forward. Key support is at or into the 1426-1459 level for gold (December, 2019 contract), and may be the highest-odds range of bottoming the current downward phase of this wave.

Gold, Longer-Term

For the bigger picture, the larger 310-day cycle is still seen as heading higher, which is why the probabilities favor the current downward phase of the 72-day cycle to end up as an eventual countertrend affair. Here again is our 310-day component:

With the above said and noted, the next long-term peak is expected to come from the 154 and 310-day cycles, with the larger wave shown on the chart above. Once this 310-day component does top out, then the expectation is for a sharp decline back to the 310-day moving average or lower, a move which seems likely to end up as countertrend - but should be a fairly scary affair. We have a more exact timing for the topping of this wave in our reports.

Gold Commercial Hedgers

In looking at sentiment again this weekend, the commercial hedgers added approximately 13,000 contracts back to the short side, which puts their current net bearish position at some 318,399 contracts - with the data current to the 9/17/19 close. Take a look at our next chart:

As mentioned many times in past articles, the large net bearish position from the commercials is seen as a headwind going forward - and has supported the current correction phase of our 72-day cycle. Having said that, due to the position of the larger waves, this action is not necessarily an immediate bearish sign, though it may limit the next upward phase of the 72-day wave to only marginal new highs. If the hedgers should continue to add shorts on that rally, then it would certainly be a big bearish signal for the next downward phase of our 310-day wave.

U.S. Stock Market Update

It's been a few weeks since we have taken a look at the U.S. stock market (as measured by the S&P 500, or 'SPX'). With the recent action, we saw the SPX making a marginal higher high into the middle of last week, peaking with the tag of the 3021.99 figure. We were able to exit our recent long position in the SPY security at or into the 3017 level - within points of that high, with a key turn date range of September 18-23 noted in our daily Market Turns report, which tracks the U.S. stock market.

With the above said and noted, Friday's sharp decline may well have topped our 45-day time cycle, which is shown on the chart below:

As bearish as everyone was back in August (when we were buying), many have now flipped to be bullish side, which supports the idea of a correction playing out in the coming weeks. Having said that, the patterns do favor any correction with the 45-day cycle to end up as an eventual countertrend affair, and we are looking for a push back to new all-time highs on the next upward phase of this component. In terms of time, we have a key date for the next key low to be registered, with more precise details noted in our daily Market Turns report.

Longer-Term Outlook for Stocks

The bigger picture for stocks remains bullish. That is, we are still in a larger bull market, which should have further to run - though we are currently in the 'late-Autumn' period for this bull. Fundamental indications - such as the yield curve - are turning bearish, though it will be technicals that will actually signal the next bear market in stocks.

Going further with the above, long-term technicals will now take on a much greater significance going forward. Once this bull market is complete, we can expect a drop of 34% or more with the SPX, which is the statistical average for a bear market phase - and you do not want to be caught long inside that move down. The market also falls much quicker than it rises - and so the coming decline could be relatively short, in terms of time, than the prior bull market - but will still be a very painful 12-18 month period. We'll take a more in depth at the longer-term view in the future, though the bull market is expected to have further to go before actually topping in the months ahead. 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.