Gold Price Correction Into Early January, Then Higher

Sunday, December 23, 2018

gold bars

Last week's trading saw the gold market making higher highs for the larger swing, with the metal pushing all the way up to a high of 1270.30 (February, 2019 contract), made in Thursday's session; from there, a mild consolidation to the downside was seen to end the week. Each of these actions were consistent with the call from the time cycles, which were looking for higher highs - to be followed by a short correction into an early-January low.

Gold's 10 and 20-day Cycles

From the comments made in the last article, the recent short-term correction was seen as the result of the smallest-tracked cycles, the 10 and 20-day waves. In terms of price, the downward phasing of these smaller cycles was favored to take the metal back to the 20-day moving average, though - in terms of patterns - that move was expected to end up as countertrend, with support at or near that same 20-day average. Here again is our updated 10-day cycle chart:

Gold continuous contract chart

We can see that the last decline stopped right where it should have, at the 20-day moving average. Stepping back, a countertrend decline with the 10 and 20-day cycles was expected, primarily due to the configuration of the larger 34 and 72-day cycles - which were seen as pointing higher. Here again is our smaller 34-day wave:

Gold's 34-day Dominant Cycle

As mentioned in prior articles, the most dominant cycle for the short-term gold market is the 34-day wave. As mentioned in recent weeks, this cycle was seen as pointing higher, which is why the probabilities favored the downward phasing of the smaller 10 and 20-day cycles to end up as countertrend - to be followed by higher highs into the December 20th date, which we noted in our Gold Wave Trader report as being the next key turn date for the gold market. This was obviously said and done, with the metal pushing higher right into that 12/20/18 date - before reversing lower off the same.

With the above said and noted, there is the decent potential that the 34-day cycle topped at the most recent swing high, though that yet to actually be confirmed. If it has peaked, then the probabilities will favor a decline into early-January, plus or minus, with a more exact date for the next bottom posted in the most up-to-date editions of our GWT report.

In terms of price, following my rule of a cycle and moving average rule, the ideal path would favor a drop back to the 34-day moving average or lower, a move which - until proven otherwise - is expected to end up as another countertrend affair, holding at or well above the 1203 figure, which is the prior low for this 34-day wave. If correct, we expect another rally into late-January or early-February, which is in line with our dominant weekly cycle projection:

Stepping back then, a higher high into late-January or early-February would have the 310-day moving average acting as a magnet, with that key moving average currently at the 1292 figure (February, 2019 contract), and declining slightly each day:

Going further with the above, the peak seen into late-January or early-February should come as the result of the 154-day cycle, which is shown again on the chart above. In terms of patterns, the long-term picture favors the upward phase of this wave to end up as countertrend - against the prior 154-day top of 1397, but with resistance around the low-end 1300's. If correct, the next downward phase of this wave should see a hard correction into the Spring of 2019, where the next 72 and 154-day trough is projected.

Gold Timing Index

As mentioned last weekend, the fact that our Gold Timing Index had made it back to higher highs was seen as a bullish development, and with that supported the idea of a countertrend correction with the 10 and 20-day cycles, to be followed by higher highs, upon completion. With that higher high, of note is that our timing index is showing another divergence from price action:

Whether the current divergence turns out to be anything meaningful remains to be seen. I should add that a divergence is not necessarily a bearish indication for the gold market, as this is only the initial setup for a sell signal. The actual signal comes when the Gold Timing Index sees a daily close below its lower standard-deviation band, which is well below current price levels. Thus, as long as only a normal correction is seen with the 34-day cycle, we should favor higher highs to follow into late-January or beyond.

U.S. Stock Market

The U.S. stock market took a big hit last week, with the current month of December set up to end lower than any month seen since 1931. Barring a miracle rally into year-end, the action seen into late-December is likely to confirm a larger bear market to be in force. Note that our ‘reversal point’ methodology uses monthly closes on the SPX CASH index to confirm four-year tops and bottoms:

Note that the last long-term buy signal came back in 2010, which ushered in the most recent bull market phase. Note also that these are not short-term signals for the market, and they can and will come well off the bull market tops - and bear market bottoms. No matter, for they are designed to keep in sync with the primary trend of the market - which is looking ready to switch to down into late-December, barring a miracle rally in the last week of trading.

I should add with the above, that a monthly close below our four-year cycle ‘reversal point’ will trigger a larger downside price projection for the SPX. That target will be an ominous one, which will be noted in my weekly Market Turns report, if and when triggered.

Even if a larger bear market is confirmed in force, that won't mean that a sharp rally can't play out in-between. In fact, the next mid-term low is coming due, and should be made with the smaller 180-day cycle, which is shown again on the chart below:

From the comments made in past months, a sharp decline was expected to play out with the combination of the 180 and 360-day cycles, a decline which was originally projected to bottom around the month of October, but which was later adjusted (in our daily and weekly outlooks) to the December, 2018 to January, 2019 timeframe - which we are now into.

Note from the above chart that we have decisively broken out of the lower four-year cycle channel, and are now testing the lower 180-day channel. With that, the SPX is working on a low with the 180-day component, though we don't know where that low will end up forming, in regards to price. Having said that, next key support will be around the 2375 level, which is the 50% retracement of the last four-year cycle upward phase (from 1810.10 to 2940.91). Once this wave does trough, we expect a sharp rally back to the 200-day moving average or higher in the coming weeks/months, though - depending on the closing of trading on 12/31/18 - that move looks set up to end as a larger countertrend affair.

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.