Gold Price Topping Again Soon…Stocks In Rally Mode

Sunday, November 4, 2018

Last week's trading saw gold selling down into mid-week, with the metal dropping all the way down to a low of 1213.40 (December, 2018 contract) into a Wednesday time bottom. From there, a sharp rally was seen into Thursday, here running all the way up to a peak of 1239.30 - before pulling back off the same into Friday.

gold continuous contract chart

Gold Short-Term Outlook

As mentioned in recent weeks, gold was in a short-term upward phase with the 34 and 72-day time cycles, with that assessment favoring additional rally for the metal - something we have obviously seen with the action since. Decent resistance is overhead at the 1250-1260 area (December, 2018 contract), and - if tested going forward - would be a level to look for the next decent swing top to form.

With the above said and noted, the next decent swing high is expected to come from the combination of the 34 and 72-day cycles, with the 72-day wave shown again below:

In terms of time, the 72-day component is now some 55 trading days along - which puts this cycle back into normal topping vicinity. In terms of price, it would take a reversal below the 1211.00 figure (December, 2018 contract) to confirm its next downward phase to be in force, otherwise we could still see a push up into noted resistance in the coming week or so. However, if seen, that move should be the odds-on favorite to top this wave for a correction into the late-November to early-December timeframe.

In terms of price, the minimum expected correction for the 72-day cycle is back to the 72-day moving average or lower - which the decline last week nearly met. Even said, the best guess is that another try at this moving average will be seen as this wave next troughs, a move which - until proven otherwise - is expected to end up as countertrend, against the 1167 swing low from back in August.

Gold Sentiment

With the action seen last week, our Gold Timing Index (chart, above) has made a push to the upside, though is nearing the upper end of its overall range, with a current reading of 104. When this particular indicator moves above the 110 level, market tops tend to form, making this something we will be watching with a great deal of interest in the coming days, in our thrice-weekly Gold Wave Trader report.

Going further with the above, since our Gold Timing Index never gave a buy signal following the August bottom, we are expecting the current mid-term rally phase to end up as an eventual countertrend affair. If correct, the larger downtrend should re-assert itself in the coming months, where we are expecting a decisive break back below the August lows to materialize. Take a look at our next chart:

The chart above shows the current position of the commercial hedgers, which covered about 15,000 of their recent shorts - putting them currently at some 31,205 contracts to the bearish side. From the comments made in recent months, the prior net long position of the hedgers was supportive of a mid-term rally phase - which we have obviously been in. However, their move back to the short side in recent weeks - while not overly large - is now supportive of a correction playing out in the next month, with that correction due with the 34 and 72-day time cycles.

US Stocks

As pointed out last weekend, stocks were looking for a short-term low, which came and went early last week with the tag of the 2603 SPX CASH figure. With the recent action, the upward phase of the 45-day cycle was confirmed to be in force on the SPX:

With the above said and noted, with my rule regarding cycles and moving averages, the ideal path favors additional rally in the days/weeks ahead, one which sees the 35-day moving average or higher acting as a magnet. Having said that, in terms of patterns, that move is expected to end up as an eventual countertrend affair - with resistance around the 2860's, plus or minus.

Stepping back, as pointed out in past months, a mid-term decline phase was expected to play out into the Autumn of this year, with that correction coming as a result of the larger 180 and 360-day time cycles, with the smaller 180-day wave shown on the chart below:

In terms of price with the above, a correction back to the 200 and 360-day moving averages was noted as being ideal, which we have obviously seen playing out into the 2603 swing bottom. Having said that, due to momentum considerations - as well as the projection from our detrend indicator - the overall assumption is that the low for both the 180 and 360-day waves is still out there, and will be registered upon completion of the current countertrend rally. If that path is seen, stocks should be a buy for what could be new all-time highs into the Spring of 2019, before the next major peak attempts to form - with that high expected to come from the larger four-year cycle.

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.