Gold, Silver, Copper Build L-T Base/Reversal Processes

January 11, 2017 2:28AM CST


The past couple days' continued rally above last week's 1185.9 high leaves Fri's 1171.1 low in its wake as the latest smaller-degree corrective low it now needs to sustain gains above to maintain a more immediate bullish count.  Its failure to do so would confirm a bearish divergence in momentum and break the broader rally from 15-Dec's 1124.3 low detailed in the 240-min chart below.  In this regard 1171 is considered our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively rebased and managed.  In lieu of such sub-1171 weakness the trend is up and should not surprise by its continuance.

Gold 240

Another important aspect of the past month's rally is the trendy, impulsive, 5-wave manner in which it is sub-dividing as labeled in the 240-min chart above.  This satisfies the second of our three reversal requirements after 04-Jan's bullish divergence in momentum above 1168 that, in fact, broke the downtrend from at least 02-Nov's 1309.3 orthodox high shown in the daily log scale chart below.  Combined with relatively low, non-bullish sentiment figures we'll discuss below, this combination of a bullish divergence in daily mo and impulsive behavior up reinforces our broader base/reversal count re-introduced in 04-Jan's Technical Blog .

The important third of our three reversal requirements- proof of 3-wave, corrective behavior on a subsequent relapse attempt- remains to be satisfied.  And herein lies the importance of smaller-degree corrective lows and short-term risk parameters like 1171 .  This tight but objective risk parameter may come in handy given the developing POTENTIAL for a bearish divergence in momentum shown in the 240-min chart above while the market is engaging the (1191.7) 38.2% retrace of the decline from 02-Nov's 1309.3 orthodox high to 15-Dec's 1124.3 low.

Gold Daily

From an even longer-term perspective we'd like to remind traders of what we still believe is a MAJOR base/reversal PROCESS from Nov'15's 1056 low weekly close shown in the weekly log close-only chart below.  Our bullish count contends that the rally from Nov'15's low to Jul'16's 1358.4 high completed only the INITIAL (A- or 1st-Wave) of a major reversal of the secular bear market from Sep'11's all-time high weekly close of 1877.  As a result of the extent and impulsiveness of the past few weeks' recovery, we're of the opinion that 23-Dec's 1133.6 low weekly close (15-Dec's 1124.3 intra-day low) COMPLETED the (B- or 2nd-Wave) correction of Nov'15 - Jul'16's rally ahead of the resumption of 2016's initial rally to eventual new highs above 1375 .

This is major bullish call with tremendous risk/reward merits, even from current 1188-area prices.  The interim risk/challenge of course is dealing with an expected (2nd-wave) correction of the past month's rally somewhere along the line.  But as discussed above, Fri's 1171 low and risk parameter provides an outstanding and objective level around which to manage the risk of current cautious bullish exposure in order to reset longs from a preferred risk/reward are around, say, the 1155-to-1150-area.

In sum, we have become increasingly constructive on gold and advise a neutral-to-cautiously-bullish policy with a failure below 1171 stemming the recent rally and exposing an interim correction lower.  We would welcome such a setback to, say, the 1155-to-1150-area for what could be one of the best risk/reward plays/buys of 2017.  In lieu of such sub-1171 weakness further and possibly accelerated gains should not surprise.

( NOTE :  Our increasing constructive stance and expectations for gold do not bode well for the USD.  In a subsequent update we will discuss the prospects for a major peak/reversal environment for the USD sometime in 2017).

Gold Weekly


The technical construct and expectations for silver are virtually identical to those detailed above for gold.  The monthly log scale chart below shows the very unique combination of a bullish divergence in MONTHLY momentum amidst historically bearish sentiment and an arguably complete 5-wave Elliott sequence down from Apr'11's 49.82 all-time high to Dec'15's 13.62 low.  We believe this combination defines Dec'15's 13.62 low as the END of the secular bear market and start of a major, multi-year correction or reversal higher.

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Silver Weekly

Within the context of a major base/reversal PROCESS, we are considering the relapse from 02Aug16's 20.835 high the (B- or 2nd-Wave) correction of Dec'15 - Aug'16's preceding 13.62 - 20.835 rally.  The extent and impulsive manner of the past three weeks' recovery is an encouraging sign that 20-Dec's 15.675 low may have ended this correction and started what could be a historic move higher.  A break above 07-Dec's 17.30 larger-degree corrective high and key risk parameter remains required however to, in fact, break Aug-Dec's downtrend and reinforce such a broader bullish count.

Silver Daily

On a short-term basis the 240-min chart below details the past few weeks' recovery that appears to be unfolding in the trendy, impulsive, 5-wave manner we would expect of any "move" in the direction of the broader trend.  Such impulsive behavior up is an important element to any longer-term bullish counts.

As a direct result of yesterday's continuation of this rally this chart shows that the market has identified recent smaller-degree corrective lows at 16.60 and 16.26 .  These are the lows and short-term risk parameters the market needs to sustain gains above to maintain a more immediate bullish count.  Its failure to do so would threaten and then negate this initial uptrend and expose an interim correction that will not come as a surprise at all.  In lieu of weakness below at least 16.60 however, at least the intermediate-term trend is up and should not surprise by its continuance or acceleration with former 16.76-area resistance considered new near-term support.

In sum a neutral-to-cautiously-bullish policy remains advised with a failure below 16.60 required to threaten this call enough to step aside and wait for the expected setback as a preferred risk/reward opportunity to reset a bullish policy for what could be a very long-term move higher.

Silver 240


Yesterday's break above last week's 2.5885 high reinforces our bullish count discussed in 06-Jan's Technical Blog and leaves Mon's 2.5195 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter this market is now required to fail below to threaten this call and warrant its cover.  Former 2.5750-area resistance is considered new near-term support.

Copper 240 min

05-Dec's 2.7130 larger-degree corrective high remains intact as our key risk parameter this market needs to recoup to render the sell-off attempt a 3-wave and thus corrective affair consistent with a longer-term bullish count.  This said, we believe the extent of the past few weeks' rebound raises the odds that 27-Dec's 2.4480 defined the END or lower boundary of a correction ahead of an eventual resumption of Oct-Nov's major uptrend that preceded it.  The market's current position in the middle of the past month's 2.71 - 2.45-range could leave it prone to aimless whipsaw risk in the days and even weeks ahead.  Herein lies the importance of identifying a tighter but objective risk parameter like 2.5195 .

Copper Daily

Copper Weekly

An inhibiting factor to a more immediate bullish count is the still-frothy 80% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC.  Shown in the weekly log chart above, this 80% reading reflects 94K long positions to just 23.5K shorts and is more indicative of market peaks than bases.  This may mean further weeks of lateral-to-lower consolidation to reduce the extent of this bullishness.

Nonetheless, the monthly log scale chart below shows the bullish divergence in MONTHLY mo that, in fact, broke the secular bear trend from Feb'11's 4.65 high and exposes a major correction or reversal higher.  Thus far the 2016 recovery has stalled within 2-1/2-cents of the (2.7788) 50% retrace of the 5-year bear from 4.65 to 1.9355.  But until negated by a relapse below Mar'16's major 2.32-handle-area resistance-turned-support, this merely derived Fibonacci relationships is NOT enough to derail the long-term uptrend that we believe could produce outstanding gains above 2.75 down the road after the current consolidation from 28-Nov's 2.7530 high.

In sum, a neutral-to-cautious bullish policy remains advised with a failure below 2.5195 required to move to the sidelines in order to avoid further intra-range whipsaw or a steeper correction lower.  In lieu of such weakness further gains remains expected while acknowledging early-Dec/late-Nov resistance between 2.71 and 2.75.

Copper Monthly

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