Momentum, Fibs Stem Gold, Silver Slides; Could Impact USD

October 9, 2017 8:38AM CDT

DEC GOLD

The market's failure overnight to sustain Thur/Fri losses below Wed's 1285 corrective high confirms a bullish divergence in momentum.  Regardless of whether or not this mo failure identifies Fri's 1262.8 low as the end of a 5-wave Elliott sequence or not from 08-Sep's 1362.4 high is less important then the fact that the market now needs to break that 1262.8 low to mitigate any interim base/reversal-threat condition and reinstate the slide.  in this regard that 1262.8 low becomes our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bearish punts can be objectively based and managed by shorter-term traders with tighter risk profiles.

Gold 240-min Continuation Chart

Gold Daily Continuation Chart

The Fibonacci fact that Fri's 1262.8 low was only about a nickel away from the (1262.2) 61.8% retrace of  Jul-Sep's 1204 - 1362.4 rally on a daily log scale basis above would seem to reinforce the prospects for at least an interim corrective rebound against the recent Sep-Oct slide.  This said however, the still-frothy 90% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC remains as a weight against the bull given its clear rejection of the extreme upper recesses of the past year's range and failure to sustain gains above key former 1298-area resistance-turned-support.

These issues considered, we believe an interim rebound has been exposed, but only a corrective one against the Sep-Oct downtrend that should ultimately not surprise by its resumption.  While Fri's 1262.8 low remains intact as an interim low and support ahead of a corrective hiccup, shorter-term traders are advised to use this 1262.8 low as a short-term risk parameter from which to base non-bearish decisions like short-covers ahead of resetting this bearish exposure from a preferred risk/reward condition.  The extent of such an interim corrective rebound is indeterminable.

Gold Weekly Continuation Chart

DEC SILVER

From a shorter-term perspective the technical construct and expectations for silver are virtually identical to those detailed above in gold following overnight's bullish divergence in short-term mo above Wed's 16.92 minor corrective high detailed in the 240-min chart below.  this mo failure leaves Fri's 16.345 low in its wake as one of developing importance and new short-term risk parameter from which non-bearish decisions like short-covers can be objectively based and managed.

Silver 240-Min Continuation Chart

Silver Daily Continuation Chart

The fact that Fri's low was the exact 61.8% retrace of Jul-Sep's 15.145 - 18.29 rally on a daily linear scale above would seem to reinforce this call for at least an interim corrective rebound as does the relatively historically low level (36%) in the Bullish Consensus (marketvane.net) measure of market sentiment shown in the weekly log chart below.  A still-frothy reading in our RJO Bullish Sentiment Index counters and confounds the current contrary opinion analysis.  Furthermore, the market's position in the middle of the past year's 18.65 - 15.14-range must be taken as a warning of increased odds of aimless whipsaw risk that we always believe warrants a more conservative approach to risk assumption.

These issues considered, shorter-term traders are advised to move to a neutral/sideline position in order to circumvent the heights unknown of a suspected, interim corrective rebound.  Longer-term players are advised to pare bearish exposure to more conservative levels with a recovery above 08-Sep's 18.29 high and key long-term risk parameter required to negate a bearish policy altogether.

Silver Weekly Continuation Chart

USD INDEX

Given the more typical inverse correlation between gold and the USD, shorter-term traders of the USD Index are advised to consider Wed's 93.25 corrective low as our new short-term risk parameter to a still-advised bullish policy in the Index.  The market's failure to sustain gains above this corrective low will not negate what we believe is a much larger-degree correction or reversal higher as discussed in recent blogs, but it will stem at least the intermediate-term uptrend and expose an interim correction lower similar to the corrective rebounds discussed for gold and silver above.

US Dollar 240-min Chart

US Dollar Daily Chart

From a long-term perspective we still believe the combination of:

  • a confirmed bullish divergence in WEEKLY momentum
  • an arguably complete 5-wave Elliott sequence down from Jan's 103.82 high and
  • the lowest bullish sentiment accorded the USD in three years

warns of a major correction of this year's decline that could span 3-to-5 months and produce Index levels in the 97-to-100-range.

In sum, a bullish policy remains advised with a failure below 93.25 required for shorter-term traders to move to the sidelines to circumvent the depths unknown of what we'd expect to be just an interim corrective setback.  A failure below 08-Sep's 91.01 low and key risk parameter remains required to negate this longer-term bullish count altogether to the point of defensive measures by long-term players.

US Dollar Weekly Chart

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