Key Support Break, Stubbornly Frothy Sentiment Expose Potentially Steep Gold Losses

December 7, 2017 10:47AM CST

Today's break below not only Tue's 1263.2 low but also 06-Oct's 1262.8 low that has supported this market for two solid months exposes an area totally devoid of any technical levels of merit shy of 10-Jul's 1204 low. Combined with still stubbornly frothy bullish sentiment and positions by the Managed Money community, today's break exposes steep, even relentless losses straight away. Today's sub-1262.8 breakdown confirms our suspicions that the price action from 06-Oct's 1262.8 low to 28-Nov's 1301.3 high is a 3-wave and thus (B- or 2nd-Wave) correction that now exposes a C- or 3rd-Wave down that could become a rout straight away as the market forces the capitulation of excessive Managed Money long-&-wrong positions.

We've noted the (1241) 0.618 and (1206) 1.000 progression relationships of Sep-Oct's 1362 - 1262 decline from 28-Nov's 1301 corrective high, but as merely derived levels they are only considered points of interest around which to be watchful for the requisite bullish divergence in momentum needed to, in fact, stem/threaten the clear and present downtrend. In lieu of such an accompanying bullish divergence in mo, the market's downside potential should not be underestimated and may be extensive. Former 1263-area support is considered new near-term resistance.
Gold_Daily_Chart
From a short-term perspective the 240-min chart below shows that today's resumed slide leaves yesterday's 1271.8 high in its wake as the latest smaller-degree corrective high the market is now minimally require to recoup to even defer, let alone threaten the bear. In this regard 1271.8 is considered our new short-term risk parameter from which shorter-term traders with tighter risk profiles can objectively rebase and manage the risk of a still-advised bearish policy.
Gold_240min_Chart
Gold_Weekly_Chart
While we're "only" forecasting a relapse within the past year's suspected BULL-market-corrective range of 1358-to-1133, that setback could be severe given the current 96% reading in our RJO Bullish Sentiment Index reflecting a whopping 214K Managed Money long positions to just 10K shorts reportable to the CFTC. COMBINED with today's resumption of what is now a 3-MONTH downtrend, the extent to which the managed money community has its neck sticking out on the bull side provides tremendous fuel for downside vulnerability as the overall market could force the capitulation of this costly exposure, exacerbating the collapse.

Ultimately however, the market has yet to provide the evidence to counter our very long-term BULLISH count that contends that Dec'15's 1045 low COMPLETED the secular 5-wave sequence down from Sep'11's 1920 high and that all of the price action from that point is the A- or 1st-Wave and B- or 2nd-Wave of a major, multi-year BASE/reversal PROCESS that will ultimately result in gains well above last year's 1377 high. For the time being however and while the market remains below at least 1271.8 and preferably 28-Nov's key 1301.3 larger-degree corrective high and key risk parameter, we anticipate further and possibly relentless losses straight away but within the past year's 1377 - 1124-range.
In sum, a full and aggressive bearish policy and exposure remain advised with a recovery above at least 1271.8 required to pare or neutralize exposure commensurate with one's personal risk profile. In lieu of such strength further and possibly steep losses should not surprise straight away with former 1263-area support considered new near-term resistance.

Gold_Monthly_Chart

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