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Gold Builds on Base/Reversal Threat, Silver Looking to Join

Posted 10/15/2018 7:57AM CT | RJO Market Insights

DEC GOLD

Overnight’s continued gains above Thur’s 1230 high reaffirms the developing recovery and leaves Fri’s 1219.3 low in its wake as the latest smaller-degree corrective low the market is now minimally required to fail below to confirm a bearish divergence in short-term momentum, stem the rally and expose at least an interim corrective setback.  Per such this 1219.3 low is considered our new short-term risk parameter from which to rebase and manage the risk of a new bullish policy.

Gold 240 Minute Chart

Gold Daily Chart

The debate remains as to whether the recovery from 16-Aug’s 1167.1 low is merely that of a (3-wave) correction within a still-developing major bear trend OR that of a major base/reversal environment.  Always preferring to bias with the broader trend, traders are advised to first approach setback attempts as corrective buying opportunities because of the following technical facts:

  • with Thur’s break above 28-Aug’s 1220.7 high the market has confirmed a bullish divergence in WEEKLY momentum and exposed the longer-term trend as up
  • the market is now looking down at two full months of base/reversal threat behavior with former 1220-area resistance considered new support
  • a complete 5-wave Elliott sequence down from 11-Apr’s 1369.4 high
  • the market’s rejection thus far of the lower-quarter of the past couple years’ range on a weekly log basis below amidst
  • historically bearish levels in our RJO Bullish Sentiment Index not seen since May 2001!

Indeed, Managed Money bullish positions reportable to the CFTC actually FELL last week from 37% to 31% as a result of 08-Oct’s whipsaw decline and just before Thur’s sharp reversal higher.  We suspect this will be recognized and adjusted for in this week’s RJO BSI update, but the fact remains that this sentiment/contrary opinion indicator is at a 17-YEAR low while the market is no longer trending down.  Combined with a complete wave count down and a bullish divergence in longer-term momentum, the extent of current bearishness leaves this market vulnerable to further and possibly extreme gains.

Gold Weekly Chart

Finally and from an even longer-term perspective shown in the monthly log chart below, traders are reminded that the extent and impulsiveness of Dec’15-to-Jul’16’s rally from 1045 to 1377 broke the secular bear trend from 2011’s 1920 all-time high, exposing a massive base/correction/reversal process that ultimately warns of eventual new highs above 2016’s 1377 high.  A failure below at least Dec’16’s 1123 low and preferably Dec’154’s 1045 low remains required to threaten or negate this call.

All these factors considered, we believe the very bullish and favorable risk/reward opportunity exists that 16Aug18’s 1167.1 low completed a major B- or 2nd-Wave correction from Jul’16’s 1377 high and that the multi-year base/reversal process now warns of a move to 1377+ levels before the market trades below 1167.  Per such, traders are advised to first approach setback attempts to the 1230-to-1225-range as corrective buying opportunities with a failure below 1219.3 required for shorter-term traders to step aside and commensurately larger-degree weakness below 1186 required tor longer-term players to do the same.  Indeed, a failure below 1186 is now required to negate this major base/reversal count, render the recovery from 1167.1 a 3-wave and thus corrective affair and re-expose this year’s major downtrend.  Until and unless the market proves such weakness, further and possibly extraordinary gains are expected.

Gold Monthly Chart

 

DEC SILVER

Silver 240 Minute Chart

 

Silver hasn’t busted busted out above its 02-Oct high at 14.95 like gold has, so it still has some work to do to confirm a similar bullish count to that detailed above in gold.  But 1) we know these two market are not going to trend in opposite directions and 2) today’s recovery above our short-term risk parameter defined by 05-Oct’s 14.75 high stems the recent relapse attempt as a 3-wave and thus corrective structure as labeled in the 240-min chart below that warns of a resumption of Sep’s uptrend that preceded it.

As a result of the past few days’ recovery the market has certainly identified 10-Oct’s 14.255 low as one of developing importance while today’s continued recovery leaves Fri’s 14.54 low in its wake as a smaller-degree corrective low it now needs to sustain gains above to avoid confirming a bearish divergence in short-term momentum.  Per such we are considering 14.54 and 14.255 as our new short- and longer-term risk parameters from which an advised bullish policy can be objectively based and managed.  Needless to say, a breakout above 02-Oct’s 14.95 high will reinforce this count and expose further and possibly accelerated gains thereafter.

Silver Daily Chart

 

Silver Weekly Chart

Historically bearish sentiment levels and the market’s position at the extreme lower recesses of the past three years’ range would also seem to reinforce a base/reversal count that could have long-term implications.  And if this is the case, then we know exactly how the market should behave to the upside:  increasingly obvious, trendy, impulsive behavior higher, easily sustaining gains above prior corrective lows.

Here too, the extent and impulsiveness of Dec’15 – Jul’16’s rally in fact, broke the secular bear trend, leaving Dec’15’s 13.62 low in its wake as THE low and very long-term risk parameter the market has to break to negate a major, multi-year BASE/reversal process that warns of prices above Jul’16’s 21.225 high before the market breaks below 13.62.  This presents an incredible risk/reward buying opportunity “down here”.

These issues considered and while acknowledging the fact that the market has not yet broken 02-Oct’s 14.95 high, only a cautious bullish policy is advised from 14.70 OB with a failure below 14.54 required to threaten this specific count and warrant a move back to the sidelines.  Continued strength above 14.95 will reinforce this bullish count and expose potentially sharp, long-lived gains thereafter.

Silver Monthly Chart

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