Metals

S-T Gold Failure Could Have L-T Implications

Posted 05/16/2023 1:07PM CTRJO Market Insights

Posted on May 16, 2023, 07:56 by Dave Toth

In recent silver and copper blogs, we’ve discussed these markets’ peak/correction/reversal-threat developments of late that could lead to protracted losses.  With this morning’s bearish divergence in short-term momentum below 05-May’s 2007 low and our short-term bull risk parameter, the gold market may be joining the rest of the metals sector in such vulnerability.

This morning’s resumed slip from 10-May’s 2056 high identifies that high as the latest smaller-degree corrective high this market must now recoup to render the sell-off attempt from 04-May’s 2085.4 high a 3-wave and thus corrective affair that would re-expose the secular bull trend.  Until and unless such 2056+ strength is proven, there’s no way to know this decline from 2056 isn’t the 3rd-Wave of a more protracted correction or reversal lower.  Per such, this 2056 level is considered our new short-term parameter from which the risk of non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed by shorter-term traders with tighter risk profiles.

The 240-min chart below also shows 19-Apr’s 1980.9 low as the larger-degree corrective low and key bull risk parameter that absolutely needs to hold to maintain a bullish policy and exposure for longer-term players.  A break below 1980.9 will confirm a bearish divergence in DAILY momentum that, given historically frothy sentiment/contrary opinion levels and the market’s proximity to the extreme upper recesses of its historical range, would question the risk/reward merits of a bullish policy enough for even longer-term commercial players to move to a neutral/sideline position.

On a broader scale, the combination of:

  • the developing POTENTIAL for a bearish divergence in daily momentum
    • CONFIRMED below 1980.9
  • historically extreme levels in our RJO Bullish Sentiment Index
  • an arguably complete 5-wave Elliott sequence up from at least 28-Feb’s 1810.8 low as labeled above, and
  • the market’s proximity to the extreme upper recesses of its historical range over the past 2-1/2 YEARS,

is a unique and compelling one that warns of a larger-degree correction or reversal lower IF the market confirms the momentum failure below 1980.9.  Until and unless such sub-1980.9 weakness is proven however, it would be premature to conclude this month’s setback as anything more than a minor corrective dip ahead of a resumption of the secular bull trend.

These issues considered, shorter-term traders have been advised to move to a neutral-to-cautiously-bearish policy with a recovery above 2056 required to negate this call and re-expose the major bull, warranting a return to a bullish stance.  A bullish policy remains advised for longer-term commercial players with a failure below 1980.9 required to negate this call and warrant its immediate cover and reversal into a cautious bearish policy.  In effect, we believe this market has identified 1980.9 and 2056 as the key directional flexion points heading forward.  Traders are advised to toggle directional biases and exposure around these levels commensurate with their personal risk profiles.

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