With price action similar to the Amgen reversal, senior mining index GDX, is testing resistance.
As if taking a cue from yesterday’s report on gold heading lower, today we have gold and the miners deciding to head higher.
All is not what it seems however.
The GDX chart above, shows we’re already in up-thrust condition. There has been a sign of supply (selling overwhelming the buying) and now we’re heading up into a test.
Going back to this report on Amgen, it’s a near exact replica of price action; except it’s (apparently) taking place quicker.
Note the bottom of the ‘Sign of Supply’ is a Fibonacci 8-Days from the high posted on April 21st.
That would naturally lend itself to expect testing action to complete on Fibonacci Day 13, which is this coming Friday.
Remember, that as soon as everyone’s got it figured out (Fibonacci time frame) it changes to something else. So, if no one is really paying attention and still in the hyper-inflation bull camp, they’ll look at this action as a bull move; missing the reversal (when or if it comes).
Tests can fail as well. GDX could push through the resistance and negate the up-thrust.
As stated many times before, the gold market’s too crowded with too many rabid bulls.
This may be a good test and reversal set-up but we’ll stick with shorting biotech (not advice, not a recommendation).
By the way … biotech’s doing very well on the short side today … 🙂
No-one in the inflation camp wants to hear that … it’s uncomfortable to face the potential of being so wrong.
Albeit wrong in the short term but probably right later … after it’s too late. More on that farther down.
Just like the lazy (and complicit, we might add) financial journalist publishing the standard (speck blaming) propaganda for the day, so too are the hyper-inflationists, jumping on the most popular bandwagon in town.
Not even considering the potential for a retrace; admittedly, which could be short and sharp but significant nonetheless.
This site has presented several times, we’re in a situation similar to that of Genesis 41. It’s the corn and grain first … then gold and silver.
Just to back that up a bit before getting to the charts, we have the following:
“Such a shallow retrace is rare. More typical is at least a 38.2%, level being tested before price reverses and heads lower. “
Back in the days of my engineering work (see About), when making a statement or conclusion, other engineers (or science professionals) would immediately expect some kind of proof or supporting documentation.
It’s just the way their brains worked; it’s somewhat an implied (unspoken) requirement of the industry and a good thing as well.
A good engineering team (along with technicians) functioned more like a select military unit than a civilian office.
Very heady stuff; especially if you’re on a major project like aircraft flight test and certification.
So, after observing and working thirty-plus years of price action, the empirical observation of 38.2%, retrace being more common than 23.6%, had become my own mental note. Filed away with the other mental notes of price action.
That note’s easily supported … even on the fly as we’ll see below.
We have three charts of equities in the silver/gold mining sector that are currently all in a retrace.
Two of those went straight to 38.2%, while one of them hit 23.6%, first and then went on to 38.2%.
Agnico Eagle Mines (AEM) retraces to 38.2% and stalls.
Seabridge Gold (SA) retraces to 38.2% and stalls.
Wheaton Precious Metals (WPM) retraces first to 23.6%, and then moves on to 38.2% … and stalls.
Reading price action is partially an art-form and partially a science. The one thing that can’t (ever) be leap-frogged is experience.
Dr. Elder said it himself when he said ‘trading is an old man’s game’.
If you don’t have (but want) the experience, it’s best to get started now. Start racking up the hours … days … weeks and years.
Steven Van Meter in this update (time stamp 1:39) shows the Rydex Bull/Bear ratio (courtesy of northmantrader.com). That indicator, along with what seems like everything else, is at a never before extreme.
Let’s extrapolate that into ‘entire grocery chains shut down’, or ‘entire air transport companies shut down’ and the picture is clear.
By now, anyone with two lipids rubbing together can see the false narrative has reached beyond absurd into a completely different realm.
We’ll just have to call it the ‘Twilight Zone‘ for lack of a better description.
All of this will affect the markets … gold included; probably in ways unknown at this point.
So, here we are at the 23.6% retrace. What’s next?
First off, 23.6% is very weak. It’s not typically seen as the final (upside) reversal point in general market behavior.
However, if GLD does reverse from here, posting new daily and weekly lows, it’s in serious trouble.
The next chart has GLD in a downward channel that’s been in-effect since last August.
Pulling out to a longer time frame … the monthly; using a Fibonacci projection from these levels we have some interesting price targets.
Frist, is the 1:1, or 100.0% – 100.0% on the Fibonacci tool that projects GLD down to about 130 (129.64). This just happens to be the area Steven Van Metre has been discussing (as a potential target) for months.
Moving on lower to the 69.25 area for GLD, are targets mentioned by Harry Dent … albeit, years ago (actually, it was below $400).
We should keep in mind, a Fibonacci retrace of 76.4%, from all time high to cycle low, 1999/2001, is the 64-area on GLD.
Getting below $400 at this juncture seems unlikely.
A downside reversal off 23.6% retrace would signify substantial weakness.
GLD would have to push below last week’s low of 161.81, to increase probabilities of a sustained downside move.
Stated many times on this site, precious metals are a crowded trade.
Operating at the same time, adverse reactions (and death) being caused by speck protection. A massive number of the population is subject to being permanently debilitated.
That could feed into the availability of all items; gold included but more importantly, the food supply.
To wit, CORN has just pivoted to the up side in a new trend; rising at over 437%, annualized.
More on that, later.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
This is going to be one of those technical discussions that are tedious and long-winded (also to include at least one boring anecdote).
If desired, go to the Summary for the CliffsNotes wrap up.
For the rest, let’s get into it:
A quick look at the news and financial sites has the inflation narrative still raging.
This link to an article on ZeroHedge offers a slightly different perspective than one-way hyperinflation.
At least it says deflation is a possibility.
Back in the day, I used to read as many of these press releases as possible; combine them, put them in a spreadsheet, develop a ‘voting’ system (with variable adjusted algorithmic weighting), look at buy and sell recommendations, try to figure out if MACD, RSI and Stochastics could predict the next move … and then, I would watch Wall Street Week with Louis Rukeyser.
It’s a frustrating, unprofitable exercise that was ultimately abandoned while the search for market truth carried on; only to be found much later in 2007; that’s a story for another time.
There’s nothing wrong with Rukeyser. In fact, I did use his program (once) in what was at the time, a trade of pure intuition.
During his opening monologue (probably May 19th, 1989), Rukeyser talked about gold reaching multi-year lows.
Bonds could be reversing but have already pushed rates high enough (long enough) to choke-off critical sectors of the economy like here and here.
Now we see the dollar has bottomed as well.
It looks like a strong multi-month (or year?) rally. Correspondingly, gold is weak. The overall markets are stretched to ever-livin’ extremes; never before seen.
Whenever this baby pops, try logging on to chaos, or exit any position (except maybe for the long bond).
Our approach then (not advice, not a recommendation), is continue work on positioning short. So far, the ‘project’ is taking small hits in those attempts. We’ll see how basic materials (SMN) works out today.
Judging from comments on the financial sites, the public still thinks food prices are rising because of inflation.
There are exceptions (thankfully) like the comment area on ZeroHedge articles. Those few but growing number, understand exactly what’s happening.
So, what’s all of this got to do with the price of gold?
It’s perfectly natural and maybe expected that gold, GLD, after breaking support will rally back to test the 166 (~ $1,660) area.
Just like the incessant narrative on “The Speck“, which is drilled into the collective consciousness day after day (except maybe in South Dakota and Texas) so too, is the hyperinflation Weimar Republic narrative.
A Black Swan (as explained by Nassim Taleb) is a major unexpected event.
The flip side, a Black Swan is also a major expected event, that does not happen. That second definition is not commonly discussed.
What if hyperinflation never happens? What if there’s some kind of ‘transition’ before it has a chance to take hold?
If GLD tests 166, and reverses, downside targets are now 133 and then even lower at 110.
If that happens, there could be a market crash to go along with it.
With margin debt levels the highest in history, most if not all participants will be wiped out long before gold at $1,100 (or lower).
Silver and gold at fire sale levels and the public will be on the other side of the fence, turning in their precious metals hoard in exchange for worthless fiat dollars … just to survive.