Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15
Stock Traders Flock to Gold GLD ETF - 24th Jan 15
10 Reasons Why You Need an Offshore Bank Account - 24th Jan 15
Goldman Sachs Blankfein - Regulation is Like Background Noise - 24th Jan 15
Gold in Euros Surges As ECB To Print Trillion Euros and Greek Election This Sunday - 24th Jan 15
Gold Bear Market Rally or New Bull ? - 24th Jan 15
Euro-zone 'QE already Working' Says IMF Lagarde - 23rd Jan 15
ECB and EU LTRO and QE for Dummies: Or, Make These Trades - 23rd Jan 15
Debt and Deflation: Three Financial Forecasts - There's More Than Falling Prices - 23rd Jan 15
Market Should Not Doubt' Mario Draghi ECB QE - 23rd Jan 15
Francs, Bonds, Barrels, and Bail-Ins - 23rd Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

Gold and Silver Stocks No Retest of June Lows

Commodities / Gold and Silver Stocks 2013 Sep 06, 2013 - 12:46 PM GMT

By: Jordan_Roy_Byrne

Commodities

Recently I’ve received some emails from those who are concerned about a retest of the June low in the precious metals complex. That prompted me to look at how rebounds develop from significant bottoms. In recent months we focused on historical bottoms in gold stocks and it helped us to pinpoint the best buying opportunities. In this editorial we broaden the scope and examine how certain bottoms play out and why they play out in a particular manner. The length and depth of the preceding bear market helps us to understand how the ensuing bull market evolves during its initial rebound.


Below is a chart that shows the S&P 500, CCI (commodities) and Gold from 2007 through 2009. The S&P 500 declined for nearly 18 months without any major rallies. It was extremely oversold and enjoyed a V bottom. The March bottom was actually somewhat a retest of the November low though it did form a new low. Meanwhile, commodities were very oversold but for only a short period of time. Therefore, after the market bottomed it “based” for about four months before accelerating. (This is somewhat similar to what occurred following the 1987 stock market crash). Gold was oversold but only for a short period of time. Its bottom took a few weeks to form and then within a month had a retest.

Next, look at the 1974 bottom in the S&P 500. The market was cut in half over more than an 18-month period. It was very oversold and oversold for a long period of time. The retest occurred within two months of the bottom and then the rebound accelerated.

The chart below (from nowandfutures.com) plots Gold from today with Gold from 1975-1976. Back then Gold declined by nearly 45% and over an 18-month period. Gold was extremely oversold and oversold for an extended period of time. That could be why Gold didn’t have a retest. This time around Gold was in a similar position. It declined over 35% over a 20-month period but has since rebounded over $200/oz. It’s not a coincidence that the two rebounds occurred without a retest.

These studies provide great examples and a great education with regards to post-bottom price action. Here is our interpretation. If a market is extremely oversold and has declined for a long period of time then it is more likely to have a V-type bottom. If a retest doesn’t occur (in this case) within two months then the bottom is most likely in. If a market is extremely oversold but has only declined for a short period of time (1987 crash, 2008 crash) then a base building process (or two steps forward, one step back) should be expected over the coming weeks.

If a market is extremely oversold for an extended period of time then the selling has been exhausted, therefore leaving little resistance to the rebound. This explains the V bottom. Conversely, if a market hasn’t been oversold for an extended period then there are still some sellers that come in after the bottom and slow down the rebound.

It’s been two months since the bottom in precious metals and the sector remains comfortably above its lows. Silver is still $5/oz above its lows while Gold is nearly $200/oz above its lows. It’s too late to expect a retest of the lows. In fact, the miners already tested their lows in early August which was five weeks after the bottom. Given what we’ve studied, the severity of the 2011-2013 cyclical bear market, and the recent strong rebound, there is no compelling reason to expect a retest or any major decline.

The chart below plots Gold as well as various miner ETFs with arrows emphasizing the 50-day moving averages.

Last week we wrote:

The bottom line is the current correction or consolidation is quite healthy for the sector. Many stocks have made huge runs in a very short period of time and are set to digest those gains and correct short-term overbought conditions. Be patient over the coming days and weeks and use the 50-dma as a guide for support and potential lows.

The above chart shows that gold and silver stocks of all stripes are quite close to testing the now upward sloping 50-day moving averages. We should see a test of that support over the next few days. Don’t fret over recent weakness as its an opportunity. If you are kicking yourself for not buying the June or August lows, then you may get another chance very soon.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2013 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

Jordan Roy-Byrne Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014