Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
A Lot of Reasons to Stay Stock Market Short - 28th Oct 16
Gold Stocks Winter Rally - 28th Oct 16
$50 Trillion in Cash Is Sitting on the Sidelines Today - 28th Oct 16
Can Donald Trump, The Terminator Still Win the Election Despite, Pollsters, Bookies, Media and Pundits? - 28th Oct 16
How Big Is Your Gold and Silver Picture? - 28th Oct 16
Gold and Silver Connecting the Dots - 28th Oct 16
The Next Big Shoe to Drop – Student Loans - 27th Oct 16
The Twists and Turns of the Greenback - 27th Oct 16
Obamacare Is Draining Our Financial Reserves - 27th Oct 16
Brexit II: Is Donald Trump a False Flag? - 27th Oct 16
“Chindia” Buying Gold on Dips, 20% Corrections Are “Non Events” - 27th Oct 16
4 Incredible Market Forecasts You Have to See to Believe - 26th Oct 16
Silver Prices in an Exponential Financial System - 26th Oct 16
Rigged Election: Hillary and Trump Caught Partying Like BFF’s With Kissinger at Jesuit Gala - 26th Oct 16
The Current Message of Yield Curves: Inflation or Deflation? - 25th Oct 16
Broken Central Banks: 4 Quick Pix - 25th Oct 16
Government Stimulus is an Oxymoron, Debt to GDP - 25th Oct 16
Where Will Crude Oil Price Head Next? - 25th Oct 16
Diamonds in the Gold and Silver Mining Stocks - 25th Oct 16
Trump’s Gettysburg Address against the New World - 25th Oct 16
This Past Week in Gold - 24th Oct 16
Can Gold Continue To Rise, Since The Usd Is Moving Higher Too? - 24th Oct 16
Why are Americans Avoiding the Stock Markets; Fear or Lack of Money? - 24th Oct 16
The US Is NOT a Low-Tax Jurisdiction - 24th Oct 16
Stocks, Crude Oil and EURUSD Trend Forecasts - 24th Oct 16
Stock Market Another Month to Go? - 24th Oct 16
Large Sell-off in Stock Market Looming - 24th Oct 16
Ungovernability - 24th Oct 16
Stock Market Boredom Before The Storm - 24th Oct 16
Establishment Mainstream Media Elite Buys US Election for Hillary Clinton, Time Running Out for Trump - 23rd Oct 16
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

The Power of the Wave Principle

Gold and Silver Not a Flag / Pennant, But a Top - New Longs About to be Fleeced...

Commodities / Gold and Silver 2016 Mar 07, 2016 - 09:21 AM GMT

By: Clive_Maund


Many analysts and writers have described the pattern forming in the past couple of weeks in gold as a "bull Flag or Pennant" with some appearing to be "playing to the gallery" - i.e. telling their audience what they want to hear, which is that gold will continue to go up. I, on the other hand, decided that the triangle that had formed was not a continuation pattern, but a top, and said so about a week ago. So, as you will readily understand, I was not looking good when gold seemingly broke out upside on Thursday, and came in for considerable flak. However, on Friday there were some dramatic developments across the sector which look set to vindicate my stance.

When you buy a used car it is not enough to look at the clean shiny exterior and decide as many do, that the car is good - you have to know what its internal state is - the condition of the motor and the transmission etc. which means you have to poke around and dig deeper. In the same way it is not enough to look at the price pattern in something like gold and say "It's looks like a bull Flag and therefore it is a bull Flag" - you have to know what's going on beneath the surface - in the "internal plumbing" of the market so to speak, and we do this by using COT data and the volume pattern, and as we will see, the internal state of this market is not good at all and calls for a sharp drop soon that will take most by surprise. There are a number of compelling reasons to expect an intermediate correction in the Precious Metals sector imminently that could be severe, which we will now proceed to look at.

Starting with the 1-year chart for gold, we see that it has made a parabolic slingshot advance that has brought it to the trendline target shown, where the advance hit a wall. Many are expecting the choppy action of the past couple of weeks to be followed by another sharp upleg, but that looks highly unlikely to several reasons. In the 1st place, look at how steep the parabola has become - even if gold has started a new bullmarket, do you really expect it to just go up vertically, like a rocket, without any reactions of periods of consolidation?

Gold 1-Year Chart

If you think that gold is going up from here, I suggest you take a trip down to your local skate park and watch the kids in action. See what happens immediately after they zip up a ramp that becomes vertical - if they are good they might work in some turns or spins, like the triangle on our gold chart, but after that it's kind of difficult to resume the upward path. Take a look at the following picture and rate the chances of the skater going vertically upwards from this position. Not very high are they? - so why do you think gold should be any different after its vertical ramp?

Another important reason why the triangular pattern of the past few weeks is not viewed as a valid Flag or Pennant, is that the volume pattern is not consistent with it being one. Volume should die back steadily to a low level as the pattern forms, and clearly it has not, as we can see on the 7-month chart for gold below. Thursday's supposed breakout from the Pennant, which is viewed as false, did not make it past the target line projected from the peak of last August, then on Friday a "Spinning Top" candlestick appeared whose bearish implications are magnified by the fact that it occurred on multi-month record volume, and confirmed by very bearish candles appearing all over the sector at the same time.

Gold 7-Month Chart

The latest gold COTs are a disaster with Commercial shorts, which were already high a week ago having piled up even more, and since this data is for Tuesday night's close, you can bet that they went even higher on Thursday's advance to new highs. Now, I've heard the justification that they reach higher peaks in a bullmarket uptrend, but even so, taking the other factors detailed here into account, this looks bad - and it won't be the Commercials on the losing side if gold if now proceeds to drop.

Gold CoT

Our next chart shows that there aren't many investors left to turn bullish on gold stocks, which is clearly a dangerous situation. The Gold Miners Bullish Percent Index has ramped from about 14% to 72% is just 6 weeks...

Daily Gold Chart

They're nearly all in - so it's fleecing time again!

A group of new longs contemplates their fate...


Now we will take a look at concurrent ominous developments across the sector late on Friday, which all point to the same thing - a breakdown and drop. We start with the 3-month chart for the Market Vectors Gold Miners, on which a very bearish prominent "Gravestone Doji" appeared...

Market Vectors Gold Miners 3-Month Chart

As Steve Nison writes in his terrific book "Japanese Candlestick Charting Techniques" - "The gravestone's forte is in calling tops. The shape of the gravestone doji makes its name appropriate. As we have discussed, many of the Japanese technical terms are based on military analogies. In Japanese candlestick literature, it is said that the gravestone doji represents the gravestone of the bulls that have died defending their territory." So there you have it.

The very same candlestick also appeared on the Direxion Gold Miners Bull 3X Shares chart...

Direxion Gold Miners Bull 3X Shares Daily Chart

As you would expect the inverse candlestick, a "Dragonfly Doji", appeared on the chart Direxion Gold Miners Bear 3X Shares chart, and what was notable here also was that volume exploded to titanic record levels, a sure sign of a reversal...

Direxion Gold Miners Bear 3X Shares Daily Chart

Silver and silver related investments also showed reversal candles, with a fine bull hammer appearing on the chart for ProShares Ultrashort Silver, right at support at the February low.

ProShares UltraShort Silver 3-Month Daily Chart

Finally, the "Moron Index", a proprietary indicator, has spiked over the past couple of weeks. This is carefully calculated on the basis of the number of Emails I get from people telling me that I am wrong, and laced with insults and profanities. This is usually a very reliable indicator, since such people, by their very nature, are led by cheerleaders, and thus invariably end up on the wrong side of the trade.

Conclusion: we are at an intermediate top, and recent new longs will end up being fleeced.

By Clive Maund

For billing & subscription questions:

© 2016 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2016 - 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

Catching a Falling Financial Knife