Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20
How Soon Will We See Stock Market SPX 4000? - 8th Oct 20
Stock Market Spy ETF Testing March Price Peak – What Do the Charts Say? - 8th Oct 20
5 Consequences of US Debt at $50 Trillion - 8th Oct 20
Long Term Cycles Suggest Stock Price Reversion Pending & Gold Price About To Explode High - 8th Oct 20
AMD Zen 3 Ryzen 5000 Launch - Performance, Prices Skews, Cinebench r20 Scores, 5800x, 5900x, 5950x - 8th Oct 20
Gold vs. Silver – Absolutely No Comparison - 8th Oct 20
Gold: Why You Should Be Wary of the "Consensus" - 8th Oct 20
UK Covid-19 Hospital Admissions and Deaths Since Testing Positive in 28 days Analysis - 7th Oct 20
Amazon Prime Day 2020 Sales Top Tips of How To Get Big Savings! - 7th Oct 20
Want To Win Big In Forex Trading? Leverage Is Your Friend - 7th Oct 20
Why I am Voting for Donald J. Hitler - 6th Oct 20
Markets Chop & Grind: Gold, Stocks & Commodities - 6th Oct 20
Silver Price Great Buy Spot Ahead of Second Big Upleg - 6th Oct 20
Forget RTX 3080 Get Zen 3 Ryzen 5900x / 5950x - GPU vs CPU - PC Bottlenecking - 6th Oct 20
How to Get Budgies / Parakeets to Eat Vegetables for the First Time - 6th Oct 20
How to Pick a Reputable Double Glazing Window Company - 6th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Stocks’ Breakdown, Platinum’s Invalidation, Gold’s CoT and Seasonality

Commodities / Gold and Silver Stocks 2018 Aug 01, 2018 - 11:28 AM GMT

By: P_Radomski_CFA

Commodities

And so it happened. After a breakdown that might have appeared accidental as it was triggered mostly by one company’s decline, we saw a weekly close below the key 61.8% Fibonacci retracement level in the HUI Index. There was no analogous breakdown to new lows in gold and silver, but what happened in these markets on a relative basis was even more significant.


Let’s move right into the charts, starting with the confirmation of the breakdown in the HUI Index (charts courtesy of http://stockcharts.com).

Theoretically, it takes three consecutive trading days to confirm a breakdown, but since weekly closing prices are generally more important than the daily ones, we can say that the move was practically confirmed. This is especially the case since gold actually provided a reason for gold stocks to rally by moving higher in the middle of Friday’s session. Gold miners didn’t perform well even despite that. This tells us that the breakdown was no accident – it shows true weakness and emphasizes that the way in which the precious metals market wants to move in the following weeks is down.

Speaking of the gold stocks’ underperformance, let’s take a look at the relative chart.

Gold stocks underperformed and silver outperformed gold. This is a classic pre-slide combination that we’ve seen multiple times in the recent and distant past. We marked some of the similar cases on the above chart. The Friday’s price moves were not huge by themselves; but comparing one rally to the other makes the differences significant. GLD moved slightly higher (0.05%), while SLV moved higher more visibly (0.55%) and GDX didn’t rally at all. It declined by 0.33%.

This is simply a bearish combination for the short term – the marked analogies confirm it.

Having said that, we would like to discuss the issue of the current seasonality.

Gold’s Summer Seasonal Patterns

We’re in the middle of the summer and precious metals are after a decline. It’s natural to attribute this to the regular gold summer doldrums phenomenon – the time during the year when not much happens to the price of gold (or it declines) as traders and investors go on vacation. And it is indeed the case sometimes (often enough for the “summer doldrum” phrase to be quite popular), but let’s keep in mind one important thing about it. It’s just a fancy name for seasonality. Giving it an additional name doesn’t make it more important.

The key thing about seasonality (based on our extensive research) is that it’s particularly useful when there is no strong trend or any other strong indications. In other words, seasonality is a gentle force that sets the overall tone for the trading patterns, but is unlikely to overcome other substantial market forces. For instance, seasonality can be compared to average waves on a medium-sized lake and a strong up- or downtrend can be compared to a big wave generated by a speeding motorboat.

For instance, based on the last 30 years or so, gold has – on average – not done anything during April. It was the most boring month of the entire year. And yet, in 2013, we saw a $200+ decline in gold in just a few days – and it happened in April. Why didn’t seasonals prevent this? Because that’s not how they work.

Let’s take a look at the gold stocks’ and gold’s seasonality.

Based on the last several years and including the effect of expiring derivatives, we get a picture in which gold was supposed to do nothing (with an upward bias) and in which gold stocks were supposed to move higher in the first half of July and then to decline for the rest of the month.

Gold miners did exactly that and gold didn’t follow its own pattern, but more or less followed the gold miners’ pattern. The True Seasonality pattern worked to the extent to which it was in tune with other factors and didn’t work when it wasn’t. The overall trend was lower, so both followed it, it didn’t matter that gold’s True Seasonality pointed to overall higher prices.

The gold stocks’ seasonality may seem like the thing that one should focus on, but it’s not that simple. For instance, seasonality would have one believe that the HUI index would rally in February this year, especially in its early part. The HUI declined by about 25 index points and the most volatile part of the move took place in the early part of the month. Seasonality and its upgraded form – True Seasonality – are useful tools (particularly for confirming other signals), but are no crystal balls, especially when other strong factors are in place. We are in such a situation right now, so betting on a rally in gold in the coming weeks, just because the yellow metal is currently in the summer doldrums, is not really justified.

We were also asked to comment on the fact that gold positions indicated by the CoT reports pointed to a bullish outcome in the following weeks. We will not go into the details today, because we already discussed it thoroughly last Wednesday. The long-story-short version is that the data shows that the CoT numbers are reliable only during major upswings and during sideways trading patterns. They are not reliable – and the same goes for the RSI indicator – during big medium-term downswings and in the case of any epic moves. Well, in case of the RSI, we can always use the version based on weekly or monthly prices instead of daily ones, but in the case of the CoT numbers, we don’t have as much versatility. Moreover, when trying to predict major moves (or at least when one doesn’t want to be hurt by them), it’s necessary to look at the market from a broad perspective, not only from the medium- and short-term ones and the current signal that we have from the CoT is of a short-term nature (more details are available in the mentioned July 25th analysis).

Consequently, if there are good reasons to believe that the precious metals market is in a major decline or in a very big move in general (and there are many of reasons for both right now), it doesn’t seem prudent to attribute too much significance to the CoT report’s readings.

Platinum’s Breakdown Update

In the previous two weeks we saw platinum close below the lowest closing price of 2016 and we wrote that the breakdown below them was almost confirmed. The previous week ended a bit above the 2016 low, so technically the breakdown was invalidated. But, we don’t really view it as invalidated. We don’t view it as confirmed either. The reason is that instead of a powerful rally, we saw a “rally” by just $2.20, which is next to nothing. Last week’s closing price and it’s position relative to the critical support seems more unclear than anything else. Consequently, we view this as a “jury is still out” situation.

This week is likely to provide us with a decisive move in either direction and the implications are likely to indicate the direction in which platinum will move in the next few weeks, likely taking the rest of the PM sector with it. At the moment of writing these words, the price of platinum is down by $2, while gold is basically flat and silver is up by $0.03. There is a very tiny bearish indication and we should wait for a more significant one before saying that the implications of the above chart are strongly bullish or bearish. At this time, we continue to view them as bearish based on the previous 2 weeks, but not strongly bearish. Consequently, platinum investment doesn’t seem to be really justified, but the outlook for this metal alone, based on the above chart is not yet extremely bad.

Summary

Summing up, the outlook for the precious metals sector is extremely bearish and based on the gold stock’s breakdown and Friday’s relative performance of gold, silver and mining stocks, it seems that we will not have to wait too long before the next big downswing starts.

The market is providing us with hints, but only a few investors are willing to listen. This is an opportunity of a decade (to profit on the upcoming slide and then to buy aggressively close to the final bottom) but most investors are either uninterested in the precious metals market at all (who can blame them after a several-year-long sideways trading pattern?) or are insisting on viewing everything as bullish regardless of what the facts are. Such investors confirm that “a man convinced against his will, is of the same opinion still”.

We hope that your profits increase in the coming weeks and months instead of being damaged by the upcoming price slide. If you’d like to have our assistance in that process, we invite you to join our subscribers, who have already made sizable gains on this decline. The full version of the analysis, on which the above is based includes our updated trading strategy along with clear profit-take price levels. As our subscriber, you’ll get immediate access to them.

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 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

6 Critical Money Making Rules