Monday, February 11, 2013

Gold: Bloated Intermediate Cycle - HUI: We're Close Now

Another fast post on the endlessly entertaining movement of gold and the HUI gold miner's index. I've come to the indifferent conclusion that gold's first C-wave intermediate cycle is about to finally bottom. I know this sounds bad, but if price can now trade just a tad below $1626 I think that may well be the end of what I can only characterize as the most bloated intermediate cycle in the history of gold's secular bull.

Click on any chart to ENLARGE
8 daily cycles - if that is how this is understood in retrospect - is whacky. But this entire structure looks like a single intermediate cycle to me and hopefully will conclude with a very typical 61.8% retracement. 

The upper indicator is the Money Flow Index. I have never been able to prove to my satisfaction a little theory I have about the MFI but I'll share it with you just the same. I have a concept in my mind of a dry sponge - this is what I picture when the MFI (10) has a very low reading - like below 30. And then the sponge begins to soak up some water. In our case, it is buyers taking positions as the indicator begins to rise. But the stock price does not rise. Not yet, anyway. Then as the sponge gets about half saturated price begins to take off. The sponge fills more until it is utterly saturated and price continues to rise. 

Anyway, I have also noticed that a reading of about 50 seems to indicate that there are enough investors in for the longer ride that they are very unwilling to sell just because price takes a quick dip. That may sum up where I see gold with respect to money flow right now. The indicator is like a sponge saturated with water and price has not (yet) rewarded the faithful.....but it will.

The True Strength Index indicator TSI (7,4) shows that a bearish trend line break sell signal was generated today. However, the descending TSI trend line of the past couple months will be available for breakage just below the ZERO reading and that is going to yield a powerful BUY signal.

The HUI gold miner's index is looking like a roll of the dice very short term. The TSI setup could turn into a positive divergence BUY signal or a trend line break (TLB) SELL signal. Being an optimist I hope 372.7 price level is not breeched and this goes down as I wrote about a couple of posts ago.

We should find out how all of this is going to turn out by the end of the week, if not sooner. As far as I can tell, it should turn out GREAT!


  1. Why is move below 1626 "THE END"?

    The golden bull will be perfectly fine even if we go to 1500-1400's. Market makers would love to run the stops on summer 2012 longs.

  2. If, in retrospect, this has been one bloated intermediate cycle
    then it needs to make a low lower than 1626 to conclude.

    I'd give the chance of 1400-1500 gold a big fat ZERO%. Market
    makers can love whatever they may love. Heck, I love chocolate
    ice cream and `67 Corvettes. So what.

  3. The 2005 HUI 1-2-3 bottom ended with 3 return to the 1 level. You have today's HUI bottoming at a return to 2 (385). I feel it will bottom at the 1 level again say 370-3. What do you think?

  4. Hi Paul - what you have written is true and I stand corrected.

    I wrote that post so fast last night that I did not triple check
    everything as I usually do.

    You are correct. The 123 trend line was broken and then price took
    some time going lower - but was not able to take out the #1 initial
    price level.

    $372.74 looks to be our present #1 that gives us more
    breathing room! Thanks for the correction!!

  5. Thanks John.
    I hope it doesn't have to go that far down and if it does intra day with some recovery would be easier on the nerves. I have my lines drawn now with the expectation of it happening. I have my TSI set for 4-7 on the weekly and comparing to 2005, it's already at rock bottom levels where major bottoms have occurred and a hint of turning up so hopefully we don't have to endure this much longer.
    The upside coming out of this mess is wonderful. A similar recovery would have the HUI challenge 1000. Leaving so many with their pants down. This is the nature of playing the miners, they are not for everyone as they can ruin you if you let them. They will kick every single weak hand out and only then move up leaving you suicidal. They are multipliers of gold's move.

  6. I was fixed the HUI chart and post dialogue to to reflect
    the correct price point of $372.74. Thank you again Paul.

    Your most recent comment I could not say better myself.
    I have had to pay a big price many years ago to now understand
    exactly why it is much better to be patient and be rewarded
    later, than try to get cute and try to outsmart a completely
    irrational market.

    1. Still need to remove the "point 2" comment on the chart...

  7. This comment has been removed by the author.

  8. Hi AM - honestly, I don't look at that stuff. I am more familiar
    with COT than GOFO fwiw. The commercials seem to have a knack
    for increasing shorts as price rises and closing their shorts
    as price corrects. Past that, idk. But I thank you for asking!

    1. it would have saved me (and also made me) a lot more money had i started paying attention to it 2-3 years ago.

  9. AM - sounds interesting. Would you be willing to share a detail or two
    for why you the COT would have helped you make money in the past 2-3 years?

  10. John,
    I like your post here. I think these targets are pretty good. I hate to ride my core position in Nugt down any further, but, I've been patiently waiting for this opportunity to load up. It looks like gold is breaking down from a sort of rectangle, and the target is around 1600..... just as you said. Monty

  11. Hi Monty - well, I hope we don't see 1600 but I still would like to see 1626 broken
    and then assess what happens after that. 12-13 hours ago I nailed the top in the/DX
    and I continue to be very skeptical that it is going higher. But the action at this
    hour is in the 30 minute chart of both /DX and /GC. /DX has made a sizable positive
    divergence on the TSI (7,4) and I think what happens next is that it turns higher
    overnight and takes out the overhead trend line creating (unfortunately) a decent
    BUY signal. Meanwhile, /GC on the 30 min is not too far from yielding its own trend
    line break BUY signal. My guess is that /GC will make it up to the trend line then
    get turned down as the dollar makes a mini breakout.

    The fun never ceases Monty......

  12. John, low 1624.30 so far, target reached or more downside?

  13. "I'd give the chance of 1400-1500 gold a big fat ZERO%."

    I cant believe a trader would say that. You know that everything is possible and should be anticipated.

  14. 1624.30 and now 1611. Well, looks like the usual take down an hour before the
    NYSE opens. Very impressive. YAWN...... You know, it's all a big game and the
    guys with the most muscle and determination the short term. This looks
    like the kind of price behavior where shorts can get out of their shorts and
    start entering long positions. In other words, what looks horrible for gold bulls
    at the moment may well be a blessing in disguise.

    Yes, everything is possible. I'll give 1400-1500 a big fat 1%, as I stand corrected.

  15. Looks like we're starting to get a nice bounce going! Maybe this final shakeout is just what we needed? Nice call, so far......

  16. If my theory is correct, this or the next day or two should be the
    bottom. If my theory is not correct then I really do not see any way
    to explain gold's behavior in terms of the cycle analysis I know.
    Which is to say that in my study of gold's cycles in incredible detail,
    I do not see how to explain what is presently happening - unless today
    or shortly thereafter is the conclusion to an extremely bloated intermediate

    1. Make sense. The biggest gold market reopens Monday - China in Spring Festival holiday, all trading market closed.

    2. Keynes was attributed to have said:

      "The Market can remain irrational longer than you can remain solvent"

  17. John, off topic, but where do you see the S&P going from here? It appears that gold has decoupled from the broader markets?

  18. I would venture to say Gold has bottomed. China will be snapping up Gold on Monday and the hedge funds will be forced to cover to protect their profits.

    Walmart should have made it clear today that the economy is not booming and the Fed will not be exiting QE anytime soon. John, I think your bottom call is right on and would congratulate you on your success (if it were not for bad luck to do so).

    So we'll just have to wait for the reversal I'm expecting on Tuesday.


  19. John, how does today's action look to you now? Thanks for your patience and generosity in sharing:)

  20. Steve - I have heard that one before and it certainly is true if one is trading expiring options, futures, not as true if trading stocks on margin and only otherwise true if one's emotions are not as strong as one's convictions.

  21. Friday's action was more severe than I hoped it would be. What now remains to be seen is whether enough short contracts were covered to begin, presumably, a new intermediate cycle.

  22. Scott - a reversal on Tuesday would be just fine with me.

  23. TSI (7,4) on daily SPX strongly suggest a sharp drop is going to happen in the next trading day or two. In all likelihood this drop will be brief and my hunch is that price then re-continues upwards.

  24. SoggyBee - you are correct. I have fixed the chart though somehow
    in the process the chart size got shrunk. Good eye and thank you!

  25. I am afraid I tend to agree with Dan's assessment ( that Gold has much further to fall. The past year has been horrible for Gold and miners. This Friday's action simply made me give up.

  26. Folks look at net spec long interest in Pt and Ag they have A LOT more space to fall - if these metals fall hard gold will follow.

    John, i think you are wrong here and have underestimated how far this thing could drop. Dont bet on China, they'll be just as happy to make money on the downside.

    I am not an investor, i am a speculator. There are times to be long, then there are times to be short.

    Safe trading to all.

  27. Fung - I read the article you were kind to share and I recognize Trader Dan
    to be a very astute, skilled and respected analyst. I did not find his arguments
    or analysis compelling but hey, everyone gets to have their turn with the microphone.
    It is increasingly becoming an emotionally charged environment where common sense
    is replaced with fear and I feel bad for those who get burned on the frying pan because
    I know they hurt. I hope that over time you will look back at our present circumstance
    and have learned positive lessons that you will benefit from in the future.

  28. Well John, Gold did find some support right at 1600 as I predicted, but, what kind of of bounce will we get? And it seems as long as stocks are going up, gold is held in check. What do you think? This bottoming in gold might get drawn out.

  29. The 60 minute charts on gold and silver appear to be saying there is more downside to this selloff. Volume on the downside far outstrips the upside volume. This is becoming very frustrating. But I think of all those out there who are even more frustrated than me. Wish I had some money to buy anytime gold is below 1600.

  30. Hi Monty - yes sir, you got that 1600 number correct and I was skeptical.
    Gold is now clear out of the bollinger bands so it's highly likely we get
    a bounce or at least some sideways. This was a long daily cycle at 30 days
    within what, in normal analysis, would be considered the third DC in a bearish
    left translated intermediate cycle. Though it's possible this intermediate
    cycle would have only 3 daily cycles, I'm preparing my mind for another left
    translated daily cycle to finish this nonsense. So in general, we could well
    have another 3-4 weeks of nail biting then I think up we go. I am tending to
    subscribe to the notion that through this apparently manipulated left translated
    intermediate cycle the commercials will have conveniently switched their positions
    from heavily short to heavily long. Meanwhile the fear they have created amoungst
    the smaller investors will have picked their pockets.

  31. Loren - the TSI (7,4) shows a trend line break BUY signal on the 60 minute chart. Of course it would be a little more convincing if the TSI TLB occurred a little closer to the ZERO but I'll take it...for now.

    Frustrated? Isn't that the joy of investing in the precious metals sector? Of course I'm just teasing. The longer I am involved with this stuff the clearer it is to me that the sector swings from one emotional extreme to the other more violently than the other sectors of the general market. The point is that if one has this understanding and they find themselves on the wrong side of the trade - as I most definitely have been for some time - they can handle the pressure and come out ahead with patience. But if one thinks trading this stuff is completely 'logical' they will go absolutely nuts. Been there, done that, not going there again (I hope).

  32. So the hui is still hanging in there above support. It needs to get a move on this week sometime.