Friday, 19 September 2014

The third leg of the bear market is underway



With the clear breakdown in the mining indexes, my models are showing the third leg of the precious metals bear market is almost certainly underway.

As my luck would have it, I had exited my shorts before the  big breakdowns took place. That's what I get for trying to outguess the market. I got spooked by the tendency for the back half of September to be seasonally strong for gold, even during bear markets. It just didn't happen that way this September.

Now I have the unenviable task of looking for a good re-entry for my bear positions. This bear market will likely unfold for at least several more months, so I can be a little patient in waiting for the right set up.

Currently, the downdraft is getting wildly oversold, but that's a bear market for you. It will get more oversold than most investors are prepared for.

The bear is going to do its best to make it hard for bulls to exit easily, and for bears to enter and hold on to their positions.

Despite the current deeply oversold nature of the precious metals markets, I expect the bounce, when it comes, to be short and unimpressive. Bigger bounces, will likely come later in the bear market, to shake the bears out of the complacency, and to keep the bulls holding on just a little longer.




Wednesday, 17 September 2014

Back-test possibilities



Despite the current weakness in gold, I remain alert to the possibility of a back-test rally to the underside of gold's previous support line.

The back half of September and early October tend to be seasonally strong for gold, and sometimes upside moves can come out of nowhere during this seasonal period.

So far, my concerns about a strong bounce here have not materialized. But I've seen enough wild moves during this seasonal timeframe to remain on guard.  Could my caution concerning a possible strong bounce turn out to be misplaced? Of course.

All the same, it would not surprise me in the least to see a vigorous bounce as high as to the $1280 level or so start at any time, maybe even a tag of $1300 if gold were to extend any possible bounce into October, as often happens.


Whether or not such a bounce materializes remains to be seen.  Gold is oversold enough that a reversal could take place at any time. But sometimes an oversold item can stay that way longer than many expect. To my eyes, both silver and gold are near what may be key support levels.

The imminent referendum in Scotland appears to be a factor weighing on gold, as it is affecting money flows into various currencies.


Monday, 15 September 2014

My late September gold phobia explained



Readers have probably picked up I have a phobia about being short the precious metals market in the back half of September.

Some of the wildest moves in gold's history have come in the second half of September. It's a seasonal period of strength not to be trifled with in my view.

Here are some second halves of septembers to remember in the gold market:

1999:



2001:



2008:


Being short the precious metals markets in the back half of September takes a special kind of courage I do not possess. 

Of course, there is no guarantee the back end of this September will be one to remember. I just don't want to bet against it. 




An upside turn in gold could come at any time


In recent posts, I've noted what I see as the likelihood of the precious metals markets imminently turning up at least temporarily for a stretch. Gold is oversold. The U.S. dollar is overbought and near significant overhead resistance.

In particular, it's my observation that the back half of September is gold's strongest seasonal period, bar none. It rarely fails. As of today, the back half of September has arrived.

Gold and the miners were finding their footing on Monday -- possibly right on cue. There could be a little more downside, maybe not. I don't know, but all said and done I lack conviction that there may be all that much more downside for this move. I closed out my shorts just in case there is not.


In the chart above of GDX, it appears to be stalling on top of a possible stealth support line. I look at that stealth support line and say maybe GDX might very well poke down to touch the bottom support line -- but then again, maybe not.

Also, the junior miner index, GDXJ, is acting a little too strong today for my taste, and is trading well above its 200-day moving average as I write (before the stock market close). I always keep an eye on the juniors because they have a tendency to lead the precious metals sector up and down.


All of the above has left me with a distinct lack of conviction. I only speak for myself: when I lack conviction, I shouldn't be in the trade. It's that simple.

Could I have exited my short position too early? Of course. But I adhere to the old maxim: It's never wrong to take a profit.

Besides, as another sage stock market saying goes: The market will always be there. And it will.




Friday, 12 September 2014

Why stop at just one gap?



There a number of gaps in the charts of some of the mining indexes like the XAU and the HUI. In a downswing like is being seen, traders will often look for gaps to be filled.

In the chart of the HUI gold mining index, a big gap was recently filled during this current downside move, but there are still two more to go.... If this dive down continues, it would seem likely those two unfilled gaps may yet get filled.


Food for thought: the back half of September tends to be gold's strongest seasonal window, bar none.

Even in Septembers where gold is weak, there is often a surprise surge sometime in the back half of the month. So I'm alive to the possibility of that seasonal feature asserting itself later this month, even if it is just a temporary move.

My preference is that if gold is going to make a temporary low on this reaction, it do so in the next few trading days, and before the end of next week. Of course, the market doesn't listen to me, or give a hoot what I think or want.

The Federal Open Market Committee (FOMC) is meeting next Tuesday (16th) and Wednesday (17th), and the Scottish referendum is the next day, on the 18th.

Given that lead up to the FOMC has been giving gold traders indigestion in recent months, the next few trading days seems like a potentially ideal window for gold to make a bottom for this move before embarking on a likely short-covering rally to work off the current oversold conditions. Time will tell.






Thursday, 11 September 2014

The line in the sand



I've shown this long-term chart of gold, and I'll review it again because it is likely important.

I had viewed the blue support line as critical long-term support, but the market has told me differently.  It's become clear since that blue line break down, while very important, was not the huge confidence crusher to the bulls that I thought it would be. That tells me the pink support line -- which connects to the 2000 lows -- is likely the KEY bull market support line that big money is watching. A break of that  support line "breaks" the bull market psychologically, pure and simple. It's the "line in the sand".


That pink support line currently provides support around the $1200 level give or take.

My expectation is the $1200 level, give or take, won't go down without a fight.

If the third leg down in this bear market is finally underway, as I suspect, the most stomach-churning part of the decline isn't likely to unfold until the $1200 level is breached with conviction.

The Federal Open Market Committee meets next week Sept 16-17, which may keep traders edgy in anticipation of any remarks from that meeting that may be perceived to affect monetary policy. Scotland's vote on independence follows on the 18th.

Gold is oversold short-term. In my mind, the question is whether or not gold will tag that pink support line before commencing a short-cover rally to relieve the oversold conditions.