Thursday, 31 July 2014

Why are the bulls buying into this breakdown?

As I write (well before the market close), gold is trading below its 50-day, 200-day and 300-day moving averages.

The gold miner ETF GDX has broken down below a support line I have been watching.

What is interesting is that the miner bulls have been steadily buying into this breakdown all morning.


They don't believe it's real.

The bulls think what is happening is that the miners are simply backtesting a bullish upside breakout. As such, every dip as viewed as a buying opportunity.

The bulls had better be right.

My models are warning that what may be unfolding may be much more ominous: the possible start of the next leg down in the bear market.

Wednesday, 30 July 2014

I'm watching this support line

I'm keeping an eye on this support line in the gold miner ETF GDX:

Gold and the miners have been keeping investors and traders on pins and needles for more than a month.

The chart pattern in GDX may be morphing into a topping formation. IF so, a breakdown of that support line would fit in with my models that the current action is likely TRANSITION behaviour from the second leg of the bear market to the third. A breakdown of that support line would be a tentative confirming signal that the third leg of the bear market may be starting. The market action over the next few days could be key.

This sideways grind has made many bulls complacent. Too complacent, perhaps?

Time will tell.

Tuesday, 29 July 2014

Gold and the 300-day moving average

Gold's 300-day moving average is serving as a kind of critical attractor-repeller line.

The 300-day moving average is a key average for gold, as it was the ultimate support for most of the bull market (excepting the 2008 crash).

On Tuesday, gold closed back under its 300-day moving average. This gave the miners a case of the jitters and the mining indexes gave back the previous day's gains and then some.

The 300-day moving average happens to closely align to the downtrend line I noted in the previous post.

The million-dollar question is whether the action in the precious metals markets is the start of a new bull market -- or a transition from the second leg of the bear market to the third leg.

Transitions tend to tediously grind for some time, giving hope to both bulls and bears for an extended period, which fits what the precious metals markets are doing. The goal of the transition is to make the bulls complacent -- ahead of the next bottom dropping out.

The possibility this action is a transition to the next leg lower in the bear market remains a possibility I am alive to.

I monitor an internet forum of precious metals traders, and it seems to me the bulls are extremely complacent here -- so much so that many are loaded to the gills on the long side.

Friday, 25 July 2014

Gold dodges a bullet

With tensions mounting once again in Ukraine, gold found a bid on Friday, and popped well back over the $1300 round number level. Gold's strength sent the miners higher as well.

With the strong showing on Friday, gold dodged a bullet, and closed back above a key support/resistance line, according to my models. Here is a chart of the gold ETF GDX, and my proxy for the gold action:

The precious metals markets have been tough to read lately, and are confounding both bulls and bears -- just the way the market wants it.

Thursday, 24 July 2014

Gold flashes a warning signal

With gold breaking down through a resistance-turned-support line on Thursday, my models are flashing an initial warning signal that the bear market may be on the cusp of resuming. (I am writing before the session close).

This breakdown needs to stick for the warning signal to have any teeth, so the situation bears watching in the days ahead.

The breakdown can bee seen in this chart of the gold ETF GLD and my proxy for the gold action:

There is a lot of confusion among analysts right now concerning the technical picture in the precious metals complex. It seems to me everyone is seeing what they want to see in terms of chart patterns and technical indicators. It's a dog's breakfast of bullish interpretations for the most part.

My models incorporate the study of what I call echo formations -- little-known chart behaviours that tend to repeat. And it is the echo formations in my models that are warning of the risk of the bear market resuming at any time.

The real test in my view is the $1260 or so area in gold. If that were to fall with conviction, the warning signals in my models would be flashing bright red.

The bulls believe that the current softness in gold is related to options expiry (as there is motivations by options issuers to drive the price lower and make the options expire worthless).  As such, they see this weakness as a temporary blip.

If gold is really in a breakout posture, one would think the bears shouldn't be able to flex their muscles so easily here.

I prefer to follow the signals from my market models.

As for the miners, a number of the mining indexes and ETFs I track gapped down at the open -- not a healthy sign.

I see the action in the mining indexes differently than most. I see a possible rising wedge with a false upside break, followed by a false downside break, followed by what looks like a pretty convincing downside break. Here is a chart of the gold mining ETF GDX, showing the possible wedge formation:

The recent whipsaw action in the precious metals sector has been a sight to behold.

Wednesday, 23 July 2014

Miners get the jitters

Gold was down only a few dollars on Wednesday, but the miners got the jitters after showing strength early in the trading session.

The miners got spooked because gold came down and tested once again a key line that is resistance turned support.

If gold were to decline under that line with conviction, my models suggest the miners would likely start to fall apart.

The bullishness in the precious metals sector is palpable. My models suggest it may be too early to break out the champaign.

The market continues to tease both bulls and bears in a manner that is becoming downright creepy.