Metal Sector Fake-Out

It’s been one fake-out after another in the precious metal sector. Investors have been awaiting a major breakout in gold once prices climbed above $1,300. Friday’s rally reached $1,306.90 and promptly reversed, potentially creating a bull trap. Likewise with miners. GDX gapped higher in the morning only to end below the previous days low. The bearish outside reversal day warns of a viable top.

Follow through is key. If metals and miners close significantly lower on Monday, a top is likely. Closing below the 10-day EMA this late in the cycle should be enough to secure a top. If confirmed, I’ll estimate correction targets and expect a 1-2 week correction (maybe more) into the daily cycle low.

-US DOLLAR- The dollars price structure resembles more of a consolidation (possible bear flag) than an intermediate-term advance. Prices need to rally above 94.06 next week, or risk breaking lower.

 

-GOLD WEEKLY- Prices attempted to close the week above $1,298.80, but sellers entered the market after breaking above $1,300. Nonetheless, the 6-Month cycle low likely arrived at $1,204 in July. The initial rally from the July low is probably over, and we should see (at least) a 1-2 week pullback.

 

-GOLD DAILY- In the 8/13/2017 Newsletter I wrote- “Last weeks correction was merely a half-cycle consolidation and not the cycle top. The previous series topped between 12 and 13 trading days after the half cycle peak, in this case, $1,280.30. If the relationship persists, this cycle should top next week (perhaps late) followed by a correction into the first daily cycle low.”

The week started with a false breakdown consisting of a bearish engulfing candle and close below the half-cycle peak of $1,280.30. However, there was no follow through, and prices reversed back towards the $1,298 high. The rally eventually broke above $1,300 on Friday reaching an intraday high of $1,306.90 before reversing.

It appears my expectation for the daily cycle to top late last week may have been fulfilled. Friday marked the 13th trading day after the half-cycle peak and prices formed a bearish reversal. Closing below the 10-day EMA will validate our analysis and prices should correct for 1-2 weeks. I’ll estimate possible targets once the daily cycle top is confirmed.

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