Finally the Bulls Score a Small, but Notable Technical Victory

As readers know, we have frequently updated the situation in gold land recently with a view toward the possibility that a reversal in fortunes could be in store. Now, we must once again warn from the outset that the situation remains fragile, in the sense that important medium term resistance still needs to be overcome.

Nevertheless, we can finally report that several of the preconditions for a reversal which we have recently highlighted have finally come to pass. In fact, at the time of writing, things could hardly look better. Having said that, please keep in mind that there are valid reasons to believe that HUI and XAU are currently in wave 4 of C. If so, then there will be one more down wave (possibly in October/November, traditionally a time frame during which important lows are put in) before a long term advance truly begins. However, we have some wiggle room regarding that interpretation. The size of the decline from 2011 equals or even exceeds several of the largest primary bull market corrections in gold stocks in history, therefore it is perfectly possible that the low has been seen (see also the wave count update at the end of this article).

 

Let's move on to the charts, to see what important changes there are to report. First of all, gold has not only managed to hold on to its overnight gains attained in Asian trade on Monday morning, it has even added to them. Currently it is trading just below the important upper rail of the medium term resistance zone at $1,350. it has also just bumped into its declining 50 day moving average, which will presumably provide resistance as well. As noted in the last few updates, if prices can overcome these resistance levels, it will be important to see if that happens with ease, or if a long, drawn-out struggle is required.

 

 

 

 

 


 

Gold. daily-with-ma

Gold, August contract daily. Bumping into the 50 day moving average and holding just below medium term lateral resistance. The former short term resistance level at $1,300 should ideally provide support on any upcoming short term pullbacks – click to enlarge.

 


 

As can be seen, the daily candle being put in in today's trading is a bit 'iffy', in that it looks like a small 'hanging man' candle. However, uncertainty is to be expected so close to resistance and upon rising into the 50 dma. Note that this is the first time this moving average has even been touched from below since February. Zooming in to a 30 minute chart that shows the action over the past week, we can see that a secondary short term support level has been created as well:

 


 

Gold,one week,30minGold, 30 minute chart: There are now two short term support levels: one at $1,300 and a secondary one at  $1,325 (again based on the most active August contract) – click to enlarge.

 


 

Gold Stocks – A First Important Step

The most important developments have however occurred in gold stocks. Not only has the gap resistance we have highlighted last week been overcome, but so has the 50 day moving average. And it has happened by creating another gap, this time to the upside. As a result, an even bigger 'island' has been left behind on the daily chart, so it could be that this time, a genuine island reversal has been put in.

We don't want to overrate any of these developments at this stage, since it has only been two days since the 50 day moving average has finally been bested. Still, this has not happened since October of 2012, and therefore represents as a significant step. Similar to gold, the HUI has also bumped into a short term resistance level in the process, namely the resistance provided by the April low in the index. The next important thing to be on alert for is what happens when the market pulls back. Ideally, the 50 day moving average should begin to serve as support.

 


 

HUI-annotated

The HUI has fulfilled the two major preconditions we named last week as important milestones: it has overcome gap resistance as well as the 50 day moving average. The current level roughly coincides with the April interim low – click to enlarge.

 


 

Obviously, there remain a number of short term resistance levels that need to be overcome (the interim highs touched between April and June), which happens to be consistent with the resistance gold itself faces at $1,350.

The HUI-gold ratio so far continues to rise as well, another important feature of rallies in the sector. Obviously, this rise too is at best only in its infancy, and another reversal cannot yet be ruled out; but things look encouraging so far.

In fact, the ratio has not traded this far above its 50 day moving average since October of 2012 either. Insofar, the recent move is qualitatively different from the rally attempts that have taken place on previous occasions. While by itself, this obviously guarantees nothing, it is one more confirmation that the recent move could get legs.

 


 

HUI-gold ratioThe HUI-gold ratio: Looking better as well – click to enlarge.

 


 

XAU – Elliott Wave Structure of the Cyclical Bear Market

We also want to present another update of the longer term Elliott wave structure, specifically the structure of the correction/bear market since 2011,  this time of the XAU Index. The following wave count has been created by our friend B.A., whose wave counts and comments on the gold market we have published previously.

Similar to Bernard, whose long term view of the HUI's wave count we have recently discussed, B.A. thinks that the XAU may be close to ending wave C of the decline from the 2011 high, with a possibility that waves four and five still have to be traced out (if so, then we are now obviously in wave 4).

It is noteworthy that the XAU has reached the target implied by the head-and-shoulders pattern that preceded the decline. Moreover, at the point the target was reached, various price/momentum divergences have occurred, which are typically associated with turning points. 

As shown below, it is also quite possible to argue that the wave 5 low has already been achieved, an idea that is supported by the fact that the recent rally has managed to break the index above its trend channel on a log chart:

 


 

XAU wave count-updated

The wave count of the XAU's decline by our friend B.A. – possibly, wave C has been completed already. If not, then there is at most a final 4-5 sequence left to endure – click to enlarge.

 


 

Conclusion:

The technical backdrop for gold and gold stocks is looking better than it has in quite some time. Although it cannot be determined with certainty that 'the' low has been seen, there has undoubtedly been a character change in the market. So far the victories of the bulls are small, but this is a vast change from having no victories to report at all.  It seems ever more likely that our friend Ronnie Stoeferle's 'In Gold We Trust' Report was published at exactly the right time.

 

Charts by: BarCharts, StockCharts / B.A.


 

 
 

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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

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2 Responses to “Gold and Gold Stocks – More Signs of Life”

  • worldend666:

    Not having read about Elliot Waves, the chart above looks like something out of “Beautiful Mind” to me, but there is one relatively well accepted indicator that the low was put in in late June and that was the perfect 38.2% Fibonacci retracement from the 1915 peak.

    I pointed this out at the time here in the comments section, and I still think that of all the technical indicators discussed this is the most important. I am very surprised reading around the gold sites that a bid deal was not made of it.

  • jimmyjames:

    The technical backdrop for gold and gold stocks is looking better than it has in quite some time. Although it cannot be determined with certainty that ‘the’ low has been seen, there has undoubtedly been a character change in the market. So far the victories of the bulls are small, but this is a vast change from having no victories to report at all.

    **********

    I’ve bought miners at every low since March 2012- was always surprised that they kept getting cheaper-i think anyone who knows where this sh*t show is heading isn’t that concerned over negative returns on trying to pick the bottom (a fools game) but absolute bottom is not all that important-if you are a believer-

    http://2.bp.blogspot.com/_nSTO-vZpSgc/RbmMtplgCjI/AAAAAAAAAPk/NtN5JDlwHio/s400/homestake.png

    The disbelievers will be late as always-

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