Author Archive: Zentrader
Zentrader started out in July 08′ as a way for me to share my nightly research, provide trade ideas, and keep a trading journal that kept me accountable and systematic in my trading. This experience has been good to me as I have built invaluable long-standing relationships. It’s also been therapeutic for me by helping me organize my thoughts, and I’m finding the longer I trade the markets, the more ways I need to detach myself emotionally and relax my mind as the internet’s ability to deliver endless information can be a blessing and a curse to a trader. I believe that to have longevity with investing, one must find ways to calm the mind and trade from a detached point of view. -- Jeff Pierce
Before diving into Gold’s technicals and recent trading patterns, I’d like to reiterate that I believe Gold is in the process of completing a wide, bear market bottoming process. I’ve mentioned before my belief that Gold double bottomed in December 2014, and it’s critical context to keep in mind as we examine Gold’s current action.
At some point, it will be “different this time”, and we will see a change in Gold’s character that is reflected in a new bull trend. At that point, recent Investor Cycle history will no longer be relevant. Similar to a satellite in orbit that needs an event to alter its course, Gold will need some catalyst to escape the pull of the bear market. Until then, we can only be guided by history. The last 7 Investor Cycles show that once speculative positions have reached current levels (as seen in the COT report), the Investor Cycle has peaked.
As bearish as this sounds, there is a “rest of the story” in support of my view that we’re still at a major decision point for Gold. If June 2013 was the final capitulation low that ended the bear market, and I still believe that it was, it was followed by a retest in Dec 2013. Each cycle since has attracted fewer Short speculators and far less hedging…and that’s not bear market behavior. Such apathy and disinterest is often observed at – or after – bear market lows.
The dollar looks set to challenge 2013 highs. Crude oil hit support with its recent move lower. Gold is at a similar junction where the recent bottom seems too obvious. My best guess is that in the short term we’ll see dollar strength and oil & gold weakness, or sideways action in these commodities.
From an Investor Cycle standpoint, we’ve yet to break the bear market trend-line. That’s OK, because Gold is the slowest in this sector to react and it’s only 14 days into what should be a 6 month Cycle. What a new Investor Cycle shows, however, is the potential ahead – a normal Investor Cycle can add up to 20% in gains before topping out.
There is evidence that gold is turning bullish – and even that Gold formed both a DCL and ICL this week. Because Gold was technically oversold and deep in the daily count (27 days), the Swing Low this past week was most likely confirmation that a new Daily Cycle has started.
I’m encouraged by what I see with the Miners. For the first time since the markets topped, investors are not pricing in a failure of the Gold Cycle. Generally, the Miners will overshoot the Gold Cycle both on the high side in a bull market, and on the downside in a bear market. They are leveraged to the price of Gold and carry a higher beta, so can be much more volatile around key Cycle pivots.
The waiting game for the declining portion of this Daily Cycle has certainly been frustrating. Generally, by this point, the severe decline towards the next scheduled DCL\ICL would have been well and truly in progress. Along with the powerful rally out of any ICL, the drop and collapse in the latter portion of an Investor Cycle are the two most dependable events within any Cycle.
Up until today I was open to the idea that Gold has bottomed but if we don`t find support on near the daily RSI on gold then I think we`re heading back to the lows. It`s too early to make that conclusion as Gold will at least have an attempt to take our recent highs and if it fails there then it`s going to be tough for gold traders. If it breaks and closes above that level then this will likely trade up to the $1400-1460 range before any meaningful resistance.
There is little doubt that the 2nd Daily Cycle has topped, so we need to be patient with the decline. The timing for a top is acceptable, and the oscillators have clearly turned and are headed lower. The upward Cycle trend-line has been broken and Gold closed below the 10dma. At this point, we should assume that we have 2-7 sessions lower, with an target of between $1,290-$1,300.
For now, let’s continue to support the notion that a further move higher is coming. But at the same time, let’s acknowledge that a close below $1,322 would be Daily Swing High, a trend-line break, and a 10dma break. The next couple of days will be telling, because gold hitting that trifecta of events would certainly confirm a Daily Cycle headed towards the next Cycle Low.
Gold is still a few confirmations from a final declaration that this is a 1st Daily Cycle, but the evidence is mounting. For now, we’ll treat the first DC scenario as primary. “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck”.
Since it’s extremely unlikely the Euro is in Week 3 of a new Investor Cycle, our expectations must be for the Euro to fall immediately from this point. The Daily Cycle does not support further upside here, as a Left Translated DC is necessary for a drop into a mild Euro ICL.
I’m looking for the miners to break below the June Low, but for Gold to hold above it. A decline by miners below the low should trigger exhaustion selling, but if Gold doesn’t confirm, it should mark a significant bear trap for investors in miners.