Gold Breakdown Close at Hand?

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This chart is continuous gold prices.  I had recently highlighted the weekly potential bullish reversal off the lower bollinger band, but noted that I believe it is unlikely to lead to a legitimate leg up.  The action since then has further supported that view.

Looking at the chart, notice that the bollinger bands are expanding as price is testing a repeatedly touching the lower weekly band.  A close below the lower band with the bands expanding would again imply a sharp downward move to come, with the minimum target being to around 1300.  That would also be the first major support level below current levels.  That was the beginning of the last leg up of the bull market.  We may expect a break down to that level rapidly and then a rebound attempt possibly.

Any close below 1523 in gold would be a bearish breech of support and likely lead to a continuation move down rather than a return to the range.

The Euro is already oversold and has met the minimum downside target I projected in April.  However, major support is broken there as well, and a break down in gold would imply a continued spike up in the US Dollar and plunge in the Euro.

Also, as noted stocks have potentially completed a small counter trend correction and could be forming a bearish flag pattern implying a strong move down in coming weeks.

There is no convincing evidence in my mind at this point that this rebound is likely to continue much further.  The only major evidence is the elevated put/call ratio, but the rebound so far has been weak given past precedents.  I continue to view the intermediate trend as down in stocks.

Possible Flag Pattern in SPY

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Price action has been unfolding in a parallel channel thus far on SPY on the recent expected rebound.  This is looking like a flag pattern on the chart, which would project a minimum move of the May decline down from the breakout point if prices break down below the lower channel line of the flag.  A break of the lower channel with a gap down would be ideal confirmation of continuation.

Weekly MACD on the SPY is opened up to the downside indicating a bearish larger momentum trend, but the weekly stochastics is now oversold (though not crossed up into bullish configuration).  So for new trade opportunities it would be wise to wait for a new bearish cross on the daily stochastics in order to confirm a likely continuation of downward momentum.

Possibly Very Bearish Portion of Pattern Ahead

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World markets are potentially entering a very bearish portion of the wave progression in Elliott wave terms.  Many European markets are weaker than the US, but all are correlated and will move together.  The above chart is of EWG which is the German stock market ETF.  It shows a beautiful classic Elliott wave pattern forming which suggests that the German market may be early in the third wave of a large wave C or 3 down from the 2007 highs.  The move from May-Oct 2008 would be a corresponding wave 3 of similar degree, so that would be the type of move to expect here.  Obviously we remember how dramatic that was.  In this case, the wave 1 down from the 2011 highs was a lot bigger than the wave 1 down off the 2007 highs.  That suggests this downward wave has more power, and we may expect the 3rd wave down to also be larger and more aggressive than the corresponding move in 2008 which was enormous historically already.

I will try to show a bunch of charts in an upcoming video, but there are widespread bearish chart patterns and wave progressions all around the world.

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This chart is a SPY hourly chart.  Based off the price logic that I use, I view the downtrend to have started from the May 1st high.  The initial move down looked impulsive indicating a possible wave 1 down.  The action to follow has been controlled to the downside, not typical of a wave 3.  Based on the price logic of wave 2 being required to take more time than wave 1, it would indicate that wave 2 has not completed prior to today, though it may have completed today.  This price pattern would logically imply a huge downward move to come starting very soon.  A counter trend correction that actually drifts WITH the trend (a running correction) implies a very powerful move to come.  Also, wave 3 should be at a minimum 1.618 the size of the next largest wave.  So we could be looking at a MINIMUM of 10% down from here, but likely a good bit more than that given the running correction for wave 2.

While this is all speculative now, the logic fits on multiple time frames, and because the move is so dramatic, I want readers to be alert to be positioned SHORT, or on the sidelines ASAP.

Stock Market Update

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Today was a nice reaction rally from oversold conditions in the stock indexes.  However, the volume was a lot lower than Friday and sharp rallies like this should be expected in a downtrend, especially given the high put/call ratios recently. 

I have made a couple projections for the SPY from this level.  The blue projections would be a more dramatic but certainly not impossible waterfall decline that would be typical of a MAJOR pattern completion in the markets.  If this spring's high was the end of the bull market rally since 2009, then we should expect a larger move than any correction along the way.  So we could see a decline bigger than last summer's decline.  Obviously that seems improbable, but that would confirm a new bear market.

The green projection is what would be a very typical type of scenario before a new decline.  I have not talked about this recently but often the first support level is broken followed by an ABC type rally that retraces about 50% of the initial thrust down.  That is followed by downtrend continuation.  Should we see that scenario play out and the market remain well below this year's highs as the time of the purple box reaches its end in the first week of June, and the daily stochastics has rallied back up to overbought and then turns into a sell signal, that would be a time to short crap out of it.

The elevated put/call ratio typically leads to a multi week rally, so we may expect a more bullish near term scenario, but any push to new lows, will likely initiate a dramatic plunge lower.

Gold Update - Rebound Then Failure?

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This video covers the gold market.  The set-up looks nice for a short to intermediate term rally in gold.  However, BEWARE a break of last week's low.  A break of the recent low would be a likely downward continuation point projecting a move down to at least 1290.

Brief Update and a Request

I would like to post a video update this weekend.  There are many markets that are in significant positions right now, and I may have some unique analysis on some different markets.  I feel there is too much to cover it all in a detailed coherent fashion, so if there are any markets that any readers really would like an update or my analysis on, please comment or reply and I will try to accommodate.

For a brief overview of equities, the equity put/call ratio spiked to 0.99 on Friday.  The 10 day average is at the historically high end of its range suggesting excessive bearish sentiment and a likely sharp rebound in the cards.  But again, this move is unfolding with volatility expansion and is turning parabolic to the downside.  So until the market is ready for the rebound, the price declines are likely to be successively bigger, and may include a large gap down to exhaust the move or prior to exhaustion.  I think it is somewhat unique that despite the last 4 days basically closing at or below the lower bollinger band and 6 days down in a row, we have not seen much downside gapping.  The last 3 days gapped up.  I think it is likely that we see a large gap down in this move before the rebound occurs.

The number or new lows is expanding but not yet at panic selling levels, typical of corrective bottoms.  The McClellan Oscillator is very low showing breadth at an extremely low level.  The point of the most extreme reading is often not the end of the move.  Usually after an extreme reading there is a counter trend move followed by a move to new price extremes for the trend.  Major price moves, typically end after a nice divergence develops.  We have yet to see that here, so swing trading focus should remain to the downside.

The tide is turning down here in equities, so these extreme pessimistic readings are likely to lead to rallies to lower highs in the context of a downtrend.

Capitulation Coming?

Stocks started the session as if they would reverse today but again selling came in later in the day, and the close was below the March 6th low which was the next chart support level from the winter rally.

The daily bollinger bands are continuing to expand and price closed below the lower band again today on SPY.  As long as that configuration remains, the possibility increases for large price declines to occur in a relatively short period of time.  It is one of those times where it is very likely that a price rebound will occur SOON, but even 3-5 days in the future may be 5-10% lower in price (or more)before the rebound starts.

Gold, silver, oil, and the Euro are also showing volatile bollinger band formations.  They are somewhat extended, so the move may be near its end, but we have certainly not seen a typical washout type day in stocks, and the price percentage moves have been pretty controlled in all those markets.  I think there will likely be a larger absolute price move to the downside in these markets before the move completes with any multi-day price rally to follow.

The next major chart support on SPY is 128ish which was the Oct 2011 high.  Gold and silver are just above their winter lows.  A break of those lows in those markets could sound the death knell of the secular bull market in those commodities.  Understand the possibility of a major downside continuation if those lows are exceeded.  The monthly stochastics on gold prices is opened up nicely to the downside and falling from above 50.  It has been a couple months since I went over some of these details, but the AVERAGE downside retracement of bull markets similar to our recent gold bull would put gold price BELOW 900.  So with prices at 1544 now, understand by historical standards, we should really EXPECT further significant downside.

Put/Call Ratio Suggests a Rebound Attempt Soon

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The equity put/call ratio has spiked to a level suggesting a short to intermediate term bottom could be forming very soon.  However, with historical tendencies as a guide, it looks unlikely that whatever low may form will be the low for the correction.  Spikes away from the trend to this degree are typically in the middle or early in the trend, and when the final bottom is in place there is a divergence that forms.  Additionally the VIX closed above its upper bollinger band today suggesting a statistical extreme in the range may be at hand.  However, until the move is complete, it implies increasing volatility and accelerating price declines.

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The ideal time for a downward "flat" Elliott wave pattern to complete would be tomorrow morning. The tightest harmonic resistance zone is 133.40 on SPY.  So given the bullish MACD divergence on the hourly chart and short-term sentiment extreme, a lower low and reversal higher tomorrow may be a good time to follow the hourly chart signals on a long trade.

The flip side to this equation is that all the major indexes have confirmed potential price downtrends by retracing the recent rallies in less time than took to form.  Also, as of tomorrow with a lower low in the S&P 500, the daily ADX will be rising and above 20 with prices moving down suggesting a possible new downtrend.

Here is a guideline that I would suggest in this current environment.  The odds likely favor a rebound and a rally attempt is likely very soon.  However, if the market rallies for a day or two (or more) and then fails and moves below the current lows, the market could quickly move down about as many percent BEYOND the current low, as it already has moved down in to that low.  In the current case, say we rally a day or two, and the market has already declined 6% off the highs.  Then if new lows are made, it could quickly decline about 6% below that level.

A major battle is being fought around the 1350 SPX level, so eventually one side will be exhausted and a sharp price move will occur.  The bullish divergence suggests that may be UP.  But an initial attempt which fails, will lead to a sharp move down.

Stocks, Oil, US Dollar Update

5-5-12 Weekend Update

Expect follow through to the downside next week.  Smart money sold stocks heavily on the attempted breakout this past week and pushed prices lower.

Oil Update

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This is a USO daily chart.  The blue rising trendline is set to be broken with a gap down today.  Trendline breaks with gap downs are often very significant.  Still many times there may be a backtest of the trendline, but this could likely be the signal that oil is set for a deep decline.  I would guess a rapid move down to the December lows which is the first major support.

Check out the ADX and bollinger band set-up on this.  I have talked about this before.  The daily ADX has been < 20 for about 6 weeks and the bollinger bands are squeezed tight.  An opening gap down with a close below the lower band with the bands expanding often leads to an explosive though often short term (1-2 weeks) move down.

Note the daily stochastics is also just turning down from overbought.  All in all a nice short/put option set-up.

Pullback to Continue?

Russell 2000 60 min Chart

This chart is the Russell 2000 hourly chart.  It reversed hard off of a tight harmonic resistance zone yesterday and has a beautiful bearish divergence on the hourly technical indicators.  The daily chart has the look of a small head and shoulder top pattern developing with the neckline at 785 and the high at 850.  That implies a possible 65 point move below 785 if the markets were to break down from here.

The daily charts of the the SPX and DJX touched the upper bollinger bands yesterday as well and then reversed.  All the gap down of the move down since early April have been filled.  The daily technical set-up is solid for a retest and failed breakout of the April high.

I believe the odds favor a resumption of a corrective decline from this point.

The EUR/USD has reacted strongly downward from the end of a possible triangle pattern on the daily chart as highlighted in the previous post.  Further declines there would pull commodities down and likely correlate with falling stock prices as well.