Gold Still Appears to Be On the Brink of Advance and is Showing Buy Signals

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As I have been tracking in recent months, gold prices still are unfolding basically as expected according to the outlined price pattern with somewhat of an inverted head and shoulders appearance.

We now have seen a reversal back above the horizontal line at the $1250 level which I mentioned was key support.  Technically, the daily MACD is in a buy signal now.  And using a momentum and moving average channel technique on the daily chart, it is also in a buy signal.  So this might well have been the low for this correction.  Additionally in comparison to common correction in gold historically, we are in the expected late stages of the price and time expectation for a correction.

Again, fall call options, GDX, GLD, or individual gold miners could all be ways to capitalize on the expected move.

I would highlight GDX, SIL, GOLD, GFI, HMY as possible stocks  and ETFs to analyze technically for buying opportunities based on price pattern and valuation.

Gold Price Near Possible Price Pattern Low

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Following up on several recent posts I have made tracking a potential buying opportunity on gold, this chart shows that gold prices are currently at the $1250 level which I consider to be the ideal ending price level for this bottoming pattern.

As the chart notes above suggest, a quick move below that level followed by a move back up and any daily time frame technical buy signal, would be cause for long entry in my opinion.

While not shown on this chart, gold prices have also closed outside the lower daily bollinger bands for 4 straight days.  I have discussed this type of action before in other markets, but it can lead a near immediate rebound.  Additionally, weekly stochastics is now oversold at a high low, and price logic since the beginning of the year, suggests that the upwards move is the more powerful, and so we are sensible to prepare for the possibility of a higher low forming here.

Also please review some charts of gold seasonality and understand that for whatever reason, the June-July time frame is often when gold places a relative low.  And we are now entering that window.

Google results on seasonal charts here.

Equity Put/Call Ratio Sell Warning

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This chart shows that the 5 day average of the equity put/call ratio is outside its 1 month, 1 standard deviation band.  I frequently use this signal on a total put/call data chart as a timing indicator to identify when legs up in stocks are about to end.

Based on a typical signal like this I would take some of the following courses of action:

1. Move stop losses under minor support on long positions so that you can stay with an uptrend but get taken out on any technical break
2. Exit part of long positions at the current levels, and maintain another portion with a trailing stop or stop movement strategy
3. Exit long call options on index calls or any near term equity call options
4. Build and narrow down a list of potential short candidates based upon your trading time frame.  Identify precisely what signals are needed to establish short positions, and exactly the appropriate amount of risk for your trading style and plan.

Again, as I suggested in my last post and on the notes on the chart above.  I would expect that the market has some further upside in it, but seeing as the Nasdaq is at a breakout point, and the Russell 2000 is well below resistance, I am not convinced that we will see successful breakouts on all the indexes prior to the next 1+ month duration correction in the stock indexes.

So after a good call in my recent post suggesting that QQQ would likely rise until further notice, consider this further notice that the easy money may be already made on this move.

Early Signs of Complacency

A couple notable (in my opinion) technical signals of market sentiment have occurred recently.

Recently the VIX closed below its lower daily bollinger band.  While not a cause for immediate selling, this gives us some indication that shorter term volatility is possibly out of balance, and so depending on your time frame of trading you can use that information to adjust stops or make exits or exit plan contingencies.

Also, the VIX/VXV ratio recently closed below its 126 day lower bollinger band.  Again this mostly indicates a strong market that has some room to move up left in it.  Prior signals have occurred 1-2 months before the major corrections of 1+ month duration in stocks.

The 5 day average of the total put/call ratio has been neutral for some time with respect to its bollinger bands, but over the last week, it has moved sharply lower and close to its lower bollinger band.  If it moves outside the lower band, then that has been an excellent signal in the past to sell positions near the top of a major leg up in stocks, and await a new intermediate term buying signal.

So to sum up.....in my analysis of these real money sentiment measures, stocks likely will move somewhat higher for at least a few weeks.  If you are long, use this information simply to determine stop adjustments and plan ahead for possible exits on your positions if/when the market moves higher and we see an appropriate signal.

Keep Alert For Precious Metals Turning Up - Silver/Gold Ratio

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This chart shows the silver/gold ratio and shows that it has been hitting multi year lows and is near its half year bollinger band.  When bull markets take effect typically the silver outperforms and we would expect to see this ratio rise.  Also, just from a statistical standpoint, when these strongly correlated metals show a ratio far from the mean, it may be a time to consider a pairs trade - in this case long silver, short gold as a conservative speculation.

However, in context it appears that this is further confirming evidence that the precious metals as a whole may be forming a bottom and be ready to turn up very soon.  Historically June is the seasonal low time frame for gold, and with all factors taken into context, from my perspective, we could be seeing the seasonal low here now.

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This chart shows July silver futures and shows a move below the winter lows and now a reversal higher.  This type of stop running happens frequently before major advances.  Even going back a year, the July contract just slightly broke below the June 2013 low, but the cash silver and SLV etf have not.  These types of non-confirmation between futures and cash or near and distant futures contracts also can be flags that trends are about to shift.

Whatever, your trading methodology is, my suggestion is to keep GDX and SIL on your near term watchlist for longs and also look at other individual stocks in those sectors, or even just stick with GLD and SLV etf for speculative trades.

Be Aware of a Potential Bottom in Gold and Silver

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Gold and silver prices appear to be completing relatively large scale patterns that I think will resolve to the upside.  I would anticipate gold to bottom somewhere between today and the second week of May and with not much more downside (either today being a low or next support at $1250 on the gold chart.

I would estimate that the next leg up would carry gold to the $1500 range if this scenario plays out.  Timing entry off of a 4 hour chart may provide a nice reward to risk opportunity.

Another way to possibly profit from this potential move would also be to purchase long call options with 4-5 months until expiration.  This may allow for a significant move with a reasonable risk to reward and limited capital outlay.

Dual Time Frame Volatility Analysis

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I have shown charts like this in pats videos to The Trader's Crystal Ball mailing list, but I thought I would share this one today with everybody.

This chart shows the VXN which is like the VIX but for the Nasdaq 100 stocks.  And the specific set-up here is that the dark blue standard bollinger bands have expanded so that the top band is above the 126 day 2.0 standard deviation bollinger band.

What does this mean??  It basically is just telling us that the short term volatility is far from the average longer term volatility.  And this is a condition that often precedes significant lows in stock prices.

We did not see this happen in the VIX on this pullback, but the chart above of VXN very clearly shows the spike in the VXN and now a reversal back inside the bands which has corresponded with a hammer type candlestick in QQQ prices on Tuesday.

So for now, it looks like a significant low may be in place in QQQ.  My suspiscion is that we will see a significant rally, but this one might fail to make a new high in QQQ, and then we see a larger scale correction.

For now I am bullish as long as prices are closing above Tuesday's low in QQQ.