January 3, 2010
Although December’s heavy sell off in the Gold (and Silver) market confirmed a significant set of monthly and weekly cycle highs, highs that may take this metal some time to meet/exceed, there now appears to be plenty of credible technical evidence to suggest that Gold may be ready to mount a minor rebound rally back up toward the $1,125 to $1,135 price zone. There are a couple of key market analysis tools that we can rely on to see if we can both confirm and then capitalize on a possible swing back up to a major Fibonacci resistance zone. Let’s take a closer look right now.

Gold Trend

On December 22, March Gold made a major cycle low on its 78-minute chart at $1,075.20 (See point ‘A’ on the chart. Yes, ‘78’ is close to a significant Fibonacci ratio) and then began to slowly reverse higher. The spread between the 50- and 200-period exponential moving averages (EMA’s) was near an extreme at the time of the dead low but have begun to progressively narrow since then. Along with the narrowing spread (which typically indicates a period of price consolidation), March Gold also managed to make a higher swing low (point ‘B’ on the chart) on December 30, 2009. This higher swing low also permitted the plotting of a major uptrend line (gold dashed line), one that will be a wonderful trend-determining assist for both intraday and daily-based swing traders in the days and weeks to come.

Higher Lows
Once the first higher low was made (which was also a cycle low) at point ‘B,’ prices accelerated higher, bouncing back lower after colliding with the 200-period EMA (pink rectangle) before forming yet another higher swing low. Not surprisingly, this fresh 78-minute swing low has allowed us to plot a slightly more aggressive uptrend line (blue dashed line), which, if it should hold, is a prime clue that Gold intends to meet and then likely exceed the 200-day EMA (currently near $1,106) on a close. As most technicians know, a close above the 200-period EMA is a bullish development, and one that a zillion traders and money managers use to determine the long-term trend for a given time frame. Additionally, if the 50-period EMA (red line) crosses above the 200-period EMA (blue line) a second bullish confirmation occurs, one known as a ‘Golden Cross.’ Traders frequently wait for a pullback toward the 50-period EMA after such a crossover to initiate new long positions. Should we see this crossover occur, that might also be an excellent way to help time a series of daily or intraday (60 or 78 minute) swing trade(s), looking for Gold to move higher into significant Fibonacci resistance.

Are We Positive?
Volume analysis can be accomplished by using both the Positive Volume index (PVI) and the Negative Volume index ([NVI] they’re plotted in the lower panels of the chart). Using a 34-period EMA to track the trend of each index, we find that Gold has been rising steadily on negative (lower) volume even as it’s been move sideways to slightly higher on bars with positive (higher) volume. Typically, this is a pattern seen in the early stages of accumulation, and the real tip-off that Gold intends to bust above the 78-minute 200—period EMA will be when both the PVI and NVI are both moving higher, with each index above its respective 34-period EMA.

Resistance Levels
Based on the high at $1227.50 (December 2, 2009) and the major low of $1,075.20 (December 22,2009) and the intermediate swing highs made in between, major Fibonacci resistance appears at $1,134.40 and $1,134.90. This is a combined Fib 38.2% and 61.8% confluence area, one that will almost surely act as a powerful resistance and/or reversal area in this time frame. Bear in mind that $1,135.00 is likely a maximum retracement area, and price may stall well below that area, possibly around the $1,120-$1,125 area. OK, so how to play this anticipated swing move up in March Gold?

Golden Cross
One idea might be to wait for a Golden Cross to occur and try to enter long on a retracement back to the 78-minute 50-period EMA. Then, simply stay with the trade until you see a close below the 50-period EMA. More aggressive traders might try to jump in on a buy stop entry just above $1,097.10, using the fresh blue trend line as an initial stop (about $1,095.50) with a price target of $1,104.00 to $1,105.00, just shy of the 200-day EMA. Trailing a 3-bar stop of the 78-minute lows could also be a simple way to lock in any gains that may accrue; some traders might also want to take half profits near the 200-day EMA as a safety precaution, ‘just in case.’

Down Cycles in Force
What happens should Gold make it back up to $1,135.00, anyway? Well, who really knows? Our best guide is our arsenal of intraday, daily, weekly and monthly charts, learning to rely on the ample amounts of data that they continuously provide us with. However, from the standpoint of the higher time frame price cycles, Gold is still likely to move lower from such a run up to major Fib resistance, as both the weekly and monthly price cycles are still in heavy ‘down’ mode. Ultimately, if $1,050-$1,070 fails on a retest, expect a move back down toward the upper $970 to $990 area before major support kicks in and the major uptrend resumes. Keep watching your charts and make sure you’re trading in the direction of the trend, no matter what time frame you prefer to engage the Gold market in.

Until next time, good trading and a blessed New Year to you!

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By Donald W. Pendergast Jr
Contributing Analyst
www.ETFTradingPartner.com

By Mark Brown
November 17, 2009

Well, the long-expected retest and subsequent breakout of ‘$1,000 Gold’ has finally occurred, with the rally taking the cash price of the metal to the north side of the $1,100 per ounce level in relatively short order. The big question now, of course, is this – does Gold have enough investor interest behind it to push it to the next significant price level, $1,200? Let’s examine a long-term chart for cash Gold to see if we can find out if Gold can reach that price target before correcting again.

Spot Gold Trading

All told, there isn’t much on this chart that a Goldbug wouldn’t like to see; the trend is moving higher (as in a series of higher highs and higher lows), price is accelerating up and away from the 12-month exponential moving average (EMA), the spread between the 12-month and 50-month EMA’s is rising and the 50-month EMA is also rising. A trend that is exhibiting such upward momentum should be given every benefit of the doubt, meaning that those who are naive enough to attempt to call a ‘top’ in the Gold market at this juncture should re-examine their assumptions regarding the nature of strongly trending markets. Not that we can’t make an estimated guess at to where Gold might want to reverse and correct (a perfectly normal occurrence in every bull market), but to make weighty pronouncements that Gold must go so high and no higher, might be a bit absurd, given the moves that this metal can and does make from time to time.

However, there are various technical tools that we can employ to see just where statistical overhead resistance may reside. One simple tool is called a Fibonacci extension ratio; market technicians long ago observed that many markets will reverse/correct at the 127%, 162%, 200% and 262% extension level of any significant prior A-B swing move. For example, in the case of Gold, it made a high in March 2008 at $1,011 and then corrected lower in one major swing move down to $713 in October 2008. If we label the March 2008 swing high as ‘A’ and the October 2008 swing low as ‘B’, we simply measure the size of that A-B swing to project where the terminus of the current swing (‘C’) may eventually be. All major charting packages offer this useful tool, and, when we plot it on our chart (omitted here for the sake of clarity) we see that the Fib 127% extension of swing A-B has already been exceeded by a price of more than $16 per ounce. That’s a pretty good indication that we should expect to see Gold power up to the next significant Fib extension ratio of 162%, which happens to be near $1,200 per ounce. Interestingly, the extreme upper Keltner band (not shown) is also near $1,200 at the time of this writing, and it will be fascinating to see how Gold reacts if and when it reaches $1,200 on this particular trend thrust. I have seen multiple cases in which Fib extension/Keltner band confluence act as powerful support or resistance barriers in any number of stocks and commodities, and Gold may also react strongly should it hit both of these powerful resistance areas at about the same time.

Finally, there is another way to measure the statistical likelihood that a trend move is ready to exhaust itself; at the top of the chart, the ‘EmaRat’ (short for EMA Ratio) indicator offers a way to measure the spread between two key EMA’s – the short-term 12-period EMA and the intermediate-term 50-period EMA. When the spread rises to (or exceeds) historically high levels, traders are advised to either run much closer stops on long positions or to prepare for a corrective move lower in which to initiate short counter-trend positions. Presently, the spread has a ways to go before it can rise to historically high levels; the horizontal blue lines indicate the high level reached by the EmaRat indicator on each of the last two price spikes in Gold; even using conservative estimates, if the indicator makes it to the lower blue line (a 1.27 to 1 ratio between the 12 and 50-period EMA’s), Gold should be very close to $1,200 per ounce. And if the upper blue line (a 1.32 to 1 ratio between the 12 and 50-period EMA’s) is reached and/or exceeded, Gold could rise to an even higher price, perhaps to $1,250 or even $1,300 per ounce.

A parting thought for Gold bugs:

All of us truly believe that Gold is destined for much higher prices in the years to come, of that there can be little or no doubt. However, don’t let your long-term belief system cause you to freeze up, unable to take some logical profits off the table, should this thrust in Gold actually reach $1,200 or even $1,300 an ounce. Be aware that commercial interests are holding extremely large short positions in the Gold futures market right now, and be sure to use stops just in case a sudden round of selling begins to overwhelm the current uptrend in Gold. We all remember what happened in 2008, and I doubt that any of us want to get sideswiped like that again. A word to the wise should be sufficient.

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Mark Brown

October 9, 2009

Although they’re more volatile than Gold, if you can position yourself on the ‘right’ side of their dominant trend, investments in fundamentally sound Gold mining shares can be even more profitable than investing in physical Gold. Here’s a look at the major trend move underway in the Gold Bugs index, one of the most widely regarded indexes that scores of precious metals equity traders and investors rely on.

My, how times do change. Less than a year ago, the share prices of virtually every senior and junior Gold mining company were on the proverbial ‘ash heap,’ and some market analysts had doubts that the bull run in the precious metals sector would ever regain a solid footing, much less soar to new highs. And yet, that’s just what happened – a complete recovery across the entire sector (including Silver and Silver mining companies, too), with Gold now at all-time highs and Silver up more than 100% in less than 12 months. Even better for those who trade Gold mining stocks, the Gold Bugs index (which tracks the performance of some of the biggest and most fundamentally sound Gold miners) is up a mind-jarring 200% since October 2008 – and the uptrend doesn’t appear to be waning yet. Let’s have a closer look at the weekly technical chart of the Gold Bugs index and examine the key trend indicators as see what they may be telling us about the future trajectory of prices for this volatile and potentially profitable sector of the market.

Gold Bugs Index Rally

Graphic credit: Metastock v.11

Let’s start at the top of the chart to focus on recent developments first; note the huge, wide-range weekly candle that just printed, one that took out the prior weekly swing high of 448.31. As you probably know, the very definition of an ‘uptrend’ is that a stock, commodity or index must have a series of higher highs and higher lows, and that’s exactly what we see on this weekly chart of the Gold Bugs index. Now, look just below the recent weekly candle and witness the ever-increasing spread between the 20-week (red line) and the 50-week (blue line) exponential moving averages (EMA’s). Note how they are both sloping upward and that the spread between them is also increasing at a steady rate; this is a sign of increasing upward momentum in the index. Moving toward the lower area of the chart, notice that the Aroon (14) trend intensity index is solidly biased toward the bullish side of its range (when the blue line is above the red line and both lines are at opposing extremes, a powerful uptrend is in motion) even as the Relative Strength index (RSI)(14) is also in a powerful uptrend. It’s also interesting to note that RSI readings above 60 are usually indicative of a powerful trend move, and with a current reading of 66.94, we can therefore conclude that this latest rally in the Gold Bugs index is no fluke. An interesting sidenote: Gold (cash basis) is up about 48% since making a major low late last year (at about $713), but did you notice that Gold stocks (as represented by the Gold Bugs index) posted gains of about four times as much during the same time period?

Does this mean that the shares of Gold mining companies are on a non-stop ride toward ever-increasing gains? Not necessarily; in fact, there are strong overhead resistance areas near 479.00 and then 520.00 that will likely act as (temporary?) consolidation and/or reversal point for the index. However, with the monthly chart of the Gold Bugs index (not shown) also displaying powerful trend characteristics, there can be little doubt that either of those key resistance areas will eventually be challenged. A solid break above 520.00 puts the Gold Bugs index into an extremely bullish posture, and that’s a price level that all Gold equity traders will be monitoring in the weeks and months to come. If the price of Gold also continues to rise (it also featuring many of the same bullish trend characteristics of the Gold Bugs index), that will also be extremely favorable toward those trading the shares of the biggest and most fundamentally attractive Gold mining companies.

This may be the most exciting time to be a Gold/Gold stock trader since at least 1979-1980, and if current trends keep strengthening, we may be on the threshold of an era in the precious metals markets that will be talked about for generations to come. Stay tuned – it’s sure to be a fascinating and potentially profitable time to be involved with the precious metals markets!

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Mark Brown
www.ETFTradingPartner.com