Is Gold Changing Trend or Seeing A Bear Market Bounce?

While the focus for 2016 has been squarely on equities, China, and oil, gold has been an interesting market to follow for the beginning of this new year. Below I’ll be reviewing three charts for gold ($GLD) and share my insights into what’s been taking place in the price action.

Monthly
First up is the monthly chart for gold ($GC_F) going back to 2005. I’ve included the 50-month Exponential Moving Average as well. While I typically use Simple MA’s more often, when looking at monthly charts with longer time frames being included in the average, an Exponential Moving Average can often provide a clearer picture, as it gives a stronger weight to the most current data.

As we can see in the chart below, the trend in price has been defined by the 50-month EMA, which has been a form of resistance since 2013 and is where gold prices are currently testing. I also would point out the level we’re at in the Relative Strength Index (RSI) – while this momentum indicator has been in a multi-year bearish range, it recently has broken out to a new 3 year high.

monthly gold

Weekly
Next we have the weekly chart. Here we can see the nice bullish divergences that have been taking place in momentum for both the RSI and MACD indicators. The RSI made its low back in 2013 and has been making higher lows ever since. While the MACD has been in a range since 2014. Price has been in a declining channel as shown by the blue trend lines on the chart below. Last week we finally saw price break out from this channel as the RSI moved close to 70.

gold weekly

Sentiment
Finally, we have sentiment. The graph below comes from SentimenTrader and shows sentiment for gold since January 2015. As you can see, while we had been at pessimistically low levels not that long ago, gold traders have now moved this sentiment gauge near an extreme optimistic level. Jason at SentimenTrader put things nicely in his take on gold, “If gold is undergoing a long-term (six-month+) trend change, then we likely won’t see too much of a correction from here. But for the moment, the bear market is intact, and extreme optimism during a bear market is usually greeted with heavy selling pressure over a multi-week time frame.”

gold sentiment

I agree with Jason in that we are at an important moment for gold in whether it’s long-term down trend is preparing to flip. Going forward I’ll be watching to see how gold prices react to levels I’ve mentioned above (the resistance on the monthly and channel levels on weekly). I want to see how gold reacts around the $1300 level on the upside and we do get a pull back, if it respects prior resistance from the channel on the weekly chart.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

A Potential Shift in Relative Performance Between Gold and Oil

Gold has been a disaster lately, with the past few days seeing some large selling take over in this shiny metal market. I wrote about gold hitting resistance the day after gold ($GLD) peaked back in March and more recently last week I highlighted the triangle pattern that was forming on the daily gold chart with momentum hitting previous resistance. So where does gold stand now?

With the recent increase in weakness for gold ($GC_F) I wanted to show one bright spot that may be developing, at least compared to oil. Below is a chart of the relative performance between gold and crude oil ($CL_F). As a reminder, when the green line is rising we know that gold is outperforming oil. That could mean gold is rising more or gold is falling less than oilit doesn’t mean gold prices will start rising – this is just looking at the ratio between the two commodities.

The ratio right now is testing previous support going back to 2013. In late December and in August and September of last year we saw the ratio between gold and crude oil bottom around the 12.2 level. We also can see that the Relative Strength Index (RSI) as shown in the bottom panel just kissed the ‘oversold’ 30 level. Back in August ’13 we saw the RSI spend some time under 30 before seeing a shift in relative performance. However, if we go back further we can see that sometimes we just see a day or two of being ‘oversold’ in momentum before a trend change occurs in the ratio.

So with the relative performance ratio between gold and oil testing support and momentum being nearly ‘oversold’ its possible we see a shift in relative performance to begin favoring gold. We’ll see.

gold oil

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 3/17/2014

Happy St. Patrick’s Day! We go into this week of trading with an unusual $VIX expiration mid-week and five of the nine S&P sectors nearing their respective 50-day moving averages. All eyes will be on the Fed on Wednesday, with the expectation of another step up in tapering the Fed’s QE program.

Equity Trend

While we saw some selling last week, the equity  market is still firmly in an up trend. The January highs around 1850 need to be regained this week to keep the bull camp happy and to keep the previous high a solid level of support. I’ll also be watching to see how the S&P 500 ($SPX) acts around the 20-day Moving Average and if traders are able to re-take this short-term MA early in the week.

sp500 trendEquity Breadth

The Advance-Decline Line weakened alongside price last week. Since it shot up almost in a straight line in February, we do not have much to look for in regards to support for this measure of breadth, which means we can just look at the trajectory of movement it makes as price has declined. What we don’t want to see is breadth weaken at a faster pace than price, showing more severe selling than what may be showing up the day-to-day fluctuation of the S&P.

The Percentage of Stocks Above Their 200-day Moving Averages has once again fallen back under its resistance level of 72.5%. We were starting to see some strength in this data set, but that seems to have been lost with last week’s selling.

breadthEquity Momentum

The potential divergences that I highlighted two weeks ago stayed in place as price fell. With the Relative Strength Index (RSI) taking out its short-term low, we have a confirmed bearish divergence in equity momentum. We still have momentum in a bullish range, which favors an upside breakout. But if the RSI indicator is unable to break above 65 on any new highs then that will be one of the bearish signs we’ll be monitoring for prices to weaken further.

momentumGold

Gold ($GC_F) has been having a great 2014, unlike many other asset classes, with the shiny metal up nearly 15% year-to-date. In February I discussed gold breaking above resistance and showing a positive divergence in momentum. This helped give confidence in the run gold has had and taken it up to prepare for a test of $1,400/oz.

One moving average that doesn’t get mentioned very often for gold is the 300-day MA. This has acted as great support and resistance for gold and is something that’s being tested right now. As the 11-year chart below shows, during the bull market in gold, the 300-day MA acted as support during the majority of short-term corrections in price. In late-2012 we saw gold prices break through the long-term moving average and eventual 400 point drop.

Will this moving average once again be important for traders and act as resistance or will we see price break through and continue on to $1,400? If we do break the 300-day MA I’ll be watching the August ’13 high of $1,435 as the next level of resistance. The August high will likely bring about a fair share of supply into the gold market and may require bulls to take a breath if they plan to continue the up trend in price.

Finally, we also have a historically high reading in sentiment based on COT data for gold. According to SentimenTrader’s Gold Sentiment Score, gold topped out at 92% in September 2012 and is now registering at 75%, which is just under the ‘overbought’ level of 80. SentimenTrader notes that, “over the past 20 years, there have only been four other times that sentiment climbed to 75% while gold was still at least 10% below its previous 52-week high. […] Each of those times, the rally was close to petering out, leading to negative returns over the next month (at least) each time, averaging -4.6%.”

gold60-Minute S&P 500

Like we saw on the daily chart, a bearish divergence in momentum developed on the 60-minute S&P 500 chart right before the down turn as well. On any further weakness I’ll be watching the March low just above 1830 as potential support. The RSI indicator is skirting around the 30 level, so it’s possible we see some form of over-sold bounce if things do weaken further and push this momentum indicator into ‘oversold’ territory.

60min sp500Weekly Sector Performance

Once again we see the utility sector ($XLU) take the lead in relative performance of the nine S&P sectors. However, one new development last week was seeing consumer staples ($XLP) step up from being an under-performer and show some strength as traders shifted their bias to the defensive sectors of the market.

weekly sectorYear-to-Date Sector Performance

Utilities ($XLU) and health care ($XLV) continue to be the dominate forces in sector performance this year. Energy ($XLE) and industrials ($XLI) are now the worst relative performances for 2014.

ytd sectorMajor Events This Week

This will be a busy week with economic reports. We will be getting some insight on inflation and the housing market to start the week, with the always important FOMC announcement on Wednesday.

Monday: Industrial Production and Housing Market Index
Tuesday: Consumer Price Index and Housing Starts
Wednesday: FOMC Announcement
Thursday: Jobless Claims and Existing Home Sales
Friday: Quadruple Option Expiration

 

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.