gld – Andrew Thrasher

Is Gold Changing Trend or Seeing A Bear Market Bounce?

Posted on February 16, 2016 by Andrew Thrasher, CMT

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.

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.

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.”

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.

Weekly Technical Market Outlook 3/17/2014

Posted on March 17, 2014 by Andrew Thrasher, CMT

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.

Equity 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.

Equity 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.

Gold

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%.”

60-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.

Weekly 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.

Year-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.

Major 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

Commodities Rally But May Need A Breather

Posted on February 26, 2014 by Andrew Thrasher, CMT

To start the year I said my one prediction for 2014 was that commodities were too beaten down and could rally. We finished 2013 with sentiment at historic lows and it seemed everyone had turned their back on this asset class.

In Phil Pearlman’s Yahoo! Finance article, 2014 Predictions from Some of the Smartest Market Watchers I said:

Sentiment for agriculture and metals are at or near historic lows. For example, nearly all three categories of the Commitment of Traders report, Commercial, Large Traders, and Small Traders are short or near a net-short position for gold. Typically we see the most hated areas of the market one year rotate back to strength the following year. I’ll be watching to see if this happens for the commodities market in 2014. While commodities are very weather dependent, there’s a chance we see at least a partial rotation back to the beaten down agriculture and metal markets.

Well I didn’t expect commodities to rally as fast as they have. Year-to-date the PowerShares Agriculture ETF ($DBA) is up nearly 11% and gold ($GLD) has advanced 7% while the equity market has gained just 1%. I still think commodities could see higher prices, especially with the awful winter most of the country has been having as well as the drought that’s hit the west coast.

However, I think the current rally is becoming a little overextended and must now contend with trend line resistance. Below is a weekly chart of the PowerShares Multi-Sector Agriculture ETF ($DBA) going back to 2010. I’ve drawn a blue line to connect the previous highs and this takes us to where price currently sits this week. $DBA has broken out of its weekly Bollinger Bands, as has the Relative Strength Index which is in the top panel of the chart. With stocks not replicating the 2013 pattern of “never go down” traders appear to have come to the realization that there are in fact other asset classes to own! The difference in the current rally compared to what we saw in 2010, was the slow advance that took commodity prices to historic highs. We rarely saw price break above its upper Bollinger Band on the weekly chart as buyers formed an orderly line to pick up their shares.

I would be comfortable with seeing $DBA consolidate at current levels or test the previous high near $26 from last October. This would allow those that have missed the boat the opportunity to participate and potentially take the ETF to its 2012 high of $31.

Taking a look at sentiment, specifically the COT data set, we can see traders have pushed this measure near historic levels. SentimenTrader creates this Commodity COT Master Indicator to show a global picture of commodity sentiment and how traders are currently positioned. While we aren’t there at highs yet, we are approaching a level that has previously cooled off rallies in the past.

Commodities are still an asset class I am watching for 2014 and is a place we may see traders seek shelter during any increase in volatility within the stock and bond markets. We’ll see what happens.

Source: SentimenTrader

Is Gold Getting Ready to Break Resistance?

Posted on February 12, 2014 by Andrew Thrasher, CMT

Patience has been a requirement for those that have been bullish on gold. Having dropped nearly 30% last year, the shiny commodity was one of the worst performing asset classes in 2013. That is exactly why its been on my radar for this year. With it’s historically low sentiment readings and lack of interest in the trader community, gold is an asset that could shine in 2014. We just need the right setup.

I’ve been watching the 150-day moving average as support and resistance for gold, (which is the 30-week moving average as show on the chart below). I’ve marked arrows to show past instances where gold has met this moving average over the last couple of years. In 2012 as gold began to consolidate the commodity began to whipsaw above and below the moving average before ultimately beginning its decline. During the drop in ’13 we hit the 30-week (150-day) MA three times as it smacked buyers in the face. Price is now back up against this level and I’m watching to see if gold bulls have what it takes to break above and send gold prices higher as it begins a new up trend.

Taking a look at momentum, specifically the Relative Strength Index (RSI) indicator, we can see a positive divergence was been put in place as price created a double bottom just under $1200 and the RSI put in a higher low. With the recent rise in price, the momentum indicator is now testing resistance at the 50 level.

If we see price break above its moving average while momentum breaks above its own resistance, I think that could be very bullish for this precious metal.

Crude Oil and Gold Relationship Hits Support

Posted on January 8, 2014 by Andrew Thrasher, CMT

There’s an interesting relationship between crude oil ($CL_F) and gold ($GC_F) that I like to keep an eye on. When the green line on the chart below is rising we know that crude oil is outperforming (rising more or falling less) than gold. This was the case for much of 2013 as gold dropped for nearly the entire year while oil rose from January until September and then weakened into December.

The ratio between crude and gold is now testing support on the trend line from the March and November lows. If things improve in the relative performance of oil against gold then we should see the Relative Strength Index hold above 35/30 and see the green line bounce off support. I’ll be watching this relationship this week and see if the trend line is able to hold.

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