Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Not a Flag / Pennant, But a Top - New Longs About to be Fleeced...

Commodities / Gold and Silver 2016 Mar 07, 2016 - 09:21 AM GMT

By: Clive_Maund

Commodities

Many analysts and writers have described the pattern forming in the past couple of weeks in gold as a "bull Flag or Pennant" with some appearing to be "playing to the gallery" - i.e. telling their audience what they want to hear, which is that gold will continue to go up. I, on the other hand, decided that the triangle that had formed was not a continuation pattern, but a top, and said so about a week ago. So, as you will readily understand, I was not looking good when gold seemingly broke out upside on Thursday, and came in for considerable flak. However, on Friday there were some dramatic developments across the sector which look set to vindicate my stance.


When you buy a used car it is not enough to look at the clean shiny exterior and decide as many do, that the car is good - you have to know what its internal state is - the condition of the motor and the transmission etc. which means you have to poke around and dig deeper. In the same way it is not enough to look at the price pattern in something like gold and say "It's looks like a bull Flag and therefore it is a bull Flag" - you have to know what's going on beneath the surface - in the "internal plumbing" of the market so to speak, and we do this by using COT data and the volume pattern, and as we will see, the internal state of this market is not good at all and calls for a sharp drop soon that will take most by surprise. There are a number of compelling reasons to expect an intermediate correction in the Precious Metals sector imminently that could be severe, which we will now proceed to look at.

Starting with the 1-year chart for gold, we see that it has made a parabolic slingshot advance that has brought it to the trendline target shown, where the advance hit a wall. Many are expecting the choppy action of the past couple of weeks to be followed by another sharp upleg, but that looks highly unlikely to several reasons. In the 1st place, look at how steep the parabola has become - even if gold has started a new bullmarket, do you really expect it to just go up vertically, like a rocket, without any reactions of periods of consolidation?

Gold 1-Year Chart

If you think that gold is going up from here, I suggest you take a trip down to your local skate park and watch the kids in action. See what happens immediately after they zip up a ramp that becomes vertical - if they are good they might work in some turns or spins, like the triangle on our gold chart, but after that it's kind of difficult to resume the upward path. Take a look at the following picture and rate the chances of the skater going vertically upwards from this position. Not very high are they? - so why do you think gold should be any different after its vertical ramp?

Another important reason why the triangular pattern of the past few weeks is not viewed as a valid Flag or Pennant, is that the volume pattern is not consistent with it being one. Volume should die back steadily to a low level as the pattern forms, and clearly it has not, as we can see on the 7-month chart for gold below. Thursday's supposed breakout from the Pennant, which is viewed as false, did not make it past the target line projected from the peak of last August, then on Friday a "Spinning Top" candlestick appeared whose bearish implications are magnified by the fact that it occurred on multi-month record volume, and confirmed by very bearish candles appearing all over the sector at the same time.

Gold 7-Month Chart

The latest gold COTs are a disaster with Commercial shorts, which were already high a week ago having piled up even more, and since this data is for Tuesday night's close, you can bet that they went even higher on Thursday's advance to new highs. Now, I've heard the justification that they reach higher peaks in a bullmarket uptrend, but even so, taking the other factors detailed here into account, this looks bad - and it won't be the Commercials on the losing side if gold if now proceeds to drop.

Gold CoT

Our next chart shows that there aren't many investors left to turn bullish on gold stocks, which is clearly a dangerous situation. The Gold Miners Bullish Percent Index has ramped from about 14% to 72% is just 6 weeks...

Daily Gold Chart

They're nearly all in - so it's fleecing time again!

A group of new longs contemplates their fate...

Sheeples

Now we will take a look at concurrent ominous developments across the sector late on Friday, which all point to the same thing - a breakdown and drop. We start with the 3-month chart for the Market Vectors Gold Miners, on which a very bearish prominent "Gravestone Doji" appeared...

Market Vectors Gold Miners 3-Month Chart

As Steve Nison writes in his terrific book "Japanese Candlestick Charting Techniques" - "The gravestone's forte is in calling tops. The shape of the gravestone doji makes its name appropriate. As we have discussed, many of the Japanese technical terms are based on military analogies. In Japanese candlestick literature, it is said that the gravestone doji represents the gravestone of the bulls that have died defending their territory." So there you have it.

The very same candlestick also appeared on the Direxion Gold Miners Bull 3X Shares chart...

Direxion Gold Miners Bull 3X Shares Daily Chart

As you would expect the inverse candlestick, a "Dragonfly Doji", appeared on the chart Direxion Gold Miners Bear 3X Shares chart, and what was notable here also was that volume exploded to titanic record levels, a sure sign of a reversal...

Direxion Gold Miners Bear 3X Shares Daily Chart

Silver and silver related investments also showed reversal candles, with a fine bull hammer appearing on the chart for ProShares Ultrashort Silver, right at support at the February low.

ProShares UltraShort Silver 3-Month Daily Chart

Finally, the "Moron Index", a proprietary clivemaund.com indicator, has spiked over the past couple of weeks. This is carefully calculated on the basis of the number of Emails I get from people telling me that I am wrong, and laced with insults and profanities. This is usually a very reliable indicator, since such people, by their very nature, are led by cheerleaders, and thus invariably end up on the wrong side of the trade.

Conclusion: we are at an intermediate top, and recent new longs will end up being fleeced.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2016 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in