Gold Weekly April 22-26, 2013

Fundamentals

Well, there were no many events on previous week. Although we see that gold prices rebound at the end of the week, still, total weekly loss was about 5%. This upward pullback looks reasonable, since plunge was really drammatic, gold is obviously over extended to the downside currently, so some relief has had to happen, I think. Investors are taking some profit and waiting for rally to enter short again, while on physical market dealers point about rush on jewelry demand, especially in Asia. 

Currently we’re mostly interesting whether this move us is just a retracement or not and try to confirm this by data. 

COT data shows huge jump in Open Iterest while speculative net long positions has remained almost the same. Interestingly, that other directional positions are remained the same as well – as commercial as non-commercial. The growth in OI was triggered by significant increasing of so called “spreading positions”. On Forex it usually calls as locked position, when ivestor uses opposite position to hedge possible drawdown. On gold market this situation appears when investors holds simultaneously long and short positions. It is difficult definitiely understand what does it mean. Either many participants believe in soon recovery and use spreading during this miserable plunge to protect position. Or this was a spontaneous decision, since market drop was fast and furious and investors have decided to enter with spread, just to consider situation coldly. 

Currently I do not see any confirmation of possible upward rebound in other fundamental data. Thus SPDR Fund has lost another 35 tones, while open interest has increased as we’ve mentioned.

The same is with gold price week-to-week close.

Although technically we know that gold strongly oversold and retracement should follow, but currently fundamental data does not show any signs of it. Thus, based on this information solid jump in spreading probably has happened due unexpected strong fall, because neither long nor shorts net positions were increased. This is looks like sign of indecision mostly, may be even shock reaction, if we could call it in this way. 

Monthly

Now it’s time to shift to pure technical moments. Curiously but here we can see how even small move on monthly chart (in the scale of monthly time frame of cause), could drastically change all analysis.

But first I want to chill you out a bit, since April bar has not closed yet. Market will feel tremendous pressure by oversold condition and it will be extremely hard to continue with this pace down. 

Thus in May or at summer’s eve I expect at least flat action, if there will not be backward move. Take a look that market was previously such tremendously oversold only in 2008 (and may be only in 2008 at all), and look what has happened next – huge upward jump. Although we have to take into consideration the overall context – market in 2008 and in 2013 is a quite different tune. Anyway, if even there will not be jump up, we should be ready for choppy and flat action with 1-2 months possibly. 

Let’s finish with oversold and speak about another tool. Gold, in fact, could stand on the eve of volatility breakout (VOB). Since it never has been as oversold as now – this could be VOB. How to trade it – we’ve discussed in most recent EUR/JPY research. Here I just want to tell, that if it will be so, this moment will give us a lot of confidence with downward continuation. But even without VOB we have a lot of things to think about.

Second moment is harmonic swings. You can see that market has exceeded it and we know that usually price moves in doubles. Thus it gives us potential destination – the same as on annual chart around 1250$. 

Third significant moment here is September 2011 bearish engulfing that could be triggered only now if April will close below 1530. Two year of expectation have made the borders are extremely important support and resistance levels. Target of this pattern and following rectangle consolidation gives the same destination – 1250. This is, as we know all time 3/8 support…

Finally, yearly pivot support 1, currently it is broken. We will see – was it a real breakout or not, but if it will be real, this will tell us that current move is not just a retracement and this will be significant from the sentiment point of view. This will give us confidence with downward action.

That’s being said, on monthly chart potential volatility breakout pattern is most important thing, I suppose. If some time ago we told about 1250 as far perspective on annual chart – we’ve got this level within a month. This is much faster than previous equal retracement down. Since downward momentum such strong – after a bounce up (may be re-testing of 1530), downward action probably will continue, and now I’m thinking even about 1000$ level as the target of long-term downward action. Upward retracement could start in August, when gold seasonally turns to bullish action. 

Weekly

Speaking about Marubozo pattern and possible downward continuation we couldn’t even imagine that it will happen as it did. Trend is strongly bearish here, market deeply oversold, but this is not a VOB, since in 2011 market was at stronger oversold level. So what utility we have on weekly chart. Unfortunately I do not see any working patterns here – only two moments that could impact on overall situation on shorter time frame.

First is combination of 1.618 extension and oversold condition. This is a kind of DiNapoli directional “Stretch” setup that is called as “Kibby trade”. General rule of trading it assumes dropping time frame to daily and wait when trend will shift bullish, then taking long position at retracement and take profit at nearest AB-CD target up.

Second I’ve drawn as Butterfly “buy”, but to be absolutely honest this is not a butterfly since second top is exceeded initial Butterfly swing. We could not treat it as butterfly, but idea is the same – market at 1.618 extension of butterfly swing. Thus, price was held by support of three different issues – oversold, AB-CD extension and retracement swing extension.

Probably we can count on achieving some daily upward targets, but here we have a lack of data and context to speak about medium-term perspective. Particularly – will market reach 1530 level by retracement now or it will happen later – as we suggested in monthly analysis. 

So, unfortunately based on weekly analysis we can be focused only on closest price action and have no tools to look a bit deeper in the future.

Daily

Trend is bearish here, market is not oversold currently. Here we also have a little to discuss. In general market is forming bearish flag - continuation pattern and has reached 50% resistance of strong black candle. In general setup looks bearish, but we have to keep in mind couple of things. 

As we’ve said previously - we can’t take short now with extended target. Since market is oversold on all time frames – we have to take profit on any short position at previous lows. Now this is 1320 level. 

Pivot points will give us great assistance on coming week. Market will open near WPP and depending on what direction it will choose we will be able to understand what to expect on coming week. Current low stands right at WPS1 and Pivot points coincide with Fib levels. As probably some of you have made attempt to take short position based on our Friday’s analysis and “222” Sell pattern on 4-hour chart – it should become clear will market continue to WPS1 or not. 

4-hour

Here we see almost the same setup as on Friday, but with more details. Actually this is AB=CD retracement, that was ended by nice looking Evening star pattern right at Fib resistance, 50% resistance on long candle on daily time frame and upper border of the channel. CD leg of AB-CD pattern is flatter than AB and suggests greater probability of pullback down.

So, if you have taken the short position – our invalidation point is a top of morning star pattern. While market holds below it – chances on downward action still exist. And here again – look at WPP on Monday. If market will test it and hold below it, then we can count on downward continuation.

1-hour

I suppose that here price action is starting to confirm our expectations about further short-term downward action. We see bearish butterfly here, that could become a part of H&S pattern. Thus, if market will take out its highs – it should tell us that something is wrong. While market will show just retracement up as right shoulder – that’s OK. Ultimate target of this move down will be probably WPS1. At the same time it is possible though that market could show just AB-CD down – we will see it in our daily updates.

Conclusion:

Fundamental picture has not changed much, sentiment on gold market is moderately bearish and downward move should continue in long-term perspective if market will hold below 1530 area. If this will indeed happen then our next long term level is 1200 area.

Speaking about perspective of nearest 1-3 days analysis shows that market can show downward move ultimately to WPS1 around 1320 if it will hold below 1425 highs. 

 

YOU SHOULD NOT TAKE ANY MATERIAL posted on this BLOG AS RECOMMENDATIONS 
TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED. 

 Do your own due diligence. 

No one knows tomorrow's price or circumstance. 
 I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader. 
I do not accept responsibility for being incorrect in my speculations on market trend. 

 King Regards