by Kimble Charting Solutions
Friday, August 12, 2011
Gold Warning, Cyclical 34 Month Bull Run is About to End
By: David_Banister
Gold hit $1805 tonight in trading, a Fibonacci Fractal figure I gave out a few weeks ago as a possible top. We are close to a near term high in Gold and Investors should be trimming back positions on this run. Back as recently as $1600 an ounce I forecasted a run to $1805 for Gold using fractal and wave analysis and behavioral patterns, now that we hit that figure it’s time to update the cycle and where we are.
Here is the Chart I did at 1599 gold on July 22nd:
I have been a Gold Bull since November 2001, having conducted seminars for public employees on investing back then and advising gold mutual funds and gold stocks very early. I have talked in the past about a 13 fibonacci year Gold Bull cycle that will end around 2014, so there are still three years left in my opinion. However, gold does have peaks and valleys and has moved in very clear Wave and Fibonacci fractal patterns for years.
Given the history of how I have forecasted Gold, I am going to share my short term and moderately long term views on where we are in the up cycle which I expect to last 13 fibonacci years to 2014. Right now it is my opinion that we are completing a MAJOR WAVE 3 up in Gold from the 2001 lows from $300 an ounce. We have had a 34 fibonacci month rally since the October 2008 lows of $681 per ounce. Every Taxi driver, CNBC guest or analyst, and 200 Radio and TV commercials a day are blaring to buy Gold. This is how intermediate tops form.
The rough wave count is below:
Wave 1- 300 to 1030
Wave 2- 1030 to 681 (October 2008 lows)
Wave 3- 618- 1805 currently, 34 Fibonacci month cycle. *Likely high is 1862-1900*
Wave 4- Due up next… a multi month consolidation
Wave 1- 300 to 1030
Wave 2- 1030 to 681 (October 2008 lows)
Wave 3- 618- 1805 currently, 34 Fibonacci month cycle. *Likely high is 1862-1900*
Wave 4- Due up next… a multi month consolidation
It is my opinion that at the top of a Major wave 3 in Gold, that everyone should be univerally bullish, that gold radio and TV commercials would be all over the place, and that everyone on CNBC would be talking about and recommending Gold.
Sound familiar?
So the likely conclusion to this massive parabolic blow off top of Wave 3 is nigh. Most recently I upped my estimates to as high as $1900 per ounce with $1805 already here as of tonight, which was one of my figures by the way many weeks ago. Gold should under normal circumstances top between 1862 and 1900 per ounce fairly soon should the 1805 level not hold as a high. At that level we will be dramatically overbought. We are already running 15.7% above the 20 week moving average line which historically is about as high as Gold will get before correcting hard and consolidating. A final lift to the 1862-1900 ranges should lead to a fairly good sized correction to the downside designed to kick all the late comer Taxi Cab driving buyers off the bull’s back. With that said, at $1805 I would be trimming my position and or hedging my long positions aggressively.
Watch for a Maximum Gold top at 1862 -1900 per ounce and keep in mind 1805 is being hit tonight and that is a qualifying fibonacci fractal top as well. Investors should be trimming back positions and looking to re-deploy back into Gold at better prices. We could get a huge blow off top over 1900, but it would be very very rare if it happens.
Gold Loves A Sovereign Downgrade
By Tim Iacono
Of course, the Bank of China has also probably purchased 100 tonnes or more in the last month – they just won’t tell anyone about it until about 2014 or so.
As for silver, it appears to be parting ways with the yellow metal and, based on the plunging premiums being paid over at the Sprott Physical Silver Trust, that trend may accelerate. Over 20 percent just a few days ago, the premium dropped to less than 15 percent on Aug. 8 as the metal looks to have become untethered from gold and latched onto industrial metals that have been in a virtual free-fall lately.
ChartMatters: Stock Market Volatility In Review
By Doug Short
As the chart above illustrates, the correlation between the S&P 500 and the VIX is inverse but imperfectly so. The lower low in the summer of 2008, when the index nearly dipped to 1200, came with a lower VIX in the upper 20s. More significantly, the unprecedented surges in the VIX above 80 in late 2008 predated the actual index low by over three months.
A key to understanding the VIX is to realize that it can be far more volatile than the index to which it is attached. The next chart inverts the VIX values, which helps us see more clearly the greater degree volatility and the fact that the VIX tends to lead the S&P 500.
In particular, we can see the increase in volatility associated with the 16% correction that began in April 2010 and ended in early July. The immediate question is whether the spike in volatility during the past few days, which included two 30% plus spikes, is a leading indicator of additional market decline.
Signs of Dollar Strength Emerging
by Greg Harmon
The US Dollar Index has been mired in a broad range between 73.50 and 76 for over 3 months. Looking at the chart of index itself does not show much to give a member of the Treasury Department any joy. Just more of the same. But the US Dollar Index ($UUP) measured against Gold ($GLD) and against US Treasuries ($TLT) is showing some signs of strength. From the ratio chart below of $GLD against $UUP on a weekly basis Gold is close to flashing a sell signal against the US Dollar that has been accurate for the last 4 years. Whenever the ratio breaks the upper
Bollinger band and the Relative Strength Index starts to fall after exceeding 70, it falls back to at least the mid line of the Bollinger bands. Next week could be the trigger.
From the weekly ratio chart of $TLT against $UUP the ‘W-V’ pattern has completed but now the it is the last two candles that draw attention to this pair. Both of these candles are out of the Bollinger bands and both have very long upper shadows, topping tails. If the weekly candle finishes here or
lower then it will print a shooting star. This is a possible reversal candle, but needs to be confirmed next week as well. The RSI on this pair is also into overbought territory, adding to the possibility of a pullback.
This US Dollar strength is important to watch to see if it expands to the point of creating early signs of weakness in Gold or Treasuries. A crack in Gold or Treasuries could confirm a bottom in the S&P 500 ($SPY) as noted in the article below on the correlation between $SPY and $TLT. Keep an eye in this space.
Global Banks Can Fall Further
Even after sharp recent declines, the chart patterns show that four of the most prominent global bank stocks still have more downside potential.
As if the US debt-ceiling debacle and credit downgrade wasn’t enough, now the market has shifted its attention to rumors swirling in Europe about the solvency of several large banks and even an entire country.
France has come under the gun, as it has invested heavily to help prop up Italy and Spain, putting its own credit rating at risk in the process. Though the French banks received most of the attention, it is important to look at some of the other major global banks.
By applying basic chart projection techniques, we can get a better idea of whether this is the beginning or the end of the slide.
Click to EnlargeChart Analysis: Banco Santander (STD) is a $56 billion bank that operates primarily in Spain, the United Kingdom, and other European countries. The stock was down over 9% Wednesday. The weekly chart shows that over the past few weeks, it has completed a flag formation (lines a and b) that was last highlighted in March. (See “Two Stressed Out Euro Banks.”)
- After collapsing from the 2009 high at $17.89, STD slightly exceeded the 50% retracement resistance but stayed below the more important 61.8% resistance level
- By measuring the width of the flag formation (line 1), you can subtract this distance from support at line b to get a downside target. This projects a drop to the $5 area (see arrow)
- Volume has been heavy, dropping the weekly on-balance volume (OBV) below its support at line c
- There is first strong resistance now in the $9.40-$10 area
Deutsche Bank (DB) looks ready to close below important weekly support (line e) this week. The rally from the 2009 lows hit a high of $77.49 in October 2009, but failed to reach the 50% resistance of the decline from the 2007 highs at $145.77. The stock dropped 11.5% Wednesday to close at $40.36.
- There is next good support for DB in the $38-$35.50 area
- The width of the weekly trading range (lines d and e) is $26, and this range can be used to give downside targets. This width (line 2) can be subtracted from the breakdown level at $45 (line e) to give a downside target in the $19 area
- The weekly OBV dropped below its weighted moving average (WMA) in May and then violated more important support at line g. The daily OBV (not shown) is also negative
- There is initial resistance in the $45-$46 area, which corresponds to last week’s lows
Click to EnlargeChart Analysis: Banco Santander (STD) is a $56 billion bank that operates primarily in Spain, the United Kingdom, and other European countries. The stock was down over 9% Wednesday. The weekly chart shows that over the past few weeks, it has completed a flag formation (lines a and b) that was last highlighted in March. (See “Two Stressed Out Euro Banks.”)
- After collapsing from the 2009 high at $17.89, STD slightly exceeded the 50% retracement resistance but stayed below the more important 61.8% resistance level
- By measuring the width of the flag formation (line 1), you can subtract this distance from support at line b to get a downside target. This projects a drop to the $5 area (see arrow)
- Volume has been heavy, dropping the weekly on-balance volume (OBV) below its support at line c
- There is first strong resistance now in the $9.40-$10 area
Deutsche Bank (DB) looks ready to close below important weekly support (line e) this week. The rally from the 2009 lows hit a high of $77.49 in October 2009, but failed to reach the 50% resistance of the decline from the 2007 highs at $145.77. The stock dropped 11.5% Wednesday to close at $40.36.
- There is next good support for DB in the $38-$35.50 area
- The width of the weekly trading range (lines d and e) is $26, and this range can be used to give downside targets. This width (line 2) can be subtracted from the breakdown level at $45 (line e) to give a downside target in the $19 area
- The weekly OBV dropped below its weighted moving average (WMA) in May and then violated more important support at line g. The daily OBV (not shown) is also negative
- There is initial resistance in the $45-$46 area, which corresponds to last week’s lows
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