Technical Analysis

Gold prices have made little net progress over the past four months. Little net progress is typical of a corrective consolidative move. Gold prices, as of today, are still less than a 38% retracement of the December 2016 to February 2017 up trend. A shallow retracement of that nature suggests the longer term bull trend from December is not quite over.

Using Elliott Wave theory as a model, the sideways correction that began February 27 is likely a ‘B’ wave. Two higher probability patterns is that we are in a ‘B’ wave triangle or a ‘B’ wave flat pattern. Both patterns imply the same thing in that a bullish resolution eventually takes place. The start of the next bull run depends on which pattern (the triangle or the flat) emerges.

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The market has taken back most of the ~100-point gap, and is also trying to recapture that broken trend-line. Looking for points of resistance: On a sustained rally, first up is the gap-fill and the under-side of the broken wedge, followed by the record high at 12842.

Should we see the market fail to push beyond the gap and roll over we will look back towards the session low at 12770 first. A break below the intra-day low brings the 12660 area into play.

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Yesterday, global stocks were shaken on political upheaval in Washington. The FTSE 100 managed to escape yesterday’s sessions relatively unscathed, but it wasn’t until the afternoon session in the U.S. (when London was closed) that the S&P 500 took another big leg lower to close near the lows of the day. We saw this spill-over into Asia overnight and Europe is under a bit of pressure at the time of this writing.

With a little more selling, on a drop below the old March high the market will find itself at an interesting juncture – the 2013 top-side trend-line we’ve been discussing for several months. Last week there was only a little pause on approach before slashing through on Friday.

Given the lines influence as resistance since January will it now have an important impact as support, or will we see another event like in March where it traded above for a couple of days before retreating back below? The difference between then and now and perhaps the difference-maker, is that in March the footsie started wobbling as soon as it broke above; while this time there was a clean break with momentum. A lot depends on how bad things get in the U.S. – whether it’s a short-lived reaction to turmoil surrounding the Trump administration or the beginning of a significant decline. The thinking on this end is there is at least a little more weakness in store, but not sure just yet it turns into a rout.

Keeping it simple and consistent in approach, we’ll react to price action as per usual. On a drop into old resistance now turned potentially new support (~7400), how the market responds will be the tell. With lesser importance, the April trend-line is also in the vicinity. If buyers step in, then we may have a successful test on our hands; but drop on through, then we could see a larger decline unfold and the recent surge will have turned out to be another false breakout.

FTSE 100: Daily

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Spot Gold: Retail trader data shows 80.9% of traders are net-long with the ratio of traders long to short at 4.23 to 1. The number of traders net-long is 2.3% lower than yesterday and 13.9% lower from last week, while the number of traders net-short is 8.7% lower than yesterday and 5.2% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Spot Gold trading bias.

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The 2380 level was an important one for a few weeks as the market consolidated just above it following the first round of the French elections. It held on several occasions, and when the market took a hit last week it was sliced through with ease. On Friday, the market attempted to break back above but settled out the week right at the key juncture. So far, this week that key level hasn’t been anything more than an afterthought.

Yesterday, the S&P filled last week’s gap, with the next level of resistance arriving not far ahead at the record high of 2306. Should we see a push to that point or just beyond, can the market continue its recent surge, or will it be a fake-out breakout? Often times indices will breach a key level only to take the rug out from beneath those who most recently entered the market. With that in mind, entries are favored on pullbacks if conditions are right, not chasing breakouts. A rejection off the highs may shift the market lower with range-trading coming into play as general conditions become increasingly unclear. Should we see a move lower our biggest interest will be in how the 2380 level is handled. A hold, and we may see a push back towards the highs; a fold below and the market may be looking to at least probe last week’s low.

Heads up: Later today, the FOMC minutes from the earlier-month meeting will be released. When the March minutes were released on April 5 the market underwent an unexpected bout of volatility. It seems unlikely we will have a redux, but traders need to be prepared regardless.

S&P 500: Daily

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Gold prices appear to be grinding sideways in an Elliott Wave triangle. Currently, the range boundary on gold prices are locked between $1214 and $1295.

Though an immediate break above $1295 cannot be ruled out since the larger trend is incomplete, we think gold prices continue to chop sideways to finalize the triangle pattern first.

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Our data shows a massive 83% of traders with open positions in the US 500 remain short, while positions on the Dow Jones-tracking ‘Wall Street’ contract stand at 85% short and FTSE 100 at a near-record 90% short.

The major caveat is nonetheless simple: price and sentiment extremes are, by definition, only clear in hindsight. If we look at past incidences of such one-sided positioning it seems clear they precede key turning points: the S&P 500 and Dow Jones reversed lower through early March when sentiment hit over 80% short (below 20% long). Of course sentiment remained at least 80% short for over a month as both indices continued onto fresh record highs. It remains impossible to identify the true sentiment extreme, and caution is advised against joining ‘the crowd’ as they sell into equity market gains.

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Dow Jones Industrial Average (DJIA) has recovered well from the losses stemming from May 17. With DJIA printing above 21,078 late last week, it alters the pattern we were following some. Previously, we were looking for a small dip in price to offer a buying opportunity towards new highs. As we see below, the door is now opened for a slightly larger dip back towards 20,440.

From an Elliott Wave perspective, we have the current wave higher labeled as wave (b). This Elliott Wave model allows for the current wave to continue higher up to 21,471, though it doesn’t have to. Therefore, between now and around 21,471, DJIA is at risk of finishing this shorter term uptrend in favor of a sell off back towards 20,440.


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The week has started on a fleet foot for Gold prices, as the yellow metal has run down to set a new monthly low before the U.S. opens for business. The driver of the move appears to be a German IFO survey that printed at its strongest reading in 47 years, and this is the highest level that we’ve seen the indicator print since the reunification of Germany. With sentiment surveys, we’ll often see a type of leading relationship; so this IFO survey is highlighting that we may see a stronger pattern of growth in the months-ahead as Germany goes into an election cycle beginning in August.

We’ve seen an outsized move to open the week, we can associate the predominant trend as being bearish. But – given the four hours of price action that we’ve seen where buyers have pushed prices back above prior support at $1,240, and traders would probably want to wait for a better with nearby resistance rather than chasing the move. On the 30-minute chart below, we’re looking at four potential areas to watch for ‘lower-high’ resistance in trading the move-lower.

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The traders return on Wednesday to the release of FOMC meeting minutes from the bank’s rate decision in June followed by Non-Farm Payrolls on Friday. And given the pronounced down-trend that’s been seen in the Greenback of late, with fresh 10-month lows printing on Friday just ahead of the close of Q2 – there will likely be considerable focus on these drivers as traders attempt to read the tea leaves around what the Fed might be doing in the second half of the year.

This is relevant for Gold prices given the fact that the continued sell-off in the Dollar has failed to inspire any lasting strength in Gold: While the U.S. Dollar drove down to 10-month lows, Gold prices continued to sell-off to fresh seven-week lows, and this speaks to the rising inflation expectations being seen globally after last week’s comments from Fed Chair Janet Yellen and ECB President, Mario Draghi. This can keep Gold prices moving-lower even, with USD-weakness, and traders can continue to move-forward with a down-side bias for Gold prices.

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