In yesterday’s update we noted some bullish ‘quant’ data from Sentimentrader related to the current sentiment conditions for gold. To me, it’s a moderate positive. But given the intensity of the mini crash and associated negative sentiment, I think there a good chance there is more to the bounce. At least that is the trade I took yesterday when buying 3X bull fund NUGT (per Trade Log) on the sector pullback.
GDX could well be in a bear flag as it rises on declining volume. So with the NUGT trade I have to be strict about downside limits and start thinking about risk management below Tuesday’s low (18.80 for GDX). The reason the bear flag scenario is important to respect is that there continues to be the possibility of another washout, to test the Q1 2016 lows, whenever the bounce ends.
Still, a bounce is a bounce and while the bearish engulfing candle on Tuesday may imply a bit more S/T downside, we have RSI coming from a very oversold level, MACD triggered and gaps above 19.75 and 20.50.
Gold broke the severe downtrend channel and bounced about $50/oz. That was a good bounce and it is now pulling back. 1200 becomes an important round number to hold as there is a minor shelf of S/T support there. If the bounce remains on the next target is the SMA 50 (currently 1229). MACD triggered up and both it and RSI got a little too peppy. So a S/T pullback is normal. But let’s remember we are managing a bounce here, not a new bull phase. Let’s also remember that when planning the bounce resistance was noted to begin at 1220, which has already been registered.
Silver has under performed and if there is going to be a new leg to the bounce, maybe it will out perform. It too became very oversold, but has a triggered MACD and still constructive RSI (up trending from deeply oversold). A healthy bounce could bring silver to around 15.40, where there is a shelf of resistance.
Bottom Line
Easy now, it’s just a bounce (from semi-panicked lows) until it proves otherwise either technically or just as importantly, fundamentally.
There is no sign that the bounce is over yet.
But we have a valid case that could see this as a relief rally prior to new – and perhaps final – lows that could be a ‘buy w/ both hands’ type of situation if the macro is falling apart at such time.
So for now let’s just do as we’ve been doing and call it a bounce that is still viable but needs to resume upward sooner rather than later.
