I made a note in the Trade Log about a mistake I made in putting too much stock in what were still over bullish readings in the gold miners yesterday. Today they have flipped to over bearish.
This data is set to too high a sensitivity for my liking, as it appears to track the daily swings in sentiment too closely for anyone but a pure day trader. So that caveat stated, here is the over bearish and hence contrarian bullish setup in gold mining today.
Gold has been noted by Sentimentrader as high risk for weeks now, here is a view of a still somewhat elevated but not extreme risk situation based on their accumulated data.
Regarding sentiment, I have personally been a bit vulnerable as a bull since reading these over enthusiastic pronouncements that were bullhorned in the gold community when the sector jerked bullish for all to see. Quotes below from last Friday’s post. The hypersensitive indicators above are one thing, but stuff like this has reliably been a tried and true tell on gold sector sentiment. Last Friday it sucked and the question is whether or not it has been fixed yet by this moderate pullback.
“It’s been a long time coming so enjoy this day as there will be many more to come. It’s just getting started.” (2.19.19)
“Gold appears to be rallying from the final right shoulder in a multi-shouldered inverse H&S bull continuation pattern. Incredibly, that pattern itself appears to be just the head of a much more gargantuan pattern with a target price of $3000!” (2.19.19)
“What is going on is that gold is in the early stages of a parabolic slingshot uptrend as shown, that should soon vault it above the key resistance approaching and around $1400. Once it breaks above this resistance it is expected to accelerate dramatically.” (2.19.19)
Moving on, let’s take a look at a few of the macro/sector fundamental charts before checking out gold, silver and HUI.
Gold is not making any actionable signs of ending its consolidation against major stock markets. Said markets are pushing the limits of upside and if they fail, prove this has been a bounce only and drop to at least test the Q4 2018 lows then gold would likely resume its relative uptrend. But as of now, it’s not happening.
The weekly chart is a concern with Au/SPX weekly MACD now triggering its signal lines down from a very extended reading (a reading which came in tandem with the above-quoted gold sector cheer leading). I have shaded the current and 2016 examples. In 2016 an extended ramp and trigger saw a big time correction resume within just a few months of the signal.
No predictions folks, just perspective. My highly technical take on the situation? Gold needs to get its ass in gear relative to the stock market, which is another way of saying that the stock market needs to correct in order for a healthy macro fundamental stance on the gold sector to continue.
A daily chart view of gold vs. commodities shows that gold is still locked in consolidation vs. these pro-cyclical items. The uptrend is still intact because the 50 day averages are still generally sloping up. But that trend needs to resume soon or it will become unpleasant for the sector as the cyclical economic world regains its footing.
Gold vs. USD index and Global Currencies is mainly intact on the daily charts, but pulling back a bit.
As you can see Au/Global Currencies broke out and got very frisky. This pullback is normal. Abnormal would a loss of the 61.50 area on Au/UDN.
Here is the bullish weekly view for reference.
HUI/Gold ratio dropped through the preferred support area, but that was somewhat expected. We have asked the HGR to hold the .126 area and that is where it has dropped to. This indicator needs to hold around here or the bullish signal would be compromised.
HUI pulled back as expected from the thick resistance zone of 170-180 after piercing our long held target of 170. I want to see 170 hold as support generally (with allowance for yesterday’s gap fill) and definitely do not want to see a lower low to February because there are two more gaps down there below 160. Generally, HUI’s intermediate uptrend is technically a-okay above the 50 day moving average.
Here is the larger, simplified daily chart (click to expand to full size). You can see the upside break that got the bugs lathered up and the pullback that now has them supposedly over bearish. HUI dropped through the first support area and has another below. All normal thus far but again, the concern being the anecdotal sentiment eruption from last week.
The weekly quiets things down and notes that a continued pullback would only be normal within the uptrend channel after the long-term trend line breakout. HUI is nesting just above the EMA 55 (164.82), which we’d like to see remain intact. That generally coincides with the lateral support and 50 day moving average convergence shown on the first daily chart above.
Gold broke through the initial support area yesterday and this morning is generally floating back up to test that breakdown. There is more support as shown if gold does not get back on the rally here.
A reminder that all of this is coming from a key long-term resistance area that gold must break through in order to confirm a bull market.
If you believe silver leadership is important you do not like this chart.
Silver as shown above is miles from a bull market signal but more immediately needs to clear 16.20 to end concerns about the very notable resistance defined by the multiple 2018 lows before the price finally gave way last summer.
Sentiment: Mixed, as short-term indicators spring back to over bearish (contrary bullish) but tried and true anecdotal indicators are a concern. You may think I joke about that, but I do not. I have been around this sector too long and seen too many events that brought the cheer leaders out to pump the troops. Latest example was the first half of 2016 when the pumping was hyper-vigorous despite the waning fundamentals.
Macro/Sector Fundamentals: Still in consolidation and it is simple, really. In 2016 the cyclical world – as evidenced by our Semi signals, gold/oil ratio, etc. – regained its footing and the gold sector went back to its bear market. Now positive strides were made for the counter-cyclical case in Q4 2018. That is now in consolidation, which needs to end soon or the gold sector’s fundamentals would erode beyond just “consolidation”. Situation intact, but reaching a point where it should begin the next leg up or fail. Watch for stock market correction or lack thereof.
Technicals: Gold stocks (and silver stocks), gold and silver are all still in their intermediate uptrends and the nominal technical picture is still healthy.