What is still only a routine and thus far healthy correction for stocks grinds on. As would be expected, gold is firmer with this backdrop of angst. However, it still trends down in ratio to stocks, commodities, materials and other markets positively correlated to cyclical inflation.*
We have projected that an oversold bounce or even trade-able rally can happen at any time in the precious metals complex. This morning’s futures shows the gold price below the down-trending SMA 50/200 and also its EMA 20. So as yet, nothing actionable is going on. But it is holding the support at the top of the 2020 recovery pattern. So it is viable to rally, at least.
Bigger picture, 1920 is the gateway to a confirmed handle break (we are still on the monthly chart’s bullish Cup & Handle) and there is a lot of resistance between here and there.
Silver is bouncing from just above the 21.23 support (2016 high, not shown) and you can see stronger support below at 18.90 formed by the top of the 2020 crash pattern. While silver can rally here (positive CoT, bleak sector sentiment) from a notable support level, there is a ton of resistance above, beginning at 23.63 and the SMA 50 (blue). Should a rally get going and take out that marker the SMA 200 awaits at another thick resistance area at 25.70. Silver would need 29+ to confirm a ‘next bull leg’ type situation.
Our 3 targets for HUI have been 230, 212 & 185. 230 is a full 62% Fib retrace of the rally out of the 2020 crash. Huey is grappling with that support now. If it holds and rallies the first key objective is where the SMA 50 is declining to meet minor lateral resistance in the low-mid 240s. Next resistance is the mid-250s and if the bugs really start to party, the 270s, which currently holds the down-trending SMA 200 and lateral resistance.
I’ve shaded the pattern by which we came up with the 185 target. It’s a simple measurement off of what TAs like to call a “complex” H&S, but which I call a freak. An ugly freak.
If the sector bounces and if the macro changes (with gold out-performing the items noted in paragraph 1), then we’ll increase bullishness accordingly. But right now it is an index that can rally from an oversold, over-bearish sentiment situation with macro fundamentals that are not in line. Resistance levels are noted.
* By which I mean an inflationary environment still working to keep cyclical asset prices trending up.