Today is November 6th, we still do not have a President-elect, and the legal fight over ballots and vote-counting seems destined to drag on for weeks, if not months. For those investors determined to allocate capital based upon the election outcome, the uncertainty can be paralyzing. We can expect a likelihood of a split government, but there is no certainty beyond that. My solution is to follow price.
In my last piece, I noted that precious metals were trending up, and the US Dollar was trending down. Yesterday’s price action confirmed that, following a multi-week consolidation period, these trends have resumed.
Big Gold Breakout
Using the March peak/trough in gold has been a reliable Fibonacci measure for extension levels. The pullback from the August high was nothing more than a rejection at the 261.8 Fibonacci extension and a retest of the breakout at the 161.8 extension. Yesterday’s bull wedge breakout on a monster $50 candle, while breaking out above the 50 day moving average, suggests that gold is setting up for another run to 261.8 extension. Note also that after getting extremely overbought at the August peak, gold never hit oversold conditions throughout the entire consolidation period, suggesting that bulls are still in control.
Silver Also Confirming
Silver made a statement with yesterday’s bullish move. I noted on election night that silver looked vulnerable and needed to breakout in order to avoid future trouble. Within 48 hours price exploded out of its bull wedge on a $1.60 single day move. The chart looks extremely constructive now. The anchored volume-weighted average price from the March low held throughout the consolidation period, and similar to gold, 161.8 Fibonacci extension from the March low held, the bull wedge broke to the upside, the 50 DMA was eclipsed, and price is now retesting prior support at $26. A move above $26 should push a retest of the 261.8 Fibonacci extension.
Gold/Silver Ratio – false breakout
Earlier this week, the Gold/Silver ratio appeared to be breaking out, which was concerning for bulls. Generally, a rising GSR is a risk-off signal for metals (gold outperforming silver). The big turnaround in yesterday’s price brought the ratio back below falling resistance. As the saying goes – “from failed moves come fast moves.” A weekly close below falling resistance increases the likelihood that the ratio will continue to fall.
GDX and GDXJ Breaking Out Also
The charts of GDX (Gold Miners ETF) and GDXJ (Gold Junior Miners ETF) look very similar. The chart below is that of GDXJ. After breaking out above long term resistance at $52, price has neatly consolidated for three months forming a multi-month bull flag which perfectly retested prior resistance (now support). Yesterday, price finally broke falling resistance of the bull flag. Like gold and silver, these junior miners never hit oversold conditions through the consolidation and appear poised for the next leg higher.
Equities also look constructive
The S&P 500 is up also 300 points from the election night low. The key 3230 level – which has acted as both resistance and support and has been tested four times since May – held. Price is now coming into falling resistance from the August high. 3530 is resistance to the upside. Bulls would like to see a big push through that level to confirm the next leg higher is underway, a run that should take price to ~4,000, which is the measured move from the June breakout and the upper bound of the 12-year rising channel. Like the metals, price never hit oversold conditions on the retest of support and bulls remain in control. On the downside, 3230 remains key support, with the 200 DMA and anchored VWAP from the March low sitting just below ~3115.
The Dollar shows little sign of strength
From a technical perspective, the trend in the dollar is down. This is a fact, not opinion. The dollar has a downward sloping 200 DMA, hit oversold conditions twice during the summer, never was overbought on the short term rally, and remains on the precipice of breaking support again at 92. This is not a chart anyone should be looking to buy. A break above 95 would change the technical outlook.
As always, I would love to hear your feedback!
The price coiling I highlighted in gold in my last post failed to the downside, which I mentioned was a possibility. There were two key levels, the 1865-1880 band, and then 1800, which would have retested the entire move. Buyers came in strong at 1865 and price held, right at the 100 day moving average. The breakdown from the pennant has created a bull wedge, and the RSI (relative strength index) never hit oversold levels, which implies to me that bulls remain in control. Gold is not completely out of the woods – a breakout of that bull wedge would confirm that 1865 was the interim low. I am looking for confirmation above 1935 and then 1950 for next sizable move. The price action in silver and the miners confirm this thesis.
Like gold, silver never got oversold on the 14-day RSI during the recent selloff, and price similarly bottom-ticked the 100 DMA. A break above the recent high of 24.57 should set up a retest of 26.
GDX – Gold Miners ETF
GDX appears to have successfully recovered support at 39. At the moment, the recent sell off looks like a false breakdown from horizontal support, and price has formed a bull flag during this recent consolidation. Like the metals, RSI never got oversold during the sell off. This looks to me like a 2-3 month healthy consolidation in order to digest the explosive gains from the March low. Bulls just need price to stay above 37.
GDXJ – Junior Gold Miners ETF
The junior gold miners look even better than the majors. The entire selloff has been a simple retest of the breakout from the 2016 high. Like GDX, price has just been consolidating for 2-3 months and has formed a bull flag into support. RSI never got oversold during the selloff. Bulls want price to stay above 52.
In a bull market, we want to see silver outperforming gold on a relative basis, which implies a lower ratio. In the chart below, we can see that the trend remains down, and the ratio is pushing up against falling resistance. A breakout in price should send the ratio falling back towards a retest of the 68 level. In this case, we notice that the RSI was “oversold”, meaning the downward fall became extreme, and the pullback never hit overbought levels, which implies that the downwards pressure is prevailing. These signs indicate silver outperformance, which is far more prevalent when prices are rising than when they are falling. A breakout of this ratio would imply a skew towards risk off, which would be less bullish generally.
As always, we would love to hear your feedback.
Gold Breaks Out; Silver Gearing Up for a Move
Gold bugs should be pleased with the monthly performance of gold in January. The definitive monthly break of the $1520 level, which had acted as strong monthly support six times between 2011-2013, before serving as resistance during this recent consolidation period between August and December, has sent a bullish longer term signal to the market.
Bullish Tailwinds in US Housing
In this video, I review key technicals in the US housing market, specifically the real estate ETF REZ, home construction ETF ITB, mortgage rates and lumber. I also explore some key demographic trends that could help fuel the rise in the US housing market.
As always, I hope this is helpful, and I welcome any feedback or questions.