Written by The Financial Tap
More of the same unresolved and non-committal action out of the precious metals markets this past week. Once again gold has reached a junction which should provide us with a road-map for where gold is headed in the immediate future. One fork at this junction, the bullish fork, we’re looking at this as just Day 7 of a brand new Investor Cycle. If this were the path gold has taken, then gold must break $1,696 next week. But taking the bearish fork has us still in a 5th Daily Cycle, with multiple possibilities with regards to the actual Daily Cycle count (Day 7, 18, and 25 possible).
Having reviewed the Cycle charts further this weekend I’ve determined that marking the DCL is inconclusive at this point. As the Daily Cycles have recently woven a pattern of declining mini peaks and troughs, they have left behind 3 lows that could all qualify for a Cycle Low (Dec 3rd, Dec 20th, and Jan 2nd). However the time period encompassing this period could only possibly support two Daily Cycle Lows. We’re left in the uncomfortable position of not knowing which 2 of the 3 are indeed the Cycle Lows and this has a direct impact on our short term projections.
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You will notice from the above chart that attempting to get a jump start on a Cycle Low these past 2 months would have only end in further declines and losses. As long as the declining trend-line holds and the Weekly Swing Low in not triggered then we’re only speculating that the last low was also the ICL. Predicting and trading Cycle Lows in real-time is perfectly acceptable in up trending markets. But in a downtrend we’re looking for a dominant Cycle trend change out of what is a series of lower lows. Because dominant trend changes require an upside break to confirm, we must be prepared to give up some of the initial gains if we’re to wait for this confirmation.
I know this gold move is frustrating patient investors and hurting traders who are trying to trade these Daily Cycle swings. I’m in a relatively unique position when it comes to the overall sentiment because I have a decent number of investors who are directly expressing their feelings with me. Without a doubt the sentiment is at its lowest levels since the D-Wave Low (May 2012). But what I’m seeing now is not necessarily negative sentiment generated out of fear, but rather one of indifference.
The Hulbert’s Gold sentiment index is confirming this viewpoint. The index has historically been an excellent predictor of significant lows. This is especially true when a low or negative sentiment reading aligns with a Cycle in the timing band for an ICL. It’s very interesting to note that during each C-Wave ICL the index was halted at around the 10-20 area. But during the 2008/09 and 2012/13 D and B Wave events the readings always went below zero. Again gold is seeking a B Wave Low here and this is being reflected within these sentiment readings. As always, sentiment is far from a perfect ICL timing tool, but we know the historical evidence suggests that we’re at least extremely close now.
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All the conditions for an ICL remain in place. The Cycle has run for 21 weeks and we’ve completed at least 4 but likely 5 Daily Cycles. The technical indicators and oscillators have all reached ICL levels and have turned slightly higher gain. Sentiment is easily at levels that have spawned new Cycles and the COT reports are again back to levels that could support a new Cycle. New Investor Cycles are normally born just when all begin to lose hope, I believe we’re there.
My only real concern with the Investor Cycle chart is the weeks of indecision. It’s not common for a new Investor Cycle to crawl out of lows; such candles reflect a lack of buyers or believers. It’s possible this is simply related to my observation of an apathetic or indifferent investor class. Whatever the reason for the indecision, it’s certainly a red flag.
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