March 12th, 2014
Originally titled: Gold’s 2nd DCL Is Directly Ahead
by Poly, Zentrader
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The rally in Gold was strong, but the expected test of $1,380-$1,400 never materialized. Gold simply did not have enough buying behind it to reach that level. Since the Cycle did manage to add $100 from the low, the failure to test $1,380 is not necessarily a negative development. With a current Day 14 high, the current 2nd DC will likely form as Right Translated, the 2nd straight Daily Cycle to do so. And from the perspective of a new IC, two Right Translated Daily Cycles and the addition of $175 from the low is a very good start to what we hope will be a big Investor Cycle.
Last week's report was titled "Bear Tracks" because I wanted to highlight that Gold was not out of the woods yet. To date, the move higher has been encouraging, but we must keep in mind that the rally has still not broken the bear market down-trend. The early rally in any Investor Cycle can be mistaken for underlying strength in an asset, but in a down-trend (bear market), these rallies fizzle to become counter-trend bounces.
When a Cycle rallies out of an ICL (investor cycle low), it is propelled initially by a significant amount of Short covering. This buying-to-cover can create an illusion of strength. When the covering is exhausted, the asset can retrace back toward the mean. But that retracement eventually runs out of steam, leaving the asset to be influenced by the true underlying supply and demand. And the dominant trend will usually regain control.
Gold is attempting to break a 2.5 year down-trend, and the longer term Cycles are at crossroads. Trading at these sorts of junctures is difficult, because there are several possibilities in play. And capturing a big upside move means going against the established trend, which is always a risky move. It requires exposing a trade to the possibility of being caught in a continuation of the dominant trend.
And this is where Gold finds itself at present. The energy accumulated at the last ICL 8 weeks ago has been exhausted, and the underlying strength Gold showed is already a distant memory for traders. Short positions have been long-since covered, and traders are positioning themselves for the next leg of the Cycle. It's at the current point - midway between the 2nd and 3rd Daily Cycles (Weeks 8 through 12) - that Gold will determine where it's ultimately headed. If Gold is going much higher - as I continue to believe - then the coming 2nd DCL (daily cycle low)should be shallow and the 3rd DC should form as Right Translated.
We have not seen a Right Translated 3rd Daily Cycle in over 2.5 years - each Investor Cycle since the 2011 peak has been Left Translated. In the current bear market, every IC has topped before week 10, meaning that it has spent less time rising than declining. And since there are normally 4 Daily Cycles in each Investor Cycle, the 3rd Daily Cycle is pivotal. If the 3rd Daily Cycle is Right Translated, the Investor Cycle must also be Right Translated. In every bull market, it's the presence of RT Cycles that create and maintain an uptrend. So if Gold's trend has changed, the upcoming 3rd Daily Cycle will be critical - it must be Right Translated.
Gold's 2nd DCL is directly ahead. Gold struggled mightily on Friday while the dollar fell sharply. I believe this was an important tell. If Gold had further upside in it, the dollar's drop would have propelled it higher by $20 or more. Instead, dollar's drop served to mask heavy selling in Gold.
There is little doubt that the 2nd Daily Cycle has topped, so we need to be patient with the decline. The timing for a top is acceptable, and the oscillators have clearly turned and are headed lower. The upward Cycle trend-line has been broken and Gold closed below the 10dma. At this point, we should assume that we have 2-7 sessions lower, with an target of between $1,290-$1,300.
Editor's note: When this article was written 10 days ago the anticipated daily cylce low (DCL) had actually been reached intraday at $1,320 on Friday 26 February. The continued decline to $1,290-1,300 did not materialize. In March gold has traded up to as high as $1,359, closing at $1,357.50 yesterday 11 March 2014. The next upswing anticipated by the author is underway and the current price is comforatbly above the previous DCH (daily cycle high). It remains to be seen if the advance can reach near the $1,400 level anticipated by the author. However, it does appear that the third daily cycle strength is confirming the possibility that the 2.5-year down-trend may have ended.