Silver Rally Chart

• Silver has come down to key support and is massively oversold. Fundamentally, it’s an outstanding value and a key asset.  

• While RSI has yet to move above 30, MACD is turning higher.

• Like gold, silver shows an upside breakout from a parabolic decline. 

 

Ed Note: Weekly Market Update below including 7 more charts & examination of The Chinese Stock Market,  Bonds, Gold & Gold Miners below: 

 

 

LT (T-Bond Proxy) Rally Time Chart

• The US economy is doing well, compared to Europe’s worst performing countries. The most recent jobs numbers growth shows lots of part-time workers.  That’s not going to create a thriving economy. 

• There is an ominous head & shoulders top pattern on this T-bond proxy chart.  Higher interest rates put an enormous strain on the government treasury, and on many over-extended Americans. 

• The US economy is doing well, compared to Europe’s worst performing countries. The most recent jobs numbers growth shows lots of part-time workers.  That’s not going to create a thriving economy. 

• There is an ominous head & shoulders top pattern on this T-bond proxy chart.  Higher interest rates put an enormous strain on the government treasury, and on many over-extended Americans. 

FXI (China Stock Market Proxy) Power Volume Chart

• Ben Bernanke “juiced” the market with his dovish statements on Wednesday. China is the largest manufacturing economy in the world, and the door is open for a substantial rally.

• There is a big h&s top pattern on this chart, but yesterday’s gigantic volume is encouraging.  It opens the door to a rally to the right shoulder highs, in the $38 area.

• Unless those highs are taken out, global stock markets remain in the danger zone.

Gold Breakout Chart

• Both gold and silver have experienced parabolic price declines. The good news for embattled bulls is that this type of chart action usually happens at the end of a decline.  

• Even if there is a big rally now, it will take many months for sold-out bulls to regain their confidence, and most of them could end up missing the price rise.  

• Note the blue box that I put on the chart. An upside breakout from the inverse parabola may have already occurred.

GDX Arc Of Profits Chart #1

• If an investor believes the price is ready to rally, the arc tool should be brought into play.  Fibonacci arcs can help investors place profit booking orders. In this report, I’m including 4 examples of the arc, using GDX charts.

• The chart shows the 2011 – 2012 decline, and the ensuing rally. As a rule of thumb, investors should start booking profits when the price touches the 2^nd arc of the pattern. In this case, that worked out quite nicely.

GDX Arc Of Profits Chart #3

• This arc chart highlights the decline from last summer to the current lows in the $22 area.

• There is also a possible fuel cell volume (FCV) signal in play.  The target of FCV signals is the first ring of a Fibonacci arc drawn from the potential low point of the decline.  In this case, that’s about $32.

• GDX should be able to rally to $35 – $38, which is the area between the 2^nd and 3^rd arcs on this chart.   

GDX Arc Of Profits Chart #4

• The fourth arc chart shows the entire gold stocks decline, from the 2011 highs, to the current lows in the $22 area.

• The long term profit booking area suggested by the arc is $52 – $66.

• The Fibonacci arc does not predict that a low has been made.  Oscillators, price patterns, and “lady luck” are needed for that. The arc tool is used to suggest good profit booking areas, once a rally begins!

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Obviously, we can’t know if the bottom is in but I’ll repost a chart which is my best argument for why we can expect a big rebound over the coming months. The chart shows all of the worst bear markets in gold stocks. At the top right I’ve annotated the ensuing recoveries. As you can see, D (the HUI from its 2011 top to last Friday’s close) is extremely close to B and C in terms of depth and duration. B and C occurred in a secular bull market and were followed by 606% and 560% gains. D is also close to E which was followed by a 205% gain in seven months. A, the 2008 collapse was followed by a 324% gain in less than three years. 

The chart and data show that the recent downturn is well in-line with the history of gold stocks and more importantly, is well in-line with downturns in secular bull markets. Yet, the mainstream is acting as if gold stocks are going to go 0 and the industry extinct. The recent drivel from talking heads on CNBC and Yahoo Finance is exactly what you get at a major bottom. Simply put, it is the perfect contrarian opportunity and is the foundation needed for a cyclical bull market and future bubble.

Moving along, the gold stocks have a very strong resistance target which could come into play in Q4 of this year. GDX, the large-cap unhedged miners ETF has a confluence of retracement points near $38. Meanwhile, the current 400-day MA is at $43.71 and will likely come down to $38 before the end of the year. Following four major bottoms (1970, 1976, 2000 and 2008), the recovery hit that resistance (400-day MA) in the fourth or fifth month post-bottom. Finally, GDX’s low is at $22 and there is some critical resistance at $30. A very complex head and shoulders pattern could be developing and that would target $38. In the meantime, both the 50-day moving average and lateral resistance are at $27 which is the next key resistance.   

The equivalent to the GDX $38 target for the HUI is ~365. We looked at the price action following the major bottoms of gold stocks within a secular bull (1970, 1976, 2000, 2008) and combined the data into one. We applied that to last Friday’s close (215) and the result is below. The recovery template has the HUI rallying to 350 and then correcting for a few months before rallying up to 390. Then the HUI consolidates for another five months before breaking past 400 in August 2014.      

We did the same thing with Gold. We looked at how Gold performed following its bottoms in 2004, 2006 and 2008 and merged the data into one. Then we applied it to last week’s close of $1212. (Note that we did not include 1976. If we did the recovery template would be much stronger). The projection shows Gold’s initial rebound peaking around $1500 in February 2014. Then it would consolidate until next summer. This makes sense considering the big breakdown occurred just above $1500. It is likely to mark the first big resistance post-bottom. 

The projection shows Gold breaking past $1900 about 18 months from now. That would mark about three and a half years since the summer 2011 peak. After its peak in 1974, it took Gold three years to retest the high and three and a half years to make a new all time high. 

To sum things up, we can’t know for sure if Gold has already bottomed or not. If it isn’t look for $1080 to be the final low. Regardless, our gold stock bears chart illustrates that we are on the cusp of a major bottom. It may already be in or it could happen in a few weeks. We don’t know. On the other hand we do know that each passing day and week brings us much closer to a probable big recovery. Those who have the courage to buy any weakness will be handsomely rewarded and history shows us it usually is in short order. I’m sitting on losses and hope the bottom is already in. More important is the fact that the medium term potential far outweighs the risk of a final minor leg down. Moreover, some individual stocks have already bottomed or will confirm their bottoms if there is a minor leg down. If you’d be interested in our analysis on the companies poised to recover now and lead the next bull market, we invite you to learn more about our service.   

Good Luck!

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com